Edition: March / May 2017
Openings for fraud
Administrators fear that FSB attempts to get fund payouts into the hands of former mineworkers can backfire.
Undoubtedly with the best will in the world, the Financial Services Board has embarked on an exercise to assist hundreds of former mineworkers obtain their unclaimed benefits from pension and provident funds. Inadvertently, however, the exercise poses a risk that the mineworkers and their funds are defrauded of monies to which the mineworkers are entitled.
This is because, late last year, the FSB distributed to a host of principal officers and fund administrators a spreadsheet containing the full names and ID numbers of the mineworkers and their beneficiaries. Being addressed to groups without regard to the administrators’ custody chains, the FSB’s emails – which contain the essential information for fraudsters – would have been seen by anybody to whom they were forwarded.
That the FSB places responsibility for the prevention of fraud on administrators, in practice it’s problematic because of the ease with which fake ID documents can be obtained. They look genuine either because they’ve been issued through bribery at Home Affairs or produced by master counterfeiters.
When presented to administrators, who themselves are vulnerable to internal fraud, they pay. Administrators report numerous instances of fraud only detected by chance, for instance by real and sham claimants being in their offices at the same time.
Says the FSB: “The funds and/or administrators that we liaise with are required to have proper controls to detect fraudulent claims. The role of the FSB is to direct the member to the relevant fund when there is a benefit due and payable. The fund is required by legislation to ensure that payment is made to the correct person. It collects information to verify and validate that the recipient of the payment is the member on record.”
Easier said than done when the administrator or fund is presented with fraudulent ID. How are they to sift the wheat from the chaff?
The FSB and the administrators are up against it. For its part, the FSB is trying to assist particular fund members who lack the means to make inquiries with the relevant retirement funds. Former mineworkers, spread over southern Africa, are a case in point. But the FSB has little information about them.
For their part, administrators are concerned about the email distribution of the FSB’s limited information. They fear that it can fall into the wrong hands, allowing the wrong people to obtain payouts not rightfully theirs.
It’s estimated that over R15bn is lying in unclaimed benefit funds. Not only because of such magnitude but also because the intended beneficiaries are largely poor, the problem of this money not being properly paid out must be effectively addressed. One administrator proposes creative methods that involve the FSB better using its position for bringing together the public and private-sector parties capable of hammering out a solution.
For example, the database compiled under the act which regulates communications (RICA) contains millions of active cellphone numbers linked to an ID number. If administrators could get their hands on that database, they could easily and cheaply make inroads into finding lost members.
Similarly, many of the 16 million people who receive social grants would have unclaimed benefits due to them. Administrators say that they receive no response from requests to the SA Social Security Agency that its biometric information be shared (see box).
Another example arises from the potential for cooperation with retail groups. They sit on treasure troves of information, particularly cellphone numbers linked to club cards that are swiped at points of sale; in other words, up-to-date data enabling direct contact.
Rather than sending member lists into the ether, it’s surely preferable that the FSB becomes the catalyst to bang the heads of those who can help.