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CPS financial statement submitted to the Constitutional Court, audited by KPMG, has not provided enough information to determine how much the company benefited from its unlawful contract with SASSA

The Black Sash Trust and the Centre for Applied Legal Studies commissioned the Alternative Information and Development Centre (AIDC) to analyse financial statements filed by Cash Paymaster Services (CPS) with the Constitutional Court in May this year.

In April 2014, the Court ruled that CPS’ contract with the South African Security Agency (SASSA) to distribute social grants was unlawful; that they had no right to benefit from this unlawful contract; and that they must provide an audited financial statement of their expenses, income and net profit from the five-year contract when it was completed. The Court suspended its order of invalidity to ensure beneficiaries continued to receive their grants without interruption.

CPS duly submitted their statement, audited by KPMG, to the Court in May this year (view the statement here). Even on the face of it, the seven-page statement (that only contains half a page of figures) purporting to account for a five year period, of a massive government tender worth billions, is remarkable in its brevity.

A critical review of the financial statement has shown that CPS has not provided sufficient information to draw a definite conclusion on how much net profit was made from the unlawful contract. In particular, the report by AIDC finds:

1. The statement appears to underestimate the pre-tax profits of CPS from the unlawful contract by between R214.2 million and R614.4 million. The figures in the statement do not match the revenue from social grant distribution in South Africa outlined in Annual Reports from Net1 (its parent company) to its shareholders. The figures also include a BEE transaction for R117.1 million and cash bonuses for senior managers related to the contract of R41.8 million that should not be defined as CPS’ expenses.
2. The statement does not indicate whether the figures outlined are for Cash Paymaster Services (Pty) Ltd alone or include the profits of its subsidiaries which are also involved in grant distribution and security. This ought to be clarified by CPS and its auditors at KPMG.
3. Net1 clearly outlines in its Annual Reports that its proximity to social grant beneficiaries is used by its other South African subsidiaries for targeted advertising. It seems clear that these affiliates of CPS have also profited from its unlawful contract.
4. The statement does not include any financial information to show when CPS started making a profit in terms of the unlawful contract – which the Court’s judgment indicated it ought to disclose.

Significantly, the report demonstrates that Cash Paymaster Services has not disclosed the full extent of its profits from the unlawful contract with SASSA as directed by the Constitutional Court. Read the full report here.

There is no firm plan yet in place to ensure the uninterrupted payment of social grants come 1 April 2018. The looming crisis could again result in a further extension of CPS’ unlawful contract. Quite apart from the ongoing contestation between beneficiaries and CPS about unauthorised deductions, this report also suggests additional staggering costs to the state.

Issued jointly by AIDC, CALS AND BLACK SASH