Crash accounting, RAF style

The Road Accident Fund (RAF) has suffered two recent setbacks that underline the lack of accountability and the extraordinary lack of oversight by the transport ministry.

The first, losing a court appeal on its chosen accounting standards. The second, eye-popping new details emerging from a Special Investigating Unit (SIU) probe into the rogue fund.

The Supreme Court of Appeal last week declined to hear an appeal by the RAF, which compensates third-party victims in road accidents, regarding the accounting standards to be used in its audit process. Bizarrely, it was welcomed by the RAF’s own oversight institution, the department of transport. 

The argument over accounting standards seems arcane but is crucial for a determination of the solvency of the fund, and whether its executives are granted substantial performance bonuses in future. The SCA judgment comes amid a longstanding dispute between the RAF and the auditor-general (AG) over the appropriate accounting standards for auditing the entity. 

The AG insists on the generally recognised accounting practice (GRAP) standard, whereas the RAF has insisted on being audited based on international public sector accounting standard (IPSAS) 42. The difference is that IPSAS 42 requires recognition of social benefits only when eligibility criteria are met and little or no discretion exists to avoid payment. 

Hence, under GRAP 19, the RAF must estimate and recognise massive provisions upfront, even for “incurred but not reported” claims. IPSAS 42 reduces the size of reported liabilities compared to GRAP 19, which would render the organisation technically bankrupt every year.

Deputy transport minister Mkhuleko Hlengwa described the judgment as an indictment of the RAF board, stating: “It has been the ministry’s firm position that this matter should never have escalated to the courts in the first place. Valuable time and resources have been wasted unnecessarily. I, therefore, do not expect any further legal action on this issue.”

Despite repeated guidance from the ministry, the RAF had failed to comply, the transport department’s press release said.

Wayne Duvenage, CEO of the Organisation Undoing Tax Abuse, said on social media organisation X that the statement “ amazes me”. 

“As the shareholder, they welcome a judgment against the RAF whose misfit and incompetent leadership have held onto their job for years. When will they be fired? Why is accountability so hard to be applied?”

It’s an excellent question given the findings of an SIU report.

R4.8bn in default judgments

The court finding comes after an argumentative briefing made by the RAF to the parliamentary public accounts committee last month, where the SIU lodged a hitherto unpublicised report updating the committee on its progress in a series of related investigations. 

The investigation follows an insider affidavit made to the SIU in 2020 by an unnamed former RAF senior manager in its forensic department which claimed serious maladministration in the affairs of the RAF. The allegations are widespread and include fraudulent duplicate payments, as well as irregular or fruitless and wasteful expenditure incurred by the RAF.

In addition to allegations of fraud, the SIU report focused particularly on two related administrative issues.  The first was expenditure of R313m on the RAF’s Siyenza campaign, which was intended to improve claims processing and reduce its backlog. Yet both have massively increased since the campaign was launched. 

The second was the decision by the RAF to scrap the panel of attorneys practice, a system of partially outsourced claim management, particularly in complex cases, to include outside attorneys to help create cost-effective adjudication.

The scrapping of the panel of attorneys process was supposed to go hand in hand with the Siyenza campaign, which aimed to exclude legal representatives from the process. The decision backfired, and has led to a backlog in claims that are now sometimes anticipated to take up to six years to conclude. 

The SIU report says the contract with the panel ended in May 2020 and at the time “it appears that the RAF had no back-up plan in place as to who will be representing the RAF in court”.

The RAF then decided to use the services of the state attorneys. However, the process to get the state attorneys to appear in court took longer than expected, with the result that the RAF had no representation in courts for at least 12 months. 

A memorandum of agreement between the RAF and the solicitor-general was unsigned, and the process was not approved by the board, except in the sense that the board endorsed the notion of reducing costs. 

It led, unsurprisingly, to a spike in default judgments issued against the RAF. “This resulted in the RAF incurring unnecessary expenditure on legal costs and paying more than they should on the claims,” said the SIU.

And we’re not talking small amounts. The total figure for default judgments issued against the RAF for cost and fees from 2018 until the second quarter of 2023 comes to R4.8bn, the report says. 

The individual examples of this debacle are hair-raising. In one instance, a claimant was awarded a default court order amounting to R11.17m that the RAF failed to honour on time, which “led to this amount accumulating interest worth approximately R500,000 which was paid out on January 24 2023 in respect of the claimant”, the report says.

In response, RAF head of corporate communications McIntosh Polela said only that the RAF is co-operating with the SIU. “The fund works very well with law enforcement agencies, and we constantly refer cases to them for investigations and prosecution,” he said.