Ac­counts hid huge profit

PROBE: SO­CIAL SE­CU­RITY PAY­MENT FIRM BULKED UP ITS EX­PENSES

The Citizen (KZN) - - News - Zoe Post­man

Find­ings lead Trea­sury to ques­tion qual­ity of work done by con­trac­tors two ac­count­ing firms.

Cash Pay­mas­ter Ser­vices (CPS), which was con­tracted by the SA So­cial Se­cu­rity Agency (Sassa) to pay so­cial grants un­til 2018, might have to pay back about R1 bil­lion in prof­its, ac­cord­ing to the re­port of an in­de­pen­dent au­di­tor sub­mit­ted to the Con­sti­tu­tional Court.

The court ruled in 2014 and again in 2017 and 2018, af­ter the con­tract was ex­tended twice, that CPS had no right to ben­e­fit from an “un­law­ful” con­tract. The court or­dered the com­pany to file au­dited state­ments of ex­penses, in­come and net profit to Sassa for each pe­riod. Sassa then had to get an “in­de­pen­dent au­dited ver­i­fi­ca­tion” of the CPS state­ments and file this with the court.

On be­half of CPS, ac­count­ing firms KPMG and Mazars pre­pared a re­port for Sassa, sug­gest­ing CPS made prof­its of about R252 mil­lion from April 2012 to Septem­ber 2018, tak­ing into ac­count a loss of nearly R557 mil­lion in the fi­nal six months of that pe­riod.

The ac­coun­tants con­sulted by Sassa, RAiN, ar­gue that CPS bulked up its ex­penses and un­der­stated its prof­its by R843 mil­lion. RAiN es­ti­mates CPS ac­tu­ally made prof­its of R1 095 bil­lion – not R252 mil­lion – over that time.

RAiN’s re­port flags sev­eral in­stances where CPS over­stated costs, re­dis­tributed profit to par­ent com­pany Net1, or said costs were “un­der the con­tract” but which were in­ci­den­tal.

The RAiN re­port was handed to Na­tional Trea­sury in Oc­to­ber. Trea­sury has ap­proved the re­port and ex­pressed con­cern about the “qual­ity of the au­dit work” done by KPMG and Mazars.

In 2014, CPS charged Sassa a once-off fee of R306 mil­lion to rereg­is­ter so­cial grant ben­e­fi­cia­ries. Cor­rup­tion Watch took the mat­ter to court and the high court. Then, the Supreme Court of Ap­peal or­dered CPS to re­pay the money.

CPS has now claimed more than R277 mil­lion in staff costs of the rereg­is­tra­tion process. But RAiN es­ti­mates the cost did not come to more than R93 mil­lion.

Most of the money Sassa paid for rereg­is­tra­tion, says RAiN, was paid over as “in­ter-com­pany roy­alty fees” to Net1 as the owner of the so­cial grants pay­ment tech­nol­ogy. These roy­al­ties jumped from about R6 mil­lion a month to R198.7 mil­lion in May 2014 (around the time of rereg­is­tra­tion).

It set­tled at about R25 mil­lion a month be­fore jump­ing again to R117 mil­lion in June 2017.

“Net1 re­ceived a ma­jor ben­e­fit from the Sassa con­tract ... R1 732 435 238 ... over the con­tract pe­riod. For this rea­son we sub­mit that an iso­lated scru­tiny of CPS’s fi­nances will not pro­vide a true re­flec­tion of the prof­its ac­cru­ing to the group... We believe that the roy­alty fees pro­vided an op­por­tu­nity to re­dis­tribute ‘prof­its’ from CPS to Net1.”

Not­ing that CPS has claimed not to have the funds to pay Sassa back, RAiN sug­gests “the claim could be di­rected to Net1”.

Repub­lished from GroundUp

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