SASSA Project: South African Post Office progress report

Meeting report

Ms Lindiwe Kwele, SAPO Chief Operations Officer, reported as follows.

Crucial background information on payment of SASSA grants by SAPO
• On 2017-06-12 SAPO delivered a presentation to the Technical Committee of the Inter-Ministerial Committee (IMC) on the readiness to delivering the payment of SASSA grants to beneficiaries.
• 2017-07-14: SAPO received a letter from SASSA CEO, Mr Magwaza, confirming SASSA’s intention to appoint SAPO as a Service Aggregator to pay the social grants on a Build, Operate, Transfer model. This letter was accompanied by a letter from National Treasury supporting SASSA’s request for deviation from normal procurement processes in the appointment of SAPO.
• 2017-07-25: SAPO received a hand delivered copy of Request for Proposal to bid for the provision of Payment Services and Systems for Social Assistance grants.
• Conclusion and critical steps were taken at the IMC Presentation on 12 June 2017.
• SASSA had a deadline of latest 30 September 2017 to contract SAPO to meet the April 2018 deadline.
• SAPO involved SASSA in contract negotiations with suppliers, ensuring all technical requirements met.
• SAPO and SASSA engaged in transparent pricing modeling and negotiation processes
• SASSA to share critical information on pay-point locations
• Combined teams from SAPO and SASSA would develop detailed project plans with clear deliverables, timeline and costing will be prepared by these joint teams.
• Later in the year, on 2017-11-14: An Inter-Ministerial Committee intervention was held at Sea Point.

Results from IMC Intervention at Sea Point Resolution
SAPO can provide these services by 1 April 2018 (based on Postbank existing core banking capabilities)
- Electronic Banking Services including Corporate Control Accounts and Special Disbursement Accounts
- Card distribution
- Integrated Grant Payment System
- On-boarding of new beneficiaries
- Biometric authentication of beneficiaries

Services that may be provided by SAPO by 1st April pending cost evaluation
- Card Body Production
- Cash in Transit
- Guard Services
These items were considered doable pending price comparisons by SASSA based on their research market.

Quick Win - Hybrid Model
SAPO commenced mapping branch locations against SASSA pay-points, in order to supplement the existing cash pay-points for grant payment.

The adopted ‘hybrid’ model was considered a quick win as it allowed access into the existing beneficiary customer base to convert them either to a Postbank account or convert them from being a strictly ‘cash’ recipient to withdrawing cash at SAPO branches.

Key Contract Clause into Migration
The parties acknowledge the social grant payment services are currently rendered by Cash Paymaster Services (CPS) in accordance with the Constitutional Court order dated 2017-03-17. In terms of that order a new service provider must assume responsibility for social grant payments from 1 April 2018.

Parties will ensure SAPO can execute social grant payments and implement a phase-in/phase-out process thirty days prior to 1 April 2018.

It is assumed that the contract between SASSA and CPS includes an exit/termination clause to cover the continued delivery of services during the phase-in/phase-out period.

Card Body Production Status
• RFP issued on 27 December 2017 for the provision of 10,6 million EMV compliant SASSA branded cards.
• Purchase order to be issued by 16 February 2018.
• Scheduled delivery date of 1st batch of 2 million cards is 16 March 2018.

Holding and Special Disbursement Account Status
• Corporate Holding Account will be opened upon receipt of the required account opening documents from SASSA (still outstanding).
• The Special Disbursement Account will only occur upon commencement of the service in April 2018.
• Postbank is developing the Special Disbursement Account structure on its core banking platform that can be used, with the new SASSA EMV card, until the new Integrated Grant Payment Solution is developed.

Benefits of new SASSA Disbursement Accounts
• Free initial biometrically enabled EMV compliant card issued to beneficiaries at on-boarding
• One free payment card replacement per annum
• 3 free merchant withdrawals
• 1 free balance enquiry per month
• 1 free mini-statement per month
• 1 full statement of 3 months per month
• 1 pin reset per annum.

Revenue for Post Office
• Monthly fee R12.41 (excluding VAT) from SASSA
1 million of cash beneficiaries will be migrated from cash pay-points to selected post office branches for grant payments.

Included also are ongoing new beneficiaries estimated at 10% of new enrolment that will be paid at the selected post office.

The following transactions will be recovered using the transfer pricing rates:
• New enrolment
• Full 3 months bank statement
• Card pin reset
• Card replacement

Other relevant matters
• Ms Kwele clarified confusion about SAPO’s alleged incapability to deliver with the holding accounts. SAPO has to adhere to the FICA requirements and is awaiting authorization from the Accountant General at National Treasury.
• SAPO is compliant with the terms and conditions of the Service Agreement signed on 8 December 2017.
• SAPO has the capacity to deliver on its mandate or obligations
• SAPO/Postbank does have the necessary funding to implement the project
• Aggressive communications and marketing campaign is underway
• Network upgrade is underway and the designated grant payment points are prioritised
• Branch infrastructure upgrade at these branches is underway
• All specifications have been signed off by SASSA
• System changes have been made to allow any beneficiary to withdraw cash at the SAPO branch, irrespective of the bank card that they have.

Discussion
Mr Hannes van der Merwe, Head of Portfolio Management at Postbank, said that the timeline set for this programme is a mammoth task to go through every five years; hence SAPO is taking the process seriously and will do everything in its power to ensure timelines are adhered to.

A Member noted that it is important to capacitate state agencies so they are allowed to perform their mandate.

The Chairperson said they were concerned about the bickering in the system, including the matters happening in the public space. The importance of the project is clear, as it is highly commended by prestigious organizations such as the UN. Therefore if it were to fail, it would be highly disastrous. At last year’s meeting the Committee required certain promises to be fulfilled. The Chairperson asked, in light of the presentation being extremely smooth, why then was a ‘hot letter’ sent by the SAPO CEO during the festive season? He requested the details of the letter.

The Chairperson demanded transparency due to the nature of South Africa’s constitutional democracy. Despite mentioning the number of cards that will be produced, the Committee will be monitoring the progress closely. A particular concern was the SASSA application to extend the CPS contract by six months. The Committee required this to be clarified for the benefit of the beneficiaries.

He asked why the FICA requirements have not been followed up on and whose responsibility is it to see to this task? On the production of cards, the progress seems very assuring however such dedication is demanded from all entities. An update on the day of production would be expected from SAPO to the Committee.

Ms Kwele replied about risk management, saying there are regular meetings where these issues were flagged and promises were made to fulfill the mandate by 15 January. To protect the Post Office from blame, SAPO decided to seek the intervention of the IMC. SASSA refused to give the information needed to open the corporate holding account until they get further correspondence from Treasury. This is a process that requires collaboration from National Treasury to correspond timeously, thus allowing the FICA requirements to be fulfilled. Thus these further delays have resulted in SAPO’s mandate being affected in turn.

In terms of the original CPS contract, a specific clause should have been included to define the phase-in and phase-out process. The migration can only happen within the phase in, when another entity has phased out. The approach to the Constitutional Court is meant to deal with that particular matter.

Mr van der Merwe replied that the letter from the SAPO CEO was to raise an early warning to raise awareness that certain documents are prerequisites in order to open the corporate holding account. SAPO had sent the requirements of the necessary documentation to SASSA, as well as seeking confirmation on other particulars that are vital to ensure the entity is not engaging in any illegal activities. As part of the contract signed between SAPO and SASSA, SAPO will commence providing the services on 1 April. The letter was to confirm that the process had been initiated and also to set the timelines. However it would not have been possible to roll out the large number of applications and hence an extension was requested. However, the beneficiaries will get paid regardless. During the switching over, there will be communication on how the payments will work and also to address what happens when the account is in credit. There was no provision made for an exit and hence there is a misalignment between the Constitutional Court ruling and what can be done in reality.

Mr van der Merwe said the SAPO IT team undertook completing the specifications for the requirements of the biometric on-boarding and the authentication solution for the websites. Thereafter SAPO drafted the RFP. Comments were sought and welcomed but none were received. Hereafter SAPO took a risk by publishing the tender on 27 December. Subsequent to that, SASSA provided continual assurance that they were happy. Then on 25 January, SASSA confirmed it has rehired technical advisors to assist it in the process - this was a huge concern. Of particular concern was the possibility of the rehired technical advisors disapproving the existing structure, thus setting back the process further. This is a detailed summary of the motivation behind the letter sent in late December 2017. SAPO was concerned about a late change in specifications.

On the holding account, SASSA gave assurance on each occasion. SASSA approached Treasury to enquire on the legality of engaging in a contract with SAPO despite already being bound by the prior contract.

Ms Kwele said there has been an application from CPS in addition to the SASSA application to the Constitutional Court to extend the CPS mandate indefinitely.

Mr van der Merwe reminded the Committee of the contract signed between SAPO and SASSA, which motivated the application to the Constitutional Court and sought to have the contract set aside for a further 6 months. This was to make the migration realistic.

The Chairperson asked what items are still outstanding from its clients that are needed to continue with SAPO’s work? The Committee is concerned about whether, as the new service provider, SAPO has obtained all the data needed from the previous service provider?

Mr van der Merwe replied that they do have the data needed to roll out the process. There is data currently being sampled to check for compatibility with SAPO systems before the mandate is followed. There is nothing outstanding at this point that is needed for SAPO to succeed.

Ms D Tsotetsi (ANC) said that media reports have had to be relied for information, causing panic amongst the beneficiaries. Although Social Development has good intentions, what is important is that all the service providers collaborate to ensure there is capacity to deliver.

Ms J Kilian (ANC) asked although it is clear that we have to work with current realities; if there was earlier movement with the rollout would the implementation have been smoother? This is crucial because the livelihoods of the beneficiaries are at stake. This is worse because they tend to be the worst off in our society.

On the SASSA application to the Constitutional Court to provide for the phase in/out approach, it appears there is a termination clause in the contract. If correct, what would have prevented CPS from walking away from the proceedings on the day before the set court date? Alternatively, they could have claimed full and sole ownership of the data. Contracts are vital in matters of such importance, particularly because they ensure that people are bound to act and most importantly it provides security to the beneficiaries.

She asked if SAPO was aware that SASSA had approached the Court. Was SAPO’s input requested on that matter? What is the position on the information held by Grindrod Bank because the financial details do not seem to benefit of beneficiaries? Their offer to Postbank far outperforms another commercial bank. In terms of the corporate holding account, is the approach going to be writing another urgent letter, or is the SAPO representative going to take accountability?

Ms Kwele replied that it was clear that this was not an extension of the contract but instead it was a termination of a contract which had to include a phase-in and phase-out clause. CPS has no right to hold the data and indeed it does belong to the government. We have been told that the “green card” is offering loans to the beneficiaries and we would like the Committee to inquire into the legality of such actions. It was clear on the date of the Court ruling that SASSA did not have the capacity to fulfil its obligations. Hence the causers of the crisis should be the ones dealing with it too. Our rationale was being realistic about what could be done in the given time. We are relying on case law that deals with the matter of information that becomes state information but we are placing our hope in the entity placing the interests of the nation ahead of corporate interests.

Mr van der Merwe replied that the holding account will only be used at the beginning of April when the first payment is made. The real issue is administrative in nature. Legally the Banking Identification Number (BIN) will be owned by SASSA and the current regulations require that it is held with the bank for the time being.  This is because SASSA is not a bank and thus cannot apply for a BIN independently.

Ms B Masango (DA) (Social Development Committee member) made comments based on a recent oversight visit. There seemed to be repeated miscommunication between the entities and this could soon happen with beneficiaries too. For example, SASSA had a deadline of 30 September 2017 to contract SAPO SAPO should have been contracted by SASSA, what kind of model is being followed now, as well as what was lost in lieu of this? Did the letters that were received later invalidate the older ones received? All though grants will be paid regularly, do the beneficiaries still stand in line to lose out by way of certain deductions?

Ms Kwele replied that in the original deal, SAPO intended going to a service provider but due to the cash payment, it was not able to prepare these mandates within 6 months. The loss was ultimately economies of scale. The service agreements then take precedence and allows for a output agreement without paying the cash up front.

Mr van der Merwe replied that it has been a principle of SASSA for a number of years to allow beneficiaries to use any bank that they desire. This is to make it easier for the people to access their money, in using a private bank account there will be fee deductions from their account. However the upside of receiving through SASSA helps them potentially save their deductions. It was brought to our attention by the Con Court experts, that it would be more doable to disregard the SASSA roll out and just do the process through banks for a number of reasons such as convenience and safety.

Ms Kwele said they are working on making the communications with beneficiaries better: namely through multilingual exposure, engaging local radio stations and the like.

Ms M Shinn (DA) commented that National Treasury regards this as a priority project but when these procurements were sought, it was during a Treasury holiday, thus a delay in procurement. Is there any reason why the relevant documentation is not being obtained? The interim card being phased out when the new one becomes available is likely to cause confusion. How would this be addressed to avoid the issues related to this? Timelines were sought regarding the payments.

Ms Kwele said the reply received from Treasury was that December is a freeze-period due to most employees being on holiday, hence in fairness it was deemed right to make us wait.

Mr van der Merwe commented on the funding. Concerning the replacement of the current cards, the cost is going to in the region of R200 million and the other cost is roughly R600 million. The funding will be obtained from Postbank; it has sufficient funding to fund the project. The monthly costs will be paid by the service feeders that are still to be determined in time.

Mr C Mackenzie (DA) commented on the R650 million bailout then the R3.7 billion SAPO received last year in addition to the three year delay in taking over the current project. He commented on the chaos at the Johannesburg International Mail Office, people are contacting the DA offices daily to complain about postal goods not received from December onwards. The mandate of SAPO is to ensure postal services are efficient and not delivering social grants. SAPO has failed to deliver on its core duties yearly. An oversight visit was embarked on to rural beneficiaries and all offices were in a shambles. The retail post agencies visited have no security, employees are not properly trained and the infrastructure is not in place to ensure efficient delivery of the services.

He continued about the pay points, asking who is involved in delivering these. Further, has costing been done or exercises been put in place to ensure a holistic service is provided? The software system seems to be a complicated one that will require a lot of money (an initial estimate of R600) but has collaboration been done with other entities to ensure success? What is the backup plan to ensure that the postal service is profitable and sustainable without the SASSA grants?

Ms Kwele said there was an idea to set aside R1 billion to contribute towards keeping the Postal service afloat, but this was denied by National Treasury. The entire sum was spend on settling the loan instead. On of the highest cost drivers at the moment is the cost of the staff and the trend in postal revenues globally is that it is decreasing increasingly. An impediment to attracting more revenue is to ensure that infrastructure is able to operate and compete, with us this is not the case, instead in most cases the equipment is not operating nor is the system automated. SAPO is borrowing ideas that have worked well with other postal services, but one thing needed is to reinvest into the department to allow it to attract more growth in the future. In relation to the guarding service, SAPO has not taken over the cash in transit services - it is strictly outsourced.

Mr van der Merwe said in terms of the Post Bank Act, SASSA is more bound and concerned with that compared to SAPO. But there are doubts on whether close collaboration and attention is paid to make sure it is adhered to. Currently no money is being withdrawn at a postal service points, most are being collected at a cash pay point and a person who has opted to receive his grant in cash may not repudiate or retract later on. If the power is vested in one bank, this will allow them to be able to do this. The 2.1 million bank accounts have already begun processing those payments to the relevant beneficiaries. The 2.89 million cash recipients are the drivers behind SASSA trying to find a new service provider. On the 5.7 million, that is the main bulk of beneficiaries that Postbank deals with; they will continue to withdraw their money at cash pay-points. We are well aware that the transition will happen gradually over time and that gives us the time to ensure that the system has been updated to allow this to happen. Postbank has identified 857 post offices branches that are likely to be impacted by the awarding of the post office grants. There is a plan in place to upgrade the infrastructure, systems and networks at these places.

Ms V Ketabahle (EFF) was concerned about the issue with post offices in the Eastern Cape, where people sleep outside the offices out of desperation and how will this issue be attended to? These people are often extremely old and grants are their only means of survival.

Ms Kwele said a certain SAPO department is already established that is responsible for ensuring such issues are dealt with. However SAPO believe that they have adequate staff members in place at post offices. They appreciate that we are dealing with fragile and older people, and respect their dignity. We have a checklist to ensure these issues are recognised. We have signed with Telkom last year to target all these branches, making sure that people are engaged while at our tellers.

 

Ms Tsotetsi asked what happens when a card is lost or misplaced. Are people aware that they cannot simply go to bank if they are receiving their money on a cash basis? Radio communications should be timed for 6pm or later to ensure the maximum number of people have access to the information. As many of the people receiving grants have to work full and part time jobs to supplement their minimal grants.

Ms Kilian said communication must be enhanced to be both proactive and reactive, what is the plan to follow through on this? Are there any two or three critical milestones that may still derail success?

Ms B Masango (DA) asked if it is fair to assume that SASSA will transform all the skills needed to meet their mandate?

Mr Mackenzie asked about the readiness of a solution, how long will it take to attend to the items needed for provision of minimal services? The answer to this question is important as the survival of vulnerable people is at stake

Mr van der Merwe replied that should the software not be available by 1 April, there are other solutions in place that will ensure the beneficiaries will be serviced. The only issue is that if the system is not available then the information still needs to be transferred from the one database to the core database. The issue that may derail this is if SASSA declines, claiming that the SAPO solution is not acceptable. It is within SAPO's plans and will definitely take place. On milestones, one is pay points that need to be delivered in time. Further is the ruling of the Constitutional Court to the SASSA application which may be denied. On skills transfer, engagement with SASSA staff has not indicated that they are not aware of what they are doing – perhaps this could be possible on a highly technical level such as systems development.

Ms Kwele made a promise that communication will continue and improve over time.

Mr van der Merwe concluded by saying the first card offered to the beneficiary will be free, as well as one card annually that will be allocated from replacement. However, any additional cards lost will be provided at a cost. We believe that most cards are not actually lost but are rather replaced because some people are escaping their liability to loan sharks.

The Chairperson concluded by giving SAPO a nod of approval on the project but reminded them of its obligation to report back to the Committee concerning its progress.

The meeting was adjourned.