Cash Paymaster Services yet to reveal profits made from illicit social grant payment contract

Cash Paymaster Services has still not handed over to auditors the documents necessary to work out what profits it made from its unlawful social grants payment contract, more than seven months after a Constitutional Court order to do so.

Instead, the provisional liquidators of the firm have launched further court proceedings, attempting to vary the order, saying they do not have the necessary powers to comply with it and it should be put on hold until permanent liquidators are appointed.

They also say that most of the documentation which would shed light on what profits CPS made from the contract, is stored at Metrofile which is “not keen or willing” to hand it over because CPS owes about R1.8-million in storage costs.

On top of this, it has emerged in the court papers that SARS — in what it says is a “final audit” for the tax periods 2014 to 2018 — is claiming just more than R1.1-billion (including penalties) because CPS failed to supply documentary proof for expenditure it had claimed for those years, to offset its tax liabilities.

The company’s multi-billion rand contract with the South African Social Security Agency (Sassa), which was first entered into in 2012, was deemed unlawful by the Constitutional Court in 2014 because proper procurement policies were not followed.

It was extended to 2017 to prevent chaos in the distribution of social grants and, at the 11th hour, then social development minister Bathabile Dlamini approached the court to have the contract extended again.

At that time, the court warned that CPS would not be allowed to make a profit from the unlawful contract, and ordered CPS to file an audited statement of expenses incurred, income received and net profit earned under the contract. The court also ordered Sassa to appoint an independent auditing firm to verify this.

Sassa appointed Rain Chartered Accountants. Earlier this year, Freedom Under Law (FUL) approached the court claiming that Rain had not been given all the required documents and that it appeared that CPS had under-declared its profits by more than R800-million.

On 1 April this year, the Constitutional Court again ordered CPS, which was placed in liquidation in October 2020 at the behest of Sassa, to hand over all the documents within a specific time period.

But provisional liquidator Puleng Bodibe says in a recent affidavit filed with the court that only a final liquidator has the powers to comply with the order, and there has been a delay in the permanent appointment because of the Covid-19 pandemic.

While the collation of documents required by Rain had begun it was a “daunting task”, she said.

And one of the challenges was Metrofile withholding the documents, although, she said, “after several engagements, it appears we have reached some agreement … and we trust the documentation will be released prior to the final appointment of the liquidators”.

In her affidavit, Freedom Under Law’s (FUL) CEO Nicole Fritz said while the organisation would abide by any decision of the court, the application needed to be seen in context.

“The purpose of the order was to ensure proper compliance with the court’s previous orders. They all relate to ensuring the proper verification of the profit earned in terms of the unlawful contract.”

She noted that previous orders had been made before the company was placed in liquidation and the provisional liquidators had not opposed the application by FUL in April.

She also said the Master had extended the provisional liquidators’ powers in February this year, “expressly allowing” them to engage in litigation.

“There is no indication as to when the final liquidators might be appointed. They (the provisional liquidators) do not point to any specific power that they lack. Instead, they say they have already begun collating the documents sought by Rain.

“The real issue is that they apparently find the obligation daunting (which is frankly surprising) and time-consuming.

“They are constitutionally obligated to prioritise the provision of documents requested by Rain.”

The Constitutional Court has yet to issue directions as to whether it will hear the liquidators’ application.

Meanwhile, the tax issue is the subject of separate litigation in the Pretoria high court, with the provisional liquidators disputing the audit results and SARS insisting that it is a “final audit” properly done. DM

First published by GroundUp.