/ 30 September 2016

How Sassa paid R316-million to a contractor based on a ‘lie’

Pay point: Social grant recipients queue in Johannesburg. A fee for CPS
Pay point: Social grant recipients queue in Johannesburg. A fee for CPS

The former head of the South African Social Security Agency (Sassa) appears to have lied to support a dubious claim by contractor Cash Paymaster Services (CPS) that it did extra work worth R316-million.

CPS pays out social grants nationwide on Sassa’s behalf.

It claimed in 2014 that it had enrolled more grant recipients and beneficiaries than it was contracted to do. Sassa and its then chief executive, Virginia Petersen, purportedly accepted the claim at face value and paid over the money.

AmaBhungane analysed more than 7 000 pages of records to verify their justifications. These include tender documents, contracts, court files, stock exchange disclosures, Sassa data and internal correspondence.

They show that the contract already included the “extra” work in the bid price and that Petersen was armed with detailed agreements that she could have used to refuse CPS’s claim.

But instead of fighting for the public purse, she has backed CPS.

The relationship between Sassa and CPS has given rise to much controversy over the years, most recently last year when Sassa effectively handed the national payments contract back to CPS after the Constitutional Court had, in 2013, invalidated its original award to the company.

Petersen and Sassa would not comment because the matter regarding the payment is before the Pretoria high court where the nongovernmental organisation Corruption Watch is challenging it, albeit on largely procedural grounds.

AmaBhungane’s conclusions were vigorously disputed by Serge Belamant, the chairperson and chief executive of CPS’s listed parent, Net 1.

He said: “Your claims are conjecture and there is no basis for it in the papers before court or anywhere else … CPS acted in good faith at all times … We can assure you that there was absolutely no unlawful intent on the part of CPS.”

He threatened to sue for defamation, but he repeated claims that contradict his own earlier certified statement made under United States securities law and other evidence that amaBhungane extracted from publicly available records.

In June this year, the treasury “condoned” the payment, which had been marked as irregular. But immediately after amaBhungane contacted treasury staff with detailed questions, it wrote to Sassa and withdrew it.

Sassa confirmed the treasury’s reversal, saying it was “based on factors including the pending status of the outcome of the court proceedings”.

The treasury did not reply to questions.

Born in sin

CPS’s R10-billion grants payment contract is already steeped in controversy.

Immediately after Sassa, under Petersen, awarded the contract in 2012, the losing bidder AllPay appealed to the courts.

Bribery allegations were also raised by a Sassa official and in news reports, but they were not proved.

Despite the litigation, Sassa and CPS went ahead and implemented the contract. But the Constitutional Court eventually invalidated the tender. It found that Sassa had made irregular decisions that favoured CPS and “knocked AllPay out of contention”.

A scathing ruling by Judge Johan Froneman accused Sassa of being “unhelpful and almost obstructionist” in its defence of CPS. He said: “[Sassa’s] conduct must be deprecated.”

Although the court made no finding against CPS, it ordered Sassa to issue a new tender, which it did. But it disqualified every bidder last year, meaning CPS kept its contract, which Froneman had described as being “unlawfully obtained”.

Petersen has since left Sassa after her contract expired.

At the heart of CPS’s claim that it did extra work is the distinction between grant “beneficiaries” and grant “recipients” and the related question of whether or not it had to enrol children under the 2012 Sassa contract.

Belamant and Petersen’s versions, then and now, could hardly be more different.

In 2012

The requirements were clear in February 2012 when Belamant and Petersen signed the grants payment contract and service level agreement (SLA).

A “beneficiary” is a person who qualifies for a social grant. Many are children who do not collect grants themselves. A “recipient” collects the actual payment. Some are beneficiaries collecting for themselves, but many are parents, guardians or procurators collecting the money on behalf of others, mostly children.

The contract and SLA recorded that CPS had to enrol all beneficiaries – the definition explicitly “includes children” – and recipients.

There was for a good reason for this, as emphasised in Sassa’s tender documents: to cut down on fraudulent grant claims, the biometric and other details of every recipient and beneficiary needed to be on the database so Sassa could pay “the right social grant to the right person” – its slogan.

While the tender was still being decided, Petersen stressed this requirement when she told Parliament that “Sassa would ensure that the design mapped end-to-end solutions, with Sassa ownership of the biometric data of each individual on the system being a priority”.

The contract and SLA specifically declare that, in addition to paying recipients every month, enrolment is part of CPS’s service to Sassa. For this service, CPS was to be paid “an all-inclusive fee of R16.44” for each grant payment, no more.

Belamant appeared to agree back then. Net 1’s financial returns filed in November 2012 reported: “Under our agreement with Sassa, we have to enrol both the grant recipients as well as the grant beneficiaries.”

And crucially: “We do not receive additional compensation for the enrolment of grant beneficiaries who are not otherwise grant recipients because the pricing under our Sassa contract is based on the number of grant recipients we pay, rather than the number of grant beneficiaries.”

Belamant personally certified the accuracy of this statement under US securities law.

So CPS’s about-face in 2014 is surprising.

Two years later

In March 2014, CPS invoiced Sassa for R316-million. It claimed to have enrolled 11.9-million people “in excess of tender requirement”. A four-page report by KPMG accountant Marlene Pappas was attached, confirming the numbers.

Pappas’s calculations were based on the incorrect understanding that CPS was contracted to enrol only recipients, not beneficiaries such as children who do not collect their own grants.

In particular, she relied on an extract from the Sassa tender, which projected that the number of “grant recipients” in 2012 would be about nine million.

Pappas compared this number of recipients with the 22-million grant recipients and beneficiaries that CPS had enrolled. She subtracted one million new enrolments and agreed with CPS that there were 11.9-million enrolments “in excess of the tender requirement”.

In effect comparing apples and oranges, she agreed with CPS’s estimation that the “extra” enrolments cost R316-million, value-added tax inclusive.

Pappas and KPMG refused to comment.

The next month, April 2014, a Sassa bid committee approved the payment subject to confirmation by its own audit. But that was completed only a year after the payment and, based on the same defective premises, agreed in broad outline with the payment.

Petersen signed off on it in May 2014 and CPS was paid soon after.

Corruption Watch immediately put questions to Sassa. It took Petersen three months to write back, when she said: “In terms of the [Sassa tender] as well as the tender proposal submitted by CPS, the requirement by Sassa was for CPS to enrol an estimated 9.2-million existing beneficiaries …”

But her statement was false.

Financial model

Rewind to 2012 once more. There was no “requirement” for CPS to enrol only nine million recipients.

Sassa’s projected number of nine million “recipients” was a key metric for the bidders’ financial models. Because the winning bidder would have to pay nine million recipients each month, and its fee would be a multiple of this, bidders needed the number to calculate their costs and revenues.

Nowhere do the tender documents indicate that nine million was the ceiling number of people to be enrolled. This was a separate cost factor.

But it should have been obvious to all bidders – especially CPS, which at the time distributed grants in five provinces – that many more than nine million had to be enrolled.

For example, in the tender documents, bidders’ briefing sessions and public statements, Sassa repeatedly explained that there were about 15-million beneficiaries and about 10-million recipients.

Although these numbers cannot be added together, because some recipients are also beneficiaries, it does follow that more than 15-million people would need to have been enrolled.

Indeed, using Sassa’s own data, which was publicly available at the time of the tender, amaBhungane was able to project that 22-million recipients and beneficiaries had to be enrolled.

Contradictory defences

In March last year, Corruption Watch petitioned the high court to have the R316-million payment reversed. Arguments are still being filed and the case is still to be heard.

According to Corruption Watch, Sassa violated its own procurement procedures and the payment was “irregular and unlawful”. Sassa and CPS deny this in sworn affidavits deposed by Petersen and CPS’s general manager, Nanda Pillay. Belamant confirmed Pillay’s version.

Virginia Petersen
Granted: Virginia Petersen (right), former head of Sassa, is backing a R316-million payment to a contractor, against strong evidence that it was not owed. (Daniel Born/Gallo)

But their explanations are contradictory and repeatedly clash with the evidence, particularly on the subject of child enrolments. Most of the 11.9-million purportedly “extra” enrolments were of children. For example, Petersen correctly concedes that Sassa’s tender included the enrolment of children, but she adds that the SLA did not.

It did, and it was she who signed the document, which explained that every “beneficiary” was to be enrolled, defined as “[bearing] the meaning assigned to it in the [Social Assistance] Act and includes children”.

Pillay says the tender did not require it to enrol children and that CPS did not bid to do so. He is wrong on both counts.

He correctly concedes the contract did “contemplate” child registrations, but claims that “it did not provide for the costing thereof”.

But they both agree that, on June 15 2012, CPS and Sassa met and Petersen decided, as she describes, to vary the contract “to include the excluded number of children and beneficiaries whose grants were collected by procurators”.

The thrust of their statements is false.

The record

Issued back in 2011, Sassa’s tender documents clearly state that children had to be enrolled. “For child support, foster child and care dependency grants, the successful bidder/s must ensure that the biometrics and data relating to the children is also captured.”

Moreover, the minutes of a 2011 bid committee meeting reveal that one member “requested clarity on the Sassa requirement that children also be enrolled”.

“It was indicated to him that, whilst challenges exist with capturing the fingerprint biometric of children, Sassa sought to have a biometric record of children due to the high incidence of fraud in grant applications relating to children.”

And Sassa’s adjudicators for the 2012 bid specifically marked down at least two bidders because “no specific proposal to enrol children for child-related grants in addition to the primary care giver is provided”.

Despite Pillay’s recent statements to the contrary, CPS’s own 2011 bid indicates it would enrol children. For example, a section discussing enrolment stated: “In cases of child support, foster child and care dependency grants, the children’s fingerprints and details are captured and stored on the card.”

And, during the tender, when Sassa asked CPS to clarify that the cost of enrolment was included in its bid, CPS responded: “We would like to confirm that as per our financial submission, there will be no additional fees charged to Sassa for the following aspects in relation to the bid specification document: … Enrolment fees (Bulk).”

In February 2012, Petersen and Belamant signed the contract and SLA, which unambiguously state that beneficiaries – a definition that “includes children” – and recipients had to be enrolled for the agreed “all-inclusive fee”.

Playing card

In this light, Petersen, Belamant and Pillay’s strongest card appears to be wafer-thin.

In the Corruption Watch case, they rely heavily on a document that records the minutes of the June 2012 meeting at which Petersen purportedly decided to vary the contract.

The meeting was held 10 weeks into the contract. CPS had completed a pilot enrolment drive and was reporting back to Sassa officials on its progress and challenges.

In an affidavit, Petersen says of the meeting: “It was thoroughly debated by Sassa officials and representatives from all regions that it would not be prudent to exclude children and beneficiaries whose grants were collected by procurators.” As a result, she claims that “the terms of the [service level agreement] were varied” at the meeting.

This account is not reflected in the minutes.

They are short on detail but record: “At the request of [Petersen], [Belamant] agreed that the payment of costs associated with the enrolment of dependents would only be effected at the conclusion of the bulk enrolment process.

“[Petersen] requested an independent report in respect of the costs associated with the enrolment of dependents to be tabled at the conclusion of the bulk enrolment process.”

On the face of it, there was a foregone conclusion that Sassa would pay extra for the enrolment of children. But, as has been established, CPS was contractually bound to enrol all beneficiaries and recipients, including children, under an “all-inclusive fee”.

Therefore, either those at the meeting were wrong or a decision was made before the meeting that, in spite of the requirements in the tender and contracts, CPS should be paid extra, but there is no evidence for this.

But the strength of these minutes as evidence was undermined by Belamant himself because, just five months after the meeting, in November 2012, Net 1’s certified financial records described, as quoted earlier, that CPS had contracted with Sassa to enrol children at no extra cost.

Sub judice

Belamant responded to detailed questions on behalf of Net 1, CPS and Pillay.

Yet he declined to explain the many contradictions between the version laid out in documents from 2011 and 2012 and CPS’s later claim to have done extra work worth R316-million.

He said: “Sassa did not call for the enrolment of dependants in the request for proposals, and there is no way for any bidder to have anticipated this or even the numbers involved, had Sassa included it at the time.

“It is for the court to decide whether or not Sassa followed due process in contracting CPS to enrol the additional beneficiaries and the matter is sub judice.

“We regrettably have to now warn you that we will take legal action against you if you insist on publishing further defamatory statements in respect of CPS, its affiliates or employees.”

The amaBhungane Centre for Investigative Journalism produced this story. Like it? Be an amaB supporter and help it do more. Sign up for its newsletter to get more.