Net1 refutes report detailing understated SASSA profits

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Net1 subsidiary CPS distributes social grants on behalf of SASSA.
Net1 subsidiary CPS distributes social grants on behalf of SASSA.

Net1 UEPS Technologies has dismissed reports that its subsidiary Cash Paymaster Services (CPS) may have substantially understated profits earned from its contract with the South African Social Security Agency (SASSA).

An independent report claimed CPS, a Net1 subsidiary contracted to distribute SASSA grants, failed to disclose the full extent of its profits from its unlawful contract with the social security agency.

The report is from the Alternative Information and Development Centre (AIDC) and was commissioned by the Black Sash Trust and the Centre for Applied Legal Studies (CALS).

However, in statement, Net1 says it is disappointment that no one from AIDC, BLT (Black Sash) and CALS approached the company to provide input or review the report.

It states: "Net1 would willingly have provided the required information to address the many incorrect and negligent assumptions, inaccuracies and errors contained in the report, written by Dick Forslund, senior economist at AIDC. In the interest of transparency and objective reporting, Net1 calls on AIDC, BLT and CALS to withdraw the report in view of the egregious errors contained in the report...

"Every aspect of the report, including the timing of its release on a Sunday, appears to be targeted at deliberately discrediting CPS's filing with the Constitutional Court [ConCourt] through false inferences and without due process," adds the Net1 statement.

In a joint media release, AIDC, Black Sash and CALS said: "CPS's financial statement submitted to the Constitutional Court, audited by KPMG, has not provided enough information to determine how much the company benefited from its unlawful contract with SASSA.

"The statement appears to underestimate the pre-tax profits of CPS from the unlawful contract by between R214.2 million and R614.4 million. The figures in the statement do not match the revenue from social grant distribution in South Africa outlined in annual reports from Net1 (its parent company) to its shareholders."

AIDC also pointed out the figures include a BEE transaction for R117.1 million and cash bonuses for senior managers related to the contract of R41.8 million that should not be defined as CPS's expenses.

In its statement, Net1 says it can't deal with all the inaccuracies in a media statement, but it addresses some of the major "findings" raised in the AIDC, Black Sash and CALS report.

According to the Net1 statement: "Forslund has incorrectly calculated CPS revenue from Net1's annual reports for the years ended 30 June 2012 to 2016, plus 75% of the year ended June 2017. He has therefore attempted to derive the revenue for 69 months, as opposed to the 60-month contract period.

"It is blatantly incorrect to include the full 2012 period as CPS commenced with its contract on 1 April 2012 (ie, only three months of the 2012 fiscal year). This error alone already explains the 'difference' identified by Forslund. In addition, it is incorrect to use an average exchange rate for a full year to derive a rand result, as we convert our results on a monthly basis. In a volatile exchange rate environment, using an average exchange rate will yield an inaccurate result. The revenue number reported to the Constitutional Court agrees to the schedule of all invoices submitted to SASSA during the 60-month period."

Addressing the BEE transaction fees, Net1 explains: "The BEE transaction expense of R117.1 million ($11.3 million) was accounted for in accordance with IFRS2 and included in the audited CPS statutory financial statements as required by the standard. The BEE transaction expense of $14.2 million, incurred prior to the commencement of the 2012 SASSA contract, is not included in the statement submitted to the court.

"The R41.8 million in bonuses referenced in our 2012 annual report were not included in the statement submitted to the Constitutional Court - even though an argument could be made that these expenses should form part of CPS's expenses."

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