Labor Department, Evertec fixing Covid-19 jobless benefits system
Still, San Juan-based transaction processor, governor trade jabs over source of problems
SAN JUAN – The Puerto Rico Labor & Human Resources Department reached an agreement with transaction processor Evertec Inc. to integrate the specially created Pandemic Unemployment Assistance (PUA) platform with the agency’s Automated Benefits System (Saben by its Spanish acronym) to eliminate the platform breakdowns holding up thousands of unemployment claims filed in the wake of the Covid-19 emergency lockdown.
“This is what will finally allow the streamlining of the process of the evaluation of thousands of claims and accelerate the payment of benefits to eligible persons,” Labor Secretary Briseida Torres Reyes said in a statement issued Monday. “We hope that with this important step we finally manage to address the processes for the retroactive payment of benefits our workers deserve.”
Torres and Puerto Rico Chief Innovation and Information Officer Glorimar Ripoll concluded the agreement with Evertec officials during a meeting at Labor Department headquarters in Hato Rey on Sunday that was called to resolve the problems plaguing PUA since it was launched April 28. The special platform was set up separately from the agency’s system to handle the surge of unemployment claims due to businesses closings after the implementation of the governor’s curfew/lockdown executive order on March 16 to curb the spread of the potentially deadly novel coronavirus.
Gov. Wanda Vázquez Garced had warned Evertec that it would rescind its contracts with PRLHD if it failed to fix the system glitches holding up unemployment payments to thousands of laid-off or furloughed workers. During a Sunday morning press conference at the inauguration of New Progressive Party headquarters on Kennedy Avenue, the governor had publicly called on San Juan-based Evertec to work with Torres to “solve a technological problem…that is under their charge”; otherwise, she said, “we will take other measures.”
PUA, a program enacted under the Coronavirus Aid, Relief & Economic Security (Cares) Act, provides additional unemployment compensation to people who do not qualify for regular unemployment because they are self-employed, are contractors, homecare professionals or have exhausted regular unemployment benefits amid the pandemic. The program provides a supplemental weekly compensation of $600 for four months.
Many program applicants have complained they cannot complete the process, saying the system is incompatible with widely used internet-browsing applications such as Chrome, Safari and Mozilla.
Evertec had reportedly set up a PUA platform that was not compatible with the Labor’s unemployment claims system, forcing the department to process PUA applications manually. As of Wednesday, only 3,000 applications had been processed out of a total of 87,000 submitted, and just over 1,200 payments had been sent out as of Thursday.
Evertec shifts blame
Even though Evertec Vice President Carlos Ramírez acknowledged during a press conference on the day the PUA was launched that the platform breakdowns were the company’s fault and pledged to quickly correct the issue, the problems persisted and the company began to shift the blame on the agency. Evertec officials said their contract only required the development of a database to collect applicant information.
In a statement posted Monday on social media, Evertec officials rejected the government administration’s contention that the company’s technology had caused the PUA breakdown, arguing that the “technology is working, but processes are missing to complete the transaction.”
Evertec said that on April 18 the company had already set up a system that enabled PRLHD to process claims from the self-employed for federal unemployment benefits, according to the statement, which noted that the PUA benefits could be processed the next day “by phone or in person.”
Evertec said, moreover, that the agency requested the creation of a new portal “to collect data via Internet from self-employed [people] so that afterwards the Department could enter it manually.” This website was delivered on April 28, company officials said, acknowledging the system broke down but “was corrected in 24 hours.”
“In our efforts for transparency, we showed up at the April 28 press conference to provide clarity to the people pf Puerto Rico and decided not to charge for the development of said website,” the company said in the statement, adding that starting on May 3 the company has issued reports on the website to PRLHD in different formats requested by the agency.
“The unemployment benefit eligibility, approval and processing operations are not the responsibility of Evertec,” the company said in the statement, noting it has requested PRLHD “clarify to the people of Puerto Rico” its involvement with the handling of unemployment claims, which “would help people understand the steps in the process.”
Labor chief puzzled by explanation
However, Torres said on Monday that the request to Evertec had always been to create a platform that allowed the total processing of PUA claims, following federal guidelines issued on April 6. The project and program completion dates provided by Evertec were too far off to address the immediate need to process surging unemployment claims, she said.
“That’s why Evertec was asked to divide the project into two phases,” she said in a statement. “As a previous phase before the integration of the systems, they were to provide the initial creation of a platform in which citizens could make their claims, always with the understanding that the data be made available in an immediate and accessible way for our employees to process quickly.”
Torres said that given that Evertec has been managing the processing of unemployment claims and payments for the agency for the past 20 years, she does not understand why the company contends that it was asked to create a platform to process unemployment claims without integrating it to the monetary determination and funding disbursement system they manage through Saben.
The Labor secretary said that, as ordered by the governor, she will personally monitor the progress of the PUA integration daily, issuing reports on the matter every three days.
Meanwhile, during an interview on a morning radio program, Vázquez defended Torres’ work and countered Evertec’s statement, asking rhetorically, “Who is the contractor in charge of the programming in these processes?”
“That is why [we are working with] Evertec,” she said in the interview. You can be sure that if the process depended exclusively on the Labor Department, this would have been done and Evertec would not be mentioned in all of this.”
The governor acknowledged that the PUA failure has “highlighted deficiencies in the government’s technological systems.” She said that after Sunday’s meeting with Torres and Ripoll, Evertec pledged to “set up the necessary programming to send out close to 15,000 unemployment notifications.”
“We will give [Evertec] this chance because I need the people to receive this money,” the governor said.
Evertec, which services most of Puerto Rico’s automated-teller machines (ATMs) and point-of-sale (POS) terminals, has over the past few years experienced several system breakdowns that left debit-card holders unable to take cash out of ATMs and thousands of stores not being able to process debit transactions.
In fact, the initial issuance of the $1,200 Covid-19 federal stimulus checks to local residents earlier this month led to system failures that prevented Banco Popular and FirstBank customers from being able to access their accounts for hours at a time.
Millions in agency contracts
Evertec reportedly has concluded 15 contracts worth more than $50 million with the Labor Department, according to the Puerto Rico Comptroller’s Office filings. These same filings reportedly indicate that the company has concluded a total of nearly $330 million in contracts with 40 commonwealth agencies in the past 12 fiscal years. Most of the contract amounts correspond to a handful of agencies led by the Treasury Department.
Oversight board sues Evertec
Moreover, Evertec was among the businesses and individuals that the Special Claims Committee of Puerto Rico’s Financial Oversight and Management Board sued last year to claw back about $4.2 billion paid “fraudulently,” the panel said. The board said the claims involved “constructive fraud” or the debtor receiving less than “reasonably equivalent value” for services paid.
The board’s claims against Evertec totaled $94.42 million in transfers Puerto Rico government agencies made to the company between May 11, 2013, and April 27, 2017.
Meanwhile, Evertec, which began as a Banco Popular operation in 1988 and spun off as an independent company in 2011 with an investment by Apollo Management LLC, benefits from a tax exemption granted in 2012 under Act 73 of 2008, giving it a preferential commonwealth income tax rate and municipal and property tax exemptions on income derived from its data processing operations in Puerto Rico. The tax decree requires Evertec to maintain at least 700 employees in its data processing operations on the island and make annual investments in building, machinery, equipment or computer programs to be used in Puerto Rico during the 15-year-term of the decree.
The company, which has operations in 26 countries in Latin America and the Caribbean, recently reported that its adjusted effective tax rate was 17.6 percent.
‘Accelerated shift’ to digital
Evertec’s dominance in Puerto Rico’s electronic transactions sector promises to make it a profitable enterprise in 2020 even amid the Covid-19 crisis, according to a discussion in a first quarter results conference call earlier this month.
For the quarter ended March 31, Evertec reported $121.9 million in revenue, a 3 percent increase compared with the $118.8 million reported for the first quarter of 2019. Company officials said revenue rose in the first two months of the quarter, but was “partially offset” by a slowdown in transactions in March because of the Covid-19 lockdown.
Evertec Executive Vice President & Chief Financial Officer Joaquín Castrillo said in the first quarter results conference call on May 8 that the company’s revenue had been increasing “by the single digits” in January and February, but dropped by 11 percent due primarily to lower sales volume in the last two weeks of March, which he said declined by 40 percent compared with the previous year.
For the quarter, Evertec reported GAAP net income attributable to common shareholders of $22.2 million, or 30 cents per diluted share, a decrease of $4.4 million or 6 cents per diluted share as compared with the previous year. Earnings before interest, tax, depreciation and amortization (EBITDA) was $56.3 million, a decrease of 2 percent compared with the prior year. Adjusted EBITDA margin (Adjusted EBITDA as a percentage of total revenues) was 46.2 percent, a decrease of approximately 230 basis points from the prior year.
“The year over year decrease in margin primarily reflects the impact of lower transactional revenues primarily driven by COVID-19 as well as higher operational expenses,” the company states in its 2020 first quarter earnings report.
Evertec reported that its quarterly adjusted net income was $33.5 million, a decrease of 10 percent compared with $37.1 million in the prior year. Adjusted earnings per common share was 46 cents, a decrease of 8 percent compared to 50 cents in the prior year.
Moreover, Evertec repurchased a total of 336,000 shares of its common stock at an average price of $21.73 per share for a total of $7.3 million. As of March 31, a total of approximately $23 million remained available for future use under the company’s share repurchase program.
Still, Evertec President & Chief Executive Officer Mac Schuessler was upbeat about the company’s prospects during 2020, noting the positive impact of $800 million in Covid-19 emergency commonwealth funding and $5 billion in Cares Act aid earmarked for the island’s unemployed and struggling small businesses. Moreover, he said, the Covid-19 crisis has led to an “accelerated shift” to digital transactions as a “new way of life for many people.”
In 2014, Evertec developed and now runs the ATH Móvil individual and business applications for smartphones.
“ATH Móvil and digital channels continue to grow even throughout this period as physical payments are taking this hit,” he said, noting that the recently started business reopening process, should increase sales. “We believe that trend will accelerate coming out of Covid-19. We are happy we invested in ATH Móvil.”
The company will also benefit from a new Medicare benefit program contract, the executive said.
He added: “A lot of the core economy [in Puerto Rico] is part of our processing.”
Schuessler said Evertec is projecting “a positive cash flow in all scenarios we have modeled,” and added that the company “has adequate liquidity to weather this storm.” The company ended the quarter with a liquidity of $220 million, he said.