Chapter 1 INTRODUCTION

Size: px

Start display at page:

Download "Chapter 1 INTRODUCTION"

Horatio Gardner
5 years ago
Views:

1 Chapter 1 INTRODUCTION 1.1 Background The Employees Provident Fund (EPF) is the largest Social Security Scheme in Sri Lanka. It was established in 1958 with the objective of providing financial stability to the employee after retirement of his service. The fund has given protection to the working population, in the private sector as well as, in public corporation and statutory boards during the last 50 years. Up to now, the total deposit of the fund, which has received the contributions, has risen to Rs. 490 billion and it represents 13.3% of the total assets of the financial sector. The number of members in the fund is 2 million and that is 26.7% of the total employees of Sri Lanka. The administrative aspects of the EPF are handled by the Department of Labour whilst the management of the fund is handled by EPF department of the Central Bank. The main functions of the Department of Labour are as follows. Enforcement of Employees Provident Fund Act Registration of Employees Keeping Employees Personal Records Collection of Contribution Prosecution against Errant Employers Determining Payments of EPF Claims Grant Housing Loan to EPF Members 1

2 Although some selected EPF functions such as EPF claim processing functions have been computerized other major functions are still manually handled by the officers of the department. The Employees Provident Fund Division of the Department of Labour has mainly divided into two sections. They are, (a) Collection section (b) Refund section EPF Collection Section: All employers who are registered under the EPF should dispatch their employees EPF contributions on or before the last date of the succeeding month to reach the Superintendent of EPF in the Central Bank, which is a legal obligation. If he fails to do so, it is a violation of the regulation stipulated in the EPF Act. Under section 16 of the EPF Act the employer has to add a calculated additional amount, as surcharge for delayed payments of contributions. It is revealed that 50% of the employers who are legally bound to make EPF contributions regularly for their employees are violating the EPF law. Until it is notified to the officers who are attending field inspections, visiting establishments and physically inspecting the EPF payment receipts which are received from the Central Bank, they are not able to take action against them. The Commissioner of Labour has been given the necessary legislative power to take action against the errant employers, by filing a court case in the Magistrate court. For this purpose the field officers who have been delegated necessary powers, by the Commissioner of Labour, visit the establishment and collect the evidence by interrogating employers and workers. Usually these field duties have been designated to the Assistant Commissioners, Labour Officers and EPF Field Officers who are working in the District Labour Offices all over the island. 2

3 Before filing a case in the Magistrate court, the field staff as well as the Management Assistants in the district office has to follow long procedures because the prosecution process should be clear, impartial and it should maintain transparency. So far all these prosecution works are done manually by the Management Assistants who have been appointed to the District Labour Offices. Since the number of cases handled by a Management Assistant and a labour officer / field officer in the district office is very high, the delays in taking action against the errant employers are inevitable EPF Refund Section: An employee who has an account in the Employees Provident Fund in the Central Bank will be eligible to apply for his EPF benefit under the section 23 of the EPF Act. Also a deceased member s EPF benefit could be claimed by his legal heirs. The EPF benefits are payable to the members only under the following circumstances: (a) After a member, being a male, attains the age of 55 years or being a female, attains the age of 50 years and ceased the employment (b) After a member, being a female, ceases to be employed in consequence of marriage (c) After a member, ceases to be employed by reason of permanent and total incapacity for work and is certified by the registered medical practitioner, as unfit for work, any longer (d) Before the date of member s departure from Sri Lanka with the intention of not returning to Sri Lanka (e) After member ceases to be employed, takes up pensionable employment in public service or local government service (f) Ceases to be employed due to, a. Public business undertaken converts to public corporation 3

4 b. Close down a public corporation c. Public corporation converts to Public Company d. Retrenchment of workers in Public Corporation The total amount lying to the credit of the individual account of a member could be drawn at one of the above circumstances. When an employee dies before he withdraws EPF, his heirs are eligible to claim deceased member s EPF benefits Administration of EPF In the organizational chart (Figure 1.1) the Commissioner General of Labour can be seen as the key figure controlling several divisions including EPF. The Commissioner (EPF) is responsible for 6 divisions/units of the head office as well as the twenty six district offices, which are distributed through out the island according to the population density. The main divisions of the EPF head office are, (a.) Employer registration (b.) Employee registration (c.) Claims department (P,K,R and L Units) (d.) Tappol (Mail receiving) (e.) Private Provident Fund Administration (f.) Information Technology Unit (IT Unit) 4

5 Commissioner General Additional Commissioner General Commissioner Of Labour (Administration) Commissioner of Labour (Industrial Safety) Commissioner of Labour (EPF) Commissioner of Labour (Industrial Relations) DCL (Administration) DCL (Zonal) DCL (Claims) ACL Employer Registration/Account s ACL IT / New Registration ACL (District) ACL Claim (K,P) ACL Claim (L) DCL : Deputy Commissioner of Labour ACL : Assistant Commissioner of Labour Figure 1.1 Organizational Chart EPF Head Office The zones are defined by the department considering the demographical statistics like workforce, category of workforce, and population distribution. A Deputy Commissioner of Labour has been appointed as in-charge of a zone called zonal DCL. Under him there may be two or more district labour offices and sub offices. The EPF matters pertaining to the zone, Deputy Commissioner of Labour (zone) must be responsible. He represents the Commissioner of Labour (EPF). This organization is illustrated in Figure

6 Commissioner of Labour (EPF) Deputy Commissioner of Labour (Zonal) ACL (1) [District Office] ACL (2) [District Office] ACL (3) [District Office] SLO [Sub Office] SLO [Sub Office] ACL: Assistant Commissioner of Labour (In-charge District Labour Office) SLO: Senior Labour Officer (in-charge Sub Office) Figure 1.2 Organizational Chart Zonal Set up 1.2 Purpose of the Research Statistics of the EPF division showed that there are applications received per month by the department from the members, for EPF withdrawals. When an application is received by the EPF division the following steps have to be taken until the completion of the refund. At the Labour Department 1. Receipt of application (check eligibility and supporting documents) 2. Register the application and allocate a file number 3. Distribute and send it to the claims unit 4. Check applicant s authenticity 5. Determine the claim and inform Central bank 6. If Central Bank rejects the Determination, it should refer to the member for further clarification. 6

7 At the Central Bank 7. Tally the member details in the determination letter (DL) with the member details stored in the Central Bank database. 8. If there is any differences the DL is returned to Commissioner of Labour for further clarification. 9. Otherwise payment is made to individual through Sri Lanka Inter Bank Payment System (SLIP). Considering the amount of applications received from each zone the EPF refund section has been divided into two sub units, called unit P and unit K. All deceased members claims are sent to the L1 and L2 units. Since year 1958 member records (A & H cards) were kept on a single floor in the Labour Department. They amounted to more than 7 millions. All member records are stored, organized and arranged in alphabetical order and the retrieval is done by the Management Assistants manually. In addition to this more than 3 million old claim files are kept on a separate floor in the same building. Since the permission has not been given, in the EPF Act, to destroy the old files and they carry the important evidence of EPF payments, these files should be kept more than years until the member s death. The EPF claim staff has not been able to handle the refund cases efficiently due to various reasons. They are, 1. Delay in retrieval of member records from the record room 2. Staff shortages 3. Record Keeping problems 4. Old record retrieval delays 5. Inadequacy of office space 6. Having to listen to time consuming public inquiries 7

8 In 1996 there was a backlog of more than 50,000 claim applications in each unit. Keeping a claim file unattended for a long period is leads to bribery and corruption in various ways. A large number of cases were reported and several complaints had been made to the Police against the employees who attempted to take bribery from innocent applicants. More than 100 applicants visit and wait long hours, in front of claim officers, to see the progress of their EPF claims processing, until it pass to the Central Bank for payment. Frustrated applicants make their complaints against the EPF officers, to the Commissioner of Labour frequently, on undue delay in processing the claims. Some members of the fund have made public statements to the mass media, against the EPF division and huge public unrest was aroused. In addition to this Members of Parliament, Trade Unions and General Public made their representation to the Minister of Labour to re-organize the EPF refund section of the Labour Department. Members of Parliament were frequently asked questions about delays of EPF claims, at the parliament. Finally the Commissioner of Labour appointed a team of experts, including Information Technology (IT) specialists, to study the existing systems and make suitable proposals to enhance the productivity of the EPF benefit payment process. After a 6 month system study, the final draft of the proposal was issued. It was suggested to introduce an IT enabling system to the EPF benefit payment section and subsequently the suggestion was passed and decision made accepted to implement it immediately. As requested by the Minister of Labour the Cabinet of Ministers Appointed a Procurement Committee and Technical Evaluation Committee to select a suitable vendor. After that the vendor was selected. The Commissioner of Labour signed the agreement between the department and the vendors at the end of In 1998 the proposed EPF IT enabling project was launched. The following are the key objectives of the project. 8

9 To provide a more effective service to its principal clients, the employees, and the public who call over at the head office of the department, or its sub offices islandwide To efficiently and cost effectively arrest the rapid growth, placed upon its main business function To improve staff productivity To provide for better management and administration of the department To facilitate and expedite the work of the authorities in respect of tracking defaulters, through the provisions of timely and complete information and hence increase revenue To provide for greater functionality than is economically feasible, through the current manual based systems and procedures To address the increasing demands placed on the physical space requirements. To ensure the safe, secure integral and reliable custody of data pertaining to the dues of the membership totaling over a billion of Rupees. This data represents one of the most important, if not the most important, resources of the EPF of the Department of Labour To provide easy access for complete reliable and accurate data for statistical and other analysis to enable operational, tactical and strategic planning for the EPF. The use of such data and information to generate more revenue on such a basis for national policy and planning in various sectors of the Sri Lankan economy Initially the project estimated the cost was Rs. 58 million. It had been phased out as follows. Phase 1. Set up database for the employee registration section i. Computerize 5 million member records (A & H cards) ii. Scan and Electronically Store images of 5 million A & H cards 9

10 Phase 2. Computerize determination letters (DLs) Phase 3. Provide online transmission service with the Central Bank Phase 4. Set up internal Computer Network system The introducing of IT enabling services for the Employees Provident Fund Claim Processing system has been implemented in January Until setting up the employee registration database, since it takes more than 2 years time because of the huge volume of records, other three phases, i.e. Computerizing DLs, setting up Computer Network system and providing online transmission services with the Central Bank were started without much interrupting the manual processing. The data capturing and scanning of member records was started (zonal wise) in alphabetical order of the zones. Meanwhile necessary software for record retrievals processes were designed and installed. After finishing the data capturing and scanning of records in a zone, Management Assistants who were handling claims were provided online facility for retrievals of member records, for claim determinations and manual retrieval procedure were gradually abandoned zone by zone. Until the year 1998 all claims were handled Management Assistants by manually. Now all existing member records are computerized, all manual procedures of record retrievals are abandoned and all supporting management staff and staff officers have been provided with a Personal Computer with an on-line data retrieval facility from the central employee master data base as well as the Central Bank member account data base. How ever still the trade unionists and members of the fund are complaining about the delays of their EPF claims. Some EPF staff members in several district 10

11 offices, have been taken into Police custody under suspicion of attempting the supporting of the withdrawal of funds from the Central Bank using bogus documents. There are complaints in mal-practices in various claim units in district offices. Also it is reported that some employees have passed bogus claims in stolen staff officers passwords. Although claim files are handled by the computer system and a large amount of records are retrieved electronically, still record keeping staff is serving for the retrieval of member records manually which leads to various corruptions in the system. 1.3 Research Objectives This research study mainly focuses on identifying the problems of existing, IT enabling systems of the EPF and suggests member centric Information and Communication Technological solutions for the whole EPF system. More specifically, this study will attempt to answer the following queries: 1. Whether the introduced EPF IT enabling system has addressed all issues of the EPF system correctly. 2. What are the problems still remaining to be solved in the existing IT enabling system of EPF? 3. Whether the EPF claims handling staff has adequate knowledge and training of handling the EPF claim process efficiently and effectively in secure manner. 4. How effective is the implementation of a system using Information and Communication Technology, in increasing productivity and quality of services? 5 What are the perceived barriers in the successful implementation of fully automated system? 6 How the Management Assistants, Assistant Commissioners and EPF members perceive the fully automated system of the claim 11

12 processing of Employees Provident Fund? Specifically this research will focus on the following objectives Study the existing IT enabling systems at the EPF and identify weaknesses and success factors of the benefit payment process. Explore the possibility of the use of Information & Communication Technology (ICT) services for the enhancement of productivity and efficiency of the department. 1.4 Impact & Benefit of the Research When reaching retirement age or under the other options stipulated of the Section 23 & 24 of EPF act, a member is eligible to apply for his EPF benefit. The EPF withdrawal procedure is clearly defined in the regulations passed by the parliament from time to time, under the EPF Act. A member who is eligible for claiming EPF benefit has to complete an application form K or L which are designed specially for EPF claims and forward it to the Commissioner of Labour through his last employer. ( K form is the normal withdrawal form and has to filled by the employee, L form is the deceased workers benefit claiming form. L form is usually filled by the legal heir of the deceased). Normally, there are 300 applications received by the department per day claiming EPF benefits. Now the EPF claim processing system has been decentralized for all district offices. The EPF claim applications are received in various offices depending on the location of residence of the worker. Statistics show that only 30% of claims are finished with in 2 weeks time. 50% remain from 14 days to a 3 12

13 months period in the office, because of various member identification problems. The rest is kept for a long time, un-attended. The situation is still worse. Retired members, those who are senior citizens of this country are frustrated and wasting their valuable time, for traveling to EPF offices to inquire about their EPF claims, which should reach him at the end of his last working day. Therefore it is very important to device a mechanism to process all applications, within 24 hours, after submitting to the department for the claiming of EPF benefits. The intention of this study is to address these problems and explore the possibility of re-engineering existing EPF procedures of the department. It will benefit 6 million working population, in the private and semi-government sector, in the Country. 1.5 Limitations and Scope of work This research is designed for the benefit payment system of the Employees Provident Fund in the Department of Labour, Labour Secretariat, Colombo 05. Since setting up the IT enabling system for the EPF was started in 1998 the research covers the 1998 to 2009 period. It is not possible to go before 1998, because the required documents have not been preserved by the system. Therefore the cover period is limited from 1998 to The EPF claim payment system has already been decentralized to all 30 district labour offices but the given time period for the research is not sufficient to cover all decentralized offices. Hence considering the labour force distribution and geographical situation the following places were selected for the research study. They are, 13

14 1. EPF Head office Claim Division, Labour Department, Colombo 2. Kurunegala District Labour Office Kurunegala 3. Hatton District Labour Office Hatton 4. Anuradhapura District Labour Office Anuradhapura The target community groups are the members of the Employees Provident Fund who made their EPF claims between the 1998 and 2009 period and lived in the Colombo, Galle, Hatton and Anuradhapura District. All EPF members are scattered throughout the district, their residents addresses would be probably changed, and it is very difficult to interview them physically. Therefore the staff members who are working in the head office and the selected district labour offices are selected for interview. According to the International Social Security Association (ISSA) there are 75 EPF systems in the world [15]. In the Asian region India, Pakistan, Thailand, Malaysia, Singapore and Sri Lanka have their own EPF systems. Among those Provident Funds the Malaysian Employees Provident Fund and Singapore Central Provident Funds are accepted as the technologically well developed EPF systems compared to similar Funds in Asia. Therefore the publications issued from the above Provident Funds are also utilized. The research does not include other languages and scripts. 14

Chapter 7 REFERENCES

Chapter 7 REFERENCES [1] S. Kulamanage, Pension scheme on drawing board, Sunday Times, June 01, 1997, [Online]. Available http://sundaytimes.lk/970601/bus3.html, [Accessed September 01, 2009] [2] Federation