The constitutional court on Thursday ordered Cash Paymaster Services (CPS) to give an auditing firm full access to its records to allow a determination and reimbursement of all profits it earned from its unlawful contract with the South African Social Security Agency (Sassa).
CPS was contracted to pay social grants by Sassa in 2012. The contract was deemed illegal because due procurement processes were not followed. One of the irregularities included not opening the tender process to the public.
The court order follows an application by Freedom Under Law to force CPS to give Rain Chartered Accountants (RAiN), the accountants consulted by Sassa, access to all documents needed to complete a report to the treasury.
Freedom Under Law is seeking to compel CPS to pay back millions of rands in profits, in line with three earlier constitutional court judgments that found it had no right to benefit financially from its unlawful contract with the government.
The contract between Sassa and CPS was declared invalid in 2013. However, it was not only allowed to run its course but extended, as the department of social security insisted that nobody who could step into the breach and ensure continuity of welfare payouts.
When it was extended in 2017, the court gave CPS’s parent company, Net1, 30 days to file an audited statement of income, expenses and profit.
After the expiry of the extension period, the department provided the court with an affidavit with an independent verification report. But it also attached a letter from the treasury noting shortcomings in the verification process.
According to Sassa’s calculation, it is owed R596-million, but CPS disputes this sum.
In its court papers, Freedom Under Law pointed out that RAiN was denied access to certain financial information but that the verification process nonetheless showed CPS had under declared its profits by about R800-million.
Freedom Under Law wants the profits CPS earned between 2012 and 2018 from its contract with Sassa to be fully determined and for CPS to be forced to refund the agency. CPS and its auditors, KPMG and Mazars, did not oppose the demand for papers, but the company opposed this part of Freedom Under Law’s application.
The court ruled that the relief sought unopposed should be granted and that the determination of the application as far as it relates to the profits, should be deferred to a later date.
“There can be no doubt that the updated verification report by RAiN would be material to an inquiry on the profits earned by CPS from the illegal contract. Consequently it would be proper to consider the issue of profits once all the necessary information is placed before this court.”
In terms of the court order, RAiN must submit a list of all outstanding documentation required to CPS within 10 days. KPMG and Mazars were in turn given 15 days to file the documents.
RAiN was ordered to file an updated report to the treasury within 30 days of receiving the documents.
The court allowed the treasury a deadline of 40 days after receiving the updated report to file an affidavit to the registrar with its own calculation of the profits CPS made and needs to refund. If the treasury is still unable to make a proper calculation, it must set out its reasons for this and state what further information it would need from CPS to be able to calculate the amount.
The matter has been complicated by Net1 approaching the high court in April last year to place CPS in business rescue, on the basis that the company’s liabilities exceed its assets.
Sassa opposed the application, and late last year, the company agreed to go into liquidation instead after the agency refused to back down on its demand of a profit refund.