RIGHT OF REPLY

We refer to the article on Net1/CPS, which appeared on Page 3 in Business Report on November 26: “Net1/CPS has not declared billions of rand in profits from social grant business.”

Net1 has contested the veracity of our report to Black Sash and CALS at Wits University.

We reported on the inadequacy and inaccuracy of Cash Paymaster Services (CPS) financial statement to the Constitutional Court about the Sassa contract. We examined Net1’s annual reports. We found a R455 million mismatch in revenue compared to the statement.

It indicated that CPS’ net profit should be upgraded by between R55m and R455m.

It would now appear that this mismatch is related to an earlier contract of CPS before April 1, 2012, and not the 5-year contract. We argued at length that a R117m book entry from a BEE deal in 2014 shouldn’t be booked at CPS: It was Net1 SA that reduced its ownership in CPS by 12.5 percent and the 1 percent of shares in Net1 was issued by Net1, not CPS.

Accounting issues aside, this deal was unrelated to the 5-year Sassa contract.

CPS competed in 2014 for a new tender after losing in court.

The 2014 Subscription and Sale of Shares Agreement says: “Sassa indicated that it has commenced steps towards the issuing of a new tender for the administration of social grant payments” (…)

“The parties are in agreement that it would be mutually beneficial if BVI holds shares in CPS, so as to bolster CPS’s tender submission in relation to its black economic empowerment scoring.”

We repeat our conclusion that CPS erroneously has deducted R117m from its net profits in its statement to the Constitutional Court. The upward profit adjustment may, however, need to be much bigger.

The Auditor-General and a panel of experts have filed their second report about the Sassa contract.

CPS’ declared 5-year profits were “net of patent and licence fees paid to CPS’ parent company Net1” that “exceeded R1 billion”.

This means that some 13 percent of R7.85bn in the unspecified expenses declared to the court is an internal transaction. Net1 has several companies in wellknown tax havens.

The final destination of the “licence fees” is of public interest.

Interests are earned on the monthly funds from the Treasury.

During one year alone “Net1 SA earned R49.9m of interest”.

The account at Grindrod bank is not in CPS’ name. One must conclude that more than R200m in interest income over five years was not declared in the statement.

“CPS confirmed that it earned R1bn in fee revenue” last financial year.

The panel reports a 30 percent margin on a R1 500 ATM withdrawal.

If cautiously assuming an average profit margin of only 25 percent, and bank fee incomes of only R4bn during five years, then a minimum of R1bn in profits from fees were undeclared to the court.

The panel “is concerned that Net1 derives significant financial benefit from Sassa beneficiaries”. We share this concern. Net1’s 2012 annual report gives the background to it: “If we cannot successfully leverage an expanded beneficiary base to provide recipients with additional financial and other services, our financial performance may suffer.”

The AIDC report reached one conclusion: A total disclosure of CPS’ and Net1’s financials relevant to the Sassa contract is required.

Consequently, CPS should resubmit its statement to the Constitutional Court.

Chairperson of the AIDC board MP Giyose, director Brian Ashley, and senior economist Dick Forslund, at Alternative Information and Development Centre.