/ 30 August 2020

Auditor general flags Ithala Bank’s digital deal

October 23 2019 Parliament Portfolio Committee, Wednesday. Cape Town. Photo By David Harrison
Auditor General Kimi Makwetu. (David Harrison/M&G)

The Prudential Authority has given Ithala Bank until June 2021 to submit its application for a banking licence in terms of the Banking Act. But the KwaZulu-Natal lender is sinking under allegations of irregular and wasteful expenditure in its IT department as it prepares to finalise its submission.

Ithala allegedly paid R34-million to a firm in India for a digitised banking system but has nothing to show for it.

Two years ago, Ithala awarded Tech Mahindra, a multinational technology company, a R98-million contract. Ithala mainly offers loans to small- and medium-sized businesses in KwaZulu-Natal. The banking system was intended to support Ithala’s expansion into new sectors to attract a wider range of customers.

The project, scheduled to be completed in June last year, was delayed because only 40% of its targets had been completed. Tech Mahindra sent a letter to Ithala in March 2019 requesting a further three months to complete the project at an additional cost of R12-million.

“Given the current economic climate, Ithala has resolved to place the banking system implementation project on hold in the short to medium term. We are focusing our resources in our existing systems and continue to provide safe and low cost banking to our market,” says the bank’s spokesperson, Sandile Xolo.

He added that Tech Mahindra is still contracted to provide services to Ithala. Yet a person close to the matter, who does not want to be identified for fear of reprisals, said Tech Mahindra has already been paid R34-million for the project even though it is incomplete. 

The remaining R64-million, which was due by September 2019, has not been paid and the technology company is allegedly suing Ithala for the outstanding amount, according to sources familiar with the situation.

Tech Mahindra did not reply to questions from the Mail & Guardian.

As a result of the delays, the auditor general’s interim report in 2019 flagged the extension of the project as fruitless and wasteful expenditure.

The report states that the award was irregular because Tech Mahindra was informed of the banking solutions system requirements before the tender was advertised. Without providing details, Xolo said the allegations “have been dealt with”.

The report also flagged conflict of interest regarding a contract awarded to audit firm Grant Thornton. The company was meant to perform due diligence on the effectiveness of the banking system of Tech Mahindra.

Oupa Mbokodo, a director at Grant Thornton, previously worked at Ithala and was part of the company’s IT governance committee, according to the report. He allegedly travelled with Luvuyo Keyise, the former head of IT at Ithala, and two other members of the bank’s management structure “while gathering information to write his [due diligence] report”.

According to the auditor general’s report: “Grant Thornton may have been awarded the tender due to the relationship that existed between the two individuals. Grant Thornton did not declare the fact that they will be using Mr O Mbokodo for this tender nor did they disclose that he is a former employee of Ithala.”  

Grant Thorton referred all enquiries about its involvement in the transaction to Ithala.

In another instance of irregular procurement, Ithala’s parent company, Ithala Development Finance Corporation, appointed Governance Management Consulting for IT services and then appointed its sole shareholder, Neo Shabalala, as the acting group chief information officer at IDFC. 

Ithala has defended Shabalala’s appointment, saying it followed the correct supply chain management processes as its former chief information officer was on suspension. 

Thando Maeko is an Adamela Trust business reporter at the Mail & Guardian