/ 9 December 2010

Telkom’s future on the line

Union dossier on corruption in Telkom implicates 16 current and former senior managers and executives.

Telkom has been thrown into crisis by allegations of widespread corruption at the fixed-line operator’s most senior levels.

The allegations have been sent to Cabinet ministers, Parliament and state and industry watchdog bodies.

A 35-page dossier compiled by members of the Communications Workers’ Union (CWU) alleges that 16 current and former senior Telkom executives have engaged in corruption and bribery, nepotism and fraudulent procurement.

The Mail & Guardian has a copy of the dossier, which was sent last week to the ministers of communication and finance, the Public Protector, Parliament’s public accounts watchdog, Scopa, and its portfolio committee on communications.
The dossier has also gone to the JSE, the Institute for Internal Auditors and Telkom’s board.

The dossier has emerged at a vulnerable time for Telkom. Two of its attempts to diversify its revenue streams lie in ruins – Telkom Media and Nigerian business Multi-Links — and it has recently launched another such attempt with its new mobile business, 8.ta.

The company is now valued at R19-billion, after it sold its 50% stake in cash-cow Vodacom.

Many analysts feel Telkom is seriously undervalued and that, considering the massive network it owns and operates, this suggests the market is unsure about its future and leadership.

Telkom has also recently seen the departure of several senior managers who were seen as close to former chief executive, Reuben September.

After a hastily convened meeting of Telkom’s audit committee on Wednesday this week, the company released a statement saying that it had referred some of the findings of its own internal and external investigations to the National Prosecuting Authority and the SAPS, which had instituted their own criminal investigations.

The dossier appears to be based on internal documents, emails, forensic investigations and whistle-blowers’ accounts. Its allegations include some that have already been published and some that are new.

Sources in Telkom said that many allegations rang true but some appeared to be unsubstantiated. Parts of the dossier read like sour grapes by people who were used to “feeding at the trough” but had now had their food supply cut off because of investigations into their activities, the sources said.

Telkom has already lashed back at CWU members — last week it suspended union member Thabang Mothelo, one of the dossier’s compilers. This appears to chime with one of the dossier’s allegations that whistle-blowers have been disciplined or dismissed by corrupt senior executives acting to protect their own backs.

According to the dossier, Mothelo wrote to Telkom’s leadership on July 20 this year expressing concerns about how the company was being run at its senior levels.

“In raising these issues he was representing [the] membership of CWU and lot of employees who are not members but are afraid to talk,” the dossier says. But by doing so he “made enemies of the most powerful people in Telkom” and was “singled out as Telkom’s enemy”, says the dossier.

The M&G could not contact Mothelo for comment.

The dossier itself
Addressing those who were sent the dossier, its writers say: “We felt obliged to address [our] serious concerns directly with the governance and regulatory institutions — because the board of directors of Telkom [has] failed to provide guidance in terms of the mismanagement of the company by the executive committee and lack of good corporate governance.”

Some senior executives “are too deep in corruption, nepotism, discrimination and abuse of power [to] know how to get out of this scourge”, the dossier says. Telkom’s internal audit division has protected senior executives and investigations of some allegations remain incomplete.

As a result of the malpractices detailed in the dossier, there is now “declining morale, productivity, creativity and loyalty [among] employees”.

Telkom announced last week that it would offload its troubled Nigerian arm. This decision was made after it had written the business down to a book value of zero in the previous financial year at a cost of R5,2-billion.

Telecoms analysts say the decision to buy 75% of Multi-Links for $280-million in May 2007 was poor. Despite this, Telkom bought the remaining 25% of Multi-Links for $130-million in January 2009.

The CWU dossier says:

  • Telkom’s purchase of the remaining 25% was an unnecessary further loss because it already had control of the company. It also paid a premium for the shares and did so despite allegations of “misconduct and mismanagement” by a Multi-Links minority shareholder against the Multi-Links board and management;
  • Telkom executives tried to destroy the Nigerian subsidiary’s value “to the unfair advantage of few individuals and companies [and] to the detriment of Telkom”;
  • A document submitted to the Public Protector by an employee of Multi-Links had alleged dereliction of financial duties on the part of the Multi-Links board, corruption, nepotism and wasteful expenditure;
  • Major contracts signed by Multi-Links were “lynching the life out of the company”, and these contracts were not reviewed and approved by legal services in line with Telkom’s procurement processes;
  • Two senior Multi-Links executives were suspended and remained on full pay for 18 months without being charged or disciplinary action taken;
  • Multi-Links hired a small service provider to roll out the German software company SAP’s services in Nigeria — even though Telkom already had a universal service and supply licence with SAP that allowed Telkom to benefit from economies of scale. This resulted in Multi-Links paying more than it needed to;
  • A senior Multi-Links executive signed a contract with a service provider that had resulted in a provision for bad debts of $360-million. This was not disclosed in either Telkom’s or Multi-Links’s annual reports and Telkom was looking to sell Multi-Links in order to conceal this; and
  • Multi-Links had not been withholding tax properly and as a result the Nigerian government had levied R112-million in penalties and interest.

Irregular tenders
The M&G reported in May this year on lawsuits against Telkom totalling billions of rands for allegedly rigged tenders. Former Telkom chief operating officer Motlatsi Nzeku had raised a number of these irregularities in a dossier he sent to Telkom’s board, shortly after he was suspended and then fired by September in February 2009.

The CWU dossier says: “The board of directors received the initial complaint regarding some of the matters covered on this whistle-blowing letter addressed to the minister of communication on November 5 2010. The board of directors treated the matter the same way it treated the information contained in Nzeku’s dossier; they ignored the information and never disclosed it to the stakeholders.”

The dossier also says:

  • A tender for telecommunication services from a European multinational was manipulated by senior Telkom executives, who also “misrepresented” the company by overstating its revenue projections, forecasts and efficiencies. The two senior Telkom executives could face criminal charges for their conduct;
  • Telkom appointed many contractors without proper procedures being followed. “The executive members of Telkom connived to contravene — internal control mechanisms in relation to consultancy companies”;
  • When the Telkom executives found out that these consultants could not be paid because they did not have a valid contract, they backdated their contracts. The CWU called for criminal charges to be laid against three senior executives;
  • In another tender, which has resulted in a billion-rand lawsuit against Telkom, several senior Telkom executives are close to the parties in the consortium that won the tender; and
  • Another company was paid R1,3-million without a valid contract with Telkom and two senior executives facilitated this payment.

Copper security
The dossier provides further information on the alleged copper security fraud and corruption racket that the M&G reported on in May. An internal Telkom investigation had fingered three senior staffers for alleged corruption and fraud, the M&G reported. They were accused of colluding with security companies hired to protect and monitor Telkom’s copper network.

The dossier says:

  • One of the security company owners presented evidence of corruption to three senior Telkom executives. In these allegations the security company boss alleged that another senior Telkom executive had demanded a boat from the owner of the security company as payment for delivering the contract;
  • The same Telkom executive had been instrumental in Telkom’s purchase of copper security services from the company, which had ended up costing Telkom tens of millions of rands in maintenance and installation costs;
  • Telkom has a bill of about R9-million from the security company that it is refusing to pay and Telkom “is now going to spend already bloated litigation costs on a contract which has been mismanaged”;
  • An external investigation ascertained that the same senior Telkom executive also purchased the Port Elizabeth security systems of the security company without any procurement or internal processes. The investigation recommended the senior Telkom executive be disciplined. But this has not happened “because the executive is given information on investigation and protection by Telkom’s internal audit services and [its] forensic and investigation wing”; and
  • An internal audit report, which indicated corruption allegations against two very senior Telkom executives did not even get presented to the audit committee.

The dossier alleges numerous cases of nepotism, including:

  • One senior Telkom executive trying to get his son employed in the human resources bursary section and when that failed managing to find his son employment in Telkom’s new mobile arm, 8.ta;
  • The same executive protecting a Telkom employee who was found guilty on two counts of misconduct for discriminating between staff on an alleged racial basis and promoting the employee to senior manager in the division the executive runs; and
  • Another senior Telkom executive hiring a colleague from a previous workplace but bypassing Telkom’s human resources process.

Telkom responds
Acting Telkom CEO Jeffrey Hedberg told the M&G on Wednesday that he, Telkom’s board and its audit committee take the dossier’s allegations raised in the dossier very seriously and they would be investigated thoroughly.

He said Thabang Mothelo had been suspended because he did not follow Telkom’s internal whistle blowing policy.

On Thursday, Telkom management issued a statement to all media: “Telkom is aware that a series of memoranda containing a wide range of unsubstantiated statements relating to the alleged lack of corporate governance in Telkom are being circulated to the media and various parties.

“The board believes that the release of the memoranda is designed to distract them from its ongoing investigations. Some of the allegations in the documents that have been brought into the public domain have tarnished the reputation of Telkom.

“A number of the matters contained in the memoranda are already known to Telkom and are in various stages of investigation.

“Following a meeting of the audit and risk committee (ARC) of Telkom’s board of directors yesterday [Wednesday], Telkom has decided to state its position on these matters publicly.

“The Telkom board and in particular the ARC has already taken decisive action on the findings of several investigations into matters at Telkom and its Nigerian subsidiary, Multi-Links, over the last year. Among other actions, the decisions of the Telkom Board’s ARC have led to official criminal investigations and internal disciplinary processes.

“Forensic auditors at Ernst & Young were tasked by the Telkom board to perform an investigation into many aspects of Multi-Links, and this culminated in criminal and disciplinary processes being launched.

“The findings of the Ernst & Young investigations have been handed to the South African Police Services [SAPS] and the National Prosecuting Authority [NPA} for consideration. The SAPS and NPA have subsequently instituted criminal investigations into certain activities at Multi-Links.

“Telkom is not in a position to provide further details of the criminal investigations.

“An internal disciplinary process has also been instituted against various Telkom employees for failing to comply with company policies and for mismanagement. All disciplinary processes are a confidential matter between Telkom and the affected employees, and Telkom cannot disclose further details…

“In a third formal enquiry initiated by Telkom, the board appointed an independent forensic consultant to investigate the veracity of allegations made by former chief of operations, Motlatsi Nzeku, in 2008.

“In December 2008, Nzeku presented the board with a dossier outlining allegations of breaches in governance and inappropriate conduct of management. While most of the allegations were found to be unsubstantiated, the board is taking appropriate action, in some instances on the basis of the findings of the forensic report…

“In addition to discussing the progress and outcomes of the four professionally led investigations, the ARC also considered recent statements made against Telkom’s management in several documents being circulated to the media. Some of these documents contain statements claiming unfair labour practices and racial discrimination at Telkom.

“The ARC resolved to review those aspects of the statements contained in the documents that are not already covered by the current investigation.
“Simultaneously, the executive management team will also investigate the statements contained in the documents and will take appropriate action on their findings, as required.

The chairman of the ARC, Sibusiso Luthuli, said that, apart from the issues already examined by Ernst & Young and other investigations, many of the statements in the recent dossiers were frivolous personal attacks on certain senior Telkom executives. ‘However, the board takes all allegations seriously and will investigate where appropriate,’ said Luthuli …

“Telkom’s acting group CEO, Jeffrey Hedberg, said that Telkom remained committed to upholding and applying sound corporate governance principles stringently at all times … ‘I encourage a culture of open dialogue, in which employees can raise issues and express opinions transparently without fear or favour, and we have effective externally managed mechanisms for whistle-blowing and employee engagement,’ said Hedberg …”

Also on Thursday, Telkom South Africa managing director Pinky Maholi released a statement saying that several “unfounded and unsubstantiated” allegations had been made against her in the CWU dossier.

“Some of these allegations have undermined my personal and professional integrity, forcing me to respond publicly,” said Maholi.