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EXCLUSIVE: CPS made R1-billion profit paying social grants

Over the past five years Cash Paymaster Systems recorded a pre-tax profit of R1.1-billion from paying social grants on behalf of the government, the outsourced service provider told the Constitutional Court on Tuesday.

After tax the net profit came to R705-million, the now infamous American-listed company said. That translates to a profit to shareholders of R141-million per year.

CPS continues to pay social grants on behalf of the state under a one-year extension to that contract ordered by the Constitutional Court this March.

In 2014 the Constitutional Court ordered CPS to produce a statement of its profits under the contract within 60 days of the date it was to end, a deadline that fell on Tuesday. In response the company filed a one-page statement on the day, signed off by its auditors KPMG on the same day, containing the bare minimum of information ordered.

Under its contract with the South African Social Security Agency (Sassa) it had received income of R8.9-billion, the company said. After operational costs just shy of R7-billion, and a separate “administrative cost” of R889-million, that left it with R1 091 666 503.

Other than the amount of tax paid – R386 million – and the calculations to reach the net profit, the financial statement provided no further information. The filing was, however, accompanied by auditor caveats.

“The directors have interpreted the words “under the contract” as relating directly to the Sassa contract and therefore income and expenses incidental to, but not arising from, the contract have been excluded from the statement,” KPMG said in a short accompanying opinion.

When it declared the CPS contract to have been unlawfully awarded because of failures on the part of Sassa, the Concourt noted that it is not allowed to benefit from an unlawful deal. Though it ordered CPS to declare the profit, it did not order that it must be repaid.

CPS parent company Net1 this year released to shareholders a legal opinion from its lawyers saying that among the judgements involving the company “none of them contain an order that [CPS] repay profits derived from the Sassa contract”.

However, in its latest quarterly statement to shareholders, Net1 warned it could still be on the hook to repay the money.

“It is conceivable that one or more third parties may in the future institute litigation challenging our right to retain a portion of the amounts we will have received from Sassa under our contract,” the company said. “We cannot predict whether any such litigation will be instituted, or if it is, whether it would be successful.”

This March, the Concourt said that although the CPS contract was unlawful there was no choice but to extend it, so as to not risk interrupting the payment of lifeline social grants to some 17-million beneficiaries.

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Phillip De Wet
Guest Author

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