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Standing Committee on Public Accounts

This presentation by the Minister of Finance discusses the role of National Treasury, the procurement process, and the oversight and support role in relation to the social grants budget of SASSA. It also provides a chronology of events and updates on the current status of negotiations with CPS.

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Standing Committee on Public Accounts

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  1. Standing Committee on Public Accounts SASSA AND RELATED MATTERS Presenter: Minister of Finance| 14 March2017

  2. TABLE OF CONTENTS • Higher duty collective responsibility • SCOPA Invitation • Executive Responsibilities • Minister of Social Development • Department of Social Development • SASSA • Minister of Finance • Role of National Treasury • Operational Budget • Social Grants Budget • Procurement • Oversight and support role by National Treasury • Six options considered by the joint task team

  3. TABLE OF CONTENTS 5. Chronology of events-2012 to 2017 • Social Grants Tender Process Timeline • Litigation Timeline • NT is setting this out as it understands it. There may be gaps 6. Money Flow • NT transfers to Social Development -SASSA-CPS-Grindrod Bank-Beneficiaries • Cost and benefit to CPS/Grindrod 7. SASSA Deviation Application 8. Correspondence between NT, Social Development and SASSA • Minister to Minister Correspondences • OCPO to SASSA

  4. TABLE OF CONTENTS 9. Court Judgment • November 2013 • April 2014 • March 2015 10. SASSA submissions 11. Current Status • SASSA/CPS Discussions (Void) • Establishment of the Ministerial Task Team • Technical Task Team formed • Towards April 01st, 2017 • Negotiation of terms beyond deviation • Future roadmap-Options

  5. HIGHER DUTYCOLLECTIVE RESPONSIBILITY There is a collective responsibility to ensure that grants are paid on 1 April 2017 on a legally and acceptable basis

  6. SCOPA INVITATION National Treasury is responding to the SCOPA invitation to appear today 14th March 2017 to address it on the following: • Treasury’s role in all developments subsequent to the Constitutional Court ruling to date; • Treasury’s understanding and observation of processes in SASSA on the grants contract; • Treasury’s role and position on the current new contract being negotiated by SASSA with CPS; and • Any other relevant information relating to SASSA and the grant disbursement contract/management.

  7. EXECUTIVE RESPONSIBILITIES – DoSD and NT The Department of Social Development derives its mandate from Sec 27 and 28 of the Constitution To provide comprehensive social services to the poor and the vulnerable members of our society and create an enabling environment for sustainable development. Mandate of SASSA The mandate of the Agency is to ensure the provision of comprehensive social security services against vulnerability and poverty within the constitutional and legislative framework (Sec 3 of SASSA Act of 2004).

  8. EXECUTIVE RESPONSIBILITIES – DoSD and NT This was emphasized by Minister Dlamini in her letter dated February 08th, 2017, on Para 3.1.1 states:- “ the Department of Social Development is the sector department primarily in charge and responsible for social security, more particularly the payment of social grants. Therefore the purpose of the joint technical teams is not to map out the future of social grant payments as suggested in your letter but only to analyse all available options and report accordingly. All this is with the purpose of ensuring that there are no disruptions to social grants payments on 01st April 2017. I emphasise that the desired solution will be effected within the ambits of the law” Minister of Finance In terms of S216(1) of the Constitution, the Minister of Finance and National Treasury are mandated to ensure transparency, accountability and sound financial controls in the management of the country’s public finances

  9. ROLE OF NATIONAL TREASURY • Resource availability / budget 1.1 Administrative costs 1.2 Budget for social grants 1.3 Insourcing project • Procurement framework 2.1 Gives expression to s217 of the Constitution Puts in place and enforces framework for competitive procurement 2.2 Legislative framework, rules in terms of constitution, PFMA, PPPFA and accompanying instruction notes 2.3 Procurement: Instruction note 3 of 2016: sections 8.1 to 8.5 • Oversight and support role 3.1 Financial management 3.2 Norms and standards 3.3 Spending in terms of intended purpose 3.4 Advisory and policy support • National interest 4.1 Payments must be made to beneficiaries on 1 April

  10. RESOURCE ALLOCATIONS AVAILABILITY-ADMINISTRATION BUDGET 2. Administration budget (SASSA total and payment contractors) • Projected expenditure transfer in 17/18 R7.7billion of which R7.2 billion is transfer from DSD and balance through surplus funds • Budget availability exceeds spending for each of past three years • R2.1 billion estimated spending on payment contractors in 2016/17 and R2.3 billion in 2017/18

  11. RESOURCE ALLOCATIONS AVAILABILITY-SOCIAL GRANTS BUDGET Social grants • Budget R151.6 billion for 17/18, growing to R175.6 billion in 19/20 • Budget available exceeds spending for each of past three years

  12. REGULATORY FRAMEWORK • Constitution S217 • PFMA S51 • Treasury regulations • Instruction note 3 of 2016/17

  13. PROCUREMENT Key characteristics of the procurement system: Constitutional provision in s217 “When an organ of state in the national, provincial and local sphere of government or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost effective” Provision in PFMA, Treasury Regulations and Instructions: All bids must be advertised competitively. In exceptional cases, deviations from competitive bidding processes can be followed for emergencies (natural disasters), sole suppliers and exceptional cases; Expansions and variations of existing contracts are allowed up to 15% or R15 mil for goods or services or 20% or R20 mil for infrastructure. Such expansions can be approved by the Accounting Officer/Authority. Beyond the mentioned thresholds, the relevant treasury must approve such expansions.

  14. PROCUREMENT National Treasury’s role in procurement and supply chain is to: Set uniform norms and standards, including Supply Chain Management; s6 (2) (a) of PFMA; • Must monitor and assess the implementation of this Act, including any prescribed norms and standards, in provincial departments, in public entities and in constitutional institutions; s6 (2) c) of PFMA; • The procurement framework is described in chapter 16A of Treasury Regulations, Instruction notes and circulars, PPPFA and PPPFA Regulations; • Give approvals as may be necessary from time to time: only after the normal process is not followed

  15. PROCUREMENT PPPFA and Regulations • The intent of the legislation is to provide access to economic opportunities in the public sector by a system of preference. • Organs of state must draft specifications in such a way that would provide equitable opportunities for historically disadvantaged groups or categories of persons disadvantaged through unfair discrimination. Decisions from Courts on procurement matters • S165 (5) of the Constitution: “An order or decision issued by a court binds all persons to whom and organs of state to which it applies”. • Once a Court has reviewed contracts/awards/contested decisions brought before them, its judgements and orders are binding given the Constitutional provisions. • NT from time-to-time amend its regulations to reflect the precedent the Court have set in their orders and judgements.

  16. NT SUPPLY CHAIN INSTRUCTION NOTE 3 OF 2016/17

  17. OVERSIGHT AND SUPPORT ROLE BY NATIONAL TREASURY; TASK TEAM WORK • Various meetings with SASSA, DSD, Reserve Bank and NT on new payment model on national payment system and operational issues • Bilateral between NT and SASAA – e.g. 28 July 2016 • DG level meetings: 13 and 14 Dec 2016 and • SASSA, DSD, NT and SARB Joint Task Team – 11th, 12th, 13th, 19th, 20th, 23rd, (24th ) and 25th January 2017 • Joint task team to consider payment options • Various procurement related requests and support to SCOPA on irregular expenditure by SASSA.

  18. SIX OPTIONS CONSIDERED BY THE JOINT TASK TEAM Some of these are not mutually exclusive, they are complementary Option 1: Current service provider (CPS) This option involves SASSA continuing with the current grant payment services and extension of the current SASSA Payment Card life Option 2: Bank that services the majority of the beneficiaries (i.e. Grindrod) • At present, all Social Grant beneficiaries have bank accounts (albeit the majority are at one bank). Whether they withdraw cash at a pay-point managed by CPS, or at a merchant, ATM, etc., these withdrawals take place from bank accounts. Option 3: All Banks wishing to comply with SASSA’s requirements. In terms of Social Assistance Regulation 21 (a), SASSA shall pay a social grant into a bank account of the beneficiary or an institution where the beneficiary resides (subject to written authorization by the beneficiary).

  19. SIX OPTIONS CONSIDERED BY THE JOINT TASK TEAM Option 4: All Banks that comply with SASSA’s requirements for those (~60%) beneficiaries who have access to banking services, and procure service provider for grant recipients who currently use cash pay-points. Option 4 is a variant of option 3 to mitigate the risk highlighted in option 3 of Banks cherry picking their clients. This option is a combination of option 1 – but limited for beneficiaries currently using cash pay-points and option 3 for beneficiaries currently using the NPS infrastructure. Option 5: South African Post Office (SAPO) The option of SAPO can be incorporated in all options taking into consideration the strength and capacity of SAPO to deliver on certain elements of the payments system over a period of time. Option 6: Service provider for cash distribution to grant recipients who are currently using cash pay points and utilise existing bank accounts to disburse grants through the banking sector to those beneficiaries with bank accounts. Similar to option 4, but involves a communication campaign for beneficiaries to come forward with their bank accounts as opposed to a procurement process with banks (i.e. a banking solution as opposed to a procurement solution).

  20. CHRONOLOGY OF EVENTS • Social Grants Tender Process Timeline • Litigation Timeline

  21. SASSA TENDER PROCESS TIMELINE

  22. LITIGATION TIMELINE

  23. LITIGATION TIMELINE

  24. MONEY FLOW, COST AND BENEFIT TO CPS/GRINDROD • Currently, We have around 10.5 Million Grant recipients and 17 Million beneficiaries • Principle: The Money reaches the Bank Accounts of NET1/CPS/Grindrod Bank three (3) working days before the beneficiaries payment date. • National Treasury transfers to Social Development, the Bank Accounts are held at the South African Reserve Bank (SARB) • Social Development transfers to 9 SASSA Provincial Bank Accounts held at the South African Reserve Bank (SARB) • Each SASSA Provincial Account at the SARB pays to 9 Provincial accounts of CPS/NET 1 held at the NEDBANK

  25. MONEY FLOW, COST AND BENEFIT TO CPS/GRINDROD • NET 1/ CPS pays Grindrod Bank • Grindrod Bank pays beneficiaries from 1st of each month (depending on public holidays) • Payment Options available to recipients/beneficiaries • Pay points and Merchants outlets • 4 million recipients/beneficiaries get their grants on Pay points and merchants outlets. • Bank Accounts • 1.6 million recipients/beneficiaries have their bank accounts and receives their grants directly • 4.9 million recipients/beneficiaries hold Grindrod Bank accounts and receive their grants by withdrawing from other banks ATM-this attracts bank charges that are not subsidised

  26. MONEY FLOW, COST AND BENEFIT TO CPS/GRINDROD • CPS/Grindrod keeps funds for five (5) days on average before paying recipients, why? • These funds earn interest for CPS/Grindrod. • The question is: should this interest not be for the government account? If not, why?

  27. SASSA DEVIATION APPLICATION • 1st : SASSA to NT on 7 Feb 2017: to formally request “support to extend the existing contract with CPS to pay social assistance benefits”. • NT response - 8 February: “National Treasury does not support extension of the invalid contract……will only support the extension (same terms and conditions applicable) if the constitutional court will further extend the order of invalidity beyond 31 March 2017” • 2nd Letter: SASSA to NT - 13th, March 2017 - Formal application for deviation submitted to National Treasury • NT considering the deviation as a matter of urgency

  28. CORRESPONDENCE - NT, DoSD and SASSA • Minister to Minister correspondences • OCPO to SASSA

  29. MINISTER TO MINISTER CORRESPONDENCES

  30. Letters with DSD/SASSA and OCPO

  31. CONSTITUTIONAL COURT RULINGS Three key Constitutional Court rulings: • 29 November 2013 • 17 April 2014 • 24 March 2015 29 November 2013 ruling: Froneman J (Mogoeng CJ, Moseneke DCJ, Cameron J, Japhta J, Mhlantla AJ, Nkabinde J, Skweyiya J, Van der Westhuizen J and Zondo J, concurring) held that: • The issues raised before the court raised difficult factual and legal issues and the information before them was outdated and inadequate and that it would be inappropriate to make a decision on a just and equitable remedy in the absence of further information and argument on these issues. • The court’s order contained direction requiring further submissions and a hearing on the issues before the final decision was made.

  32. CONCOURT JUDGEMENT – 2014

  33. CONSTITUTIONAL COURT RULINGS 24 March 2015 ruling: The court issued a composite order as follows: 1. CPS has only the following five remaining objections to the draft amended RFP 1.1 Beneficiaries; 1.2 Biometrics; 1.3 Three free withdrawals; 1.4 Functional evaluation criteria; and 1.5 Home deliveries. 2.SASSA shall effect its proposed amendments to the RFP to address the issues in paragraphs 1.1-1.5 by 2 April 2015. 3. To the extent that CPS still has any remaining objections to the draft RFP as amended by SASSA in terms of paragraph 2: 3.1 CPS shall notify the parties and the Court by 16 April 2015; 3.2 The Court will issue directions for an urgent hearing to resolve CPS’s notified issues. • .

  34. CONSTITUTIONAL COURT RULINGS 24 March 2015 ruling: The court issued a composite order as follows: 4.Save in the event of any objections made in terms of paragraph 3: 4.1 SASSA shall circulate the RFP to all the parties, the Court and the prospective bidders by 17 April 2015. 4.2 All bids must be submitted by 17 May 2015; and 4.3 SASSA shall award the new tender by 15 October 2015. 5. The parties may only approach this Court for further relief.

  35. SASSA Submission • 26 May 2014: 1st report after April 2014 judgement - Appointment Bid Specification Comm. • Sept 2015: 2nd report - Bid Evaluation Comm and Bid Adjudication Comm appointed • October 2015: 3rd report - Decision not to make an award. • Nov 2015: 4th report - SASSA will perform function themselves. • Court discharged its supervisory jurisdiction. • 2  March 2017: 5th report - SASSA will not be able to perform the function as initially indicated in Nov 2015 and will be engaging CPS.

  36. CURRENT DISCUSSIONS • Current Status • SASSA / CPS discussions (Void) • Establishment of the Ministerial Task Team • Technical Task Team formed • Discussions towards April 01st, 2017 • Negotiations beyond the SASSA deviation application • Future road-map Options

  37. THANK YOU

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