Pension Pay-out Contractors: briefing

Meeting report

SOCIAL DEVELOPMENT PORTFOLIO COMMITTEE
30 August 2001
INDEPENDENT CONTRACTORS FOR CASH PAY-OUT TO PENSIONERS: BRIEFING

Chairperson: Mr E Saloojee

Relevant Documents
Empilweni Payout Services
Cash Paymaster Services
AllPay (see Appendix)

SUMMARY
The independent contractors for pension pay-outs explained that they had nothing to do with the choice of pay points or the number of people the different pay points should service. The national and provincial governments had made the decision.

Most pay points are not supplied with information help desks to attend to the many administrative queries raised by the beneficiaries. The system by the national and provincial governments to designate particular days and times as the only pay day period was the main cause of the endless problem of long queues. The day of payment and time should be staggered to give pensioners optional time frames at which to receive their payment.

All the service providers agreed that security was one of their biggest challenges and recommended that SAPS should give more constructive support.

MINUTES
Three independent contractors for pension pay-outs, Cash Payment Services (CPS), Empiweni and AllPay, briefed the Committee on their service delivery operations.

Cash Payment Service
Mr Yako, CEO, informed the Committee that CPS had been involved in the business of paying pensions and disability grants for over eleven years. The only provinces in which CPS has never been involved in are the Western Cape, the Free State and Eastern Cape. At present CPS operates in four provinces: Northern Cape, Northern Province, North-West and Kwazulu Natal.

Outsourcing of payment of pensions falls within the provincial government’s competency while the system under which these contracts are run is a national payment system known as SOCPEN. Conditions of contracts are laid out in the different tender specifications which are later elaborated upon in the service agreement that CPS entered into with the different provincial departments of Social Development.

There are serious limitations created by the system. One such problem was the cut off schedules that are determined by SOCPEN. These schedules limit the service rendered in provinces to the first 13-14 days of the month. He blamed this out-dated system for the long queues that have plagued service delivery for so long.

New technology exists and should instead be explored as part of the re-engineering process that could be started by what he called Request for Information. He recommended that a new social grant payment administration system be developed without any further delay, though such process of change could take 3-5 years.

In comparison to Kwazulu Natal where CPS operates, the Eastern Cape pension pay-out was far worse off. The pensioner in Kwazulu Natal and elsewhere where they operate is, unlike counterparts in the Eastern Cape, exposed to a number of benefits as customers, which are unimaginable to the latter.

The identification of the pay-points is the responsibility of the government through the provincial department. There are some pay-points, which appear to have been randomly selected without any prior visit to the location to assess suitability of the particular station.
Some of these pay-points are spots in the open veld where there is not a single tree in sight. Such hostile terrain is often the cause of public outcry.

CPS has fully embraced the norms and standards introduced by the National Minister. He commended the norms, in particular for addressing the critical issue of the kind of technology that is appropriate for disbursing cash at pay-points.

Mr Yako informed the Committee that since the beginning of April this year, CPS has hired the services of a full time manger whose duty is to train all CPS staff and management in the Batho Pele principles that the ministry has introduced. In the different provinces where CPS operates, it has contracted to employ 90% of staff from amongst the local people in the provinces. He said that in all CPS had employed 1,287 personnel out of which 399 are security personnel.

Mr Yako recommended that soldiers be used to provide security in order to arrest the ever-escalating costs of security. Heists and armed robberies have become the order of the day and something drastic should be done to stamp the menace.

As a company the biggest challenge they face is the total elimination of all problems and obstacles that stand in the way of the pensioners when receiving their due share of payment. The introduction of the smart card payment system by the company had helped to expedite the process of payment. CPS is committed to vigorously impart to its entire staff the Batho Pele Principles so as to render quality service in an atmosphere permeated with the spirit of Ubuntu.

Discussion
Mr Masutha (ANC) asked to whom CPS was contracted – was it the national or provincial government?

Mr Yako replied that the provincial government through competitive tendering procedures is the one that undertakes competence testing. It was therefore the provincial government that had contracted them

Prof Mbadi (UDM) asked whether the smart card is suited for the deep rural out-posts where there are no banks or postal office services.

Mr Yako replied that the smart card works based on finger print technology. It cannot, therefore, be activated without the owner’s finger print and that whenever it is lost, it is replaced within 72 hours. The card could be used in the bank and post office like any other card. Most black pensioners are confined to a certain crowded time frame for payment. Smart cards address this problem in that pensioners choose where and when to access their payment.

The Chair, however, clarified that Prof Mbadi’s question sought to know the viability of the card in the deep rural areas where there is no necessary infrastructure.

Mr Yako replied that the card is viable in the deep rural areas. He cited the example of Kwazulu Natal province where a mobile bank had been introduced and the smart card had greatly diminished the queues.

Mr Masutha (ANC) stated that the legal position was that the pensioner’s grant was free from any third party claims and that it cannot be attached in payment of some prior debt. Why had the so-called loan sharks had been allowed to attach the pensioner’s pay.

Mr Yako replied that attachment of pensioner’s pay was authorised by their principal – the KZN provincial government. CPS had no choice but to comply. The matter even went to court and government lost to the creditors.

Mr Masutha (ANC) suggested that members need to study the said judgement with a view to recommending appropriate legislation to protect the pensioners.

The Chair concurred with Mr Masutha that this is a clear interference in the legitimate rights of the pensioners.

Mr Da Camara (DP) asked what had became of the other two provinces that CPS originally covered.

Mr Yako replied that CPS lost the tender to their competitors. CPS challenged the decision in court, which resulted, to an out of court settlement.

Mr Da Camara enquired about the estimated number of people that CPS served at pay-points.

Mr Yako replied that it all depends on what SOCPEN instructs them to do. SOCPEN instructs them on very short notice - at times two days and that while some pay-points have only 50 people others host as many as 10,000 people. Despite the government having instructed them to pay only 1000 people per pay point. With smart cards 1000 people would be paid within one hour.

Ms Kasienyane (ANC) asked how long it takes for damaged cards to be replaced. Does CPS plough back its resources in the community?

Mr Yako replied that it takes 72 hours to replace a damaged card but where the department’s help-desk verifies the authenticity of the payee, then payment is processed immediately. So far CPS had contributed a sum of R8 million for pay point development.

Ms Chalmers (ANC) enquired on the extent to which the SOCPEN problems were a hindrance to the work of CPS and what the latter have done to overcome such problems.

Mr Yako replied that SOCPEN system impacts negatively on the efficient service delivery by CPS. The time frame between releasing the necessary information and the execution thereof was a big inconvenience to CPS. This is made worse by the fact that CPS has to secure the withdrawal of large sums of money from banks who levy penalties for such unplanned for withdrawals. Despite these operational constraints CPS has always lived up to the expectations of the contractual obligations.

Ms Ramotsamai (ANC) asked how CPS deals with the menace of loan sharks that demand payment from the pensioners.

Mr Yako replied that loan sharks are not allowed in the pay points but that they opt to stay on the periphery of the pay points where they deal with the pensioners without the involvement of CPS.

Ms Tshoele (ANC) asked if there was provision for dependants to collect dues for the sick and bed-ridden pensioners.

The Chair explained that when the Committee was in the field the real problem was that of mistrust. Therefore frail looking pensioners preferred to take collections by themselves.

At this point, the Chair said that he was constrained to end the presentation by CPS although many members were still eager to contribute. He promised that CPS would be recalled to interact with the Committee given the centrality of the issues they had raised.

Epilweni Payout Services
Advocate Mabusa, CEO, stated that Epilweni is a wholly owned black empowerment company. The Company is relatively new having commenced pension pay-out in Mpumalanga province in December 2000. The company covers Mpumalanga province only.

His company’s brief was to enrol the beneficiaries onto the system by capturing the particulars, a passport size photo, ten fingerprints and identification number on the computer system.

Another important task was to make daily as well as monthly reports of all transactions and reconciliation of the number of transactions made as well as the financial consequences of such transactions for the period in question. The company also makes adequate provision for safety measures aimed at reducing fraud in the grant payment process. The payment of the beneficiaries commences in the first week of every month and is completed within fifteen (15) working days.

The biggest challenge was the long queues that form mostly before holidays at pay-points with beneficiaries trying to bit the holiday datelines. On this score, Adv. Mabusa said that his company is engaging the DPO to buy into the idea of a payment cycle of the month with many holidays such as April to commence during the last week of the proceeding month being March.

Advocate Mabusa pointed out that as a new entrant to the industry, his company had difficulties in raising the required working capital for its operational cots let alone the sudden funding of a major project like the provision of the infrastructure and or facilities at the payment points.

The choice of some of the pay point areas was ill advised in that, whereas there may be a suitable structure, such community hall, in the affected community, a payment point may be situated in an open veld but next to someone’s shop. In such cases it becomes difficult to resist the temptation to conclude that maybe the choice of the venue was geared toward creating business for the shop owner as opposed to prioritising the interests of the beneficiaries.

Advocate Mabusa said that his company had embarked on a campaign to study and analyse the conditions of every payment point in the province and that research had revealed that a number of pay points lack basic facilities.His company has had to hire appropriate pay points areas from the owners at its own cost. Even then the approval and support of all the relevant stakeholders has to be secured before such facilities are be put to use.

Where pay point facilities are virtually non-existent points have to be upgraded or provided.
The company had established the Mpumalanga community trust, which is a shareholder in Empilweni for this purpose. The trustees of this trust are the representatives of the recipients of the social security grants who are beneficiaries. The object of the trust is to apply the dividend it receives from the profits of Empilweni to, amongst other projects, upgrade the facilities at the payment points.

Once every month the DPO’s, senior government officials and the representatives of Empilweni meet to discuss the problems which beneficiaries have and which the respective DPO’s bring to the attention of the government. Meetings address the problems faced by the beneficiaries. Despite the success of this arrangement, it does not give a complete and bigger picture of the issues involved in that it lacks the advantage of repetitive reporting concerning a recurring problem.

Apart from the pension Committees his company had established it planned to create area forums at ground level to oversee the operational issues that affect the specific area pertaining the implementation of the contract.

Some of the payment points have plus or minus three thousand beneficiaries to be paid on one day. On average, the number of beneficiaries at every payment point increases at a rate of 2% every month. Due to overcrowding at some pay points, the time spent in controlling the crowd of the beneficiaries makes it difficult to complete the payment process on time.

Due to the high levels of poverty some beneficiaries who are ill and frail are taken to the pay points by their relatives, a situation that at times result to the death of such sickly people at the pay point. In such cases, a contractor can do very little to prevent such incidents from happening.

His company proposes to split each bigger route in the province into half, which will entail extending the paying day to two days instead of one. This will afford the payment officers more time to attend to other needs of the beneficiaries as soon as they have finished the payment process. The advantage of having lesser beneficiaries at a payment point per day is that the need and pressure for facilities like water, toilets and shelter is proportionately reduced.

The main challenge for his company is to get rid of overcrowding at pay points and thereby reduce the queues by more than half.

Discussion
Ms Kasienyane (ANC) asked if the company looks at the question of how to structure beneficiaries’ payment so that child support and pensioners are paid on separate days.

Adv Mabusa replied that the company has separate pay-days for the two groups of persons.

Mr Masutha (ANC) said that it seems the government has taken over the communication and information help desks. What was the experience was in Mpumalanga and were there any written notices to beneficiaries.

Adv Mabusa replied that most of the pay points are without help desks. There were no written memos but that community meetings are used to give information to the beneficiaries
.
Ms Rajbali said that in certain instances beneficiaries are pulled from their sick beds to come and receive payment at cash points. Would it not be possible for a simple certificate to suffice for such persons to send their representatives instead.

Adv Mabusa replied that this matter was taken up with the government but no concrete understanding has been reached as yet. The regional office could actually verify the authenticity of such representatives but that the main problem is that of trust. The beneficiaries prefer receiving such payment personally.

Ms Ramotsamai (ANC) asked the company what experience, if any, it has had with the so-called loan sharks.

Adv Mabusa replied that there was no doubt there were quite a few of the loan sharks but that they were not allowed in the pay points. Initially the Mpumalanga government had forbidden deductions from the pensioner’s pay to settle debts but later on instructed them to make appropriate deductions for the creditors.

AllPay
Mr D Coetzee, CEO< said that his company is a wholly owned subsidiary of ABSA Group Limited. The company operates jointly with a number of independent joint ventures of Black Empowerment Groups in the various provinces supported by local SME companies. AllPay covers the Free State, Western Cape and Gauteng. Contracts are awarded through competitive tendering process and that the conditions and requirements for tender defer between provinces.

The company’s mandate is cash pay out of social security grants through fully automated mobile pay-out system in a secure environment in which the company accepts the risks.
AllPay had instituted a highly specialised technical and operational system. Measures are in place to minimise fraud and improve safety of beneficiaries.

In place also for the service of beneficiaries were the principles of Batho Pele and support to the province in the upliftment of its citizens. The other areas addressed were management information provided to the department and daily financial reconciliation for purposes of enhanced accountability.

The condition of the contract was financial capability, excellent client service, technological capability and social investment in the form of black empowerment, skills transfer, SME involvement and community upliftment.

AllPay complies and exceeds all standards and conditions of contract. The conditions have been operationalised into a detailed Service Labour Agreement, which is monitored by the Provincial Government. The company had measurement tools for self-monitoring and that a survey had revelled a 90% satisfaction rate.

The main challenge his company was confronted with was security. There was need for more active and aggressive support by the SAPS. Cash in transit creates a logistical nightmare. He recommended a strategy of reducing the need for cash by improving on technology and increase and spread out of payout channels.

The menace of overcrowding and therefore long queues at payout points was another major hiccup. He recommended that the choices of where and when to be paid should be widened for the benefit of the beneficiaries. This is possible through the process of technological improvement.

Mr. Coetzee urged for the establishment of more pay-points facilities and heavy investment in technology. The efforts of reconstruction and development need to be redoubled to address other tethering problems afflicting communities.

The meeting was adjourned.

Appendix:
AllPay Presentation to the Portfolio Committee on Social Development

AllPay Consolidated Investment Holdings (Pty) Ltd
· A wholly-owned subsidiary of Absa Group Limited
· Operating through a number of independent joint ventures with Black Empowerment Groups in the various provinces supported
by local SME companies
· Current contracts
- Free State
- Western Cape
- Gauteng

Background to Service Contracts
· Tender submissions to Provincial Governments
· Tender specifications
· Evaluation criteria
· Service agreements
· Conditions and requirements differ between Provinces
· Differences result from variables such as:
· Geographical conditions
· Infrastructure
· Beneficiary numbers
· Affordability, etc

Contracted Services
· Cash pay-out of social security grants through a fully automated mobile pay-out system in a secure environment in which AllPay accepts the risks.
· A highly specialised technical and operational solution
· Effective measures to minimise fraud; and
· Improve the safety of beneficiaries
· Support for the service delivery principles of Batho Pele
· Support to the Province in the upliftment of its citizens
· Management information provided to the Department
· Daily financial reconciliation

Conditions of Contract
· Financial capability
· Capital requirements
· Guarantees
· Advance/non-advance
· Bid bonds
· Reconciliation
· Services
· Client services
· Technological capability
· Infrastructure
· Norms and standards
· Implementation - manner & time horizons
· Security
· Transparency
· Social Investment
· Black Empowerment
· Skills transfer
· SME involvement
· Community upliftment

Achievement of Standards & Conditions of Contract
AilPay complies and exceeds all standards and conditions of contract
· Conditions operationalised into detailed SLA
· SLA monitored by Provincial Departments
· Joint management of compliance at various levels
· Management information - transparent and accessible
· Measurement tools
· Involvement of third party stakeholders e.g. SAPS
· External audit compliance - prescribed by Absa congruent with corporate governance

Challenges
· Security
· SAPS support
· Reducing the need for cash
· CIT logistical nightmare
· Long queues
· Further improve trust in the system
· Optimising of capacity
· Availability of suitable facilities limits accessibility
· Vulnerability of the aged and infirm
· Technological developments
· Process management
· Facilities
· Dedicated funds
· Third party acceptance of responsibilities
· Future payment systems
· Common industry standards i.e. SAPS, EMV
· Continuous R & D