ATC240313: Twelfth Report of the Standing Committee on Public Accounts on its oversight visit to the Road Accident Fund in Pretoria, 23 June 2023, and Johannesburg, 16 August 2023, dated 13 March 2024

Public Accounts (SCOPA)

Twelfth Report of the Standing Committee on Public Accounts on its oversight visit to the Road Accident Fund in Pretoria, 23 June 2023, and Johannesburg, 16 August 2023, dated 13 March 2024.

1. Introduction

 

The Standing Committee on Public Accounts (the Committee), having undertaken an oversight visit to the Road Accident Fund (RAF) in Pretoria, on 23 June 2023, and Johannesburg, on 16 August 2023 reports its findings and recommendations to the House as follows:

Delegation attendance for 23 June 2023 and 16 August 2023

Mr M Hlengwa  (IFP); Leader of the delegation (both dates)
Mr B Hadebe                (ANC) – 16 August 2023
Mr S Somyo                 (ANC) – both dates
Ms T Siwela                 (ANC) – both dates
Ms A Beukes                (ANC) – both dates

Ms L Lubengo            (ANC) – 16 August 2023

Ms B Zibula                (ANC) – 16 August 2023
Mr RA Lees                  (DA) – both dates
Ms B van Minnen          (DA) – 23 June 2023
Ms C Mkhonto  (EFF) – 23 June 2023
Mr M Manyi               (EFF) – 23 June 2023

Ms V Mente               (EFF) – 16 August 2023

 

Apologies for 23 June 2023

Ms B Zibula                  (ANC)

Mr B Hadebe              (ANC)

 

Apologies for 16 August 2023

Ms B Van Minnen      (DA)
Support Staff attendance 23 June 2023 and 16 August 2023

Mr B Kali                      (Secretariat) – 23 June 2023
Ms N Nkabinde (Secretariat) – both dates

Ms N Cenge                (Content Adviser) – 23 June 2023
Ms R Mokhatla           (Researcher) – 23 June 2023
Ms A Matutu               (Researcher) – both dates
Mr L Balfour               (Committee Assistant) – both dates
Mr Abel Phuting          (Parliament Communications Officer) – 23 June 2023
Ms F Ndenze               (Parliament Communications Officer) – 16 August 2023
 

Delegation from Department of Transport 23 June 2023

Mr Lisa Mangcu           (Deputy Minister of Transport)
 

 

Delegation from Department of Transport 16 August 2023

Mr Lisa Mangcu              (Deputy Minister of Transport)
Ms Thembi Msibi            (Board Chairperson: RAF)

Mr Collins Letsoalo         (RAF CEO)

Ms Thandiwe Mpondo    (Department of Transport PLO)

 

1. Background

The RAF received a disclaimed audit opinion for the 2020/21 financial year from the Auditor General of South Africa (AGSA), with findings on non-compliance with legislation such as the Public Finance Management Act (PFMA), 1999 (Act No. 1 of 1999). According to the AGSA, the RAF management amended the accounting policy to recognise claim liability and expenditure by International Public Sector Accounting Standards (IPSAS) 42, as social benefits. This resulted in its accounting policy conflicting with the conceptual framework of Generally Recognised Accounting Practice (GRAP) which applies to the RAF as a PFMA Schedule 3A entity, and the way in which it disclosed the provision for claims liability in the annual financial statements.

 

According to the 2020/21 annual report, the public entity has been considered to be technically insolvent over the years due to facing significant operational challenges. Key among these challenges is an operating model that heavily relies on litigation, resulting in a substantial portion of the revenue being allocated to administrative costs rather than the claimants. These administrative costs include legal, medical, and actuarial expenses.

 

On 19 April 2023, the RAF appeared before the Standing Committee on Public Accounts (SCOPA) for a hearing on its 2020/21 annual report and financial statements. In the meeting, it emerged that the issues raised in the engagement held with the Fund in September 2022 had not been addressed by the Fund and that the 2021/22 annual report had not been submitted to Parliament, but the Deputy Minister (DM) assured the Committee that the RAF would do so by the end of April 2023. As at the date of this report, the 2021/22 annual report has not been tabled in Parliament yet.

 

On  30 August 2023, 29 November 2023, and 06 December 2023, the RAF appeared before the Committee, to discuss various matters,  the litigation undertaken by the Fund to prevent the AGSA from publishing its 2021/22 audit report due to disagreement between RAF and the AGSA on the appropriateness of using IPSAS 42 to account for the claims liability and the fact that the AGSA concluded the audit of the 2020/21 financial year by issuing a disclaimer of audit opinion on the financial statements of the entity. This consequently resulted in the delay in the tabling of the annual report to Parliament. 

 

Following the above-mentioned meetings, the committee resolved to grant the RAF and the Executive Authority time to finalise all outstanding matters due to their technical nature and submit in writing all the supporting documents and statements related to the aforementioned.

The RAF had a follow-up engagement on 06 February 2024 with the Committee to discuss the public entity’s litigation against the AGSA, the non-tabling of the 2021/22 annual report, and governance issues.

 

 

 

 

1.   Oversight Findings

 

1.  RAF offices in Menlyn, Pretoria

 

The key observations made with regard to the RAF offices in Menlyn, Pretoria are:

1. Accountability by the leadership:  

 

1. There was a lack of accountability and no sense of urgency for the Board and executive management to meet with SCOPA to the extent that there were attempts to prevent SCOPA from accessing the premises.
2. There was no one from the RAF executives present to receive the Committee on the oversight visit to their Menlyn Pretoria offices. Instead, instruction was given to security to inform all employees that they are not allowed to speak with any of the Committee members.

 

1. Inadequate storage space and filing systems:

 

1. The RAF Menlyn offices do not have adequate storage space for the volume of documents on the premises. Essential documents and information are stored in boxes that take up most of the space in the offices due to inadequate storage space and filing systems.
2. During a tour of the office premises, an employee from the legal section (State Attorney) showed the Committee an office filled with boxes, indicating that the documents in those boxes have not been captured on the system due to a lack of manpower to carry them, even requiring them to vacate the office for box storage.
3. Documents have been left lying in boxes by other departments due to shifting of offices and no one can account for those boxes. The office floors and passages are filled with boxes of documents. The parking lot in the basement is also filled with boxes of documents.
4. There is a big archive centre (Central Archiving Filing System) in the basement and this archive centre also appears to be full.
5. The archive centre uses a Metrofile system that is barcode-driven. The barcode denotes the file name and identifies the location of the file. This can be an unreliable system because the storage is full, therefore, new files are slotted in where there could be space which ultimately shifts other files from their known location or position.
6. There are many departments within the institution that are highly fragmented which could also contribute to the value chain of receiving, assessing, and processing claims not flowing as it should.
7. The paper-based filing system used by the RAF in its Menlyn offices is a major risk. Should there be an unfortunate incident such as flooding in the basement, all the data could be compromised or damaged.

 

1. Unconducive working environment:

 

1. The working environment at the RAF Menlyn offices is highly unconducive. The furniture belonging to the RAF at the Menlyn offices has been attached by the sheriff due to default judgments.  This situation compels employees to improvise by using some of the boxes of documents to construct desks or bring their own furniture and tools of trade from home.
2. There were instances where 4 employees working in different departments were sharing one desk and were sitting on plastic chairs.
3. Electric Panels (electric boxes) are also located on the floors where employees are working and there are no visible fire extinguishers which is a huge hazard given the volume of papers on the premises.
4. Employees earnestly appeal for assistance in enhancing their working environment and ensuring the availability of functional furniture. Remote work is prohibited due to the associated risks and past instances of critical data/information being compromised or lost.
5. An employee informed the Committee that the RAF used to have 15 offices and now they only have 5 offices with a higher volume of work which adds more pressure on employees.
6. The institution has a large number of interns working there. This could be a coping mechanism for the high volume of work.
7. The RAF offices in Menlyn, Pretoria have been linked to historical issues of corruption. 200 employees have been suspended as a result of refusing to capture claims.

 

1. Poor administration and improper handling of claims:

 

1. The RAF in Menlyn Pretoria is riddled with poor administration because its systems are old, unreliable, and still paper based. There is no centralised electronic system that employees say they have been appealing for. They use scanners to identify files if the files have been barcoded correctly.
2. These deficiencies within the administrative processes and systems result in an improper handling of claims leading to backlogs in the processing and management of submitted claims.
3. An employee shared that claims that should be paid out within 30 days end up taking 6 months or more due to these inadequate systems that prolong the process.
4. Due to the volume of documents scattered all over the premises, there is also no guarantee that all claims that should be processed do not get lost in the clutter of paperwork.

 

1.  High legal costs and default judgments:

 

1. Due to inadequate responses or actions in certain cases, the RAF incurs substantial legal costs. The fund also faces default judgments, as evidenced by furniture being attached to sheriffs, highlighting the legal consequences involved.

 

1. Disconnect between Board, Executives, and Employees:

 

1. There is a noticeable disconnect and lack of coordination between employees, executive management, and the Board, highlighting poor management and a clear need for improved leadership.
2. Employees shared that they have never had the opportunity to interact with or witness the presence of executive management or the Board within the offices, further underscoring the existing gap in communication and alignment.
3. Employees are committed and dedicated to doing their work despite the poor and unconducive working conditions, however, management is failing employees which affects the staff's moral overall.

 

1. The Board:

 

1. There was a lack of communication and transparency from the Board. The situation at the Menlyn offices in Pretoria explains why the RAF Board had proposed a meeting at the Head Office.
2. There was a directive from SCOPA to the Department of Transport to dismiss the current Board as their term of office has ended, necessitating the need for the appointment of a new Board.
3. SCOPA had previously requested the Minister’s office to provide in writing reasons why the current Board is still in office, but this written submission was never sent to the Committee.
4. The current Board will continue to serve until a new one is appointed. The list of nominations for the new Board members were published on 27 July 2023.

 

1. RAF offices in Parktown and Centurion

 

SCOPA conducted an oversight visit to the RAF offices in Parktown and Centurion, aiming to gain a more comprehensive understanding of the Fund’s present status subsequent to the initial visit to its offices in Menlyn, Pretoria. The key observations regarding the RAF offices in Parktown and Centurion are as follows:

 

1. Preassessment for timely claims processing and efficient resolution of issues:

 

1. Sheriffs attaching furniture is not a concern within the Parktown offices, as issues are mostly resolved timeously.
2. At the Parktown offices, a preassessment process is in place to expedite claims resolution. This ensures that all required documentation is attached before lodging a claim.
3. Claims capturing is made smoother through the preassessment stage, ensuring necessary documents are submitted with the claims.

 

1. Leased premises in Parktown:

 

1. The Parktown offices are rented premises; the RAF does not own the office space.

 

1. Backlog in capturing court judgments and mail correspondence:

 

1. There is a backlog in the capturing of court judgments. Employees from different departments are reassigned to aid in this task.
2. A substantial backlog of 20 000 mail correspondences dating back to June 2023 exists due to understaffing in the mail department. This impedes meeting the ideal 24-hour response requirement.

 

1. Challenges with direct claims:

 

1. Despite RAF having campaigns promoting direct claims, the majority of claims are submitted through attorneys rather than directly by claimants.
2. Many claimants who lodge directly do not have email addresses and tend to provide inaccurate contact information, making it difficult to trace them.
3. Formerly available mobile units for RAF services are no longer operational.
4. The claimants shared that logged claims that their claims have not been paid for 2 years due to these inadequate systems that prolong the process.
5. An online claims submission system is in its final stages of development.

 

1. Implementation of new organisational structure:

 

1. A new organisational structure, approved in 2022 and outsourced to PricewaterhouseCoopers (PWC), is being implemented in phases starting with the management level.
2. Transparency is questioned in the implementation of the new structure. The criteria for deeming certain positions redundant in the old structure is not clear according to certain employees.
3. Some senior employees have been retrenched due to their roles being deemed redundant in the new structure.

 

1. Proposed Amendments to RAF Act:

 

1. The RAF has submitted proposals to amend the RAF Act to the Department of Transport. The RAF Amendment Bill, 2023 which proposes major changes to how the Fund operates and how it will pay claims has been submitted for public comment in a Government Gazette on 08 September 2023.
2. Interested persons were invited to submit written comments on the draft RAF Amendment Bill, 2023, within 30 days from the date of publication of the notice in the Government Gazette.

 

 

 

1. Committee Findings

 

1. Over the past three and a half years, the public entity has been implementing a strategic plan aimed at achieving a robust and financially sustainable RAF. This strategy, as per the RAF, aims to ensure that the Fund not only remains operational but also becomes more responsive to the needs of accident victims and claimants. In light of this, management exercised a voluntary change in accounting policy in the 2020/21 financial year to recognise claims liabilities in accordance with International Public Sector Accounting Standards (IPSAS) 42, Social Benefits. According to the RAF, this change in accounting policy will provide reliable and more relevant information about the effects of transactions, other events, or conditions on the entity’s financial position and performance.
2. According to the AGSA, the use of IPSAS 42 is not appropriate, as it fundamentally differs from the standards of Generally Recognised Accounting Practice (GRAP) conceptual framework for general-purpose financial reporting, particularly regarding the timing of recognising liabilities. Furthermore, the Accounting Standards Board (ASB) has prescribed the standards and pronouncements included in the GRAP Reporting Framework for public entities, outlined in Appendix A1 of Directive 5. IPSAS 42 is not included as a standard for public entities. The view of the AGSA is supported by both the ASB and the Office of the Accountant-General (OAG).
3. The litigation, initiated against the 2020/21 audit opinion, began in 2022 and is still ongoing. The RAF management, supported by the accounting authority, disagreed with the AGSA’s view on the matter and opted for litigation to resolve the issue. Consequently, the overall audit outcome of the Fund remains modified.
4. The matter was in court, and the proceedings commenced on 30 and 31 January and 1 February 2024.

1. Audit Outcome

 

1. The RAF received an adverse audit outcome from the AGSA in the 2022/23 financial year. The basis of the adverse audit outcome was that the financial statements submitted for audit were not prepared in accordance with the prescribed financial reporting framework, GRAP, as required by section 55(1)(b) of the PFMA.
2. The RAF continued to utilise the principles of IPSAS 42, to account for the provision for claims liabilities. Consequently, claims liabilities, claims expenditure and related disclosure notes were understated. This had a resultant impact on the net liability position, deficit for the year, and accumulated deficit amount disclosed in Note 32 of the financial statements.

1. Recommendations

 

The Committee recommends the following:

1. The Fund should improve its internal control environment to avoid misuse of financial and other resources;
2. Disciplinary action should be taken against employees who are responsible for incurring irregular, fruitless and wasteful expenditures, as required by section 51 (1) (e) (iii) of the PFMA. In cases where criminality has been found, those cases must be referred to law enforcement agencies;
3. Reasonable care should be exercised to detect and prevent irregular, fruitless and wasteful expenditure, and effective, efficient, and transparent processes of financial and risk management, as provided for in section 51 (b) (ii) of the PFMA and Treasury Regulations 9.1.1;
4. An action plan should be implemented with immediate effect;
5. Time frames for the implementation process should be set and forwarded to SCOPA and the AGSA;
6. Control activities should be identified and developed with consideration of their cost and their potential effectiveness in mitigating risks;
7. Management should establish and implement a fraud prevention plan;
8. RAF should enhance its Direct Claims campaigns to encourage claimants to submit claims directly rather than through attorneys;
9. Vetting of all the executive management and supply chain management officials should be conducted as a matter of urgency;
10. That the ASB’s determined accounting standard for the RAF be accepted by the RAF and that all legal processes to change the standard be withdrawn; and
11. A full investigation into the conduct of the Executive to be undertaken in order to establish any malfeasance on their part by the Special Investigating Unit (SIU).

 

 

 

 

1. Conclusion

 

The Committee was generally disappointed by the extent to which the Accounting Authority and management have not addressed the financial management weaknesses identified in the audit report, especially as some of these matters had been raised in the audit report of previous years. 

 

In the light of the above, the Committee resolved that the AGSA should conduct a follow-up special audit into the matter of financial weaknesses of the entity.

 

The Committee is of the view that there was value for money for the Road Accident Fund when it was utilising the services of the SIU in investigations targeted at rooting out corruption at the RAF. Therefore, the Committee recommends that the RAF continues to make use of the services of the SIU to follow up on any occurrences of corruption within the Fund.

 

The Committee recommends that the Executive Authority submit a quarterly progress report on the implementation of the above recommendations to the National Assembly within 60 days after the adoption of this report by the House.

 

Report to be considered.