50 companies blacklisted after EOH finds almost R1bn in fake work and overbilling

Bloomberg
Bloomberg

EOH [JSE: EOH], one of the largest IT service providers in Africa, has reported a large loss as the cost of fraudulent transactions with the public sector piled up.

Large write-offs, in part due to the fraud, have contributed to its net asset value falling almost 70% to R1.957bn in the past year.

Earlier this year, EOH was barred from reselling Microsoft software licences in SA amid reports that a whistleblower filed a complaint with US market authorities about alleged EOH corruption in a SA department of defence software deal.  Three top executives have since resigned.

The JSE-listed company then tasked law firm ENS to investigate R1.2bn in suspect transactions, primarily in EOH’s dealings with the public sector.

On Tuesday, EOH said in an update to shareholders that the amount has since been reduced to R935 million and includes: 

  • transactions with no evidence of contracting or work done, valued at R665 million;
  • loans written off, valued at R90 million; and
  • overbilling valued at approximately R180 million.

EOH has blacklisted and suspended payments to 50 implicated enterprise development partners. 

Some of these companies have initiated legal challenges against EOH, which the company will “robustly oppose”. 

'Small group'

A small group of individuals in the public sector team were responsible for the fraud, EOH said. The investigation has also identified various opportunistic incidents of theft from EOH, and a number of individuals have been dismissed. EOH has filed criminal charges against former staff members, and wants to recover losses from those implicated.

It has also provided information to the Hawks and the Financial Intelligence Centre. 

In response to the fraud, the company says it has introduced stricter rules, including for commission payments, gifts and other incentives. The use of sales agents or middlemen are now prohibited when bidding for contracts.

"The company is focused on removing any culture of hierarchy and fear which dissuades employees from speaking up and voicing important issues related to the business.”

On Tuesday, EOH reported that for the year to end-July, its revenue fell almost 3% to R11.791bn, while its headline loss tripled from 546c a share to 1 681c. 

"The ongoing weakness in the macroeconomic environment, the ENSafrica investigation and the reputational impact of Microsoft cancelling its licence reseller agreement as well as the delay in infrastructure projects in the NEXTEC business has led to depressed revenues and margin pressure for the 2019 financial year," EOH said. 

Gross debt, meanwhile, fell by approximately R500 million to R3.167bn, as the company started selling some of its assets.

Compiled by Helena Wasserman

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