Budget Hearings 2002/3: Road Accident Fund; Cross-Border Road Transport Agency

Meeting report

TRANSPORT PORTFOLIO COMMITTEE
24 April 2002
BUDGET HEARINGS 2002/3: ROAD ACCIDENT FUND; CROSS-BOARDER ROAD TRANSPORT AGENCY

Chairperson: Mr JP Cronin (ANC)

Documents handed out:
Presentation by Road Accident Fund on Budget 2002/3
Presentation by Cross-Border Road Transport Agency

SUMMARY
The Committee was briefed by the Road Accident Fund and the Cross Border Road Transport Agency on their budget, programmes and priorities for 2002/3. The RAF is challenged by high staff turnover and recovery of money lost through fraud. There has been a rise in administration costs due to the awareness campaign being waged, to make the Fund more accessible to the public and to claimants. The CBRTA is a statutory body and its objective is to facilitate cross-border road transport into the Southern African region. This regulatory function is fulfilled through the issuing of permits for market entry and also through law enforcement. Their challenges include making a contribution to the HIV/AIDS epidemic and contributing to the overload control through restructuring operators to pay charges prescribed by legislation, permit conditions and ongoing effective law-enforcement.

MINUTES
Briefing by Road Accident Fund
Mr Kgomongwe started off his briefing by explaining that this year's budget had been approached by identifying RAF's business priorities and its strategic objectives.

The RAF had approached the Minister of Finance and explained to him that the fuel levy income was not enough to meet RAF liabilities. As a result the Minister announced a 2% per litre increase effective from April 4, 2002, on the understanding that the RAF would implement processes to stem the influx of false claims.

He also indicated that the expected RAF's income for this year including fuel levy and investments was R3.2 billion. Over and above this R3.2 billion, there was about R1 billion that resulted from the R455 million that was disinvested from the long-term investments. That put RAF's expected income for this year at about R4.2 billion.

Mr Kgomongwe further said that the RAF's total expenditure for this year was an estimated R3, 953 billion, with R3, 417 billion (87%) being in respect of claims settlement. The rest was in respect of operational services (including special projects), Arrive Alive, Road to Safety Campaign and the Road Accident Fund Commission of Enquiry.

The RAF had about 300 000 claims backlog still to be settled. They settle about 10 000 claims a month and about 180 000 per year. Their aim was to address the accumulated amount of claims. He acknowledged the fact that the Fund had not been able to its mandate in this regard.

Mr Kgomongwe also explained that the Fund had a range of service providers like legal and health professionals whose cost needed to be managed.

Mr Kgomongwe said that the projected budget would help the Fund meet its strategic objectives and challenges identified in the RAF's budget document.

Major challenges facing the Road Accident Fund
The Fund still had a problem of high staff turnover although it has dropped to 8%.

False merits were causing the Fund to experience losses of about R300 million a year. This was caused by either fraud or incorrect registration of information. To detect this problem, he said, they had set aside money for staff development. They were working on a media campaign to warn people about dangers of involvement in fraudulent claims. And that they were expecting arrests and prosecutions soon.

With regard to revenue, he said the Fund would have eaten into its reserves in thirteen months time. They were presently working on ways to generate income. They had also established the Recourse and Recoveries Unit to recover monies that must be recovered by the Fund according to the provisions of the law.

Touching on the issue of accessibility, Mr Kgomongwe said the Fund had had to make budgetary provisions for it, as most of the claimants were from rural areas far away from the existing branches which are located in the cities. The Fund was thus relocating its offices, conducting road shows, redesigning forms (so that people could lodge claims themselves instead of lawyers), and printing papers to explain this.

Mr Kgomongwe also made reference to service providers, saying that there was a concern over exorbitant medical costs. He believed that the Fund was paying about R100 million more than it ought to. This was due to the fact that there was no standard set of tariffs and also as a result of legal professionals who were not aware of medical issues when dealing with medical professionals over medical bills.

He alluded to the impact of the proposed legislative amendments, currently standing at twelve amendments. The impact has not been played a role in the current budget because the Minister has called for further debate on the proposed amendments.

He also mentioned that the re-engineering of the claims process had financial implications for the Fund. [For more on the presentation, please refer to the electronic presentation document].

Discussion
Mr SB Farrow (DP) wanted to know if there were chances to recover the R300 million lost due to false merits. It was nice to arrest people but the priority should be on recovering the lost money. Did the Fund take into account the fact that it was technically insolvent in its planning of projects?

Mr Kgomongwe said that with regard to the recovery of the monies lost fraudulently the process of conviction was slow but as soon as it was done the Asset Forfeiture Unit would start recovering whatever amount had been set for them to recover.

Mr JH Slabbert (IFP) commented that the Fund deficit was up and wanted to know how it was going to be stopped. It was immoral that there were people acting as both service providers to the Fund and Board Members. How was the RAF going to help the Transport Department reduce road carnage? He further enquired about the status of legal professionals in relation to the Fund whether they were still necessary or not with regard to claims settlement.

Mr Kgomongwe replied by saying that the growing deficit was a serious matter compounded by the lack of accurate reporting of accidents, which in turn led to inaccurate and unreliable information upon which projections are made.

Regarding Board Members doing work for the RAF, Mr Kgomongwe said that two Members had resigned, with only a medical specialist still left as a Board Member. The Fund was using him for medical opinions and he is not on the Fund's panel of medical experts. He did not know whether that was a conflict of interests.

About the Fund's help in reducing road carnage, Mr Kgomongwe said that according to the information the Fund had, about 40% of claimants were pedestrians and children. Therefore, the Fund was targeting this group of people in sensitising them about issues of road safety.

The Chairperson, Mr JP Cronin (ANC), pointed out that there was corruption not only on the part of service providers but also within the Fund itself. Where was the Fund going, in the light of this observation? Mr Cronin also complained of lack of co-ordination because of the reported direct payment of claim monies, which could not be sustained. This resulted in Committee Members being left as spectators. He also commented on the remarkable increase in the administration costs of the Fund and wanted to know to know if that reflected strategic spending on the part of the Fund. Were the consultants' expenses reflected in the budget?

He asked for an answer regarding the rumours which were circulating that Miss Portia Mabunda, the Fund's Regional Manager (Randburg branch), was paid R1million severance payout, an equivalent of 24 months salary. Did the capital expenditure include the lavish redecoration of executive directors' and senior managers' offices? Were the rumours of bar fridges said to be installed in offices true?

Mr Duncan Andersen (RAF's Finance Executive) responded by saying the dramatic increase in administration cost was due to the awareness campaign which needed increased paper work. On the issue of consultants, Mr Andersen said the Fund only used consultants where the Fund did not have expertise. For example, when there was a commission of enquiry for forensic consultants and medical experts. They were used on the basis of the value added. As soon as the transfer of skills had taken place, the Fund would then get rid of them.

Mr Andersen said he was only aware of three fridges, which were used when the Fund was receiving visitors.

On Miss Mabunda's issue, Mr Kgomongwe said that she received about R600 000 nett payout. The gross amounted to about R1million. The cost of keeping her would have been exorbitantly higher than the R1million, as she was incompetent.

The Chairperson interjected and asked if she was incompetent why was she not dismissed as that should have been a ground for her dismissal. It seemed as if individuals who underperformed were being rewarded.

Mr Themba Mhambi (Senior Manager: Corporate Communications, RAF) said that they had inherited a Fund with no concept of responsibility and accountability. In cases of incompetence, there were no defensible measures to determine incompetence which would warrant dismissal. That was the difficulty they were faced with over Miss Mabunda's matter.

The Chairperson responded to Mr Mhambi's response by saying that he had expected that response. Because the Fund did not have performance measuring mechanisms, it was then decided to give Miss Mabunda R1 million, something which needs to be addressed.

Mr Kgomongwe added his voice on the issue of performance by saying that it was a fact that the Fund did not have a performance contract. He promised that by the middle of May 2002 the Fund would be having performance contacts in place. As from then, staff would be expected to adhere to set values, performance requirements and core business requirements.

Mr Slabbert remarked that RAF was synonymous with bad management, and corruption. He acknowledged the fact, though, that the Fund had inherited the problem. It seemed as if corruption took place even before claims were lodged. It started on the site of the accident with break-down people, panel beaters and police. Regarding Miss Mabunda's case, Mr Slabbert said it was unbelievable that there were managers who were not subjected to performance measures.

Mr Farrow asked about implications of the staff increase of the Fund. Was there a short-term measure to deal with the claims backlog? If that was the case what would happen to the extra staff if Information Technology got up and running within the Fund.

Mr Kgomongwe said the people they had brought in were on contract basis to cater for such an eventuality.

A Member took up Mr Kgomongwe on the issue of the Fund's accessibility to claimants and asked if the four Fund branches referred to were regional branches. She asked Mr Kgomongwe to explain where those branches were and whether there were plans for a roll-over of branches to other areas. When could people expect the process of direct payment to take place?

With regard to the question on branches, Mr Kgomongwe said the Fund had offices in Johannesburg, Cape Town, Durban, were setting up another one in East London in Jun and had plans to branch out. In his reply to the question of direct claims Mr Kgomongwe said most people were not aware that they could lodge their claims directly. He stressed the fact that they were not denouncing other methods, he felt that not all lawyers are corrupt.

A Committee Member complained of claims that were settled even after a long period. She also complained about lawyers barring claimants from talking directly to RAF and wanted to know whether there were mechanisms in place to deal with this.

Mr Kgomongwe replied by saying that that was caused by the fact most people were not aware that they could lodge their claims directly. He said they were conducting road shows, and distributing leaflets to address that.

Briefing by the Cross-Border Road Transport Agency
Mr George Negota briefed the Committee on such issues as the constitutional framework under which CBRTA was established, the structural make-up of the Agency, transformation within the Agency, achievements and challenges to the Agency, and the financial overview of the Agency.

The CBRTA was a statutory body formed under Article 104, Schedule 6 of the Constitution of the Republic of South Africa. Its main objective is to facilitate cross-border road transport into the Southern African region. This regulatory function is fulfilled through the issuing of permits for market entry and also through law enforcement.

Structure of Staff
The CBRTA was made up of 135 employees, 63 of whom are former National Department of Transport staff and 72 new appointees.

Transformation within the Agency
Mr Negota pointed out some of the evidence of transformation within the CBRTA, the fact that 265 permits were issued to SMME's, and that communication from the Regulatory Committee was done in all languages.

Achievements
One of the achievements of the CBRTA that Mr Negota alluded to was the decrease in the number of pirate operators through effective law enforcement. This resulted in an increase in legal permit applications.

Challenges
Mr Negota cited the following as CBRTA's challenges:
-Making a meaningful contribution to curb the HIV/AIDS pandemic.
-Completing the transformation process in the Agency.
-Contributing to the overload control through restructuring operators to pay charges prescribed by legislation, permit conditions and on-going effective law-enforcement.
-Instituting a project on route saturation to provide important information to the Board

Financial Overview
Mr Negota also gave a financial overview of CBRTA. [Please refer to the electronic presentation document].

Discussion
Mr Slabbert asked what had happened before the CBRTA was in place.

In reply, Mr Negota said they were then part of a Unit within the Transport Department which ultimately moved out and became an independent CBRTA.

As a follow-up Mr Slabbert asked if their moving out of the Transport Department was not a shortcoming.

Mr Negota replied by saying that it was not necessarily the case.

Mr Magubane (ANC) asked whether the CBRTA was issuing Group permits.

Mr Negota said that CBRTA was only issuing permits per vehicle. Group permits were given to people in the passenger industry in the past but now the focus was on each vehicle.

Mr SB Farrow wanted to know about the powers CBRTA had to effect arrests regarding overloads.

Mr Negota said that CBRTA had its own law enforcement officers along the border posts. Their duty included stopping and checking goods. What was lacking was legislative coordination among different Departments.

The Chairperson, Mr Cronin, summed things up by commenting that it seemed like the country had benefitted from having CBRTA, though there were still other problems, like lack of support from other Departments.

The meeting was adjourned.