Expert panel warns of extension to the CPS and Sassa contract

Although the South African Social Security Agency (Sassa) has given the South African Post Office (Sapo) an offer to distribute social grants, a scathing report by a panel of experts and the Auditor-General has warned that incumbent Cash Paymaster Services (CPS) might still be the paymaster beyond April 2018.

On Thursday, Sassa said it had authorised a contractual offer to Sapo after the conclusion of its due diligence process into the state-owned enterprise’s ability to distribute social grants to 17 million beneficiaries. Its offer to Sapo expires on Monday.

Sassa has missed four self-imposed deadlines since August 2017 to sign the Sapo deal, which raised fears that the agency might not comply with the Constitutional Court’s order to phase out its unlawful contact with CPS in the next six months.

The first report to the Constitutional Court by a panel of experts and the Auditor-General – appointed by the court to oversee the process to phase out the CPS contract – has unveiled “serious risks” in Sassa’s conduct which might jeopardise social grant payments by April 1, 2018. The risks include Sassa’s unrealistic timeline in assessing tender bids by prospective service providers, conducting a technical and evaluation due diligence process and the absence of a plan to manage a smooth exit of CPS, the subsidiary of US-listed Net1 UEPS.

“The measures taken so far by Sassa, together with the proposed timelines, are unlikely to enable a seamless transition to a new system for the payment of social assistance by April 1, 2018,” the panel of experts said in an affidavit.

The panel includes the Auditor General Kimi Makwetu, Anthony Felet, Gill Marcus, Tim Masela, Heinz Weilert, Angela Bester, Werner Krull, Mavuso Msimang, Doris Tshepe, Mmamolatelo Mathekga and Barend Taute. They are supported by secretariat Marissa Bezuidenhout assisted by Walter Bhengu and Paklo Leung.

The experts said given the failure of Sassa to meet its deadlines, it’s possible that CPS may be still required for the payment of social grants or might be indirectly involved beyond March 31, 2018. “CPS owns the infrastructure and technology used in the payment of social grants, used primarily in rural areas, and would probably attempt to lease or license this new service provider.”

Another possibility is that Net1 might establish a new company with black empowerment partners that could bid on a Sassa contract.

Awarding a contract to Sapo is widely viewed as a cost-effective measure for the fiscus. Sapo has over 2 000 outlets across the country and operates Post Bank, which has 5.8 million clients with savings accounts.

However, the panel has questioned the readiness of Sapo to take over social grant payments given its challenged financial position. It cites Sapo’s latest annual report (2016) in which the company reported financial losses of R1.14 billion for the year to March 31, 2016, and has historically enjoyed government guarantees of R4.4 billion since 2014 for its on-going turnaround strategy.

According to the panel experts, Sapo has a temporary banking license and an application for a full banking license has been submitted to the Reserve Bank. “Sapo being a service provider operating without a banking license and being exempt from certain banking requirements, presents a risk. It is, therefore, necessary that Sapo and its banking division Postbank, be fully licensed and regulated, and not operating under exemptions.”

Sassa incompetence

The panel initially met with axed CEO Thokozani Magwaza and other executive committee members on June 14, whereby Sassa presented its long-term plan to take over social grant payments in the next five years.  A second meeting followed on July 24 with Pearl Bhengu, the acting Sassa’s CEO who replaced Magwaza, and her other executive members.

The report reveals the incompetence of the social grant agency’s executive committee in fulfilling their constitutional mandate of paying social grants without a glitch.  “The panel was surprised at the second meeting with the Sassa executive committee delegation to learn that the delegation was not sure why they had been invited to the meeting, despite the panel secretariat having provided a list of issues it required the delegation to respond to.”

“The panel is of the opinion that the Sassa executive committee does not have the adequate appreciation of the scope of activities required to ensure a successful and seamless transition to a new service provider.”

It also found that Sassa had repeatedly failed to provide timeous access to information relating to Sapo’s proposal on how it intends to pay social grants and the cost structures involved. Since the panel first made a request for the proposal on July 4, it has never had sight of it or evaluated Sapo’s bid for the Sassa deal. “The failure, for whatever reason, to provide the relevant information calls into question the integrity and competence of Sassa, which must reflect on its ability to execute its responsibilities.”

The social grants agency and Sapo didn’t respond to Moneyweb’s request for comment on whether the panel was eventually given information on Sapo’s proposal before Thursday’s announcement by Sassa.

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