Net1 profit from Sassa contract understated by whopping R730m
Analysis also shows exclusion of profits earned by subsidiaries
NET1 might have significantly understated profits earned from its contract with the South African Social Security Agency (Sassa) to distribute grants.
An analysis of the financial statement submitted to the Constitutional Court in May suggests that Net1 subsidiary Cash Paymaster Services may not only have understated profits from the contract but may also have failed to provide details of other Net1 subsidiaries that profited from the contract.
CPS claimed to have made a pretax profit of just more than R1-billion from the five-year contract but an analysis of its financial statement claims this figure might be understated by R730-million.
Potentially more significant is the exclusion of profits earned by other Net1 subsidiaries due to the contract.
The analysis, by the Alternative Information and Development Centre (AIDC) on behalf of the Black Sash and the Centre for Applied Legal Studies, is potentially damning for KPMG, which audited the statement.
The statement was submitted in terms of the court’s declaration in 2014 that the CPS contract was invalid and that CPS therefore had no right to benefit from it.
The court ordered CPS to provide an audited financial statement of their expenses, income and net profit from the contract when it was completed at end March.
In May, CPS submitted what AIDC described as a remarkably brief financial statement.
The AIDC says CPS underestimated the pretax profits by R214.2-million-R614.4-million over the five years. It also inappropriately included “expenses” of as much as R117.1-million incurred by a BEE transaction. It says the BEE expense was not a cash item but a book entry and was an expense for Net1 not CPS.
The AIDC has also called for access to all Net1’s South African subsidiaries to determine the full extent of the profits that accrued to the group from the contract.
It says that if a Net1 subsidiary outside the CPS group had access to social grant beneficiaries’ confidential data as a precondition for doing profitable business or was able to harvest extra profits because of this access these profits should also be subject to the judgment.
The AIDC report quotes from Net1 annual reports dating back to 2014 suggesting that access to the social grant beneficiaries underpinned other profitable services provided by Net1.
“As a result of the South African government’s focus on the provision of social grants as a core element of its social assistance and poverty alleviation policies, and our Sassa contract to distribute such grants on a national basis, we believe that we are in a position to provide services to over 50% of the country’s adult population,” said Net1 in its 2014 annual report.
It states that for an appropriately accurate and comprehensive assessment of the benefits to Net1 the financial statements of other subsidiaries must be made available.
The most notable subsidiaries, says AIDC, are Prism Holdings, EasyPay, Moneyline Financial Services and Manje Mobile Electronic Payment Services.
All of these companies have been implicated in complaints lodged with Black Sash and other NGOs by social grant beneficiaries.
AIDC also wants access to Finbond and The Smart Life Insurance Company.
A spokesperson for Net1 told Business Day on Sunday that the AIDC report contained many components that “are based on conjecture and speculation. Engagement with Net1 would have willingly provided the author with information to assist him to compile the report and cleared any misconceptions and errors”.
KPMG said it was studying the report and would comment in due course. — BDLive