With a few days remaining before the South African Post Office plays a major role in administering social grant payments to beneficiaries, the monthly fees it will charge the South African Social Security Agency (Sassa) for this function have come under fire for being exorbitant.
The Post Office is at loggerheads with a panel of experts appointed by the Constitutional Court over the monthly fees it will charge, which might have an adverse impact on the national fiscus.
In its ninth report to the court dated September 14, the panel says some of the fees charged by the Post Office are higher than those of Cash Paymaster Services (CPS), whose contract to distribute a portion of social grants expires at the end of September.
The panel – featuring highly experienced individuals, including auditor-general Kimi Makwetu, former Reserve Bank governor Gill Marcus, Reserve Bank national payment head Tim Masela and regulatory financial specialist Anthony Felet – was appointed by the court in 2017 to oversee the process related to phasing out the CPS contract. From October 1, the Post Office will be mainly responsible for administering electronic and physical cash payments to more than six million social grants beneficiaries.
Awarding the Sassa contract to a state-owned enterprise like the Post Office was hailed as an affordable option for the fiscus compared with choosing a profit-driven private company.
However, the panel has accused the Post Office of inflating its monthly fees only eight months after it agreed with Sassa and the National Treasury on its preferred fees. These fees relate to the maintenance of the bank accounts that social grant beneficiaries will use to access their money, the processing of over-the-counter payments and physical cash payments at Post Office branches.
In August the Post Office proposed almost doubling its monthly account servicing fee – to R13 from the R6.71 agreed to in December 2017.
The proposed fee changes:
“The panel is concerned that Sapo [the Post Office] is requesting these increases only eight months after its original fees were negotiated. This suggests that Sapo had significantly understated the costs it would incur in providing payment services to beneficiaries,” the panel’s report reads.
Although the Post Office is proposing a reduction in its cash payment fee from R55.60 per beneficiary to R51.77 (see above table), the panel says it is still above the R51 the National Treasury recommended for CPS.
If Treasury accepts the fee increases, this will result in Sassa paying approximately R1.5 billion per annum to the Post Office, which equates to an average monthly fee of about R19.50 per beneficiary. “This is nearly 20% higher than the current fee paid to CPS of R16.44 [per beneficiary],” says the panel. “This will have adverse budgetary impacts on Sassa and may affect the long-term service delivery at Sassa offices in the absence of additional funding from National Treasury.”
The panel has also warned that there is no mechanism in place that would stop the Post Office from “repeating such increases in the next fiscal cycle.”
Post Office investments
The Post Office says it has to make necessary new investments to expand its payment capacity to more beneficiaries than initially anticipated – hence its proposed fee increases. Apart from technology infrastructure, the Post Office will require equipment upgrades to process cash payments, and more security to protect beneficiaries at its branches.
The Post Office has a five-year capital expenditure budget of R3.5 billion, which begins in 2019 with a R1.8 billion spend. Over the same five-year period, the Post Office is expected to generate operating profits of R2.4 billion, which the panel says is more than the amount CPS generated over a five-year period.
“Profits of this magnitude are difficult to justify, particularly if they are derived from unnecessarily high charges to Sassa and/or beneficiaries.”
According to the panel, Sassa and the Post Office are yet to agree on the final fee structure and finalise a service level agreement for paying social grants. The Black Sash, a human rights group that monitors the social grant payment process, wants the contract between the Post Office and Sassa to be shared publicly. “[This would] ensure transparency, especially with regards to the contract scope and cost of services as well as Sassa’s subsidy of bank charges for beneficiaries.”