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A remarkable story which helped transform a bureaucratic organisation to a customer centric organisation.
This experience may inspire several government/private organisations to modify or adopt digitisation to transform their business, notes Professor N Ravichandran.
What is EPFO??
The Employee Provident Fund Organisation (EPFO) is the largest social security organisation for the labour force at the lower end of the wealth spectrum.
EPFO provides Social Security to those who earn at least Rs 15,000 per month. EPFO is a government organisation established by an Act of Parliament.
EPFO operates in an environment with virtually no competition. EPFO is a single (largest) entity in this space.
EPFO in 2024 managed 29.88 crore (298.8 million) subscriber accounts, dealt with 21.23 lakh (2.123 million) member establishments, settled in a year 4.13 crore (41.3 million) claims, serviced 75.58 lakh (7.558 million) pensioners and managed a corpus of Rs 21.15 lakh crores and delivered an interest rate of 8.25%.
The stakeholders of EPFO
1. Members who are workmen. They are called employee members (IM).
2. The others are the establishment members (EM).
EPFO itself is an important stakeholder as it provides an umbrella coverage to relevant sections of the workforce in India. The government as a benevolent enabler is another stakeholder.
EPFO Products
Employment Provident Fund is the flagship product. Pension product in case of the unfortunate death of a member or when s/he is incapacitated to work arising out of an accident or any other unexpected consequences. This pension is given to the individual member.
It is also given to the dependent(s) after the death of the original employee. The deposit linked insurance scheme is a product to the employee member and his family.
EPFO Purpose
The basic purpose of EPFO is to provide a safety network based on the savings of individual members, to an economically weak workforce should they face any adverse economic consequences due to a health-related emergency, and displacement from jobs.
EPFO manages the money that belongs to members of the organisation. Each employee member is expected to make a monthly contribution.
This contribution is matched by the organisation by a similar amount and deposited in the accounts of the individuals concerned. The corpus is managed by EPFO at the centralised level.
Should there be a need for the member's money it should be available to the member, as rapidly as possible.
For employee members retirement or impairment to work or death, a pension is paid to her/him or her/his dependent members.
The employee members can also partially withdraw the balance amount for their social needs, like education of their children or marriages in the family or any other contingency.
There is an insurance scheme which is linked to the amount available in their respective accounts of employee members.
The central idea is this is money which belongs to the employees, managed by EPFO in a centralised way.
And this money should be available to the members, whenever there is a need to them as rapidly as possible.
If this objective is met, the effectiveness and efficiency of the organisation would be considered as high.
EPFO Operations
The member organisations deduct a fixed amount from their employee salary and make a matching contribution and deposit this in a designated bank (SBI) branch before the seventh day of every month.
Often the employee, the organisation members, are a small scale organisation, and in spite of their best efforts, the compliance of remittance is an issue, and this needs to be monitored.
The remittances through manual operation to the respective banks and the reconciliation process used to take up to six months.
The responsibility of remitting the amount is with the employer member and there is no visibility and traceability of the transactions in the manual operations mode.
The processors started to drift on its own.
The three important constituents who work on behalf of the member employees are the employee, member organisation, the relevant EPFO branch and the local designated bank branch.
They all have to collectively manage these activities, but they suffer no direct impact if these activities are not efficiently managed.
EPFO operations were localised and they are complete.
Scalability is an issue. But one can argue that EPFO can be seen as a federation of several branches, and each branch is self-contained, even though the original operations suffered from lack of transparency and responsiveness in view of the manual operations mode.
Consequences of EPFO operations
The impact of EPFO operations on the stakeholders was multi-fold. The stakeholders are essentially the subscribers and they were not able to track their bank balance.
Often the bank balance was reflected with a time lag of up to six months. Account reconciliation was a challenge.
When an employee migrated to another place of work, the transfer of his account to the relevant EPFO branch required a lot of paperwork and follow up.
Consequently, several unclaimed amounts remained in the EPFO. Also, multiple accounts were created by the same subscriber,
The employer organisations passively benefited because there are no effective monitoring mechanisms.
And if they did not comply with the requirements of remitting the money within the seven working days of the month, no immediate action was possible by EPFO because of the time delay in tracking the transactions.
By the time the deviation was discovered by EPFO only a court case could be filed in view of the time delay.
Consequently, the remedial actions were difficult to implement.
Even though the EPFO was created for the welfare of members, it was constrained to be a silent spectator because of the rigidities associated with the process in terms of localisation and manual operation.
The corpus amount is significant, and the EPFO is a third party to this entire exercise.
EPFO is neither the actual owner nor it is impacted by the efficient or otherwise performance of the system.
The entire process was manual. It was bureaucratic and it involved verification seeking and required endorsement at various levels.
Therefore, delays were inevitable. Even partial withdrawal of the funds belonging to the employee members was significantly delayed, defeating the primary purpose for which the entire scheme was designed.
Exempted organisations manage their own provident fund of employees. Usually these are trusts.
In the old system, there is no way of actually monitoring whether the exempted organisations are complaint with the requirements of the relevant provisions of the EPFO act.
In short, while the intention was good to create a social network, the way it was implemented was not effective.
Given the wide spread of the employees and the member organisations, the magnitude of corpus managed by EPFO processes required urgent intervention.
Digitisation in EPFO:
The digitisation of EPFO activities was implemented over a period of ten years.
It went through the classical stages of business process re-engineering, full proofing the processes, automation and change management.
The revolutionary change was the introduction of the Universal Account Number (UAN).
UAN is unique to a member employee and it is linked with his Aadhar number so that the individual identity is established.
The Aadhar seeded UAN is available in the centralised data bank. The second major change was with the remittance process.
The remittances have been made electronic, and therefore reconciliation was almost instantaneous.
What used to take about six months can now be done in less than 24 hours' time.
Also because of the UAN and the Aadhar authentication linkage, the local linkages between the EPFO branch, member organisation and the designated bank branch was dismantled.
The member organisations can now deposit their contribution and the contribution of the individual employee to any of the designated branches through an electronic portal.
In essence, EPFO has moved from essentially a rigid, compartmentalised, decentralised organisation to a centralised organisation to facilitate transactions.
Since the employee members are identified through UAN which is Aadhaar authenticated, multiple support services can now be easily delivered.
It is now possible to have an electronic passbook which can be printed or it can be seen on any device (Web, mobile or personal computers).
The EPFO account balance monitoring is real time. The monitoring compliance by member organisations is instantaneous.
The loan and partial withdrawals process were re-engineered keeping customer focus.
The application form was made simple. The endorsement of the employer was dispensed with.
Employees can now self-certify their applications and the relevant facts. The loan application forms can be submitted on line and processed real time.
Consequently, to a large extent, members need not go to the bank branch/EPFO office to transact their business.
It can be done by using a mobile phone and the relevant applications.
As a consequence of these digitisation efforts, compliance and monitoring of the member establishments has become effortless.
Compliance with regard to the contract employees has been an area of concern in the manual mode of operation.
The complication is due to one more agency involved. Usually, this agency recruit's manpower deploys them on behalf of the principal and pays them.
EPF compliance is best done at the agency level. Any deviation would attract penalty to the principal employer.
Using manual operations and managing multiple players was tedious and resulted in delays.
With digitisation the number of agencies involved has become redundant and the compliance and monitoring process is seamless.
As mentioned earlier, pensioners can self-certify their life certificate and submit it online.
There is no need for them to physically visit the EPFO office to submit life certificate.
The digitisation in EPFO has provided all around benefits to every stakeholder associated with EPFO.
The primary benefit has been to the members. Now they know precisely what their PF balance is and they can withdraw the money at their will almost instantaneously.
And should they draw pension the disbursement is routine and the annual renewal of the pension is now automated.
The mobility of the employees' PF accounts is now redundant as the UAN is independent of location and employer.
For employers they can submit the subscription and contribution amount electronically.
That makes the process simple. And should there be a default, it would be flagged to the EPFO in real time for appropriate(timely) action.
Consequently, the compliance rate has improved. In the digitised environment, EPFO can deliver the three products (PF account, partial withdrawal, pension and deposit linked insurance) effortlessly and rapidly.
Monitoring exempted organisations is now easy.
New norms and metrics can be identified and used for compliance purpose and their performance.
Because of digitisation, EPFO can now focus on the main activities of expanding the membership base, so that more workforce is covered under the EPF scheme, and spend quality time in managing the corpus.
These are the real benefits arising out of the digitisation efforts.
Rationale for digitisation:
EPFO is a government organisation virtually with no competition. It is only the commitment to the subscriber members which made EPFO to adopt digitisation.
This initiative is not in response to any competitive pressure.
What is accomplished at the end of the day is in some sense natural because the EPFO corpus money belongs to the subscribers and should be available to them whenever they need it.
Such a fair and just purpose was accomplished in EPFO with the support of digitisation.
Limitations of manual operations
Manual operations in the context of EPFO, given the large subscriber base, member organisations, huge transactions volume and the corpus amount involved is not sustainable.
One can argue that the linkages among the EPFO branch, the designated bank branch and the employer organisation is a self-contained, compact model if managed with subscriber sensitivity.
Under this dispensation it is possible to manage operations up to certain volume in the conventional way.
Beyond a certain volume the manual process would be a drag.
Ensuring the same quality of service orientation across 120 plus branches of EPFO is not an easy task.
The resources needed for managing operations manually in a localised environment is demanding.
Ensuring parity, and consistent subscriber experience across the branches is a challenging task.
One more challenge under this disposition is migration of subscribers and the effectiveness by which they can be served.
In any case, this is a conservative model. The EPFO digitisation process is effectiveness oriented. It supports effortlessly the scale of operation.
Digitisation delivers the core purpose which the enabling and empowering the subscribers to manage their own savings, monitor employer organisations for compliance, disburse pension routinely and deliver insurance product.
Once the core purpose is accomplished, the complimentary services follow.
Uniqueness of EPFO digitisation:
It is commendable that the EPFO digitisation process was driven by internal systems and processes; there has been no involvement of external consultant.
The transaction volume is large and the scalability was accomplished by computerisation. Some representative statistics:
Given the economic divide, lower computer literacy, variability on literacy rate in the context of India, what is accomplished by EPFO is extraordinary.
It demonstrates that form, structure and ownership of an organisation is not critical to accomplish enhanced service experience to stakeholders.
Usually, the purpose drives change. Technology and BPR enable this.
When EPFO realises its purpose is to make sure that the subscriber's money should be available to them when they need it without any hassle, the enablers like business process re-engineering, structural changes in the organisation and digitalisation, etc would find their place.
As a consequence, the prime stakeholder is enabled and therefore the society at large is benefitted.
We believe that the EPFO digitisation is a remarkable story in transforming a bureaucratic organisation to a customer centric organisation.
This experience may inspire several government/private organisations to modify or adopt digitisation to transform their business.
N Ravichandran is Professor (retired), Indian Institute of Management, Ahmedabad.
Feature Presentation: Aslam Hunani/Rediff.com