Crisis at Telkom — Image: CrazySphinx (www.flickr.com/photos/crazysphinx/)

Telkom has been thrown into crisis by allegations of widespread corruption at the fixed-line operator’s most senior levels that have been sent to cabinet ministers and parliament as well as 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 practices.

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 and communications. The dossier has also gone to the JSE, the Institute for Internal Auditors and Telkom’s board.

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

The company is now valued at R19bn after it sold its 50% stake in cash cow Vodacom. Many analysts feel Telkom is seriously undervalued and that, especially considering the massive network it owns and operates, this suggests the market is unsure about Telkom’s future and current leadership.

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

After a hastily convened meeting of Telkom’s audit committee on Wednesday, 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 SA Police Service, which had instituted their own criminal investigations.

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

Sources in Telkom told the M&G that many allegations in the dossier ring true but some appear unsubstantiated. Parts of the dossier read like sour grapes from people who are used to “feeding at the trough” but have now had their food supply cut off because of investigations into their activities, the sources said.

Telkom has already lashed back against the CWU members: a week ago it suspended union member Thabang Mothelo, one of the dossier’s compilers.

This appears to chime with one of the dossier’s allegations, to the effect that whistleblowers have previously 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 20 July 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 a lot of employees who are not members but are afraid to talk,” the dossier says. But by doing so Mothelo “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 the ministers, parliamentarians and others who received 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 malpractices detailed in the dossier, there is now “declining morale, productivity, creativity and loyalty [among] employees”, the dossier says.

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

Telecoms analysts say the decision to purchase 75% of Multi-Links for US$280m in May 2007 was a poor one. Despite this, Telkom went on to buy the remaining 25% of Multi-Links for $130m in January 2009.

The CWU dossier says:

Telkom’s purchase of the remaining 25% was an unnecessary further loss it because already had full 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 $360m. This was not disclosed in either Telkom’s or Multi-Links’s annual reports and Telkom sold Multi-Links in order to conceal this; and
Multi-Links had not been withholding tax properly and as a result the Nigerian government levied R112-million in penalties and interest.

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 whistleblowing letter addressed to the minister of communication on 5 November 2010.

The board of directors treated the matter the same way it treated the information contained in Motlatsi Nzeku’s dossier; they ignored the information and never disclosed to the stakeholders.”

The dossier also says:

A tender for telecommunications 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 numerous 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. 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;
Another company was paid R1,3m without a valid contract with Telkom and two senior executives facilitated this payment.

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. Telkom sources at the time suggested that senior management had been sitting on the report since December 2009, but Telkom strenuously denied this.

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 R9m 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.

Nepotism
The dossier alleges numerous cases of nepotism, including:

One senior Telkom executive trying to get his son employed at Telkom in human resources bursary section and when that failed managing to find his son employment in Telkom’s new mobile arm, 8ta;
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 Telkom 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. — Lloyd Gedye, Mail & Guardian

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