CPS – a nest of Cobras, Puff adders and Skaapstekers

by | Jun 4, 2018 | General | 0 comments

Weary SA taxpayers will be familiar with the characteristics of the three snakes whose names mirror the acronym of Cash Paymaster Services, the rapacious administrator, for now, of grant payments on behalf of the South African Social Security Agency. A spitting cobra is particularly venomous, the puff adder, despite its deceptive girth, strikes faster than any other, and the victims of the third snake are sheep to the slaughter, something with which taxpayers can identify.

The contract (and its extensions) between CPS and Sassa has long been declared invalid by the Constitutional Court. The declarations of invalidity have been suspended because beneficiaries of grants would suffer if the administration of the payment system were to fail or temporarily stop. Nevertheless, there are consequences of invalidity which the court has spelt out in successive judgments in the litigation that has dogged the relationship between CPS and Sassa.

Here are the consequences, as enunciated by the Court:

“It is true that any invalidation of the existing contract as a result of the invalid tender should not result in any loss to Cash Paymaster. The converse, however, is also true. It has no right to benefit from an unlawful contract. And any benefit that it may derive should not be beyond public scrutiny. So the solution to this potential difficulty is relatively simple and lies in Cash Paymaster’s hands. It can provide the financial information to show when the break-even point arrived, or will arrive, and at which point it started making a profit in terms of the unlawful contract. As noted earlier, the disclosure of this information does not require disclosure of information relating to Cash Paymaster’s other private commercial interests. But its assumption of public power and functions in the execution of the contract means that, in respect of its gains and losses under that contract, Cash Paymaster ought to be publicly accountable.”

The court’s footnote to that passage is also instructive:

“The dissolution of a contract creates reciprocal obligations seeking to ensure that neither contracting party unduly benefits from what has already been performed under a contract that no longer exists. This is evidenced in cases of rescission or cancellation of a contract where a party claiming restitution must usually tender the return of what she received during the contract’s existence or, if return is not possible, explain the reasons for impossibility…”

When the matter returned to court at the instance of the Black Sash, these findings were the subject of varied submissions. The court summed up its attitude in its judgment in the Black Sash case as follows:

“There was much debate during the oral hearing on whether it would be just and equitable to order that those reciprocal obligations should be same as that of the contract that expires on 31 March 2017. I consider that it should be. No party has any claim to profit from the threatened invasion of people’s rights. At the same time no one should usually be expected to be out of pocket for ensuring the continued exercise of those rights. That equilibrium was the premise of the Court’s previous remedial order. It is just and equitable to continue on that basis. Our order below reflects that Sassa and CPS should continue to fulfil their respective constitutional obligations in the payment of social grants for a period of 12 months as an extension of the current contract. To the extent necessary, our earlier declaration of invalidity of that contract will be further extended, as well as the suspension of that declaration of invalidity. In the event that CPS wishes to alter the content of its financial obligations or entitlement, the order makes provision for it to approach National Treasury for its consideration and approval, to be confirmed after a report on the issue to this Court.”

At the end of the initial five-year period of its invalid contract with Sassa, and in compliance with the court’s order, CPS produced a terse accounting in which gross profits of R1.1-billion were certified by KPMG. Why these profits cannot be utilised to defray expenses now or to supplement the apparently low cash flow of CPS is a mysterious matter that CPS has slithered away from explaining.

Due to the lack of detail in the account supplied in accordance with the court order, it has been impossible to determine whether interest on amounts in circulation between Sassa, CPS and Grindrod Bank (the funds destribution agent of CPS) has been brought into account, as should be the case. Grindrod has publicly admitted to making a “small margin” on amounts standing to its credit in the administration of the social grants, but it has never given any specific details of what amount is involved. The admitted “small margin” is obviously a profit and could amount to a tidy sum, given the magnitude of the funds in circulation at any given time.

The court has left it to the Panel of Experts it has appointed in the matter to evaluate steps taken and to make recommendations to it in the light of what the panel finds. In a memorandum to the panel that was delivered on behalf of the Quaker Peace Centre before the first meeting of the panel in June 2017 the following suggestion was made:

“It is accordingly one of the first orders of business of the panel to determine whether the implementation of payment of social grants has been continued as before on the basis that a small margin of interest is earned by Grindrod Bank. The interest so earned ought either to accrue to Treasury or to the grant beneficiaries, it cannot, in the light of the orders of court quoted above, be allowed to accrue to Grindrod Bank. Nor should Grindrod Bank be allowed to retain any profit resulting from its collection of the “small margin” to which it has confessed.”

And the following warning was sounded:

“CPS ought to be required to disgorge profits already made immediately and to adjust its operations and those of Grindrod Bank in the delivery of social grant payments so as to break even. The last thing the panel wants is to find, after the expiry of the year-long extension, that CPS fritters away its profits and is unable to repay them at the end of the accounting period. The monetary decisions around the retirement and consultancy packages for Mr Belamont of CPS sound a loud warning bell. Proper evaluation of the profit situation and the mechanisms for immediately disgorging profits made are part of the mandate of the panel.”

It is now public knowledge that the invalid contract between Sassa and CPS has been further extended mainly due to the incompetence or inability of Sassa to organise a substitute for CPS. It also appears that CPS is now pleading poverty and calling for injections of cash-flow. The panel is yet to make any recommendations regarding the interest earned either by CPS or on its behalf by Grindrod Bank. CPS has not disgorged any of the profits made in the first five years of its (invalid) contractual relationship with Sassa.

The possibility of the liquidation of CPS looms. The task of clawing back distributed profits unlawfully diverted away from the “break even” requirements of the court will be an onerous one. The shareholders in Net 1, holding company of CPS, will play a decisive role in demonstrating their respect for the rule of law and for the due and proper implementation of the orders of the court.

Who are the cobras in this sorry scenario; which puff adder waits beside the path to strike the unwary and where are the skaapstekers to be found? You be the judge. DM

Paul Hoffman SC is a director of Accountability Now

Opinion editorial published in the Daily Maverick on 1 June 2018

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