Managing Risk of Fraud or Errors as Two-pot Claims Rise

As retirement funds are hyper focused on processing claims and making payments to members, the volume of transactions is raising serious data governance risks. Several issues have emerged, top of which being that the administration systems were ill-equipped to handle the high volume of claims. The retirement fund administrators spent at least a year getting ready for the reform with setting up new systems and putting new processes in place, but the high withdrawal rate proved more challenging. The industry inherently has a high risk of fraud and errors due to member data integrity issues, hence the high unclaimed benefits. The high withdrawal volumes magnify the risks of fraudulent claims being paid out and errors in the claims process. This is especially worrisome for funds that had inaccurate, duplicate or incomplete data.

The possible financial losses due to fraud or errors would be significant. We are halfway through the second month of the two-pot system and it’s estimated that R21 billion has already been withdrawn.  Two weeks in, it was estimated that there were at least two claims received per minute nationally. A few administrators experienced system crashes due to the high volumes. The turn around time to process claims also proved challenging and the adjudicator was inundated with complaints from employees struggling to access their retirement savings. Besides financial losses there are also compliance issues that may occur that can carry risks.

The Boards and Management have a fiduciary duty to safeguard the assets and minimise risk of loss. The best time for them to respond was at least a year ago by performing data maturity review (see our article on data maturity: https://bagakagroup.co.za/data-maturity/) and a diagnostic analysis to identify inaccuracies, gaps and duplications in member data, however, all is not lost. The funds need to consider an ‘assurance review’ over the claims process. This can be tailored to address the fund’s highest emerging risks, including but not limited to:

• Benefits claims process review: Considering the changes in the system to get assurance that the system is adept with the reform changes (example, can accurately split contributions into different pots). This will include a review of the General IT controls and application controls.
• Data Integrity Assessment: To identify and correct inaccuracies, gaps and duplications in member data.
• Data maturity assessment: This is a full review of the fund’s data management processes, governance, infrastructure, security, etc (see our article on data maturity: https://bagakagroup.co.za/data-maturity/).
• Benefits Payments assessment: This is an assessment of benefits payments made over a period, say a year or for an outlier like two-pot claims processing, say three months or six months. The focus of the assessment is to ensure the legitimacy of the payments made, including a confirmation of the banking information to detect any errors or instances of fraud.

Nothing can beat regular monitoring of the adequacy of controls in place over administration process, and periodic review of the effectiveness of controls. This is especially necessary where funds outsource administration. They need to obtain a annual reports from administrators’ auditors on the adequacy and effectiveness of the system of internal controls.

If you sit on a retirement fund board and are concerned, please invite Bagaka for a conversation to discuss possible risk factors that may need to be addressed.