Sassa sticks with suspect CPS during its failure to uphold a key element of its tender
The problem with the distribution of 17-million social grants every month is that it is hard to do, at least if it’s done properly. The difficulty is the requirement that every recipient be validated through biometrics. This requirement, which Sassa (South African Social Security Agency) insists on as an anti-fraud measure and to prove that recipients are still alive, effectively prevents the mainstream banking system from taking on the task.
There are two distinct components to grant distribution, each with their own challenges. Between 60% and 90% of the R15bn in grants paid every month are paid into bank accounts. The balance is paid at paypoints and partner retailers in cash to recipients. The paypoints tend to be in rural areas, where access to banks is difficult. They are massive logistical exercises with the obvious security challenges.
Bank account payments are not straightforward either, because of the biometric requirement. When the initial tender was made, the banks said they would have to put fingerprint recognition technology into their ATM systems. That’s not impossible to do — in Brazil, for instance, the bank appointed to pay social grants has rolled it out across its network — but the cost made the banks uncompetitive in bidding for the tender.
Cash Paymaster Services (CPS), the company that has handled the job for the past five years under a contract deemed invalid by the Constitutional Court, tendered for the work on the basis that it would use biometrics. For cash payouts, fingerprints would be used — relatively easy because recipients have to physically present themselves. For bank account payments, CPS proposed a voice-recognition system. Each recipient would phone a number and speak to a computer and verify they were who they said they were. But this system has not worked. Recipients, particularly of old-age grants, can struggle to use phones, hear the voice prompts and understand the languages that are available.
If you phone the Sassa voice verification number, you are told that Sassa no longer requires voice verification.
CPS won the contract only because it said it could do the verification and Sassa insists that it cannot give the work to a provider that cannot provide biometrics. CPS has faced no penalty for being unable to meet the key element of its tender.
The difficulty of creating a distribution system that meets the biometric requirements and additional objectives such as delivering grants to immobile recipients, seems to be the main reason Sassa has so hopelessly failed to take on the task itself. Despite many expert panels and advisers, which Social Development Minister Bathabile Dlamini went through in a bizarre media conference on Sunday, Sassa has wilted in the face of the complexity. The perfect system Sassa envisages may be impossible to implement. And in the meantime, a far from perfect system is perpetuated.
CPS will be laughing all the way to the bank. The company has made a staggering amount of money out of the contract. It is not just the R17.50 fee it collects from Sassa for each monthly grant, but the vast business it does selling unsecured loans, airtime, insurance and whatever else to recipients. It is able to use its database of recipients to market these, though it denies doing so. The Black Sash, a nongovernmental organisation, has collected much evidence from recipients who cannot escape deductions and don’t remember giving permission for them.
According to its latest filing to the Securities and Exchange Commission in the US, where its parent company Net1 UEPS is listed, the company earned revenue of R1.6bn last year for “transaction processing”, which is the grants business. But it earned another R1.7bn for “financial inclusion”, which includes all of the associated services it sells mainly to grant recipients. It earned just R1.3bn from non-SA business.
CPS is now in a position where it can name its price. Dlamini would not give any details on Sunday on the terms for CPS to continue distributing grants, but you can be sure it will be substantial. Net1’s share price has had a strong month.
The saga has long had the stench of corruption about it, although there has never been any formal finding of corruption. Reports have suggested bribery, among them: that in an abandoned grants tender in 2008, a purported CPS representative offered a tender committee member a substantial bribe; that in 2009, the Special Investigating Unit probed a R4.3m payment made by Sassa and CPS in KwaZulu-Natal to fund a preelection party for Jacob Zuma; that Zuma’s personal lawyer Michael Hulley worked as a “strategic adviser” to Sassa during the tender, but was allegedly paid by CPS; that one of the tender bid-committee members in the 2012 tender received a mysterious R1.4m deposit into a bank account shortly before bid deliberations began; and that audio tapes recorded a Sassa official describing how he believed the 2012 tender was rigged. None of these have ever led to prosecutions of CPS, and the company has long described them as part of a smear campaign by losing bidders. It has shrugged it all off and continues to hold millions of South Africans in the palm of its hand.