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Pay back the money, Supreme Court orders Net1 unit

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Cash Paymaster Services (CPS) is mulling its next course of action after it was dealt a blow by the Supreme Court of Appeal (SCA), according to Herman Kotzé, CEO of Net1 UEPS Technologies.

Yesterday, the SCA upheld a ruling of the North Gauteng High Court that ordered CPS, a Net1 subsidiary, to pay back the South African Social Security Agency (SASSA) R317 million plus interest.

The said amount was paid by SASSA to CPS as a variation agreement, following the awarding of the contract to the paymaster in 2012 for the distribution of social grants on behalf of SASSA.

This marked yet another litigation loss for the former social grants paymaster. In June, CPS lost a R1.3 billion lawsuit it had brought against SASSA and was ordered to pay all the costs of the arbitration.

Corruption Watch wages war

In March 2015, non-profit organisation Corruption Watch approached the North Gauteng High Court to review and set aside the variation agreement and the decision to pay R317 million to CPS.

After it was awarded the social grants payments tender in January 2012, CPS says SASSA requested it to biometrically register all social grant beneficiaries, including child grant beneficiaries, and collect additional information for each child grant recipient, which was materially higher than what was originally cited in the request for proposal.

CPS goes on to say it agreed to SASSA’s request. As a result, it performed approximately 11 million additional registrations beyond those that it tendered to register for as part of the quoted service fee.

Accordingly, CPS claimed a cost recovery from SASSA, and the social security agency agreed to pay CPS the R317 million (R277 million excluding VAT) as full settlement of the additional costs incurred by CPS. The money was subsequently paid to CPS.

Following the litigation lodged by Corruption Watch, the North Gauteng High Court ruled in SASSA’s favour last year, setting aside the variation agreement and ordering CPS to repay SASSA the amount plus interest.

CPS appealed the decision and the SCA heard the matter on 10 September, which led to the ruling delivered by the appeals court yesterday.

According to Corruption Watch, in noting SASSA’s duty to deliver social grants in a manner that respects the dignity of grant recipients, the SCA stated the agency has an obligation to do so in a “fiscally responsible manner – as cost-effectively and efficiently as possible with systems in place to avoid fraud, duplication of payments and corrupt payments”.

David Lewis, executive director of Corruption Watch, comments: “This is a very important judgement. Let it be noted by those who enter into agreements with the state that are either corrupt or do not follow the rules governing public procurement that they will be required to pay back money received in this way.”

In a SENS statement this morning, the Net1 CEO expressed disappointment in the SCA judgement, adding the company will study it in order to determine the next action.

“We reiterate our view that the additional registrations we performed based on SASSA’s specific request, resulted in the identification and removal of a significant number of ghost beneficiaries and duplicate grants, and had the direct result of saving the South African government more than R2 billion per year.

“The cost incurred for the additional registrations was recovered without any profit component. CPS performed the work requested by SASSA on a bona-fide basis, and it is unfortunate that it once again finds itself being prejudiced by apparent shortcomings in SASSA’s procurement processes,” he stresses.

SASSA, on the other hand, welcomed the ruling, saying its “legal department is currently studying the judgement to determine its implications and will advise management on anything that needs to be implemented arising from the judgement itself”.

After-shock

CPS has admitted to significantly feeling the after-shock effects of the termination of the SASSA contract, citing it as the biggest reason for its multibillion-rand loss.

Announcing its preliminary fourth quarter and full-year 2019 results last week, the JSE-listed financial technology service provider confirmed a net loss of $248 million (R3.7 billion).

Before September 2018, the social security agency relied on the services of CPS to pay 10.8 million beneficiaries through cash payments, direct deposits and electronic payments.

However, over the years that business relationship soured, having been characterised by litigation and allegations that CPS authorised deductions on beneficiaries' accounts before their social grants were paid out. The paymaster always refuted these claims.

Last October, the South African Post Office took over the distribution and payments function of social grants. Some South African banks also distribute payments to social grant beneficiaries.

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