Accounts hid huge profit
PROBE: SOCIAL SECURITY PAYMENT FIRM BULKED UP ITS EXPENSES
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