On 19 April 2023, Public Accounts (SCOPA), Chairperson: Mkhuleko Hlengwa from the IFP chaired a meeting with the Deputy Ministry of Transport relating to the Road Accident Fund (RAF) 2020/21 Annual Report and related matters.
The RAF is an entity of the Department of Transport’s with a very critical socio-economic mandate of paying compensation to road accident victims for loss or damage wrongfully caused by the driving of motor vehicles, in line with the RAF Act.
1. The country’s high accident rate is a grave concern, and remains the Fund’s biggest cost driver. In South Africa, more than 39 people die daily on the roads due to traffic accidents. When the RAF Board was appointed towards the end of the 2019/20 financial year, it inherited a financially unsustainable Fund with a highly ineffective operating model. The Fund had been technically insolvent since 1981, he said.
Hlengwa slammed the RAF board as “unadvisable” and “not fit for its purpose”. In their annual report for 2020/2021, the following statement is just astonishing; “The inefficiency of RAF operations is further hampered by a highly manualised system that is paper intense and requires physical processing of claims. “This has resulted in claims taking an average of five years to be settled.” Anyone in charge of this Institution is nothing but shameless on top of inefficient and not worthy of this job.
2. The issues covered during the discussions included the developments in the dispute between the RAF and the Auditor-General of South Africa (AGSA) since September last year; the status of the Legodi judgment, where the court had ruled against RAF board members and the chief executive officer, with cost orders in their personal capacity. On the litigation, the RAF submitted its annual financial statements to AGSA for auditing in compliance with the Public Finance Management Act (PFMA). In June, the AGSA issued a finding that the use of the International Public Sector Accounting Standard 42 (IPSAS 42) for social benefits was an inappropriate accounting method to have used.
The withdrawal of the court case between the RAF and the AGSA was based on the Minister's instruction to the RAF board to withdraw and pursue alternative dispute resolution (ADR) methods; “They had reached a stage to inform the board that if it continued insisting on using an “illegal” route, it must be known that it was getting closer to the Committee’s proclamation on the board’s delinquency, and any costs associated with this would be attached to the individuals concerned, not the RAF, including the AGSA’s costs”.
3. The RAF board has implemented IPSAS4 accounting standards instead of IFRS4 as advised by the Auditor- General. According to their 2020/2021 annual report, “The reporting principles applied are in line with the PFMA and South African Standards of Generally Recognised Accounting Practice (GRAP), including any interpretations, guidelines and directives issued by the Accounting Standards Board, NT Guidelines, and King IV (to the extent possible).”
The main difference between IPSAS 42 and International Financial Reporting Standard (IFRS) 4 accounting standards is that IPSAS 42 is specifically designed for the public sector, while IFRS is applicable to insurance contracts in all sectors, including the private segment. IPSAS 42 provides guidance on accounting for non-exchange transactions in the public sector, whereas IFRS 4 focuses on the recognition, measurement, and disclosure of insurance contracts. IFRS 4 was issued in March 2004 and applies to annual periods beginning on or after 1 January 2005. IFRS 4 will be replaced by IFRS 17 as of 1 January 2023.
4. The auditor-general said the use of the IPSAS 42 standard by a public entity such as the RAF was inappropriate and did not fairly and accurately reflect its contingent liability for outstanding and future claims. The AG, Tsakani Maluleke, added that the use of the accounting standard would result in non-compliance with the PFMA.
In April 2021, the RAF resolved to switch the accounting standard applicable to the compilation of its annual financial statements since 2014 from the IFRS4 standard to the IPSAS 42 standard, which resulted in a difference of some R300 billion in its contingent liability position while its insolvency position improved from 3% to 54%. Little wonder they wanted to switch and save. However, this is more like reinventing the wheel in a way that rolls in opposite directions.
5. In matters not relating to the unacceptable accounting standard dispute, there were numerous allegations of corruption and related matters that are under investigation by the Section for Serious Crime Unit at the RAF. The Section for Serious Crime Unit made a presentation to SCOPA in 2023 this year in a presentation named the RAF Proclamation R44 of 2021.
In this report they inter alia also stated that The SIU is investigating 102 Law firms (which includes the Sheriffs of the Court) which received duplicate payments from RAF of approximately R340,060,278. When approached with the evidence, several legal practitioners have opted to cooperate with the SIU investigation in defrayal of their indebtedness by signing acknowledgements of debt. To date, the RAF has signed the acknowledgement of debt to the value of R68 million and recovered R18 million to date. There are also five possible referrals to the Legal Practice Counsel.
The RAF is receiving some support from the new Administrative Adjudication of Road Traffic Offences Amendment Act of 2019. (AARTO rules.) The RAF gives a blanket insurance cover to each vehicle driver, irrespective of their individual driving capabilities. The Socialist in all of us will rejoice in this regard. Can one imagine bank loans or life policies, or short-term insurance policies being underwritten in the same indiscriminate blind manner? No matter what your capability score is, you are 100% covered for the damage you bring to bear on other humans.
The one criterion of the RAF is that its funding premiums are included in the Fuel levy. This at least takes the country’s total kilometres travelled by motor vehicle into consideration. However, it remains a blunt measure by any standard for national third-party insurance.
One vehicle, an older 3,6-litre bakkie, for example, uses twice as much fuel as a newer car, while heavy-duty vehicles do even more so and adds additional pressure on road infrastructure from a pure size and stature perspective. And driving behaviour and accident history is not considered at all. So the Aarto points system does not feature. A certain amount of any claim paid out by RAF should also be recoverable from a driver’s personal short-term insurance provider.
To ensure accountability, a good place to start is adding consequences for reckless driving and gross negligence as the cause of the accident. That is what the Aarto point system is trying to achieve, but it is operated - if operational at all - in a silo. So we need to ensure personal and public accountability when it comes to road safety, but first, the RAF needs to standardise its accounting practices to every other government-owned insurance scheme like Sasria and the UIF.
Kruger is an independent analyst.