Challenge to Net1-UEPS to pay back the money

LAST year, Cash Paymaster Services (CPS) received a R317million windfall from the South African Social Security Agency (Sassa) that helped lift the profit performance of its holding company, Net1-UEPS.

Now, the non-profit Corruption Watch has asked the high court to order that the money be repaid to Sassa. The civil society watchdog said that the extra payment was “not justified” under the multibillion-rand tender Cash Paymaster Services won in 2012 to distribute social grants to 16 million beneficiaries.

David Lewis, who leads Corruption Watch, said it was unclear why this payment was made.

On Thursday, Net1-UEPS issued a statement saying Sassa’s payment had been made to recover “additional implementation costs” of reregistering grant beneficiaries in 2012.

“At the time, Sassa requested Net1 to biometrically register all social grant beneficiaries . . . as a result, Net1 performed approximately 11 million additional registrations that did not form part of its monthly service fee and claimed a cost recovery from Sassa,” the statement read.

This was done to root out “ghost beneficiaries”, or people being paid grants they weren’t entitled to -— cutting fraud “by billions of rand”.

But Corruption Watch said Net1 still hadn’t explained how it could have been paid so much extra money without a new tender process being run.

Lewis said “the initial contract between Sassa and CPS, concluded in 2012 and since set aside by the Constitutional Court, provided for registration of all beneficiaries but not for re-registration”.

This would have required a new tender by Sassa, he said.

What makes this particularly troubling, Lewis said, is that the R317-million was paid after the Constitutional Court ruled that the original contract between Sassa and Net1-UEPS was irregular and unlawful.

The non-profit organisation said it had also found “serious irregularities” in the reregistration process.

The latest salvo by Corruption Watch adds to a growing list of challenges facing Net1-UEPS as it battles to hold on to what has been described by a judge as the most valuable contract ever awarded by the South African government.

The five-year contract to distribute R10-billion each month to beneficiaries of social grants, old-age pensions and other welfare payments is worth R2-billion a year to Net1-UEPS.

In a recent submission to the US’s Nasdaq exchange, where Net1-UEPS is listed, the company disclosed several “risk factors”. These included the 2013 Constitutional Court ruling that Sassa’s decision to award the tender to Net1 was invalid, so a new tender was required.

Net1 said: “We cannot predict whether our current Sassa contract will remain in effect for the remainder of its five-year term. We derive a substantial portion of our revenues from this contract and from the provision of financial and other services to our card-holder base. If we were to lose our Sassa contract or we were to obtain a new contract on terms that are substantially inferior to our current contract, our business would suffer significantly.”

Last month, the Constitutional Court set deadlines for completion of the new tender process and said it would continue strict oversight of the process.

Barclays Africa Group’s AllPay, which competed with Cash Paymaster Service for the 2012 contract, has been the main challenger. Non-governmental group the Black Sash is also particularly aggrieved that CPS deducts money from beneficiaries for microloans and airtime — which it says is illegal.

Net1-UEPS described these deductions as relating to “innovative financial and other services” it provides, “including, at their election, certain social welfare recipient card holders”.

Net1-UEPS is also dealing with a challenge from the National Credit Regulator, which has applied to cancel the registration of its subsidiary, Moneyline Financial Services, as a credit provider.

The regulator claimed that Moneyline, which provides microloans, contravened the National Credit Act by including child-support grants and fosterchild grants in affordability assessments it performs before granting credit. Net1-UEPS said the regulator’s allegations contained “factual inaccuracies”.

The various challenges have done nothing to dampened investor enthusiasm. The share price has risen to about R166 since slumping to R80 in December 2013.

The Black Sash is particularly aggrieved that CPS deducts money from beneficiaries