A state entity in KwaZulu-Natal allegedly paid millions of rands to Tech Mahindra despite that the contract was found to be riddled with irregularities by the office of the Auditor-General.
The contract was awarded by Ithala SOC Limited, which offers banking services to KwaZulu-Natal communities, to Tech Mahindra South Africa for provision of integrated banking system services in 2018.
It was subsequently flagged by the Auditor-General in 2019 for being irregular because another company SAP, which developed tender specifications for Ithala, allegedly communicated with Tech Mahindra before the tender was advised.
The Auditor-General’s office also found that there was a “relationship” between Oupa Mbokodo, an employee at Grant Thornton – which was tasked to do due diligence on the project – with Ithala senior officials involved in the tender.
Following the Auditor-General’s findings, Ithala put the contract on hold and procured, through a deviation, services of another service provider.
City Press understands that payments made by Ithala to Tech Mahindra followed after the company had threatened to take legal action.
The details about the payment and the questions around the awarding of the contract are contained in a complaint filed by a whistle-blower, who worked at Ithala, to the office of Premier Sihle Zikalala and then to the office of the Public Protector Busisiwe Mkhwebane in KwaZulu-Natal last year.
But the investigation was closed by Mkhwebane’s office last year based on the report submitted by the provincial government, working with the provincial department of economic development, tourism and environmental affairs, which found no wrongdoing.
Ithala confirmed the payments in a statement.
“Ithala can confirm that all payments that were due as per the performance targets contained in the contract schedule have been made to the company.”
Ithala said the contract was not terminated.
“The work that was performed included hardware, software customisation and licence fees. Given the current economic climate, Ithala resolved to place the banking system implementation project on hold in the short to medium term.
“We have opted to focus our resources into optimising our existing systems and sustain our provision of safe and low cost banking to our market. One of our primary aim is to save jobs, ensure sustainability and engage with our communities to offer them support through these trying times,” the statement reads.
What the whistle-blower alleged
The whistle-blower said in the complaint that the Auditor-General’s interim audit report in 2019 flagged the procurement of a banking system (intellect design) from Tech Mahindra in India at more than R98 million as irregular.
He said he learnt from a project manager at Ithala that Tech Mahindra received information about the system requirements from SAP before the tender was advertised.
“Hence the procurement was irregular. The report also raised a conflict of interest involving the appointment of Grant Thornton to perform due diligence on the new banking system,” the complaint reads.
He said although the implementation of the project had been stopped before completion, he learnt that meetings were held between Tech Mahindra and that Tech Mahindra was in the process of suing the company for the outstanding payment of about R64 million as full-payment was due by September 2019.
In anticipation of the lawsuit, he said Ithala had approached its lawyers.
In response to this complaint, Ithala said the alleged irregularities related to the procurement of the services of Tech Mahindra were investigated and subsequently dealt with.
“We continue to strengthen our internal processes and procedures as part of the evolution of the business. The due diligence conducted by the co-opted member of the IT governance committee was on the functionality of the system not the contract between Tech Mahindra and Ithala,” the statement reads.
Ithala said the implementation or replacement of a core banking system was a highly complex initiative that required integration with numerous third party interfaces such as the national payments system.
Ithala said it was prudent to ensure that there was comprehensive testing of all modules of the system to safeguard depositor’s monies.
What the Auditor-General report says
The report was compiled by the Auditor-General’s office manager in KwaZulu-Natal, Naseem Mohamed, dated July 8 2019.
It said an email was sent by Ithala SOC inviting four companies to submit proposals for the specifications for the tender on October 5 2017.
“All the bidders submitted their bids via email except for Infosys Finance who submitted their bid with a USB drive. The Auditor-General noted an email received from SAP dated October 6 2017 11:42am, that indicates that SAP was in communication with Tech Mahendra [sic] before submitting the specifications to Ithala,” the report reads.
The report said it was noted that Tech Mahindra submitted a bid and was appointed as the winning bidder.
“The specifications for the said bid were prepared by SAP whom were found to be in communication with Tech Mahindra. The awarding of the tender to Tech Mahindra is not fair as the bidder may have had sight of the specifications before submitting a bid, the process followed of awarding a tender to Tech Mahindra is in contravention of Section 51 of the Public Finance Management Act (PFMA) and paragraph 12.4.2 of the supply chain management policy resulting in the award being irregular,” the report reads.
The report said the relationship existed between Mbokodo and Keyise, as they had served on Ithala’s IT governance committee.
“Grant Thornton may have awarded the tender due to the relationship that existed between two individuals. Grant Thornton did not declare the fact they will be using Oupa Mbokodo for this tender nor did they disclose that he was a former employee of Ithala.
“Furthermore, we noted that Mbokodo travelled together with his former Ithala colleagues Luvuyo Keyise, Shane Moodley (head of segments) as well as Slindile Mqana (supply chain manager) while gathering information in order to write his report. Therefore, the awarding of the bid to Grant Thornton whom failed to declare the fact that a former employee at Ithala will be used for the purpose of the tender is not fair, as the service provider may have received preferential treatment as a result of the fact that the former colleagues of the Grant Thornton director were involved in the awarding of the tender. The process followed in the appointment of Grant Thornton is in contravention of Section 51(b)(ii) of the PFMA 1 of 1999 and will therefore be regarded as irregular,” the report reads.
It said the due diligence report issued by Grant Thornton in February 2018 indicated that the software that Tech Mahindra was providing did not provide for switching services.
“Ithala was therefore aware of this flaw in the contract before awarding. Despite the flaw the contract was awarded to Tech Mahindra,” the reports reads.
In response to this Auditor-General finding, Ithala said gaps identified during the project discovery phase were costed by the service provider and taken through to the various governance structures for approval.
“The cost was within 15% contract variation limit,” Ithala said.
The bank declined to disclose how much the contract was, citing confidentiality.
However, Ithala said: “The alleged procurement irregularities, and deviation from approved procurement processes were investigated and staff members that were found to have violated procurement processes were disciplined accordingly.”
Mbokodo, who stated he was responding in his personal capacity, said he had not seen the Auditor-General’s report.
“I would like to state that I have never been an employee of Ithala and there has been no personal relationships between myself and Ithala employees. I suggest that you direct the rest of your questions to Ithala.”
A response from Tech Mahindra and Grant Thornton had not been received at the time of writing.
SAP said the company was committed to investigate all allegations made: “SAP takes all allegations of impropriety seriously and investigates them thoroughly.”