There is yet another brewing crisis in the administration and payment of social grants in South Africa. Thousands of social grant recipients across the country are unable to access their grants, with reports of some not being paid at all.

The issue has been ongoing since the beginning of November 2022 when Postbank, a state-owned financial institution situated within the South African Post Office (Sapo), took over the responsibility to administer social grants. Postbank’s history, and the negative experiences of grant beneficiaries since the decision was made, raises serious questions about the secretive process to give Postbank this responsibility.

In October 2022, it came to light that the South African Social Security Agency (Sassa) had ceded its contract with Sapo for social grant payments, to Postbank. Even though there was apparently a three-month migration from Sapo to Postbank in October 2022, grant beneficiaries were not informed of the decision nor given any reasons for it.

Despite assurances that the decision would not result in any substantial changes to the “front end” of grant payments and would not affect beneficiaries receiving their grants, the first month of Postbank’s administration of social grants told a different story.

The change from a biometric fingerprint system to a PIN system used by Postbank delayed access to grant payments for many. Postbank promised that the problem had been resolved and would not hamper the payment of social grants subsequently. However, beneficiaries have again failed to receive their grants efficiently due to supposed technical “glitches” in the Postbank system and cybercrime attacks – leaving it unable to pay on time.

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On 6 January 2023, a Postbank media statement said its system had suffered another “glitch” but was back online and payments had resumed. However, after visiting a Cape Town Post Office branch the following week, GroundUp reported that several beneficiaries – many of whom needed their grants to buy supplies for children starting school – had still not been paid for January.

Abuse continues

Once again, something is deeply wrong with the grants payment system, and recipients are bearing the brunt and being kept in the dark. It reflects a disturbing continuation of abuse of the payment process and the recipients as a consequence of outsourcing the administration of social grants.

This reached its height with the unlawful contract with Net1 and Cash Paymaster Services (CPS) and the unlawful deductions associated with it. 

In 2018, following the termination of the contract with CPS, a master service agreement between Sassa and Sapo made Sapo the official partner that would manage the disbursement of grant payments, replacing the Net1 contract.

While it was welcome that a state enterprise was going to administer social grants, Sapo’s own serious debt problems and the closure of many Sapo branches left many beneficiaries with serious difficulties in accessing grants.

Yet despite these difficulties, the secretive decision to cede the contract to Postbank only seems to have amplified these problems.

People queue at South African Post Office at JubiIee Mall during adjusted lockdown Level 4 on 6 July 2021 in Hammanskraal, South Africa. (Photo: Gallo Images / Alet Pretorius)

Contract changes made in the dark

It was only on 30 September 2022 that Black Sash was made aware that the 2018 agreement between Sassa and Sapo would come to an end, with Sapo ceding its responsibilities to Postbank. Sassa and Sapo claimed that transferring responsibility of social grant payments to Postbank would be a minor shift and would not negatively affect beneficiaries.

Yet, upon monitoring grant payments in November 2022, Black Sash found that the Postbank system was experiencing serious technical difficulties, and some recipients were not being paid their full grant amounts at retail cash tills. This was in addition to the national load shedding crisis making it difficult for recipients to access pay points.

These concerning factors prompted Black Sash and the Centre for Applied Legal Studies to submit a formal Promotion of Access to Information Act (Paia) request to understand the arrangement between Sassa and Postbank to administer grant payments.

The documents received showed that on 1 August 2022, Sassa, Sapo and Postbank had signed a deed of adherence confirming that Sapo would cede its social grant payments agreement with Sassa to Postbank.

This meant that Black Sash and the public were only made aware of the transition a month after the agreement had been made, and only after a formal Paia request. There was no public announcement of the change nor explanations given for why Postbank had been entrusted with this vital function, despite the plan for the cession happening about three months before.

The documents also show that the review and negotiation of the master service agreement and service-level agreement between Sassa and Postbank would only be concluded by 28 February 2023.

Thus the details of the new agreement remain unclear, as do the consequences for the social grants system and grant beneficiaries. With Sassa and Sapo’s lack of consistent transparency over this transition, social grant recipients and the South African public were given no opportunity to provide input on this change.

In a letter to Sassa about their concerns, Black Sash wrote:

“The recent cession of the Sassa agreement from the South African Post Office (Sapo) to Postbank from the end of October 2022 appears to have affected beneficiaries accessing the full value of their grants, despite Sassa and Postbank giving the reassurance that the cession was a ‘back end’ change which would not adversely affect beneficiaries… Black Sash has been inundated with complaints and queries from beneficiaries and community partners complaining that grants could not be accessed.”

In response, Sassa sought to minimise the risks to grant recipients, saying “we’d like to reassure you that the challenges experienced during the recent payment cycles are not related to the contractual relationships between Sassa, Postbank and Sapo – and these may have occurred irrespective of who held the contractual obligations”.

Yet a closer look at Postbank’s history reveals an institution bedevilled by fraud, a lack of financial controls, and lax digital security. In short, it seems to be the last institution you would entrust with a vital role in the social grants payment system.

Hundreds of people, mostly elderly and disabled, wait in lines a outside Sassa office on 30 April 2021 in Bellville, South Africa. (Photo: Gallo Images / Brenton Geach)

Postbank’s technical ‘glitches’ are nothing new

Postbank officially took over the social grants payment system from Sapo on 31 October 2022 and its system immediately experienced technical failures that disrupted grant payments.

In December 2022, Postbank announced that ATM use for the Postbank/Sassa gold card had been suspended for December and that beneficiaries using these cards should collect their grants at retail stores. The reason given was the uncovering of attacks on the Postbank system by criminal elements “determined to commit systematic ATM card fraud-related crimes on Postbank payments” which required further investigation. Many retail stores ran out of cash, leaving beneficiaries unpaid.

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PostBank had an emergency meeting with Sassa in December 2022 in an effort to resolve the issues, but the Postbank CEO was noticeably absent from the meeting, since he was on leave in a time of a crisis.

Postbank explained the suspension of ATM use as risk mitigation against fraud. Despite Postbank’s undertaking to inform stakeholders upfront of any action taken, Postbank was noticeably quiet in the media regarding the challenges with grant payments which continued in January 2023.

Despite the promise that these issues would be resolved in December, Postbank faced similar problems in January 2023, with recipients not being able to access their grants. All of this indicates that Postbank was ill-prepared to take on the responsibility of managing social grant payments. Yet, such issues have been persistent throughout the state entity’s existence.

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In November 2022, the Mail & Guardian reported that Postbank’s irregular expenditure had risen by R118-million and that it had not reached its 2021-22 target of acquiring a commercial banking licence. Senior manager at the Auditor-General of South Africa, Joyce Nkonyane, told Parliament’s Portfolio Committee on Communication that the inappropriate spending came from various contracts.

The article reported that one of the major irregularities was that Postbank failed to safeguard the issuing of bank cards for its client, Sassa, which resulted in the loss of R68.8-million in cards that were not accounted for. These Postbank cards were meant for Sassa grant recipients who used Postbank accounts for their grant payments.

Additionally, Postbank’s failure to protect its internal systems and manage the cards led to stolen Sassa cards being used to commit fraud amounting to R13.6-million.

Moreover, in March 2022, Postbank confirmed that a cybercrime attack had resulted in a financial loss of about R90-million, though it claimed no customers had been affected by the loss.

AmaBhungane reported that “between 16 and 28 October last year (2021) individuals presumed to be either employed by Postbank or by a Postbank contractor stole at least R89,459,330 in physical cash through Sassa accounts. The brazen fraud involved illicitly crediting grant beneficiary accounts with large sums and then emptying these accounts out at ATMs.”

It was not the first time Postbank had suffered a cybercrime attack. In 2012, a hacker stole R42-million from the state entity when an employee’s computer was used to transfer money from the bank’s main server. 

There have also been technical glitches within the Postbank system leaving recipients of the R350 Social Relief of Distress grant unable to get their grants. This problem was eventually resolved, but it highlighted concerns about Postbank’s ability to maintain adequate protections in its internal digital systems.

There has been little accountability for any of these issues, with the Auditor-General telling Parliament that it had noted a clear “failure of having enough consequence management efforts and no internal process established to deal with consequence management”.

What next to protect grant recipients?

With a reputation of being incapable of managing the technical constraints of its internal systems, it must be questioned why Sassa and Sapo would deem Postbank the preferred partner to take over the administration of social grant payments.

It has become evident over the past three months that Postbank may not be suitable to maintain the critical responsibility of making grant payments. It certainly raises even greater concern about the secretive nature of and lack of public engagement on the decision.

If Postbank is to remain Sassa’s preferred partner, then questions need to be raised as to how and when Postbank will address its internal control failures and fraud problem. Sassa, Sapo and Postbank must also be more transparent on the details and implications of Sapo ceding its responsibilities to Postbank. The public needs urgent answers to the following:

• What informed the decision to cede Sassa’s contract with Sapo to Postbank?
• Why was no notice of the proposed cession given to the public, particularly social grant beneficiaries?
• Why were beneficiaries not kept updated about the reasons for the delays in payments and how Postbank planned to address the issues?
• Given the experiences of grant beneficiaries over the past three months, is Sassa and the minister of social development satisfied that Postbank is able to fulfil the functions required of it in terms of this agreement?
• What measures have Sassa and the Postbank taken to protect grant beneficiaries from the effects of Postbank’s lack of expertise and capacity to fulfil the obligations to administer and pay the grants?; and
• What oversight mechanisms are currently in place between the Department of Social Development, Sassa and Postbank to ensure the efficient payment of social grants? DM