Road Accident Fund; Auditor-General's Report

Meeting report

STANDING COMMITTEE ON PUBLIC ACCOUNTS
16 October 2002
ROAD ACCIDENT FUND; AUDITOR-GENERAL'S REPORT

Chairperson: Mr. F. Beukman (NNP)

Documents handed out:
Road Accident Fund Board of Directors to meet with SCOPA on 16/10/02: Terms of reference for the interaction with the Board of Directors of RAF (See Appendix)

SUMMARY
The Chairman briefed the Committee on the draft of the Attorney General's general Report. A member of the Department briefed the Committee on a report on the terms of reference for the meeting between the Road Accident Fund Board (RAF) of Directors and SCOPA. It was decided that a hearing would be replaced by written correspondence between the RAF Board of Directors and SCOPA. Due to an insufficient amount of members, the planned passing of resolutions was rescheduled.

MINUTES
The Chairman read the draft of the Attorney General's general report noting that all members should consider the revision of and additions to certain sections of the report. Due to the fact that it was still only a draft report, it was not accessible to the public. Noting that all members should consider the revision of and additions to certain sections of the report, the chairman stated that the report would be tabled at a future meeting.

Ms Letompa, a government researcher presented the report on the terms of reference for the interaction between SCOPA and the RAF Board of Directors at the following meeting.

Discussion
Mr. Chiba (ANC) stated that at the cluster meeting on 18 September 2002, it was decided that there was no need for a hearing.

Mr. Chiba went on to list the motivations for this decision, which were as follows:
There had already been two hearings, both of which led to very little results. If a third hearing was to have any value, it would be a prerequisite that the committee be very well prepared. This would however not be possible, because the next hearing (scheduled for the 29 October 2002) would coincide with SCOPA's annual hearing. Responses could be obtained through correspondence. Mr. Chiba said that the cluster recommended that a list of questions be formulated and sent to the RAF Chairperson, with an attachment stating that these questions should be answered before January 15, 2003.

The Chairman asked that, in accordance with the idea of public interest, was it not true that the need for interaction with the Board was still there?

Mr. Chiba answered that there had already been two meetings, and that a third would produce little results. He reiterated that the committee would not allow the third meeting to go the way the previous two went - the committee must be fully prepared before the next meeting. In the light of these circumstances, it was better to engage in correspondence. If the correspondence turned out unsatisfactorily, then the committee should call for further interaction.

Ms. Hlangwana (ANC) stated that she agreed with the alternative of written correspondence. If, however, the correspondence appeared unsatisfactory, than another hearing should be scheduled.

Mr. Nair (ANC) said these questions should however be comprehensive. Mr. Nair went on to propose that, with the massive fraud investigation going on, the committee should ask for information from the investigating bodies, with the objective of evaluating the responses received by the Board in terms of this information.

The Chairman stated that the committee was not going to approve the resolution of the RAF until answers were given, even if the committee had to wait until January or February next year.

Ms. Hlangwana (ANC) stated that there might be conflict if the committee asked the investigating bodies for information. She warned that a misunderstanding might occur, as happened with the Arms Deal, where investigating bodies felt that they had to report to the committee.

The Chairman stated that it was just as important that a status report on the investigations was obtained. There were not enough members present for quorum, and said that on 23 October, the committee would deal with the resolutions.

Meeting was adjourned.

Appendix
Road Accident Fund Board of Directors to meet with SCOPA: Terms of reference for the interaction with the Board of Directors of RAF:

Abstract:
The committee has to engage the Board of Directors extensively on the PFMA compliance.

Introduction:
The reason for calling the RAF Board is to look at matters affecting the entity and also the matters that were raised during the previous hearing with the Accounting Officer Mr. H. Kgomongwe (CEO); Mr. S. Mokale (Chief Information Officer); Mr. D. Anderson (Finance Executive); Mr. C. Greenland (Corporate Legal Services) and Mr. I. Mhambi (Senior Manager Corporate Communications).

During the interaction that the committee had with the members of the RAF, it
came to light that some of the questions that were directed to the Accounting
Officer were to be referred to the Board of Directors of the entity and not the
CEO, as he was not in a position to answer on behalf of the Board.

Areas to be covered:
S49 of the PFMA states that the Accounting authorities-
(1) Every public entity must have an authority, which must be accountable for the purposes of this Act
(2) If the public entity-

Busisiwe Letompa 14/1002 RAF Board Meeting
(a) has a board or other controlling body that board or controlling body is the accounting authority for that entity or
(b) does not have a controlling body the chief executive officer or the other person in charge of the public entity is the accounting authority for that public entity unless specific legislation applicable to that public entity designates another person as the accounting authority

Question:
1. What control measures did the Board put in place to ensure the smooth running of the entity?
2. How did the Board function? Did they heavily rely on the information supplied to them by the CEO together with the CIO?
S38 (1) (a) (iii; iii; iv) States the general responsibilities of accounting officers which is in this case a Board of Directors

S38 (1) (h) states that the Board must take effective and appropriate disciplinary steps against any official in the service of the department, trading entity or constitutional institution who:
(I) Contravenes or falls to comply with a provision of this Act
(ii) Commits an act which undermines the financial management and internal control systems of (iii) Makes or permits an unauthorized expenditure, irregular expenditure or fruitless and wasteful expenditure
It came to the committees attention that Mr. S. Mokale (Chief Information Officer)
has been suspended for financial misconduct together with the head of the Forensic department.

Questions:
1. What lead to the suspension of the chief information officer?
2. What actions were sort by the Board members after the suspension of the chief information officer?
3. If suspended; what is the duration and terms of the suspension?
4. If suspended with full pay what is the Boards action in this regard? As we cannot allow a situation whereby people go on leave with the expense of the government?

S81(1) An accounting officer for a department or a constitutional institution commits an act of financial misconduct if that accounting officer willfully or negligently:
(a) Fails to comply with a requirement of section 38, 39,40,41 or 42 or
(b) Makes or permits an unauthorized expenditure, an irregular expenditure or a fruitless and wasteful expenditure

Questions:
1. As a board have you taken any disciplinary actions against those officials?
2. What sanctions were imposed against them?
3. What else do you still need to prove your case?

Part Two:
During the first and the second interaction with the department; the Standing Committee on Public Accounts noted the following;
The terms and conditions of the CEO's five-year contract were not specified pending the finalization of the performance agreement with the Board.
The business plan which will determine the performance contract for the timeframes was still pending

Questions:
1. Was there any assessment done on the performance of the CEO and other executive members by the Board?
2. Who is responsible for the day-to-day management control and implementation in the RAF?
3. Who is prescribing the type of performance indicators required in order to run the entity?

Part Three:
It came to the attention of SCOPA that a certain consulting company called ATC based in Cape Town was appointed by Mr. S. Mokale to investigate the probabilities of fraud within the RAF after R64 million was paid out for claims. This consulting company was approved because they specialize in matters of preventing fraud and their system is able to control; the movement of payments into the banks. Although the terms of reference originally given to them were not wide enough to allow them to also look into the bank.

Questions:
1. What lead to the termination of this contract?
2. Was the Board notified about the termination of this contract?
3. What were their preliminary findings?
4. Why were the terms of reference so limited?
5. What type of fraud was uncovered by ATC?

Part Four:
Risk assessment is judged by how well it is presented to management. The vulnerability assessment report, in particular, usually comes as a surprise to upper management often shocked to see how many of the organizational directives are not being complied with.

In most risk assessments, glaring problems are uncovered during the course of the analysis. Often, the problem is so severe that it must be corrected immediately; instead of waiting until the final risk-assessment report has been written and approved.

Questions:
1. How well can the Board manage the risk, which is vulnerable in your entity?
2. Do you have a programme in place that deals with risk-assessment?
3. If yes has the report been written and approved by management board?

Conclusion:
Risk management entails, inter alia, a management culture that accepts that all business opportunities, including government business opportunities, entail risk taking. The pertinent issue in any business proposal is the need to objectively assess the trade-off between success and failure and to decide what is an acceptable risk that a proposal might not achieve any or all of its objectives.

A major component of risk management is the establishment of a fraud prevention plan which aims to manage the risk of fraud through cost-effective use of the control environment, information systems, control procedures and an ethical culture within the organization.