Written by Carol Paton | Published on 19 April 2023
Photo: Andrew Mkhondo
- The RAF board and top executives briefed the Standing Committee on Public Accounts on Wednesday, insisting that the accounting standards it used were correct.
- Chairperson of the committee Mkhuleko Hlengwa said the board should be dissolved.
- The accounting change caused the liabilities of the RAF to be slashed by 90%.
Parliament’s Standing Committee on Public Accounts (Scopa) wants the board of the Road Accident Fund (RAF) dissolved due to its ongoing defiance of the Auditor-General to revert to the accounting standards it used before 2021.
The RAF board and its top executives appeared before Scopa on Wednesday, which was united across party lines that it was time for the board to go.
The meeting was also attended by the Deputy Minister of Transport, Lisa Mangcu, who said he would convey the committee’s sentiments to Minister Sindi Chikunga, who appoints the board. But Mangcu stopped short of pronouncing who was right and who was wrong in the dispute.
The issue first arose in 2021 when the RAF changed its accounting standards from International Financial Reporting Standards (IFRS) 4 to Generally Accepted Accounting Standards (GAAP) 3, which is the accounting standard used by public bodies. The change in accounting practice caused the liability of the RAF to drop by 90%.
The RAF is funded by a portion of the fuel levy and provides insurance to road users, including pedestrians, in the event of a vehicle accident. The fund has built up huge liabilities, which are not funded.
Last year, the Auditor-General (AG) and the National Treasury instructed the RAF to return to IFRS accounting. Scopa endorsed this. But instead, the RAF commenced litigation against the AG. In September last year, under pressure from Scopa, the RAF said it would withdraw its litigation on the condition that an alternative dispute resolution be followed.
But the dispute resolution process never got off the ground, and CEO Collins Letsoalo told the committee that a meeting with the AG had finally been set down for 16 May.
Board ‘not fit for purpose’
Letsoalo and the board insist that their interpretation of the Accounting Standards Board (ASB) instructions is correct. At the root of it is the SA Reserve Bank’s classification of the RAF as a social security fund, not a public insurer. Letsoalo says that because the ASB has yet to create an accounting standard for a social benefit fund, the board has used all the various legal documents on accounting classification to arrive at the view that it need not account as an insurer.
The AG and the Treasury insist that it accounts as an insurer. When treated as an insurer, the RAF’s liability, which includes all contingent claims, would sit at R577 billion this year. But, treated as a social security fund in which only the claims that have already been approved and have merit are counted but are not yet paid, the liability is R11 billion.
Board chairperson Thembi Msibi said that should the AG not agree with the RAF during mediation, it would proceed with its litigation set down for October. She said the board was compelled to stick to its interpretation out of “fiduciary duty” and could not capitulate because Scopa asked it to.
Scopa was furious with the RAF’s stance. Said committee chair Nkhuleko Hlengwa:
It is our outlook that this board is not fit for purpose. Deputy Minister, please advise the Minister to submit to us a report as to why this board should not be removed. If this board is going to remain in place, she must explain to us why these individuals should stay in place, along with a full-scale assessment of their competence. This disdain towards public funds is exactly why this country finds itself in trouble.
Hlengwa said that the RAF was abusing public funds in its litigation.
“We sit here every time, and we are subjected to this arrogance. But this thing is simple: ‘Everybody is telling you this is wrong, go and change it’… We would have long been past this point if RAF had accepted at the beginning that there was an error. But, no, you must abuse all of us. The victim here is the taxpayer.”
The RAF is also being probed by the SIU for multiple irregularities.