Corruption Watch cries foul over SA Social Security Agency cash

2015-04-05 15:00

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Body serves papers on agency to find out why it broke its own rules by paying millions to service provider that had an invalid tender

Corruption Watch has served legal papers on the SA Social Security Agency (Sassa) to explain the millions it paid to Cash Paymaster Services (CPS) outside of the “constitutionally invalid” contract between the parties.

In an explosive founding affidavit, the anticorruption civil society body’s executive director, David Lewis, details how – despite the Constitutional Court ruling that the CPS tender was invalid and directing the agency to issue a new tender – it continues to break its own rules for CPS’s benefit.

Corruption Watch is now seeking an order to review and set aside the R317?million payment, the first tranche of which was made just days before the Constitutional Court ruled on a “just and equitable” remedy for the flawed tender.

Kgomoco Diseko, a spokesperson for the agency, which pays social grants to about 15?million beneficiaries, would not discuss the details of the case.

“The matter is at court,” he said. “I would prefer we let the law run its course and respect the justice system.”

In June last year, CPS’s parent, Net1 UEPS, released a Sens statement stating it had received about R275?million from Sassa for the recovery of certain costs.

This recovery considerably boosted Net1’s income. Two months after the payment, finance head Herman Kotze told analysts in a conference call that South African processing revenue rose 52% in the group’s fourth quarter, driven primarily by the Sassa recovery and merchant-processing transactions.

With the recovery stripped out, this revenue grew just 20% year on year.

Corruption Watch has sought to understand the basis of the June payment to CPS, and, according to Lewis, was invited by the agency to inspect related documentation.

This showed CPS had claimed roughly R317?million – the amount contained in CPS’s Sens statement, which included VAT – for re-registering social-grant beneficiaries. This was in addition to amounts already paid to it by the agency.

“It was not apparent from the main service-level agreement [between CPS and the agency] on what basis this additional amount was claimed by CPS over and above what it had already been paid for beneficiary registrations,” said Lewis.

But Net1 investor-relations head Dhruv Chopra said the agency asked CPS to biometrically register beneficiaries in addition to the grant recipients who had been issued with smart cards. “As a result, Net1 performed approximately 11?million additional registrations that did not form part of its monthly service fee,” he said.

He added CPS was taking legal advice on the appropriate way to act.

Millions in irregular expenditure also flowed to CPS. In the year to March, Sassa’s latest reported period, it racked up more than R53?million, with the hiring of venues for the re-registration process specifically singled out by the Auditor-General as an example of noncompliance with procurement policies.

Lewis said the agreement between the agency and CPS showed only the latter was responsible for providing the venues. Corruption Watch could also find no evidence that Sassa requested the re-registration services rendered by CPS. But a few months before the payment was made, senior officials from the agency – including Sassa chief executive Virginia Petersen – met CPS managers and Net1 chief executive Serge Belamant to discuss the claim.

Corruption Watch was not shown any minutes of this meeting.

CPS had used a report from professional financial services firm KPMG to justify its claim. But this was reportedly just a sample test that contained various disclaimers and made it clear it was not an audit.

A KPMG spokesperson said the firm acted as the Net1 group’s outsourced internal auditors and performed various engagements in “the processes and controls in the organisation”.

She could not discuss the report submitted to the social security agency because of nondisclosure agreements.

But Corruption Watch’s legal and investigations head, Leanne Govindasamy, who was part of the delegation invited to inspect documents related to the payment, said she had seen the report.

“The report clearly stated it was not an audit report and should not be relied upon by third parties, but the bid adjudication committee notes recorded it as an audit report and relied on it as being a verification of the claim,” she said.

The committee instructed Petersen to pay CPS part of the claim based on the “external audit report” from KPMG and withhold 20% of the amount, pending an internal audit. Petersen did so, but an unhappy CPS returned the cash. The committee met again and, in light of the “external KPMG audit report”, resolved to pay the full amount.

Lewis said: “Corruption Watch’s representatives asked?[a Sassa official]?...?whether an internal audit had been conducted by [the agency] in relation to the amount claimed by CPS for the re-registration of beneficiaries.

“[The official’s] answer confirms that [the agency] had not done an internal audit of the CPS claim before making payment,” he added.

Social-grant beneficiaries stand in a long queue for their payments. Corruption Watch is probing why the SA Social Security Agency paid R317m to Cash Paymaster Services. Picture: Mkhuseli Sizani

TIMELINE: How the grant was awarded

.?APRIL 15 AND 17 2011

The SA Social Security Agency (Sassa) publishes an invitation to tender, calling on bidders to present proposals to pay social grants on its behalf.

.?JANUARY 17 2012

Sassa awards the tender to Cash Paymaster Services (CPS). The tender is valued at R10?billion over five years.

.?FEBRUARY 3 2012

Sassa enters into a contract with CPS.

.?APRIL 1 2012

Losing bidder AllPay Consolidated Investments proceeds with litigation against Sassa and CPS, alleging irregularities in the tender process. It seeks to have the tender set aside.

.?AUGUST 28 2012

North Gauteng High Court Judge Elias Matojane rules the tender process was ‘illegal and invalid’, but does not set it aside. AllPay appeals the decision not to set the tender aside, while CPS lodges a cross-appeal in the Supreme Court of Appeal against the judge’s determination that the tender was illegal and invalid.

.?MARCH 27 2013

The court dismisses AllPay’s appeal, but upholds CPS’s cross-appeal.

.?JULY 2013

AllPay takes the fight to the Constitutional Court.

.?NOVEMBER 29 2013

The court rules the award of the tender was ‘constitutionally invalid’, but suspends the declaration of invalidity until a just and equitable remedy can be found.

.?EARLY 2014

CPS makes a claim for R317?million for expenses incurred in re-registering social-grant beneficiaries. Sassa’s regional executive managers, CPS’s managers and Net1 UEPS boss Serge Belamant later meet to discuss this claim, according to a Sassa official.

.?MARCH 10 2014

A KPMG report on the claim, commissioned by CPS, is delivered. It reportedly contains a series of disclaimers and limitations and makes it clear it is not an audit.

.?MARCH 14 2014

Sassa’s bid adjudication committee meets to consider the claim and the KPMG report. The committee relies on the KPMG report as an ‘external audit report’. The committee recommends Sassa CEO Virginia Petersen approve the payment, but withhold 20% of the claim – or R63.4?million – pending a Sassa internal audit.

.?MARCH 2014

Petersen accepts the committee’s recommendation and approves the 80% payment. This is paid, but an unhappy CPS returns the money to Sassa.

.?APRIL 17 2014

The Constitutional Court rules on the just and equitable remedy – Sassa must run a new tender process from scratch within 30 days of the order, and appoint new bid evaluation and adjudication committees.

.?APRIL 25 2014

Sassa’s bid adjudication committee meets for the second time to discuss CPS’s R317?million claim. It recommends the full amount of the claim be paid in light of the ‘external KPMG audit report’. Petersen accepts the recommendation on the same day, signing a variation order with three other officials.

.?JUNE 6 2014

Net1 puts out a Sens announcement saying it has received about R275?million from Sassa related to the recovery of additional implementation costs. The amount excludes VAT.

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