SASSA on ensuring April 2017 social grant payments

Meeting report

Absence of Minister
The Chairperson noted Minister Bathabile Dlamini’s apology as she had to attend a Cabinet lekgotla.

Ms E Wilson (DA) expressed dissatisfaction at the absence of the Minister. The absence is not acceptable especially on a matter that concerns the nation. The Minister is accountable to the Portfolio Committee. The meeting last week was postponed because the Minister was not available and the Committee received an apology saying that the Minister went to ANC Lekgotla, only to be discovered that she actually went to Ethiopia. Today’s meeting is a very important – one that concerns 17 million South Africans who rely on social assistance from the state, yet the Minister chooses to yet another lekgotla. The Committee cannot allow party affairs to take preference over South Africa. The apology should not be accepted; it is a disgrace.

Ms L van der Merwe (IFP) asked the Department of Social Development (DSD) why the briefing document was not sent earlier as per the rules of procedure of Parliament. The Committee was taken aback last week when it received an apology that the Minister would be absent. ANC business should not take precedence over parliament matters considering that the 1 April deadline is so close and DSD has no contingency plan. She expressed unhappiness at the absence of the Minister and the Committee’s inability to engage with the Minister on a critical issue.

The Chairperson said it is not yet time to discuss the absence of the Minister.

Ms P Mogotsi (ANC) said that in terms of the procedure, the Chairperson should open the meeting thereafter members should introduce themselves and then apologies taken. Hence she asked the Chairperson to follow the due process of the meeting.

Ms H Malgas (ANC) agreed with the suggestion of Ms Mogotsi.

Ms B Masango (DA) also questioned the reason for the late submission of the presentation document.

Ms Mogotsi said the process of the meeting should be followed.

Ms Wilson said again she cannot accept the apology of the Minister because the meeting agenda borders on a national disaster. Party politics cannot take preference over South African affairs.

Ms van der Merwe asked why the Committee was misled last week by being told that the Minister was at the ANC lekgotla when in fact she was abroad. The Minister has shown no leadership on matters of national importance with this looming crisis, hence she is absent again. She rejected the apology. Why is the Committee hearing about the SASSA issue only through the media?

Ms Mogotsi accepted the apology from the Minister. The meeting of last week was not cancelled because the Minister went to the meeting of the ANC Women’s League in the AU. Why is there no apology from the Deputy Minister? If the Minister is not present, the meeting must move on. There are the CEO, the DDGs and other administrative staff who can handle the questions and briefing.

Ms Malgas reiterated that the ANC is the leading party in government. The lekgotla is important and can warrant postponement of meetings. There is nothing wrong in postponing. The ANC being in government has to give guidance.

Ms P Sonti (EFF) asked her questions in vernacular. She rejected the apology.

Mr S Mabilo (ANC) accepted the apology. The overreaction about the apology is unnecessary and unacceptable. It is expected that the opposition will play politics. What is important is to get a presentation from SASSA. The meeting cannot be stopped because the Minister is not present if the CEO and DDGs are present. The Committee cannot be run on the basis of media statement or rumour. There is no crisis around the payment of grants.

The Chairperson said that the main agenda of the meeting is for the Department to present on its state of readiness to pay grants and it was not agreed that the Minister must be present. She pointed out that it is the right of members of the Committee to accept or reject the apology. The meeting last week was postponed because the Chairperson of the Portfolio Committee was supposed to be reporting at the lekgotla and the Director General. The lekgotla also required the presence of all chairs and mayors to assess progress hence last week’s meeting was postponed.

Ms van der Merwe said Committee members got a SMS on their phone stating that the Minister was at the ANC lekgotla. Why was the Committee lied to when the Minister was not actually there but abroad? She asked if the Committee Chairperson saw the Minister at the ANC lekgotla.

Ms Mogotsi said that the internal affairs of the ANC cannot be discussed or exposed to an opposition party. At the lekgotla, the Minister is a comrade and not the Minister. The Chairperson cannot expose the whereabouts of her colleagues. The agenda of this meeting is not to discuss ANC affairs.

Mr Mabilo said that the agenda of the meeting cannot be side tracked. The question on the whereabouts of the Minister cannot be answered. The delegates of the ANC lekgotla cannot be exposed.

South African Social Security Agency (SASSA) presentation
Mr Thokozani Magwaza, SASSA Chief Executive Officer, said he would lead in answering questions.

Mr Sipho Shezi, Special Advisor to the Minister, said that what will be presented to the Committee is the state of readiness of SASSA. The presentation and the state of readiness are the outcome and function of the leadership of the Minister of Social Development. The presentation and the state of readiness is representative of the government’s position in dealing with this complex matter. There has been active involvement by National Treasury and the South African Reserve Bank (SARB). The transition period has been complex hence the reason for the late circulation of the documents. The other reason is because of the input from Treasury and SARB, and also due to SASSA wanting to present something that is concrete. He apologised for the late circulation.

Mr Magwaza said it is not easy for SASSA to present a topical issue such as payment of grants. He assured committee members and South Africa as a whole that come 1 April, SASSA will be paying beneficiaries as normal. The presentation will show how the payment will be made. He handed over to Ms Ramokgopa to make the presentation.

Ms Raphaale Ramokgopa, SASSA Executive Manager: Strategy and Business Development, noted the purpose of the meeting is to update the Committee on the progress towards the implementation of the Constitutional Court commitments, progress made towards deciding on a recommended route for ensuring payments of social grants on 1 April 2017 and the medium to long term plan for insourcing social grant payments. An earlier Ministerial Advisory Committee on SASSA’s payment model had recommended that the payment system be developed in-house. It further recommended that work streams be established to facilitate the insourcing process to avoid compromising the ongoing work of SASSA. The work-streams were appointed towards the end of 2016. The works streams since then had fleshed out the Ministerial Advisory Committee proposal and developed a detailed project plan and preliminary costing of the project. On 30 November SASSA presented its broader plan to the Portfolio Committee to which recommendations were received. One of the recommendations was that the plan of SASSA was not tangible and clear. The Committee also recommended that consultation be done with key stakeholders. SASSA throughout last year worked on the recommendations. Subsequently, an interim task team consisting of the SASSA CEO, together with DSD and Treasury Directors General and the SARB Deputy Governor, was appointed to assist in finding appropriate solutions to the transition over the short and medium term. The team evaluated the risks associated with the transition options for SASSA to ensure that grants are paid on 1 April 2017.

Progress towards meeting Constitutional Court commitments
SASSA had re-advertised the tender as instructed by the court. The court had said that the tender must be implemented over five years so SASSA had to focus on re-advertising the new tender. The decision for non-award of the tender was made on 15 October 2015 after all three bids received were non responsive about mandatory administrative functionality. After this, SASSA prepared a report for the Constitutional Court on the non-award and the seven deliverables.

On biometrics, SASSA set up the stepping stones for the development and adoption of the biometric standards as biometrics are the backbone for the grant payment system in South Africa. Based on the initiatives that SASSA took, the banking industry has adopted the biometric standards as a way for the future. SASSA contracted CSIR, and also worked with SARB. SASSA advertised a tender to have its own in-house technology and infrastructure for biometrics. The tender was not awarded but was later re-advertised on 9 December 2016 and the bid will close on 7 February 2017.

Other processes
SASSA has completed the merchant suitability assessments. This involves all the merchants where the beneficiaries were being paid. SASSA was sent out to assess the suitability and the challenges of the merchants and blacklist the problematic ones. Exploration of options for the payment of grants has also been done by SASSA. The agency engaged with South African Post Office (SAPO) particularly for government to government collaboration. It is also exploring the option of using the Government Printing Works (GPW) for the production and distribution of the card. SASSA is engaging with GPW to avoid re issuance of cards when there is a change of service provider. SASSA has also issued Request for Information (RFI) from all payment services across the payment industries to understand what is missing in the payment industry. This is because of the non-responsiveness of all the bids received with the mandatory requirements contained in the RFP (request for proposals). SASSA needs to understand what the market is offering. The RFI is closing on 10 February 2017.

Short term options considered
SASSA explored the option of procuring the services of the current service provider. It found that this option could ensure that beneficiaries are paid in terms of guaranteed service delivery. There is a problem from the supply chain point of view as to the extension of an illegal contract. This will be in violation of the Constitutional Court recommendation. From the public’s point of view, it will be compromising the organisation. In terms of service delivery, SASSA found out that it is the only option that can ensure that grants are paid.

The second option considered was procuring the services of the banks for which majority of the beneficiaries have bank cards. Although the contract ends by March 2017, the card will expire by December 2017. While this option may guarantee service delivery, there is no guarantee that beneficiaries will be paid who are at the cash pay point.

The third option considered was procuring the services of all banks that wish to comply with SASSA requirements. This involves developing a special account. For the banks to prepare for this, an approximate period of six months will be needed to ensure that the facilities are ready and to ensure that the beneficiaries are mobilised. This option was welcomed by the majority of the stakeholders but the limitation was that by 1 April it would not be readily available to everyone. This option is only looking at the beneficiaries who are in the banking environment and not the 4 million who are receiving their cash payment at the cash pay point.

The fourth option is the procurement of the services of all the banks that wish to comply with SASSA requirements to cater for beneficiaries who have access to banking infrastructure plus procure the services of the current service provider for grant recipients who are currently using cash pay points. This option is expensive especially to transport cash.

The fifth option is the procurement of the services of South African Post Office (SAPO). The SAPO has a network infrastructure of 2 700 post office outlets which could be utilised for beneficiaries to go and collect their money. However, the cash pay points are working at ± 10 000 pay points. Beneficiaries may not be reached especially those in the rural areas. There is also the need for a mechanism for transportation of money. Government to government collaboration is a good idea but the readiness of the Post Office to render the services is not clear.

The sixth option was forwarded by the Office of the Chief Procurement Officer himself. It entails appointment of a service provider for cash distribution to grant beneficiaries who are currently using cash pay points. It also involves banked beneficiaries to utilise their existing accounts to disburse grants through the banking sector. The limitation to this option is the timeframe to acquire most of the infrastructure needed for this project. The banking option also entails mass communication to all beneficiaries who have a bank account in a bank so that their details can be captured. On a positive note there is no supply chain that will be broken. However with the response of beneficiaries during re-registration, this may cause panic to the beneficiaries.

Short term option recommendation
Each of the six options has advantages and disadvantages, risks, varying probabilities of successful payment on 1 April 2017. Options 3, 4, and 5 are not feasible to ensure payment by SASSA on 1 April 2017. National Treasury was of the view that Option 6 is feasible, but SASSA is of the view that the option may cause panic and huge influx of beneficiaries which requires huge capacity and infrastructure. Option 6 will not enable SASSA to pay on 1 April 2017.

Given the above circumstances, SASSA came to the conclusion that it has failed. SASSA is of the view that Option 1 carries the least risk in terms of service delivery failure and as such should pursue the option while working on Option 6. In order to pursue this option, SASSA will approach constitutional court as a matter of urgency, since this is likely to be virtually the only mechanism to regularise such an approach which would otherwise be irregular. Also procurement in relation to Treasury practice Note 3 of 2016/17 will need to be followed.

Timeframe for Option 1
To explore Option 1, there is a need for negotiation of terms and conditions of the new contract with CPS. The key issue to be negotiated include the period of contract, costs, unfavourable conditions (e.g. deductions), phasing-in of services over the period of the new/revised contract. SASSA is recommending that the extension of the contract be for one year.

The second requirement is a request for deviation. SASSA will meet the Chief Procurement Officer because approval for deviation lies with Treasury. Treasury has agreed on the condition that the Constitutional Court supports/approves this.

The third requirement is the registering of the report with the Constitutional Court. SASSA will be requesting the Constitutional Court to extend the suspension of declaration of invalidity for a period of one year. This will be done hopefully by 8 February.

In terms of technical issues, SASSA is working towards extension of the validity of the current cards, encryption of the UEPS and MasterCard. The responsibility for this task will be manned by CPS in partnership with Grindrod Bank. This should end by February 2017.

On communication to beneficiaries and the public, SASSA will use all available channels of communication including capturing of the messages on the February payment receipts. SASSA and DSD will take responsibility of this. This will take place in February.

Medium term option
Everyone in the industry agrees to this option. This option involves procuring the services of all banks for those beneficiaries who seek to be paid through the banking infrastructure and also the procurement of the services of a service provider for those currently using cash pay points. The Terms of Reference (TOR) will make provision for the beneficiaries using cash pay point to migrate to a banked environment should they wish to. In order to mitigate the risk of banks cherry picking their clients and to reduce the current ills (deductions, transaction cost etc) within the banking environment, SASSA will either issue a closed bid for banks and or expression of interest for banks to provide a special account phased in over a period of time. A special account will be opened based on the terms and conditions which will be defined by SASSA with the assistance of the technical team. A control or corporate account will be opened from which these grants will be paid.

The risk associated with this option are limited SASSA involvement, choices of beneficiaries limited to payment choice they opted for, many dependencies for both the banking and the cash distribution route and also a fragmented payment system.

Medium term options timeframes
1. Establishing special accounts as a mechanism to pay banked beneficiaries:
The terms of reference for special account conditions will hopefully be finalised by 15 February 2017 with SASSA and SARB in charge of this. The approach to engage the industry through the Payments Association of South Africa (PASA) should be finalised by Treasury by 28 February 2017. There is already a list of banks with issuing and acquiring capabilities. SASSA will approach Treasury for approval for deviation by 20 March 2017. Issue of bid will be done by the end of March 2017, banks will provide expression of their interest in May 2017, contracting will be in June, finalisation of the processes which include agreements, prototypes and testing will be finalised in October 2017, first co-branded cards will be issued October 2017. Phase out of CPS will commence in November 2017 until March 2018 depending on the readiness of the industry. The redesign of the payment file to align to new participating banks and new payment provider will be done by March 2017. SASSA, Treasury and DSD will redesign the flow of funds by April 2017.

2. Cash payment management:
Prior to the finalisation of the TOR, the following activities will be undertaken: analysis of using bank account as a mechanism to allow beneficiary flexibility to access monies at pay points or any National Payment System (NPS) infrastructure, alignment to standard biometrics is compulsory; and SAPO to be included. Under RFI analysis, consolidation of the terms of reference by SASSA will be finalised from 28 February-03 March 2017. The procurement process will commence in April 2017. Phase out of the services of CPS will commence in October 2017 depending on the state of readiness of the new contractor.

Long term option
- SASSA being participant in the National Payment System with special exemptions (in line with the banking laws), ensuring that all payments take place within the regulated payment environment.
- SASSA issuing its SASSA payment card, this means having a new card bureau and dedicated bin numbers for SASSA.
- Biometric solution covering all beneficiaries and recipients. This involves a back-end link with Department of Home Affairs.
- The process towards the long term will commence in November 2017 and the actual phase-in will commence in 2019 in line with SASSA future plans. This includes application for the necessary exemptions, introduction of the SASSA future cards and establishment of a SASSA card bureau (the process will commence earlier to allow for piloting and testing).

Risks to be managed
- The payments contract expires on the 31 March 2017, however, the cards will expire in December 2017. Mastercard has given its assurance that on 1 April 2017 all cards will still be operable.
- For the biometrics system, predominantly used at cash pay point, these cards will expire on 31 March. Approximately 3-4 million people make use of this system and may not have alternative PIN activated on their card (thus they would not be able to use the NPS infrastructure). These encryption keys too can be extended automatically over the next few months when beneficiaries draw their cash. However an agreement needs to be reached with CPS as their proprietary system is used for these payments.
- Given the limited time left, it may not be possible for SASSA to successfully issue an expression of interest or for the banks to respond in a meaningful way.

Recommendations
It recommends that the Portfolio Committee notes and supports SASSA:
- To implement the short term plan to extend the suspension of the invalidity of the contract of the current service provider (for phase-out purposes)
- Phase-in the medium term plan for using banking infrastructure through limited banking accounts for the payment of social grants.
- Support the long term plan for being a participant in the National Payment System
- Support the use of SAPO infrastructure to extend the social grants payment network.

Discussion
Ms van der Merwe said that SASSA is overly ambitious in stating that there would not be a crisis, come 1 April 2017. The long, medium and short term plans can only be achieved if the Constitutional Court approves the extension of an unlawful and invalid contract. What has SASSA been doing since 2013? The fact that approval has to be gotten from the Constitutional Court, the fact that Treasury is not willing to release money for extension of the contract without this approval, means that there is a national crisis. SASSA has not approached Constitutional Court nor Treasury so what readiness is the presentation talking about. There is no readiness at all. What leadership has the Minister shown in ensuring that SASSA complies with the Constitutional Court decision? What will SASSA tell South Africans about the extension of the contract to the very same company that illegally stole their money? Nothing in the presentation gives hope that SASSA is ready. Is SASSA under political pressure to extend the contract? SAPO has been begging for this contract and yet SASSA wants to extend a lifeline to Cash Paymaster Services (CPS). The CEO of CPS and Net1 has been very arrogant lately. He said they are the only ones left and will continue to work with SASSA only under “favourable” conditions. Have these favourable conditions been negotiated with them? If so, what are the conditions?

Ms Masango said the recommendation made to the Committee lies in the Court agreeing to the extension and even the service provider itself agreeing. What happens if the service provider does not agree to work for one year but only for three years? Since last year, the Ministerial Advisory Committee was converted into the leaders of the work streams. The presentation however states that the executives of SASSA were given time to continue with their normal work. What work is this they are doing? The work streams and the executives are doing parallel work and are being paid salaries. SASSA has moved no further than it was in November 2016. All the plans are still on the way. Where is the budget that has been paying for these work streams? What exactly are the SASSA executives doing since the work streams are doing the same thing? Indeed, SASSA has failed. This delay even with the skills and expertise was deliberately caused so that SASSA could extend the contract of the current service provider.

Response
Mr Magwaza, CEO of SASSA, replied on why the request has not gone to the Constitutional Court yet, saying SASSA is still checking with lawyers on what exactly should be requested from the court. The lawyers have also assured SASSA that the court will approve since it is a matter of national emergency.

SASSA has not been idle since the 2014 Constitutional Court decision. The tender was advertised, only three bids were received but two pulled out and the other one did not meet the requirements hence the non-award of the tender. SASSA engaged with the CSIR until the function was moved to the Reserve Bank.

There is no political pressure for the extension of the CPS contract. The CEO of SASSA has pushed for CPS and Net1 to be charged for the criminal act [of deductions from social grants] and so he cannot be politically pressured to go that route. CPS has been doing a good job with respect to paying of the grant but the illegal deductions were done by Net1. SASSA is separating the two. Anything that will not enable the grants to be paid come 1 April will be put aside. Grants have to be paid but how it is to be paid is not the issue. No matter the punches or blame, if CPS is the only option for the grant to be paid on 1 April, so be it.

Even though CPS is arrogant; however, it is the media that decides on their own that there is crisis. Grants were paid before CPS, it was paid during CPS and it will be paid after CPS. Grants must be paid on 1 April.

The Chairperson asked if with the separation of the two, the CEO will take the responsibility of ensuring that CPS does not engage in illegal deductions if the court approves the extension.

Mr Magwaza said CPS is not deducting, it is NET1 that is doing the deductions; this has been verified in court. CPS has been doing a good job and would not deduct any money.

Acting Deputy Director-General of Comprehensive Social Security, Mr Brenton van Vrede, responded about the regulations that stopped deductions from social grants. The regulations are subject to a court case. It has been a difficult matter. It has been three months since the case was heard and the judge has not delivered his decision. Since SASSA will be moving the vast majority of beneficiaries to the banking environment, it will put in place a special account to help stop the illegal deductions. This account will have the back-up of the Reserve Bank and Treasury.

Ms Wilson said indeed SASSA has failed. It is absolutely ‘staggering’ to say that a lot have been done when none of the seven deliverables has been met. SASSA has always known that it cannot deliver or pay grants come 1 April. SASSA has forced an emergency because the Constitutional Court will be forced to agree to the extension of the contract. Why has it taken SASSA so long to report to the Constitutional Court for an extension?

There are two parallels working in the same department yet nothing shows the financial implications. Can the Chairperson invite Treasury to present on this matter?

The Chairperson said that the invitation will be done during oversight week.

Ms Sonti asked her question in vernacular. What other plan is available if the court does not approve the extension.

Ms Mogotsi said that the presentation shows that there is a way forward. The ANC government is doing a good job. It is also fortunate to have a Ministerial Advisory Committee, the interim task team and work streams, this is a milestone. When is the task team starting its work? What plans are in place for mitigating the risks highlighted? However, SASSA should communicate to the people on the way forward. She suggested that SASSA meets with the Committee each week for 20 minutes up to one hour.

Ms Malgas supported Option 1. SASSA’s communication strategy should be strengthened. Is the dormant account empty?

Mr Mabilo said the main concern is the payment of grants and the CEO has affirmed that on 1 April grants will be paid. He further supported the opinion of his ANC colleagues. The interim task team appointment is a fundamental item and a welcome project. It is unfair to attack the Minister in her absence.

Ms van der Merwe said she did not attack the Minister but only asked about her whereabouts.

The Chairperson said Ms van der Merwe asked questions on the leadership of the Minister. Mr Mabilo should be allowed to state how he feels about it. The letter written to the Chairperson by some of the committee members to summon the Minister is not acceptable. The Minster cannot be summoned but may be invited. The time the Minister went to Ethiopia was during the lekgotla. The lekgotla allowed the Minister to leave at that time.

Ms Motgosi said that political matters should not be discussed in the Committee.

The Chairperson said that the SASSA briefing contains what has been originally requested by the Committee and it is meaningful. It has the road map for the future. There is work already done. The Minister will be invited not summoned. Meetings will be arranged with SASSA.

The meeting adjourned.