Net1 UEPS Technologies, a unit of which distributes welfare payments in South Africa, understated its profit from the government contract in a submission to the country’s constitutional court that was audited by KPMG, a report released by a development economics research agency said. The company rejected the allegation.
The court demanded the submission from Net1’s Cash Paymaster Services this year because the company continued to distribute more than R150bn of payments annually even though its government contract was ruled illegal in 2014 after tender procedures weren’t followed. The court this year said CPS couldn’t profit from an illegal contract.
The statement submitted to the court “appears to underestimate the pretax profits of CPS from the unlawful contract by between R214.2m and R614.4m,” the Alternative Information & Development Centre said in the report. “The figures in the statement do not match the revenue from social-grant distribution in South Africa in annual reports from Net1.”
The report adds to criticism of the conduct of both Net1 and the state welfare agency, which put payments of 17m grants under threat by failing to comply with an earlier court order to find a replacement for Net1. That forced the court to allow CPS’s contract to be extended until April next year to keep the money flowing. It also drags KPMG into a fresh controversy less than three months after most of its senior South African staff quit following an internal probe that questioned their work for government and a family that does business with relatives of President Jacob Zuma.
The AIDC also said that CPS classified a R117.1m transaction to include black partners into the business, a practice encouraged by the government, and R41.8m of bonuses for management as expenses when they should not have been. The CPS statement also doesn’t clarify whether the figures presented include profits from subsidiaries that are also involved in grant distribution and security arrangements for those. In May, CPS said it made a profit of R1.1bn from the welfare contract in its submission to the court.
Net1 said it had complied with the court’s order to compile and submit an audited statement of expenses incurred, income received and net profit earned under the completed contract, and that it was only made aware of the AIDC report on Sunday.
“The report contains numerous factual inaccuracies and many components are based on conjecture and speculation,” the company said in an e-mailed response to questions. “Engagement with Net1 would have willingly provided the author with information to assist him to compile the report and cleared any misconceptions and errors.”
KPMG said in a statement that it had noted the report and would comment once it had studied it.
The AIDC’s report was commissioned by the Centre for Applied Legal Studies, a legal centre based in Johannesburg, and the Black Sash Trust, a South African human rights group.
“The report demonstrates that CPS has not disclosed the full extent of its profits from the unlawful contract,” the groups said in a statement accompanying the report. “This report also suggests additional staggering costs to the state.” — Reported by Antony Sguazzin, (c) 2017 Bloomberg LP