CPS being sued again over ‘R1bn hidden’ Sassa profit

Freedom Under Law (FUL) is dragging Cash Paymaster Services (CPS) back to court, claiming the former social grants distributor could owe the South African Social Security Agency (Sassa) almost R1 billion more than it is letting on.

In papers filed in the Constitutional Court last week, FUL’s chief executive, Nicole Fritz, said the findings of auditors appointed to verify CPS’ financials – with a view to recouping any profits the company had made as a result of its now invalid contract with Sassa – were “great cause for concern”.

She said Rain Accountants had identified a number of areas where it fundamentally disagreed with the audited outcomes CPS had – through its own auditors, KPMG and Mazars Inc – presented to the court.

“Rain finds and submits that if these disputed matters were reversed, as it says they ought to be, CPS’ total profit over the full period of the unlawful contract would in fact be over R1 billion. This is more than R800 million additional profit than the profit that CPS’ auditors reported,” Fritz said.

She pointed out that the court had previously made a number of orders with “a singular and obvious purpose, namely, to accurately determine the profit that CPS had made pursuant to the unlawful tender and to require CPS to repay this profit”.

Fritz explained that to this end, the court had requested independently verified financials – that had been approved by Treasury – for CPS, laying out exactly how much money the company had made through its contract with Sassa.

She also said the court had ordered CPS to provide “unfettered access to its financial information for these purposes” but that this was denied “due to a refusal by CPS’ auditors to provide all of the documents necessary for Rain to discharge its mandate”.

Regardless, Fritz said, Rain had found “there was a vast and improper inflation of expenditure claimed by CPS under the unlawful contract which had the effect of materially decreasing the profit figures placed before the court”.

“This led to a material misreporting to this court, which gave the impression that CPS profited significantly less than it did in reality,” Fritz said. “The total profit made by CPS according to Rain was in fact over R1 billion. This amount stands in stark contrast to the net profit figure CPS provided to this court which is … only approximately R252 million.”

Fritz said this week that the potential recovery of the money in question was important to ensure the unlawfulness of the social grants contract between CPS and Sassa was not perpetuated.

“But it becomes even more important in light of the current threats we face and the pronounced risk this presents for so many dependent on social grants,” she said, with reference to the Covid-19 pandemic.

The law firm representing CPS, Stein Scop Attorneys, said on Wednesday that it had not yet taken complete instructions from its client in this regard

Meanwhile KPMG, which is also listed as a respondent, has noted the application.

“As previously stated, KPMG afforded RAiN Chartered Accountants Incorporated the opportunity to access our working papers under accepted professional and ethical standards,” the firm said on Wednesday. “We identified shortcomings in the draft RAiN report entitled ‘Review of the Statement of Income and Expenses of Cash Paymaster Services (Pty) Ltd for the period ended 01 April 2012 to 30 September 2018’ and reported these to RAiN. We note that The National Treasury also identified various shortcomings in the RAiN report.”

KPMG said it could not provide further comment at this stage because the matter was before the court.

Mazar’s Inc Partner and Head of Quality and Risk Ewald van Heerden responded to a request for comment, saying: “Unfortunately Mazars cannot comment on any cases relating to our clients, as we are bound by confidentiality. We abide by IRBA’s confidentiality principles, which state that we cannot talk about our clients without their express permission.”

For more news your way, download The Citizen’s app for iOS and Android.