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By Ray Mahlaka

Moneyweb: Freelance journalist

CPS social grants dominance haunts Post Office

Expert panel wants to review social security agency’s decision to source all grant payment services from the state-owned entity.

It’s barely a month since the South African Post Office started playing a major role in distributing social grants, and it’s already facing accusations of holding the South African Social Security Agency (Sassa) ‘hostage’ in terms of the fees it charges.

A panel of Constitutional Court-appointed experts has repeated its concerns about the Post Office being a dominant player in the social grants system, which could allow it to extract more revenue for rendering services to Sassa.

So concerned is the panel that it wants to review the decision by Sassa and the Department of Social Development to source all social grant payment services from the Post Office.

“It is highly unlikely that this decision [to source the Post Office’s services] will result in the best use of taxpayers’ money,” the panel said in its 10th report to the Constitutional Court dated October 15.

The panel, which features auditor-general Kimi Makwetu, former Reserve Bank governor Gill Marcus, Reserve Bank national payment head Tim Masela and others, was appointed by the court in 2017 to oversee the process of phasing out the contract between Sassa and former social grant distributor Cash Paymaster Services (CPS).

The panel believes the selection of the Post Office as the sole service provider has been “the primary failing of Sassa” as its decision was “contrary to the principles of the government’s supply chain framework and sound procurement practices.”

In fact, the selection of the Post Office was “flawed” as there was no competition from other bidders, the process was not “open and transparent”, and Sassa didn’t consider affordable payment technologies such as mobile money, the panel said.

The panel’s concerns around the Post Office mirror those that have dogged former social grant distributor CPS, which was the sole service provider for nearly seven years. CPS enjoyed repeated last-minute extensions to its contract with Sassa to distribute social grants to 10.5 million beneficiaries, despite the contract being declared invalid by the court in 2012 for not going through proper tender processes.

CPS is no longer paying social grants. From October 1, this function is now played by the Post Office, which distributes social grants to more than six million beneficiaries through the processing of electronic and physical cash payments at its more than 1 600 branches across SA.

At the centre of the panel’s concerns is the monthly fees that the Post Office charges Sassa to distribute social grants, which are mostly higher than the fees previously charged by CPS. The Post Office entered into an initial agreement with Sassa in December 2017 to distribute social grants and has now increased two of its three monthly fees between 89% and 93% (see below).

Post Office COO Lindiwe Kwele recently defended the fee increases, telling Moneyweb that the state-owned enterprise is now required to process payments to more beneficiaries than initially agreed with Sassa in December 2017.

Read: Sassa ‘agrees’ to Post Office’s increased social grant fees

She said the Post Office has had to increase its monthly fees to cover the cost of new investments in its payments systems that will now be processing payments to more beneficiaries. It has a five-year capital expenditure (capex) budget of R3.5 billion, which will be deployed in upgrading its payment technology infrastructure as well as security to protect beneficiaries at its branches.

But the panel is not convinced. “It appears that the Post Office is seeking to derive significant revenues from servicing beneficiary accounts in order to fund its branch refurbishment capex that support other Post Office services,” it said.

The panel also questioned the need for the Post Office’s capex as only 500 000 beneficiaries withdrew their social grants at its branches in September 2018 while others opted to use bank ATMs or points of sale at retailers.

“If more beneficiaries decide to avoid accessing grants at Post Office branches due to long delays and non-functioning terminals … then this will further undermine the rationale for the planned Post Office capex.”

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