Minister of Finance on SASSA and Cash Paymaster Services contract

Meeting report

Opening remarks
The Chairperson noted that everyone was present because of the failure of Department of Social Development, led by Minister Bathabile Dlamini, and SASSA to provide adequate responses the previous week on the 1 April payment of social grants that is receiving the attention of the nation. The Committee heard responses but was left with question marks about the contract, money and procurement process. SCOPA required a complete picture, firstly, on how everyone had reached this state of affairs, and secondly, where National Treasury was on the current engagements. Treasury would be required to approve the irregular expenditure and it was appreciated that there were budgetary implications. The information that the Committee sought but could not get, might be clarified by Treasury. How was Treasury involved and what was the complete picture of what had transpired according to Treasury in the matter of the CPS contract? This Committee’s function was to look after the public purse and its attention would be attracted by anything to do with finances or asset management that shows an element of recklessness. Its attention was first drawn by the irregular expenditure and it was its engagement on this that the grants payment contract came to the fore. It was by chance that they found out about the contract. SCOPA has pursued the matter since last year. It was not a small contract. It was not small change. It is one of the most critical programmes for the people of South Africa.

We have listened to and read a whole range of items but what actually is happening. At some point Committee would decide what to do but they wanted to hear from the Minister of Finance. He thanked the Minister for responding as soon as they wrote to him, with a positive answer which did not keep people guessing as to whether or not he would attend, even though he would be leaving for Germany that night.

Minister of Finance on SASSA and related matters
The Minister of Finance, Pravin Gordhan, congratulated the Chairperson and Committee on the work they were doing as they performed a crucial role in good governance. National Treasury was not the main actor, only a supporting actor so not too much should not be expected from Treasury but his colleagues had worked as hard as they could to put together as clear a picture with as many facts as they could. He was glad to have the SASSA CEO back in action. There might be issues Treasury was unaware of and the CEO could perhaps provide the missing information.

The presentation would show the need to balance sound financial and budget controls against the responsibilities to 17 million beneficiaries who need to be paid on 1 April and in the months ahead. Treasury was aware that there would be a hearing on the CPS contract in the Constitutional Court the next day and there was a need to avoid second guessing or pre-empting any decision of the Court which will give shape and direction to decisions. The Minister's briefing spelt out the respective roles of Treasury, SASSA and the Department of Social Development; gave numbers on the operational budget of SASSA, the social grants budget of between R2 and R2.5 billion per annum managed by SASSA; the procurement process; oversight role of Treasury; chronology of events from 2012 to 2017; and the money flow between Treasury, Social Development, CPS and Grindrod Bank; SASSA application for deviation and correspondence between the relevant Ministers and from Office of the Chief Procurement Officer (OCPO) to SASSA; the Court judgement; SASSA submissions; and the newly created Ministerial Task Team under Minister Jeff Radebe that had already met three times since 9 March.

Minister Gordhan noted that Treasury and SASSA had constitutional duties to obey the law but also what a senior counsel had referred to as a "higher duty" which is to ensure that all beneficiaries receive their grants on 1 April. He stated categorically that everything Treasury was doing was within legal bounds and where there was flexibility, that was utilised, so come 1 April the grants would be paid. What had to be looked was the route between now and 1 April but he was very confident that grants would be paid.

An understanding of the Executive responsibilities was very important as those responsibilities delineated roles and ensured that there would be no confusion of roles between the Minister of Social Development, Minister Dlamini, and the Minister of Finance. The Minister of Social Development is responsible for the payment of social grants through the entity that reports to her. In a letter to Treasury in February 2017, the Minister of Social Development reassured the Minister of Finance that there would be no disruptions to the payment of grants and that the desired solution would be effected within the ambits of the law. The responsibility of the Minister of Finance is to ensure that the resources and procurement framework are in place and then plays an oversight and support role. The Minister of Finance emphasised that he is not responsible for paying social grants but it was in the national interest that payments were paid to beneficiaries on 1 April.

The projected expenditure transfer for SASSA in 2017/18, for operational matters and including the payment to contractors, was R7.7 billion and the budget had exceeded spending for each of the past three years. The budget for social grants in 2017/18 was R151.6 billion, growing to R175.6 million in 2019/20. This meant that there was no shortage of money in the system to do what needed to be done.

The Minister referred to the constitutional provision that required that all tenders must be advertised, emphasis must be on competitiveness, and the bidder must indicate costs so that government could determine whether there would be value for money. Deviations could be applied for in exceptional cases such as natural disasters and if there was a sole supplier of services or goods, but there were regulations about how a department should manage procurement from a sole supplier. The role of Treasury in procurement is to set standards and frameworks and to give approvals, but only after the normal process had been followed. It was important to note that organs of state are required to draft specifications that provide an equal and equitable opportunities for historically disadvantaged groups. The way in which a tender is specified may favour a preferred bidder. That factor was crucial in the debate about SASSA and its procurement process. In terms of s165(5) of the Constitution, a court order would bind providers to the organ of state giving them a contract. In effect, CPS had become an organ of state while contracted to SASSA.

On deviations, the accounting authority has to determine the nature of the deviation and present a case for the particular deviation when applying to Treasury. Application must be made and approved before procurement can take place. Treasury was therefore unable to even consider a deviation until they received a Deviation Notice in terms of Note 3. A Deviation Notice had been received on 7 February 2017 but Treasury could not support the extension of the invalid contract. A second letter requesting a deviation for a new contract was received on 13 March 2017 and Treasury was urgently applying its mind to it.

The oversight and support role of National Treasury led to various meetings with SASSA, DSD and the Reserve Bank. The various meetings held since July 2016 were noted. In December 2016, there was heightened concern about whether SASSA was going to be ready by 1 April and a joint task team, consisting of SASSA, DSD, Treasury and the Reserve Bank, was set up and met extensively in December and January to consider a series of options for managing the payment. The joint task team considered six options. Of crucial importance was the fact there were two legs to the first option, i.e. an extension of the existing contract, although legal opinion was that it would be unlawful and would need to go back to Court. The second possibility under Option 1 was to sign a new contract with CPS. Five other options were considered, including working with banks, especially the one that provides services to recipients (Grindrod), and working with the South Africa Post Office (SAPO). They also considered combinations of the options.

The Minister gave a timeline of the SASSA 2011 tender process and the litigation that had since occurred up to 15 March 2017 with Black Sash and Freedom Under Law taking SASSA to the Constitutional Court.

The Minister emphasised the principle that the money reach the bank accounts of NET1/CPS/Grindrod Bank three working days before the payment date. Treasury had reviewed the money flow and found that CPS/Grindrod keeps funds for five days on average before paying recipients, why? Over a year, they paid out R11.2 billion. That money presumably attracted interest. What happened to the interest. Treasury believed it should come to government. That was a matter that would receive further attention once the payment crisis had been resolved.

It should be only three working days before payment is due on the first of the next month. Money is transferred by National Treasury to the DSD account at the Reserve Bank. This money is transferred to the nine provincial DSD accounts at the Reserve Bank and then on to the Net1/CPS Nedbank account and from there into Grindrod Bank. The first four transfers take place in a single day and then, for on average of five days, the money is held in Grindrod Bank.

Grindrod pays in various ways - service points, retail outlets and direct deposits into recipient bank accounts. 4 million recipients get their grants at pay points and merchants outlets. 4.9 million recipients hold Grindrod Bank accounts and they withdraw from ATMs of other banks; 1.6 million recipients have their own bank accounts but there is a cost to the recipient for using the ATM.

The presentation listed the Minister to Minister correspondence plus DSD/SASSA and Office of the Chief Procurement Officer for the record. The correspondence showed that following Treasury becoming aware of the unlawfulness of the current contract, DSD/SASSA were advised Treasury could not support an extension of the tender unless the Constitutional Court approve the tender, and it was for the shortest possible time so SASSA could get back to the competitive process. The Court declared the tender unlawful on 17 April 2014 but suspended illegality until 31 March 2017. The judgement was very important because the principles indicated by the Court had a direct impact on National Treasury. CPS became an organ of state by virtue of the Court decision and has all the obligations of an organ of state and could not walk away from the contracted work. The Court ordered that CPS could not benefit from an unlawful contract. The Minister said he was raising the issue but did not venture an opinion on it.

The current position was that the March negotiations between CPS and SASSA had been declared null and void by the Ministerial Task Team which had been formed under Minister Radebe in the Office of the Presidency. They were engaged in discussions towards 1 April; negotiations beyond the SASSA deviation application, and future road map options.

The Chairperson thanked the Minster and welcomed Deputy Finance Minister Mcebisi Jonas who had arrived during the presentation before asking the Treasury Director-General if he wanted to add any details.

Mr Lungisa Fuzile, Director-General, said that they had worked well with Department of Social Development. He had not been in all meetings but had always been willing to step in. He clarified that Treasury had to act with entities with two things in mind: if an entity comes back to Treasury with a request, officials have to help but cannot put themselves in the position of "applying to themselves", so to speak, so they had to keep a balance. Officials were not pedantic, nor were they overzealous but always conscious of the final role of Treasury. Secondly, whilst Treasury would go with everything into the market, they always tried never to take over the legally assigned responsibility of another entity. Treasury officials always reminded themselves of the fact that matters of procurement in an entity were the responsibility of its Director General/CEO. Procurement in SASSA was the responsibility of the accounting officer of SASSA – only he could make procurement decisions. The Treasury Director-General could never make procurement decisions on behalf of SASSA. Treasury’s role was to give advice, not instructions, and they could be requested to put such advice in writing. Treasury officials helped to find the quickest solution, but aligned to the law, or, at worst, as close as possible to it.

The Minister of Finance said that what the Director-General meant was that politicians ought to keep their noses out of procurement because that was the job of the administration, and not a political decision. He personally did not interfere in administrative matters.

Discussion
The SCOPA Chairperson expressed his concern about what was happening in SASSA and, in particular, the number of CEOs that SASSA had had.

Mr M Booi (ANC) thanked the Minister for coming to the Committee and giving a lot of information. He expressed concern about the Grindrod and CPS relationship. It worried him that beneficiaries received payments but at the same time are being invited to buy insurance and so on. What type of contract does CPS have that it can do this? Where did the protection of Treasury for ordinary people end? CPS was playing the role of selling services to recipients from its other entities. Are we on the road to ending the relationship with CPS? What are the implications for the control of data by CPS for South Africa's democratic processes? Anyone who controls the data on R17 million people, can control democratic processes. Could the data be used for voter fraud and so on? These people were the poorest of the poor and the Parliament must take the matter seriously as it was a security challenge. Whoever controlled the data could win the elections. Mr Booi felt that it was important to find out where the recipient data was as the Minister for Social Development said that it was halfway back to SASSA. How could Cabinet allow this data to be with a private company? It was a security challenge. He asked if SASSA understood and appreciated the rules for deviation. If CPS bring in technicalities in Court, SASSA would have left government hanging. Empowerment rather than the fronting is what is required to take South Africa forward. Why was the domestic economy not growing from the grant money? Grindrod and Net1/CPS owners were not South Africans, so who was benefitting?

Mr E Kekana (ANC) asked when the SASSA would fill in the gaps. The Finance Minster had been very clear in his presentation and the Committee understood the role of Treasury but the Minister had said that even he had information gaps where he had not been involved. Was the agenda only that the Committee listen to the Minister of Finance? The CEO could indicate if he wanted to respond.

Ms N Khunou (ANC) said the Minister emphasised the role of Treasury but the Court had a different view of the role of Treasury. What is correct? Treasury is monitoring public funds. Did Auditor-General South Africa know the details because they went meant to check the spending patterns of departments? Was Treasury playing its full role? Secondly, the Minister spoke of 17 million beneficiaries initially but later referred to different numbers and she needed to understand the numbers. The Minister of Social Development had said they were paying R16.44 per beneficiary to CPS. How did the numbers tally? The deviation of R3.5 million paid to VIP Protection was a concern. The Committee had been led to believe that CPS was doing the job on its own, but the Minister had indicated that Grindrod Bank was involved in the process. She referred to Post Bank, and she understood that SAPO had offices in 80% of the places where grants were handed out, so she questioned why government did not have confidence in SAPO. If SAPO did not have enough capacity to assist SASSA, what could be done to strengthen SAPO to do the job instead of outsourcing so the profit went to a government entity and not a private company. As Mr Booi had said,  poor people paid loan sharks in the form of Grindrod for funeral insurance. She asked why CPS had a government database of recipients and who had given the names to CPS.

Ms T Chiloane (ANC) asked about the intended SASSA and CPS and the legality of the process. She understood the permissible reasons for requesting a deviation was only in the case of either a natural disaster resulting in an emergency or a sole provider. It appeared that CPS was a sole provider. A tender that is more than R500 000 should go for bidding. The SASSA budget was 30% goes to contracts and 70% goes to service delivery. Would this contract take all the money and how would it affect service delivery? How could Treasury help with that matter? In terms of the options provided by the task team, the Minister of Social Development had said that SAPO was not ready to distribute grants but she ask Minister Gordhan if SAPO could distribute grants payments over a period of time?

Ms V Mente (EFF) noted that the Minister had referred to a deviation as one of the options that might be utilised but she pointed out that emergencies are acts of God. SASSA had an emergency that was the act of an individual who refused to understand the law and follow proper procedures so that SASSA found itself in a situation where it had to consider the national interest but the individual had been holding an AK47 to all their heads. If the deviation were considered, was Treasury going to give the contract to those people who have had no desire to help SASSA develop systems so that DSD/SASSA could deliver the grants to the people. On 28 February the SASSA Project Manager had said that they might have systems in place by 2018 but a deviation could only be for a short time. Yet even 2018 seems too soon for this to happen. Was the Finance Minister and Treasury going to trust people with the money when they could not do the job? It had taken ten months so far, so it would take at least another 10 months to get a new tender, which is not a short period. And it would be the very same people running the tender who did not have systems in place and who had no desire to change from CPS. The Finance Minister mentioned a bilateral the previous year with Minister of Social Development and the President, where he said the contract could not be extended  and that proper procedure should be followed. On the matter of Grindrod and the five-day interest, it explains why the CPS CEO, when asked why he was jumping from R16 to R22, said it was due to CPI. Where did he get those figures for CPI? He knew he was the only one in South Africa who could give out grants. The assurance or confidence that he had was granted to him by the Department itself. Why did the Department have discussions with him? Someone was driving this baby into a ditch and should we all follow blindly into the ditch? Would the Minister allow CPS to increase the distribution fee from R16 to R22? That was daylight robbery.

Mr M Hlengwa (IFP) thanked the Minister and Treasury for providing clear facts and a thorough breakdown to determine exactly where the crisis lay. He understood that the Finance Minister should take care not to micromanage the Department of Social Development. With the current budget realities, was there additional funding available for what Ms Mente considered daylight robbery and an ungodly escalation? CPS was a bunch of crooks robbing the people and the state. Did government have money for the new arrangement? Which combination of options did Treasury believe would take government out of the quagmire? Did Treasury consider the situation to be an emergency as required for a deviation? On Friday, a baby had been kidnapped but the mother had been involved in the “kidnap” all along. Was that the same case with the contract? The Court had made a decision on the contract but it was bound to expire in any event. On contract management, what assistance had been given by Treasury to guide the tender process. Instead of 90 days, it had become an open-ended arrangement. Had Treasury been engaged and what advice had it given? In the view of Treasury, did SAPO have the capacity to disburse grants and what was needed to build South African capacity instead of relying on American and Australian companies. For what reason had money remained in the CPS/Grindrod Bank account for five days? He asked if there was a possibility of asking banks not to charge ATM fees. Which models could subsidise those charges? The Committee needed to speak in the interest of the people. It would be a great injustice if CPS continued to receive the contract. CPS was a giant of a thief. Treasury’s responsibility was also to ensure that providers acted in the interest of the people. He pleaded with the Minister not to give them the contract.

Mr T Brauteseth (DA) expressed his appreciation to the Minister and his team and also thanked the SASSA CEO for being there. He said Dr Makhosi Khoza, currently an MP, had been on the 2013 Ministerial Advisory Committee earning R500 000 and had been employed in one of the work streams earning another R500 000 but that had not been declared in the Members’ Interests Register at the provincial level or in the national Parliament. Was that appropriate? After the advisory body had done its work, the Minister of Social Development had written to then  SASSA CEO, Virginia Petersen (and Mr Brauteseth quoted from a letter) "regarding work streams the Minister had determined who should serve on them. She had decided to retain Mr Andile Nyhonya, Dr Makhosi Khoza, Mr Tim Sukazi, Ms Tankiso Parkies, Mr Sizwe Shezi and Mr Patrick Monyeki. Was it appropriate for the Minister to instruct that they should be retained, especially as their costs amounted to R47 million? Was it appropriate for members of the Ministerial Advisory Committee to get the work in the work streams? There were no procurement process to pay people in the work streams. What was the status of that expenditure? The procurement process had begun with the Minister and had bypassed regulated procurement processes. Mr Brauteseth referred to various documents. How on earth had the Procurement Office of Treasury approved the deviation, despite all of the above? As far as the concerns about other potential bidders, were they potentially discriminated against? Had Treasury changed its mind on the approval of a deviation? Despite the friendly nature of today’s engagement, the approval by OCPO had to be raised as it was a matter of deep concern to him. The previous week the Minister of Social Development had said that she had not wanted to work with the banks as Standard Bank owes R500 million and Ithala Bank owes R1.1 million. Ithala Bank had denied this, but was it true? Did Treasury or the Auditor-General know? Mr Brauteseth explained that he was attempting to test the validity of the Minister’s statement in regards to the money owed by the banks, as the monies owing was given as the rationale for not using the banks. The previous week, the Minister of Social Development had said numerous meetings had been held but Treasury had not attended. Were there any meetings where Treasury had been invited to assist with solutions and had not arrived, and why? Had Treasury ever been presented by a payment model by SASSA or were they waiting for the court decision? Mr Belamant of CPS had said in public in February 2017, that there had been numerous conversation between SASSA and CPS without Treasury and in secret because “Treasury would not understand the content”. In November 2016 SCOPA had a hearing with SASSA about a R316 million payment to CPS for which condonation had initially been granted by Treasury but approval had been withdrawn. It was said that National Treasury was about to declare it fruitless and wasteful expenditure. What was the situation?

Mr C Ross (DA) asked the Finance Minister and his delegation if they did not agree that the government was facing a crisis of credibility and a crisis in terms of uncertainty in the country, especially by people who receive grants? He queried the timing of interventions by Treasury. According to Section 85(a) of the PFMA, the Minister of Social Development had had to report to Treasury that the case bordered on criminality. Had the Minister reported misconduct in terms of the supply chain to National Treasury? Had she reported or was she in breach of the PFMA? In respect of the financial mismanagement and disregard for the ConCourt findings by Minister Dlamini, had she fulfilled her obligation or was she in conflict with the PFMA? Was she responsible for misconduct in terms of supply chain management? Had there been any engagement between the Ministers of Finance and Social Development? Had they spoken face to face at any stage as advised by the legal advisor? How difficult was the intervention and what would the Minister’s views be about the intervention? On the deviation and irregular expenditure, did the joint task team have consensus to approve it or were they waiting for the court decision? SASSA’s submission to the ConCourt indicated a request for the court to hand over the evaluation of the SASSA contract with CPS to the Public Protector or the Auditor-General, but was it not Treasury’s primary role, and specifically that of OCPO, to evaluate the contract? What was the position of Treasury on the supply chain problems and uncertainties arising from the application to the Court that it would take 20 days to file details of the new CPS contract with the Court.? Was it possible to be given any guidance about the new contract? Had there been any movement? What was Treasury’s view of irregular expenditure and had it increased over the past year?

The Chairperson noted that the Minister had to leave for Germany that night. He asked what was happening with ministerial task team as it had voided any agreements between SASSA and CPS. Whatever SASSA had been doing had been a waste of time. Was that politically a vote of non-confidence in the relevant Minister? Why had Cabinet decided on a task team? Was it possible for National Treasury to talk to Grindrod and find out how they make money from the interest and from the funeral policies and so on? How could government stick to a company that clearly disrespected government? How were the politics around that company discussed in Cabinet? The company was parasitic. R16 was charged but that had included setting up infrastructure, so why did CPS need more money? Considering the role that the Minister of Social Development sought to play in administration and procurement, should the Minister be held personally accountable? The political hand could not be involved in securing resources. A particular concern about the approach of SASSA was that it started with a single option. No other option was considered. We are now stuck with CPS but this seemed to be the intention from the beginning which implies that all the problems were political. There are a number of contracts showing the middle finger to the state such as PRASA. Unless these observations are crazy, it would be interesting to discover how these contracts were the result of politically involvement.

Response
Minister Gordhan indicated that he would answer as far as he could and that his colleagues would add to his answers. Government wanted to remove the sense of uncertainty and crisis as soon as possible and give the assurance to the 17 million beneficiaries of the social grant system that they would receive their social grant on 1 April. It was for that reason that the Ministerial Task Team was set up under Minister Radebe and a technical task team has been set up to ensure that the higher duty that government has to the people is executed, as far as possible within the framework of the law, and where that framework may be constrained, we must ask the Court to agree to it as a temporary measure, to ensure the payment could be done on 1 April. So a combination of the political process and the judicial process will give us absolute certainty within five to six days. The common objective would be to ensure payment on 1 April. Thereafter it would be necessary to sort out who was responsible and why and how it happened. SCOPA would have to find out the facts and establish who was responsible - that was not National Treasury’s job. The Minister wanted to remove the issue of "whether" grants would be paid as it permeated many of the Committee’s questions. The Minister assured SCOPA that Treasury would do whatever it could to assist the process. He was sure that SASSA would have a similar objective and the government system will be involved.

The Ministerial Task Team will explore how to ensure payment on 1 April, set up a negotiating process and determine the most appropriate way forward. All options had to be considered, including banks, SAPO and all the combinations of options. He suggested that perhaps SCOPA should call the CEO of SAPO as he had ideas and proposals. He explained that it was legally necessary to void the negotiations between SASSA and CPS that had taken place two weeks earlier because the procurement process needed to be entered into first before a deviation was applied for. The task team would determine which route they wanted to go, and the process would depend on the result of the approval process; secondly, they would consider the mandate of the negotiating team and the minimum numbers that they were looking for and, thirdly, what were the outcomes that they sought. The Minister would make not pass any political judgement but would leave that to the Committee.

On Grindrod, National Treasury was merely asking the question. If the money were sitting in an account for five days, it should be accruing interest and if it was, where was that interest? They were not making assertions but after asking questions over the previous few days, they had established that, on average, the money was in the Grindrod account for five days. The Minister should not comment on the CPS CEO but he would send a message to the shareholders that they should ask some tough questions about the CEO’s public appearances and gross statements that he has made in a very arrogant and disrespectful way about the very government from which they make millions of rand in terms of the contract they currently hold. The shareholders’ names are known. The information is publicly available. The shareholders should ask if that is the conduct that they wish to be identified with? Is that the brand with which they want to run? The Minister pointed out that this was not child’s play as they were talking about 17 million people who depend on the grants on a daily basis for their own welfare and well-being.

As far as the R16.44 payment to CPS, SASSA is better placed to provide more details on that. He considered it a logical question because if one had spent five plus years developing infrastructure for payment, what new needed to done? Given the invalidity of the initial tender, any new arrangements would be for as short a period as possible, so what new costs would need to be incurred? On the letter, the point is to share that procurement is the province of the officials and whether it was in a municipality, provincial government or national government, that dividing line between officials and politicians in respect of procurement needs to be understood in the use of public funds and for good governance as well. In terms of SASSA pursuing a single option, those that must make the decision about it must explore it further. All that National Treasury was saying that it was only in early December 2016 when they drawn in and their officials were involved in putting together the six options before the Committee. They determined that they must look at all the options and see on the one hand what would be most effective in delivering the grant to the 17 million beneficiaries or 10.5 million recipients, and secondly, what would be cost effective.

On the question of a crisis, Treasury officials were not aware of the Auditor-General report on the invalidity of the R47 million contract for work streams but they would revert to SCOPA once they had checked. On involvement in the process, the Minister of Finance said he was approached in early January by the Minister who said that we needed to discuss the matter and he had been given two legal opinions and two documents that outlined the new system and then a series of interactions by telephone and letter was initiated, including interactions by officials. Two Saturdays previously, the President convened a meeting where he had been briefed on developments and subsequently the Ministerial Task Team was established and took over the function on a more collective basis. Mr Ross had asked if the task team had approved the deviation. As the Director-General had explained, only the Procurement Office in Treasury could make that decision based on the information available to them. Neither the Minister nor the task team could make the decision to approve the deviation. Only those accountable for that process, working under the Treasury Director General, would ultimately make the decision, taking the available information into account and with regard to the law.

On a point of clarity on the oversight role, the Constitutional Court sent questions on 9 March. Amongst these was the question: who, in their view, should play a supervisory role. It was in that context that the Minister and SASSA responded and had suggested that the Public Protector or the Auditor-General or anyone else that the court might suggest.

The Minister agreed that it was quite strange that SASSA wants 20 days to file details of the CPS contract to the Court. To Mr Brauteseth he replied that he was not familiar with details of the work streams. The matter of Dr Khosa was a parliamentary matter and for its Ethics Committee not a matter for Treasury and they could not offer an opinion on the matter. Was it appropriate for the Minister of Social Development to predetermine who should get the work? The answer was in the negative but his colleagues might have further information about the case. On who obtained the work, he referred to the competitive role in procurement. On the receivables in terms of unclaimed benefits, there were bank accounts and money had been paid into bank accounts of grant recipients but the money had not been withdrawn. In other words, these were unclaimed benefits. There are similar phenomena in pension funds. The question was how to balance the need for the money to remain for those who might want to claim it versus using the money differently versus returning the money to Treasury. That was the dilemma.

The Minister did not attend SASSA meetings so his colleagues would respond if appropriate. The financial model for payment on 1 April would depend on the deviation and negotiations with CPS and court decisions. CPS was staking its own claims in the public domain but it was necessary to wait for the court decision. Mr Hlengwa had asked if National Treasury had the money for an increased CPS fee. Initial interactions suggest that SASSA might have the money in their own pool depending on how much they were talking about but National Treasury will have to come to SCOPA if something extraordinary has to be done to supplement those funds. Many departments experience a squeeze. National Treasury officials would help them to understand where they could find money in their own funds. The criteria for appointing someone to distribute the grant would probably be: effectiveness and cost effectiveness and current facilities available. There was no need to generate panic as there was a commitment via political, judicial and administrative processes, to make it happen and in as transparent a way as possible so that everyone is aware of the process.

SASSA would have to answer questions on the contract. On SAPO, the Minister suggested that SCOPA invite the CEO of SAPO as it could play a good public sector role. He shared concerns about the so-called cross-selling and utilising the information on the data management system. This was one of the issues that was to be addressed in the Constitutional Court on the next day. Treasury was itself worried about it as Treasury believed that the information about the 17 million beneficiaries was the property of government and not that of a private company.

The Minister agreed with Ms Mente that the emergency was not an act of God and the CEO, or acting CEO, of SASSA would have applied his mind to which part of the regulation he was using as a basis for asking for the deviation. We are not “giving money” to anyone. Appropriation of funds happens in Parliament for Social Development as a department and for SASSA as an entity and Parliament should ask how they had spent their money. However, a contingency was faced so in order to ensure grants were paid on 1 April and for the next few months, special measures may have to be put in place so that grants are paid to the recipients. Tender timeframes were variable, depending on a number of factors. The Minister could not comment on the bilateral meeting of July 2016 and following meetings as he was not in attendance. He was sure that the CPS CEO would be getting the message from Ms Mente, loud and clear, so he did not need to add to her comments.

He agreed with Ms Khunou that it would be ideal if SAPO, a government entity, could be built up and it was a good point that government should deal with the charges that banks charge the poorest of poor. Treasury would look into it and pick it up with the financial sector but Ms Khunou could probably also take it further herself through the parliamentary committees, such as the Standing Committee on Finance. Pay points would have to be addressed in the next couple of months, not years. It needs to be cleared up who is entitled to what and who is not - financials show that Net1/CPS benefitted in two streams - from the payment of grants and from the so-called cross-selling process.

On Ms Chiloane’s question on whether SASSA and CPS had agreed on way forward, the Minister said that they were looking at a mechanism that would take the process through the next few months and create an environment where there is certainty that people will receive grant payments. Whilst that was happening, the technical task team that would work under the Ministerial Task Team would consider other options that could take over from the temporary option and, thirdly, we need to wait for the court decision to see what other parameters had to be worked with.

On Mr Booi’s question on the selling of other products, the Minister was unable to answer as it would depend on the kind of contract that was signed with Net1/CPS. There might have been something in the 2012 contract but SCOPA should check that. He wanted to underline the misperception that something would have to happen in the next day or two in terms of Treasury passing money through the system. As he had indicated in his presentation, it had to be noted that money only started flowing three days before the day of payment so there was no immediate urgency even in the next week that threatened the payment of grants on 1 April. That had been a revelation even to Treasury and so that assurance could be given to the public. There is a challenge politically in South Africa of using slogans to communicate but these slogans become misleading. The facts are important not the slogans. Questions should be asked about ownership patterns and benefit patterns. Transformation is about changing things and giving new opportunities and slogans can mask all sort of things as the Committee was discovering in its enquiries. Parliament should assist in demystifying the issues for the South African public. Slogans could mislead people. The Finance Minister would ensure no crisis and that grants would be paid on 1 April and that task teams would manage the process, but a lot would depend on the Court’s decision, and information about beneficiaries belongs to government. He joined SCOPA in sending a message to the shareholders of CPS that they have the role of accountability as an organ of state not only to shareholders but to the South African citizens and they should be more respectful of government and understand the sensitivity of the work that they are doing.

The Committee was informed that Grindrod shareholders were Rembrandt and other South African companies. CPS was owned largely by Rembrandt and a smaller portion by a foreign company. The empowerment credentials of CPS was a matter before the Court.

Director-General Fuzile stated that more often than not National Treasury became involved in the conversation but it was not about money: there was money to pay the grants and there was money to pay whoever pays the grants. An Appropriation Bill was before Parliament that will legally authorise National Treasury to draw the money from the Reserve Bank and to process it to Social Development. The issue is not about money. In the very unlikely event that the money earmarked to pay the service provider was exhausted, it would only happen at the end of the financial year and there is a route through which it can be augmented, that is, to look for money within SASSA and if there is no money there, we could look further into the system. He repeated that there was no problem of money but what did not exist was a contract to make those things did happen. To his recollection there was only one meeting that Treasury missed and that was because they did not want to be involved in meetings to negotiate a contract with CPS.

National Treasury frowned on illegal deductions and they had a process underway to find out what illegal deductions existed in the system. Treasury was trying to write rules even as people found a way to make things happen. He agreed with Ms Mente that it was offensive. On the number for CPI, it was higher than the figure with which she is familiar because people are not separating sum from average. 6% this year and 6% next year is not a total of 12% but an average is required. Any meeting that National Treasury did not attend was discussing the contract with CPS – that meeting may have taken several days. The Minister clarified that the R16.44 paid to CPS is per recipient, not per beneficiary.

As far as the receivables were concerned, some related to old order arrangements before SASSA was established when monies were distributed to the provinces to pay social grants and it was about how contracts had been structured. When payments are done, there should be a reconciliation process. Money not paid should be swept back to government but sometimes the money is paid into someone’s account while they are ill and then becomes part of estate when they die so it is not government’s money. The system was not open crookery but a conversation was needed on how much should come back and what was the interest accrued but the numbers that National Treasury had were far smaller than those talked about, i.e. not R500 million but R41 million but it would be sorted out.

In response to Mr Brauteseth’s question on whether the outstanding amounts would disqualify banks from the tender process, the Director-General said that disqualification could not be done arbitrarily but must follow a process. As far as he could see there were no grounds to disqualify banks. Since people live within the vicinity of ATMs, any mechanism that processed money through an ATM was fine. This was the case with Grindrod. Given that people faced charges at ATMs, could money not be sent to the bank where a person had an account? As far as favourable terms being negotiated with banks, it was usual for banks to negotiate with customers but the Director-General conceded that banks might be open to negotiation.
 

On the bilateral meeting with SASSA of 28 July 2016 from 11:00 to 15:00, National Treasury informed SASSA a month in advance, that as it was a budget bilateral, SASSA was requested to complete a one-pager of questions about how funds were going to flow, a long term vision and, in particular, the new budget bid they were making. Good minutes were kept of the meeting. Being a bilateral and a closed session, the gloves were off and questions about readiness – in fact, most of the questions asked by members today – were asked in that engagement to help each of them with the budget moving forward. Sometimes Treasury exceeded its mandate but we were providing assistance to SASSA in what they had to do. It would have been agreed upon that Treasury needed to be updated as it was a dynamic, rolling engagement, and issues would have been updated since then.

Mr Schalk Human, the Acting Chief Procurement Officer, explained how the deviation process works. The procurement process consists of three committees: a specification committee, an evaluation committee and an adjudication committee. The reason for the specification committee is to determine the kind of contract, giving considerations to the payment terms of the contract e.g. full payment, time-based etc. The committee addresses quality, specification etc. and, even if it is a sole source, it is necessary to formulate these matters. Then a bid is invited, even if a sole supplier, as the bid forms the basis of a contract. In the case of the work streams, we received the application on 23 June 2016 and it was finalised on 19 January. National Treasury could provide a summary of that process. They had asked for additional information that would make it very clear that it was in the interests of delivering an outcome. It was clear there would be no competitive bid and it then received additional information on why special skills were needed and it approved the application provided that costs were reasonable, and it requested timesheets and invoices, which were given to Treasury’s satisfaction.

Mr Solly Tshitangano, Chief Director of Supply Chain Management Governance, Monitoring and Compliance Unit at the OCPO, explained that other deviations for the work stream were not approved, i.e. the deviation for work started in July 2015. Three contracts were signed in June 2016. As they had worked already for a year 2015 to 2016, the application was not approved but he did not know if the Auditor-General would approve. R3.16 million in irregular expenditure was so declared because former CEO approved verbally and then in writing but after that, corruption was found and it was declared fruitless. The matter was in court at the time. Clarification was provided in that Mr Human referred to the period for processes received for the period 23 June 2016 onwards but Mr Tshitangano had referred to the previous 12 months. The Director-General would provide records as they were talking on different issues.

Mr Booi noted that the Minister had answered many questions and that they were applying their minds collectively, although details must be followed up. Could the Minister submit the contract to the Committee so it could see what was agreed upon and the details of the financials. The Committee was representing the people.

Mr Hlengwa thanked Treasury for demystifying the whole matter as the perception had been that Treasury had not been cooperating; but Treasury had indicated that the money was available and grants would be paid on 1 April within the parameters of the law. Unfortunately, the presentation by Treasury had opened other issues and as SCOPA, they needed to further investigate some the decisions. The SASSA CEO needed to close certain gaps. He proposed inviting the SASSA CEO and the SAPO CEO to a SCOPA meeting before the Committee made a recommendation.

Ms Khunou agreed that they needed SASSA and SAPO at a meeting and thanked Treasury but there was a problem of miscommunication. She wanted communications rectified and to be told about other things that go to court. The Procurement Office of Treasury should be beefed up as it could help all the departments. National Treasury may approve a departure from Treasury regulations and must inform the Auditor-General in writing. But did National Treasury have teeth and, if so, why were they not biting? Most departments did not follow the PFMA and so a workshop was needed with all Directors-General / accounting officers so that there would be a common understanding of PFMA and departments should follow the PFMA.

Mr Hlengwa suggested that as a Committee, they should not approach the matter in a piecemeal fashion but they needed a full-scale structured enquiry so that they could drill down to bring the matter to a logical conclusion. The money was there, but in the final analysis, the Committee was concerned about due process, conduct and leadership and therefore could not deal with the matters ad hoc but needed to find applicable parliamentary procedures and have a full-scale enquiry.

Mr Ross welcomed the presentation and appreciated the interventions made by Treasury under very difficult circumstances. However, he was concerned about Minister Dlamini and Social Development‘s disregard for Treasury regulations and even Court decisions. The DA wanted to join with their colleagues in calling for a committee of enquiry but the DA wanted to propose a full parliamentary enquiry.

The Auditor-General representative agreed that the source of receivables was as indicated by Treasury and related to old matters.

The Chairperson, speaking for all colleagues, said that the attitude displayed the previous week had been misplaced in terms of having everything under control. What had emerged was that the process of getting a new contract had been taken away from the Minister of Social Development by Cabinet and given to a team led by the President’s Office, indicating a crisis of confidence in the management of the matter, especially the matter of CPS. Speaking for himself, he was concerned about government’s own incompetence and what the court would say. It was very clear that grants were going to be paid but the Committee’s main concern was whether it is going to done legally and within budget.

The Minister thanked the Chairperson for the useful interaction and noted that transparency was a key point of accountability and it was necessary to put complicated matters in simple terms. He thanked his colleagues for their hard work in preparing the presentation. As regards the use of teeth, he noted that when Treasury used their teeth, the other narrative started and it became a question of “Treasury this” and “Treasury that”. Unless an environment was created in South Africa where, as the Committee had said, everyone did the job that they had to do as assigned by the Constitution and the law, and accept the fact that everyone had a particular role, they got into sloganeering but behind that was the particular objective to weaken the Treasury, to take over the Treasury, etc. etc. but it is not child’s play and it makes it difficult to use the teeth. It takes a tremendous amount of integrity and courage amongst officials to show, let alone use, the teeth. The PFMA, whilst it places certain responsibilities at the door of Treasury, it also spells out the responsibility of accounting officers and the Executive. Treasury refused to take on the responsibilities of the departments. It was necessary for everyone to understand the law and what each one was obliged to do. It was not a big brother, big sister process. Everyone had to follow the law and do what had to be done without too many other distractions and not allow the extraction of money from the state for no-good purposes. It was not about wanting to understand the law but abiding by the law and if one could not, one needed to be transparent and ask for processes such as deviation. Nevertheless, National Treasury was willing to offer cooperation with a workshop on PFMA. One should not create an environment where the separation of powers is called into question but the separation of powers did not mean that there should be no involvement either and there were grey areas in which society would find itself from time to time and we would need to learn to cope and to define the rules of the game so that they had the right checks and balances on one hand and demonstrated good governance on the other hand.

The meeting was adjourned.

The Minister of Finance, Pravin Gordhan, was accompanied by Mr Lungisa Fuzile, Director-General: Treasury; DDG: Public Finance, Mr Dondo Mogajane and Acting Chief Procurement Officer, Mr Schalk Human. South African Social Security Agency (SASSA) CEO, Mr Thokozani Magwaza and CFO, Mr Tsakeriwa Chauke, and Acting Director-General of Department of Social Development, Nelisiwe Vilakazi, were present as well as Auditor-General SA and South African Reserve Bank representatives.