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TRANSPORT PORTFOLIO COMMITTEE
2 April 2003
ROAD ACCIDENT FUND; TRANSPORT EDUCATION AND TRAINING AUTHORITY: BRIEFING
Chairperson: Mr J Cronin (ANC)
Documents handed out:
Road Accident Fund Budget 2004 briefing (Appendix)
RAF Budgeted Income and Expenditure (excel file)
Transport Education Training Authority briefing
The Road Accident Fund indicated that the 2004 budget has a projected deficit of R396 million, against income of R3.8 billion. Although the RAF had recently been granted a three cents per litre fuel levy increase by the Minister of Finance, this was still insufficient to enable it to meet its mandate. In response to Members questions the delegation explained that only 45% of the expenditure is paid to claimants and even then, further amounts are lost by claimants on private legal fees. The Committee stated that the core issue for the Committee is to make the RAF sustainable. A major change would be required before the year-end.
The Transport Education and Training Authority (TETA) is one of the SETA's established with the one percent payroll levy established by the Skills Levy Act. In turn it is split into eight chambers covering areas from Aerospace to Taxis. TETA briefed the Committee on its current operations.
Mr H Kgomongwe: Chief Executive Officer, Road Accident Fund, was supported by Mr S Malefane, Mr T Mhambi and Mr J Rabie.
Mr Kgomongwe began by explaining that the RAF had moved from its strategic plan to its corporate plan, and was now finalising its individual unit plans. This year's budget was an extremely difficult one as there was a mismatch between the growth of the claims and the growth of the fuel levy. With the three cents per litre increase the fuel levy income was estimated at R3.4 billion. Additional income from long and short-term investments was reduced to R394 and R60 million respectively, leaving a projected total income of R3.8 billion.
The major expenditure on claims was anticipated to rise 15% to R3.7 billion while reinsurance premiums as a result of Sept 11 had increased 180% to R28 million. Administration expenditure was only 4 % up, while other areas showed decreases (human resources - salaries, capital and special projects) making a total expenditure estimate of R4.2 billion. This left a projected deficit of R396 million.
Mr Kgomongwe noted that the 15% increase budgeted for claims, may be conservative as the RAF is attempting to eat into the backlog of previous claims accumulated over the years. He also noted that 54% of the claims costs of the RAF is not for the clients direct benefit. For example an estimated R450 million is spent on legal costs, R315 million on medical expert reports, R15 million on actuaries and R125 million on investigators.
In response to a question from Mr R Ainslie (ANC), he agreed that the actual administration costs last year were considerably lower than budget. This was due to stricter controls instituted.
Mr G Schneemann (ANC) asked for more details on why only 46% of the claims granted reach the claimant.
Mr Mhambi (RAF), pointed out that in the case of general damages, paid to cover pain and suffering, more than 25 - 35% is retained by lawyers for incidental charges. Typically from a R20 000 payout, about R13 000 goes to the attorney and R7 000 to the claimant.
Ms P Coetzee-Kasper (ANC) noted that this was the area where fraud came in.
Ms T Shilubana (ANC) asked if claimants could use RAF lawyers.
Mr Kgomongwe replied that the RAF encouraged use of its own lawyers by claimants and this had increased from 1% to 7% during the last year. Unfortunately the Fund only had five offices nationally, and was therefore not easy to access. It was investigating the use of the Post Office and also the Legal Aid Board to act as agents to make it easier for the claimant to come direct to the Fund. The RAF is fair to the claimant, providing all assistance at no charge. The RAF has proposed that the lump sum payments also be changed to instalments to reduce misuse of the payouts.
Ms Shilubana congratulated the RAF on the information flyer it had available at Post Offices, and together with Mr Ainslie (ANC) asked that Zulu translations be made available. Mr Ainslie complained that he could not get through to the Durban RAF office by phone.
Mr P Sibande (ANC) queried the salary portion of the Human Resources budget. Mr Kgomongwe replied that although salaries were 93% of the HR budget they were only 7% of the total budget. Members also queried why the RAF had stopped contributions to "Arrive Alive" and the Road Safety Desk.
Mr Kgomongwe stated that, due to its lack of funds, the RAF had been forced to stop contributing to "Arrive Alive". It will ask the Department of Transport to provide other funds for this. Similarly it had not been able to establish its Road Safety Desk, but had tried to fill the gap with its own resources. The RAF had not stepped back from road safety participation as it was handing out leaflets for the Easter "Remember December" safety campaign.
Mr S Farrow (DA) asked if it was possible to include some of the Satchwell Report recommendations in the present budget.
Mr Kgomongwe noted that the Satchwell Report agreed that funding levels were inadequate - the RAF is the cheapest insurance available.
Mr Cronin, summarised by saying the RAF had numerous problems. Firstly the budget is way over the mark with its R396 million deficit for 2004. Secondly, the Fund was battling to meet its mandate with the present funds allocated. Thirdly, he was concerned that too high a portion of the funding was not going to service the client. Lastly, he felt the core issue was that legislation was required to make the RAF sustainable - major changes would be required before the year is out.
Transport Education Training Authority briefing
Mr H Maasdorp, on behalf of Dr P Bothma (CEO), explained that after a global investigation on improving workplace skills, Sector Education and Training Authorities (SETAs) were established to implement skills development in South Africa. In terms of the Skills Levy Act 1% of payrolls are used for funding in three possible areas:
TETA, as the transport SETA, has established eight Chambers to cover its diverse field. These are:
-Forwarding and Clearing.
According to SARS information 8053 transport companies are paying levies. Of these 6833 are registered with TETA. The formal businesses employ 258 000 people while the smaller non-formal businesses employ about 200 000.
The Minister of Labour in terms of the National Skills Development Strategies has set five objectives:
-Developing a culture of high quality lifelong learning. An initial target here is that 70% of workers should have at least NQF 1 (functionally literate) qualifications by March 2005. As a first success at present 74% of Transport workers have at least an NQF 1 qualification. TETA is also the pilot site for the "Investors in People Standards".
-Fostering skills development in the formal economy for productivity and employment growth. Skills development grants are being paid to the larger companies, a qualification matrix is in place and Learnerships are either in place or under development.
-Stimulating and supporting skills development in small business.
TETA has begun with a small levy in the Fishing Industry with a pilot programme and intends applying the same strategy to the Taxi industry.
-Promoting skills development for employability and sustainable livelihoods through social development initiatives.
TETA has begun operating programmes in the Small Boat Fishing Industry and the Taxi Industry which are specific skills programmes for each, as well as containing an adult education element. An AIDS awareness programme is also targeted especially at the Road Freight and Taxi industries
-Assisting new entrants into employment.
The major effort here has been the development of the Learnership programme.
Mr Maasdorp gave an overview of TETA's budget for 2003/2004. This showed overhead costs of R25 million, an implementation budget of R115 million and strategic projects of R16 million, which results in a shortfall of R10 million. This is mainly due to the Small Boat Maritime Industry and the Taxi Industry where the levies are small. He asked the Committee for its help in this regard.
Mr Cronin noted that implementation depends mainly on each local government's abilities.
The meeting was adjourned.
BUDGET 2003/4 - 2005/6
MANAGING THE BALANCING ACT : BUDGETING AND ACCOUNTABILITY
It is common knowledge that a good budget represents an appropriate balance between revenue and expenditure. The litmus test, however, for us as a fund `charged with the legislative mandate of "compensating victims of road accidents in a just, equitable and efficient manner"- is to what extent we have mastered the proverbial balancing act.
Conventional wisdom is that we can execute the mandate that we are charged with better if we have more. If the temptation, therefore, is to call for ever- increasing budget allocations then, the sobering anti-dote should be stringent controls and accountability in the form of monitoring and transparent reporting. This asks of us to put in place an effective performance appraisal mechanism or tools to enable us to measure how accessible we are to our claimants, how helpful our staff is to the public, how many claim files we finalize, and whether we are still receiving any more summonses or even criticism from our courts, etc. Also critical is how we reward those who excel in our delivery of our mandate .
The 2003/4 budget is a continuation of the trends established in the 2001/2 and 2002/3 budget, which emphasized the need for compliance with the Public Finance Management Act and Treasury regulations. To this end the Fund, through its previous budget, embarked on a project of beefing up financial controls by introducing
AXS _One as the financial system of choice. The first phase has been successfully completed. Phase two of the project is to be completed during the 2003/4budget year. When the project is completed, management should be able to draw up to date budget reports from the budget module.`
Through this budget, the CEO - together with his executive team - is committing himself to a year of delivery. This includes delivery on some aspect of the basket of proposals made to government, e.g. on medical restructuring, delivery on reduction of summonses and hence the rolling out of Mediation and Arbitration to other regions after the successful pilot project in Cape Town, as well as the commitment to continue, by beefing up our forensic activities, to fight those elements who have identified the Fund as a sitting duck for fraud and corruption.
The other trend that we have to contend with for this budget year is that there will not be enough in the kitty to cover our requirements. This means that the need for prudence cannot be overemphasized. Whilst we cannot afford to lament about how our revenue is raised and by how much, we have a need to recognize it is important to account how we spend what we have, and in doing so to what extent we have achieved, that which we set out to achieve every morning when we arrive at Sanlam Centre and every evening when we leave our premises at Menlyn..
The Road Accident Fund Coffers remain inherently hamstrung in that we don't have much say or control of our revenues.
Fuel levy income
The Minister of Finance through National Treasury, still determines the quantum, based on a RAF fuel levy on petrol and diesel. In his recent budget speech, the Minister of Finance, announced a 3c per liter increase effective from April 2, 2003, This takes our share of the levy from 18.5c per litre to 21.5c per litre representing a 16,2 % increase. The increase still falls short of the 5c per liter increase which we had requested from Treasury based on the reality that claim compensation and the cost of claims paid remains very high..
The expenditure levels are continuing to have an adverse effect on the Fund's portfolio investments with the banking institutions. The level of draw down shows a significant reduction in the investment portfolios and consequently a reduction in the investment income generated.
The effect on the long-term investments that have been distributed amongst the three investment houses/asset managers is in no better shape. The deteriorating trends, which started during the 2000/1 budget when R 543 million was disinvested and continued in the 2001/2 financial year when an amount of R455 million was disinvested from the long-term investments, continue unabated. The book value of these investments stands at R558 million.
It is expected that the reserves will be fully depleted by the end of the budget year considering the deficit position - R 395 million - even after the 3c per litre increase that was announced
Cash flow management
There is little, if at all, improvement that can be made on the cash flow management of the Fund. The fuel levy income is insufficient to cover the claims outflow.
iv) Total income for the year
The total income estimated for the Fund had to be revised slightly down from R4.386 billion to R3,835 billion - in light of the 3c per litre increase as against the 5c per litre that had been requested from Treasury. The 5c per litre increase is the desired amount to match total expenditure, which at R 4.3 billion overwhelms total income.
Total expenditure for the year is estimated at R 4.386 billion, with R3,730 billion (85,0%) being in respect of claims settlement. The difference of R662 million is allocated to operational costs (including special projects). The Road Accident Fund Commission of Enquiry was not included as it completed its duties. Sadly the Fund will be in no position to continue funding the Arrive Alive project.
The operational budget reflects the expenditure required to meet the demands being placed on the Road Accident Fund to meet its legal obligations. Staffing levels are showing signs of stabilising, especially in the claims environment. The numbers show an increase from a planned 1997 for the 2003 budget year to a planned 2125. This represents an increase of 128 personnel (6.4%). The planned increase for the 2002/3 budget year was 65%.
The increases are mainly due to establishment of the procurement department and the beefing up of Forensics at the braches.
Claims settlement values are expected to increase by approximately 15,0% over the previous year. This follows in the trend of the last three to five years. It is therefore anticipated that the number of new claims lodged during 2003/4 will increase by between 13,3% and 15 % based on the last five years trends.
PMG Editor's Note: The following annexures were not included:
-Income and Expenditure Summary for 2004-2006 together with Fuel Levy Incomes
-Detailed Operational Expenditure budget including Special Projects
-Staff Complement Schedule
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