Heaven help us
By : Roseanne Gerin
"We can't say that it's been a success," says Alexandra Wiktorow, president of ZUS
Its been the biggest information technology project in Poland so far, and one of the largest in Central and Eastern Europe. At a cost of zł. 714 million ($223 million) when it started four years ago, it was, and still is, the most expensive computer system in the country using the most diverse IT technologies and the largest and most powerful server in the region.
On Oct. 10, 1997, the Social Insurance Administration (ZUS) (http://www.zus.gov.pl), one of the countrys largest state organizations, signed a contract with Prokom Software (http://www.prokom.pl), Polands largest IT firm, to create and install a new software system that would connect all of ZUS 51 branch offices nationwide. The IT project was also to enable pension forms to be filed electronically as well as sort millions of pension payments into individual accounts. The planned completion date was 2002.
Today, the project is about a year away from the full implementation of one of its main remaining functions completed individual accounts for pension contributors. So far, more than two-thirds of the projects functions have been implemented, according to Prokom. Meanwhile, ZUS and Prokom are now negotiating a new 12-month contract for the IT company to oversee the daily operations of the system.
ZUSs system has generated a lot of controversy as one of the biggest taxpayer-funded projects in the country. It was a major overhaul for the state behemoth, which today employs 44,000 workers and has more than zł. 100 billion ($23.8 billion) in assets under management. Some zł. 97 billion ($23 billion) of that amount comprises the social insurance fund from which pensions are paid and the remaining zł. 3.5 billion ($833 million) for ZUS operational expenses.
Four years ago ZUS had to revamp its IT system to comply with upcoming legal reforms in the social insurance sector. The ever-changing legal environment was one of the main events that threw the project off course, both ZUS and Prokom said.
From August 1997-December 1998, four major pension reform and social insurance laws were passed. The old pay-as-you-go system was to be replaced in January 1999 by one based on defined contributions with employees who paid more during their working years and received higher pensions after they retired. The new pension reform law stipulated that the payments were to be invested in pension funds, or Otwarte Fundusze Emerytalne (OFE).
ZUS couldnt have prepared many things until those acts were ready, said Aleksandra Wiktorow, a former vice minister of the Labor Ministry who has been ZUS president for the past three months. The beginnings radically influenced the progress of the IT projects realization.
As a result of some of the legal changes, ZUS and Prokom had to sign an amended deal on May 14, 1998 that would guarantee the project would be completed by Jan. 1, 1999, when the new pension reform law was to go into effect.
The biggest problem in the whole project was that we were constantly trying to adjust (it) to the changing legal environment, said Piotr Mondalski, a member of Prokoms management board who works on the 250-member team that is implementing the project. The legal framework of this social security reform was being built at the same time that we were trying to build the IT frame around it. And, obviously, it was like chasing a moving target.
Further amendments to the laws forced yet more IT changes at ZUS and caused delays in processing incoming data, the effects of which are still being worked out today. In January of this year, for example, the Sejm passed an amendment to the social insurance law that all companies with 20 or more employees would have to file electronic pension contribution forms once a month via ZUS Web site. They would also have to transfer payments directly to banks rather than submitting them to a ZUS cashier.
Were talking about rebuilding huge parts of software to be able to identify the documents coming in electronically whereas in the beginning they were (put) through scanners (where) paper was actually the main medium and was processed to an electronic form and put into the system, Mondalski said.
ZUS also ran into delays with transferring money to OFE. With the new pension reform system being implemented simultaneously with the ZUS IT system in 1999 and 2000, there was a backlog of data where ZUS system could not match information on pension payments. As a result, ZUS has withheld this money from OFE until the problems are cleared up a move that has left ZUS with fines of more than zł. 4 billion ($952 million) with the penalty percentages constantly increasing, Wiktorow said. She, in part, blamed this on technical problems in the IT system.
If its about fee transfers to OFE and moving to the new system, Prokom Software has had some delays on different stages of the project, but also ZUS as an institution wasnt ready for that at all, Wiktorow said.
Mondalski of Prokom, however, contends that security clauses in the contract oblige ZUS to stipulate fines if Prokom has been late or failed to perform. We havent yet paid a single złoty, he said, adding that his firm also has a clause where it is entitled to a delay if ZUS does not submit guidelines for starting the process of developing either part of the software or the systems design.
Wiktorow also pointed to employers who did not transfer pension money or who made mistakes in their declaration forms, leaving ZUS unable to identify correctly individual contributors and to transfer payments to OFE.
One reason ZUS could not identify some individuals for whom information was being submitted was because it could not match forms and payments to accounts when different identification numbers had been used. The initial pension law, for example, allowed the employee to use a PESEL number, the standard identification number in Poland, or a passport for forms and corresponding bank transfers. But it did not specify that the same number had to be made for all transactions. Therefore, documents using different numbers could not be matched by ZUS system.
It is the combination of the systems failure and the number of errors, said Ewa Lewicka, a vice minister at the Ministry of Labor and Government Plenipotentiary for Social Security Reform, which oversees ZUS. According to the law, the contribution cannot be transferred, unless the amount is fully identified to avoid the problem of no-name money in the system of pension funds.
Prokom said it has resolved this problem. We have developed software that can match the documents by key words or other important recognition of numbers in documents, Mondalski said.
Documents returned for correction and resubmission could also not be entered into the system, although ZUS is in the process of entering them gradually, Wiktorow said. As soon as ZUS receives corrections via its Web site, however, it can record them immediately in the new system.
This problem was nothing new. Indeed, many of ZUS woes had been caused by the agencys inability to collect tax payments from companies. Collection rates for social security payments were 91-92% in late 1999 compared to about 97% today, Wiktorow said. Companies now owe about zł. 64 billion ($15.2 billion) to ZUS.
ZUS inability to balance its transfers to OFE with its pension obligations forced it to take out billion-złoty loans from banks and the government in 1999 in addition to the few billions it received in government subsidies. Although ZUS no longer takes loans from the government, it still receives subsidies from the budget, which total zł. 26 billion ($6.1 billion), Lewicka said. ZUS collects the employees money and transfers it to OFE and then the government refunds the money thats transfered; ZUS also takes out short-term bank credits of one-to-two days, Wiktorow said.
The late payments, however, are not causing the 18 open pension funds to which ZUS transfers money to lose out as ZUS must pay them a 30% penalty interest rate much higher than their average rate of return. For a two-year period from June 1999-June 2001, for example, OFEs average rate of return was 22.09%, said Paweł Pelc, the deputy president of the Pension Fund Superintendent (UNFE) (http://www.unfe.gov.pl), the watchdog agency that supervises the open pension funds created under the pension reform legislation.
ZUS said it has not been possible for it to examine the error rate now because the IT system only finished processing new information on Sept. 10. But Wiktorow said that in general the number of mistakes in forms made by employers, banks or OFE has fallen from about 80% in 1999 to about 15% now.
Meanwhile, ZUS still partially depends on its previous IT system to transfer fees to OFE and Kasy Chorych, or Patients Funds, while the final system is being tested, said Mariusz Ulicki, ZUS vice president of IT.
In conjunction with this, ZUS also has yet to fully update individual accounts with credits for all pension payments made before July 2000, Wiktorow said. Since ZUS switched to its IBM mainframe last August, incoming fees have been recorded in the new IT system as of the July payments and will now be registered in individual accounts. By next September, all insured people should know the amount of money in their accounts. Additional time would be needed to process other social security payments such as maternity leave payments and alimony, she said.
In retrospect, the major parties and other industry experts have mixed assessments on the progess made by the IT project so far.
Generally speaking, if its about the IT system implementation no one can say the situation is good, Wiktorow said. Its better now, but we cant say its been a success. Where the project was headed was not clear for the first year and a half.
Others contend that the computerization project, warts and all, has been a necessary part of the countrys pension reform.
Slowly ZUS system is now working better and better, but compared with 1999 we see significant improvements, said Tomasz Frontczak, the president of AIG PTE (http://www.aig-pte.pl), the fourth largest pension fund in Poland, which has zł. 1.5 billion ($357 million) under management and 870,000 active accounts. Without the IT system at ZUS, the whole pension reform would not have been possible.
Prokom echoes those sentiments. If it wasnt for the IT system, this whole social security (system) could never have been replaced because it couldnt have been done without IT, Mondalski said.
