Johannesburg - Auditor-General Kimi Makwetu has warned that the cash-strapped Road Accident Fund (RAF) is facing the risk of financial collapse.
Makwetu found that the RAF incurred a net deficit of R26.3 billion as of March and its liabilities exceeded assets by R206bn.
“A material uncertainty exists that may cast significant doubt on the public entity’s ability to continue as a going concern,” he said.
Makwetu made his findings in the audit report submitted to Parliament as part of the fund’s annual report.
The board said the mismatch between the RAF’s income and expenditure continued to result in a significant threat to the “going concern” basis for the preparation of the financial statement.
Board chairperson Peter Mathebula confirmed that the fund remained severely under-capitalised with liabilities exceeding assets by R206bn.
“The RAF does not have sufficient cash or near-cash assets to cover its short term liabilities. Organisations similar to the RAF elsewhere in the world have, as part of their major assets, investments that cover in excess of 100% of their full outstanding liability,” Mathebula said.
He said efforts to secure additional funding were ongoing.
“The RAF’s liquidity challenges are known and discussed at a high level between the RAF and all relevant stakeholders,” he said, in reference to the portfolio committee on transport, the Transport Department, the National Treasury, the Health Department and the Justice Department, as well as the Financial Sector Conduct Authority among others.
“Although the financial year has been hard hitting, the board is convinced that the RAF will surmount the challenges faced, but will not solve the decades-old financial predicament the organisation finds itself in.”
The fund had over past three years secured additional funding to the tune of R14bn. The board said the increase of the fuel levy to 19 cents in April would add R9bn to its coffers in the current financial year.
“The board and management have and will continue motivating for additional funding and seeking support from stakeholders as the RAF operates with insufficient cash as well as bringing an affordable dispensation into being,” Mathebula added.
Acting chief executive Linda Xingwana-Jabavu said liquidity was managed daily in line with available reserves but it remained unsustainable.
She said their cash balance stood at R1.57bn as of March as all available resources were utilised to pay claims.
During the financial year under review the fund registered 271 933 new claims - a marked increase from the previous year - and finalised 203 493 claims.
“The fund settled and paid a total amount worth R34.6bn of claims during the reporting period compared to R29.8bn in 2016/17. This amount is almost R4.8bn more compared to the 2017/18 financial year,” Xingwana-Jabavu said.
She said R9.06bn of claims were finalised for payment but could not be paid due to cash restrictions compared to R8.5bn in 2016/17.
Meanwhile, Makwetu found that the RAF incurred R342 million in irregular expenditure that arose mainly from non-compliance with supply chain processes.
“Irregular expenditure amounting to R337 507 000 was incurred on Project Siyenza which was awarded in the 2013/14 financial year,” Makwetu said about the project that was aimed at reducing backlog claims, legal costs and claim processing costs.
The RAF disclosed in its financial statements that R1.3m in irregular expenditure was incurred in 2017/18 while R34m was in prior years.
The expenditure reflected a 37% reduction from the prior year’s R6bn.