CPS to face R317m claim on its own

Ethics under fire: Protesters demonstrate against CPS and Net1 selling life insurance policies to social grant recipients. The high court has effectively deemed such debit orders legal. (Hanna Brunlöf)

Ethics under fire: Protesters demonstrate against CPS and Net1 selling life insurance policies to social grant recipients. The high court has effectively deemed such debit orders legal. (Hanna Brunlöf)

The South African Social Security Agency (Sassa) will no longer fight a claim that it should never have paid Cash Paymaster Services (CPS) R317-million, it emerged this week, leaving the company to continue alone in its defence

Sassa quietly filed a notice to abide by a court decision after two years of strenuously defending it, said Corruption Watch, the nongovernmental organisation that is demanding that CPS pay back the money.

“Sassa has therefore incurred legal costs in respect to this matter for two years, only to withdraw their opposition just months away from the hearing of the matter,” Corruption Watch said in a statement.

Corruption Watch had gone to court over the once-off payment from Sassa to CPS in mid-2014. The payment was made in full settlement and without disputing an invoice the company had presented to it in March of that year.

In terms of its contract with Sassa — which continues to run, despite being unlawful, under order the Constitutional Court — CPS is paid a flat “all-inclusive fee” of R16.44 for each grant payment CPS makes on behalf of the state.

But it had gone above and beyond its contractual duties, CPS told Sassa at the time, by enrolling an extra 11.9-million people into the grants system. For this it claimed once-off expenses of about R27 a person.

Corruption Watch soon started asking questions about the payment, and in March 2015 it approached the high court to ask that it be declared irregular and unlawful because it had been in violation of Sassa’s own procurement rules.

CPS and Sassa fought the application, saying under oath that the deal had been above-board. Now Sassa has changed its mind, though it has not yet said why.

“We have asked Sassa to provide reasons for their withdrawal,” said Corruption Watch executive director David Lewis this week. “We have received no response, further confirming our long-held view that this should never have been defended in the first place. We will ask the court to order the officials responsible for deciding to defend this action to pay costs out of their own pocket.”

The R317-million payment was reflected as irregular on Sassa’s books. In June last year the treasury retroactively condoned it, but it subsequently changed that determination after the amaBhungane Centre for Investigative Journalism asked pointed questions. This week the treasury again confirmed that it now viewed the payment as irregular.

CPS’s parent company, the United States-listed Net1, has fiercely defended the payment, saying it represented costs incurred by doing work for Sassa above and beyond its contract. “We believe that Corruption Watch’s claim is without merit and we are defending it vigorously,” the company told shareholders late last week in an update on risks it faces. “However, we cannot predict how the court will rule on the matter.”

Net1 chief executive Serge Belamant has also previously said that CPS had always acted in good faith, and had never had unlawful intent in the matter.

Though important from a reputational point of view, financially, the R317-million payment is small in the greater scheme of Net1, which has about R2.4-billion in cash to hand. Much more important for its long-term prospects was the court victory scored earlier in the week, when the high court ordered said Sassa did not have the power to forbid debit orders on the accounts of grant beneficiaries.

A week ago the company told investors in a quarterly performance update that it now had nearly two million people on its own banking system and counted 330 000 customers in its life insurance business —mostly social grant recipients.

It hoped to expand these insurance sales, Net1 told its shareholders, but it warned of one hiccup: Sassa believed the mechanism underpinning those insurance contracts was illegal.

On Tuesday, however, the high court gave Net1 a resounding victory on that score. “A debit order is nothing more than an electronic form of payment that is effected upon an instruction by the bank account holder to his or her bank in favour of a third party,” Acting Judge Corrie van der Westhuizen said in a judgment delivered in the high court in Pretoria.

In 2016, after working closely with civil society group the Black Sash, Sassa decreed that deductions may no longer be made from social grant payments.

The Black Sash has long campaigned against such deductions, arguing that unnecessary financial services are mis-sold to grant recipients. It has also documented instances of deductions that almost wipe out grants, or which the clients found impossible to cancel.

The Net1 life insurance business — and related services the company offers grant recipients — depends on monthly debit orders, which were in effect outlawed under the Sassa decree.

Sassa underlined that point by lodging a criminal complaint against CPS and its banking partner Grindrod for not cancelling all such deductions.

Net1, in turn, argued that the state was overstepping its authority, and being insultingly paternalistic about the roughly 17-million people who receive social grants every month.

“It is demeaning and unethical for our detractors to infer that 40% of all South Africans should not be treated equally,” said Belamant in an investor conference call on Friday, before the high court judgment. “It is their view that our clients lacked the intellectual ability to choose.”

Van der Westhuizen said in his written judgment: “The debit order levied against a recipient’s bank account is nothing other than payment of a legitimate debt.”

Sassa does not control the bank accounts into which social grants are paid, he said; the relationship is between the bank and the account holder. So although Sassa can seek to control deductions made before a grant is paid to a recipient, its regulations “do not operate to restrict beneficiaries in the operation of their bank accounts”.

On Wednesday, Sassa said it would appeal the judgment.

In the meanwhile, nothing prevents Net1 and CPS from moving ahead with the next phase of their expansion.

Ideally, Belamant told investors last week, Net1 would like to spin out its CPS grants distribution business, possibly with a new empowerment partner or through a private-public partnership. Then Net1 could “licence and provide technology to this new partner”, collecting royalties without getting involved in the messiness of legal challenges and civil society campaigns.

That would still leave Net1 free to sell financial services products to social grant recipients, especially those using its EasyPay accounts. It could then also look beyond funeral cover to even more lucrative areas of business, such as medical insurance.

Phillip de Wet

Phillip de Wet

Phillip de Wet writes about politics, society, economics, and the areas where these collide. He has never been anything other than a journalist, though he has been involved in starting new newspapers, magazines and websites, a suspiciously large percentage of which are no longer in business. PGP fingerprint: CF74 7B0F F037 ACB9 779C 902B 793C 8781 4548 D165 Read more from Phillip de Wet

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