Net1 CEO, Serge Belamant. After Sassa decided to withdraw a tender that would have seen a new company appointed to administer social grant payments, Net1 will continue to administer the system until at least 2017. Photo by Thom Pierce.
16 October 2015
In 2012 South Africa’s social grant and pension payment system changed in two important ways: Firstly, administration and payment was outsourced by the South African Social Security Agency (SASSA) to a single private company called Cash Paymaster Services (CPS); secondly, and as a result, all social grants began to be paid directly into specifically-created bank accounts for every beneficiary.
Payments currently totalling about R9.5 to R11 billion are now transferred by CPS into about 10 million separate Grindrod bank accounts every month. And this new, fully outsourced system has some important benefits.
Prior to 2012 many grants were paid out in cash, and transporting sizeable sums of money to payment points was risky. Additionally, double payments, as well as fraudulent claims of various kinds were widespread. The CPS system, which uses biometric information to identify recipients, has managed to solve these problems and overall the system appears to be efficient. Beyond this, the provision of bank accounts to millions of people creates easier access to credit and other services (airtime, electricity, and so on).
However, as a recent GroundUp series details, there have been serious problems with this system. These include: unauthorised, unlawful and fraudulent deductions from grant recipients’ accounts, the facilitation of controversial lending practices by sister companies of CPS (Moneyline and Net1 Mobile Solutions), and payments being deducted from accounts before recipients are able to access their money.
The awarding of the five-year contract to CPS has also been challenged in the Constitutional Court and declared invalid. SASSA was ordered to re-tender for the service with strict timeframes and reporting requirements, and a new audit process instituted by the Court aims to prevent CPS from profiting off SASSA’s tender payment.
Elroy Paulus, National Advocacy Manager at the Black Sash, is critical of SASSA’s original decision to outsource the grant payment system arguing that “When you outsource an entire service you are invariably going to run into problems like this”.
Research done on outsourcing by the Public Affairs Research Institute (PARI) in 2014 reveals that private companies are increasingly carrying out state services in South Africa. In the 2012/13 financial year 42% (R372.9 billion) of the budget was spent on procurement of goods and services.
One of the concerns raised by PARI is that the current practice of outsourcing invites greater opportunity for corruption – the transfer of “public funds into private pockets”. A second concern, however, is that when vital services are outsourced and things go wrong it can be very difficult to resolve.
Paulus says in the case of CPS, “even though the contract is invalid, this private company holds the state to ransom. The court can’t order them to walk away, because the harm done will be too great.”
SASSA reported to the Constitutional Court on Thursday that in accordance with the recommendation from the Bid Adjudication Committee a new tender will not be awarded. CPS will now see out its contract, which ends in 2017, at which point SASSA is due to take over all duties. Given the logistics involved in replacing CPS for such a limited period this seems to make sense.
Importantly though, the un-awarded tender contained provisions aimed at addressing some of the current problems in the system, such as the ‘ring fencing’ of recipients’ bank accounts to prevent various unlawful deductions, and it is unclear whether these will be applied to CPS. It is also unclear whether SASSA will be ready to insource the grant distribution system by 2017, although they are obliged to provide the Constitutional Court with a plan and milestones for this.