Road Accident Fund 2020/21 Annual Report and related matters hearing; with Deputy Minister

Meeting report

The Chairperson said an apology had been received from the Minister due to an emergency Cabinet meeting taking place, but welcomed the Deputy Minister of Transport, Mr Lisa Mangcu. The Committee would clarify historic issues from the Road Accident Fund (RAF). A lot had transpired since the last interaction with the RAF, and the Committee’s position remained unchanged that the accounting standard should revert.

Deputy Minister’s opening remarks

Deputy Minister Mangcu remarked that in the Committee’s previous interaction with RAF, the previous Minister, Mr Fikile Mbalula, had written to RAF directing the board to withdraw the case regarding accounting standards, and find other means of resolving the issues. The Ministry and the Department of Transport stood by that decision and were clear that regardless of the differences, there was a legal obligation for the RAF to report to Parliament and the Auditor-General of South Africa (AGSA) during certain times. The Department was clear on this -- that the RAF must be held to account by Parliament, and it should cooperate in submitting what was due to Parliament.

The RAF had been instructed to cooperate so that all annual plans and reports were submitted to Parliament for scrutiny. The Ministry had met with the RAF, and the Minister had been very specific about its submissions to Parliament. The Ministry was also not satisfied with the issues that the RAF had been requested to respond to by the Committee. The RAF had to submit everything due to Parliament. There should be no regurgitation of the matters that had already been ventilated. If anything came up, the Ministry would engage the RAF to smooth issues out and ensure it cooperated with the Committee.

Discussion on RAF's withdrawal of case

The Chairperson asked how far the RAF was in withdrawing the case, and when it would submit what was due to Parliament.

Ms Thembi Msibi, Chairperson, RAF board, replied that on 27 October 2022, the board had decided to withdraw the case and would pursue alternative dispute resolution methods. After much back and forth with the AGSA, the board would meet with the AGSA on 16 May, and she hoped that was when the court case withdrawal would be finalised. However, both the AGSA and the RAF must still agree on the legal costs related to the case.

The Chairperson warned the RAF about the matter of costs, and said that the RAF would incur these costs. He felt no sense of urgency with this matter, and asked how far RAF was with the 2020/21/22 audits.

Ms Msibi said these were not yet finalised, but the RAF had requested the AGSA on 10 November last year to reopen the audit so that it could resubmit. The audit for submission is currently under preparation.

The Chairperson said the Committee wanted to know the status of the accounting standard, as this was the basis on which there was an impasse. To say the Committee had discomfort with the accounting standard applied by the RAF was an understatement. What accounting standard was the RAF now utilising, as it was being audited?

Mr Collins Letsoalo, Chief Executive Officer (CEO), RAF, indicated that the Fund had applied the Generally Recognised Accounting Practice (GRAP) framework, which had a hierarchy. The reality was that there was no standard for GRAP for social benefits.

The Chairperson interjected that a debate on this matter should not be opened, as it would take the Committee back to the debate of September 2022. He refused to open this debate up.

Ms Msibi said the RAF believed that it had applied the correct standard.

The Chairperson said this meant all the other stakeholders -- National Treasury, the Minister, the AGSA and others -- were wrong, but not the RAF.

Mr Letsaolo said much had happened since the last interaction with the Committee. In the last meeting, the Committee had indicated its discomfort with the International Financial Reporting Standard IFRS 4), and a meeting between RAF and the Minister had been held where the Minister had instructed the RAF to withdraw the litigation and consider other methods to resolve the dispute. The dispute was still active. The board had passed a resolution to withdraw the litigation on condition that alternative dispute resolution was pursued. The AGSA had decided to set the matter down, and the RAF was given a directive to submit its reply, which had been done.

Ms V Mente (EFF) said that the AGSA did not have a dispute, and the RAF was imposing a law that did not govern in this country. The AGSA had clarified that it would not be able to audit the RAF because of the new accounting method that the RAF had applied, and which did not exist in the country. How was the AGSA disputing anything?

Mr S Somyo (ANC) indicated that it was not the Committee’s desire to go back to matters that had already been ventilated and finalised. The Minister had also insisted on the route that ought to be followed by the RAF. Once an institution took a different route, the question of the Minister would be that a board had a right to take decisions, but these decisions must be sound. The AGSA did not prescribe any standard -- it audited based on the prescription issued. Now that the RAF was saying it stands firm against what had previously been clarified and ventilated, it made things difficult, and the board was flying closer to delinquency. It must be prepared even to absorb the costs.

As the Chairperson of the Standing Committee on the Auditor-General (SCoAG), he had learnt that senior officers had been assigned this work and had finalised and signed off the audit for the RAF. The AGSA was now finalising the audit for the current financial year. In finalising it, they had observed the prescripts of the law as indicated in the previous engagement. The AGSA had also indicated that it had a standing meeting in May 2023 with the RAF, and what was left for this meeting was to say that the previous audit had been finalised and that they were looking toward the future and what that future would look like. They had reached a stage to inform the board that if it continued insisting on using an “illegal” route, it must be known that it was getting closer to the Committee’s proclamation on the board’s delinquency, and any costs associated with this would be attached to the individuals concerned, not the RAF, including the AGSA’s costs.

The Chairperson said there was so much going on at the RAF with the Legodi judgment, with cost implications for the board and the CEO. It did not project, at the very least, an image of functionality as a baseline. The AGSA had signed off on audit management letters on 20 September 2022.

Mr Letsaolo said that the Minister had instructed the RAF to submit the 2021/22 financial year annual report, and management was still working on it. He also noted that the RAF's management was prepared to be censured. If the RAF was found to be wrong, it must accept the censure, and it must swing both ways. If others were discovered to be wrong, they must also be censured. The RAF was doing its best to deliver what the Minister had requested.

Ms Msibi concurred with Mr Letsaolo, and said the Minister had confirmed a date of 28 April for the submission.

Mr Letsaolo said the Legodi judgment was sub judice, as it dealt with him personally and he would not comment on it.

The Chairperson merely asked about the status of that judgment -- whether the RAF would appeal or not, not about the merits of the case. The CEO had displayed a huge misunderstanding, because the question was not asking for details of the merits of the case.

After much back and forth, Mr Letsaolo confirmed that the judgment had been appealed, and papers were filed on Monday. He wished to put it on record that the costs of the Legodi case were ordered to be paid in their personal capacity, which made it a personal matter on which he did not want to divulge any details.

Mr A Lees (DA) sought clarity on who had appealed the judgment.

Ms Msibi confirmed that it was the RAF board members, the CEO and the RAF (as an entity).

Mr Letsaolo said that the judge had ruled the costs against the board members and the CEO. The RAF was not included but when they had appealed, there was a Rule 42 amendment where the RAF was added, which made it three appeals.

The Chairperson asked whether the RAF was appealing the verdict or the sanction.

Mr Letsaolo said the whole judgment was being appealed, including the orders.

Ms Mente sought clarity on the discussion of the costs with the AGSA.

Ms Msibi said in the ordinary course of litigation, there was a cost order at the end, and because the RAF and AGSA had not reached that stage yet, the RAF was proposing that each party cover its own costs.

Ms Mente said if the Committee allowed this situation to go on, it would be wrong. The AGSA had advised on what course should be taken pertaining to this issue, but the RAF had gone ahead and disregarded the advice from everyone. The AGSA should not pay a cent towards this litigation.

The Chairperson said the easing towards litigation had undesirable consequences either way, and caused unnecessary headaches for everyone. The AGSA had done its work and now had to be drawn into legal costs, not of its own doing. Even with the lowest standards of perception, the RAF was found wanting.

Special Investigating Unit on RAF Proclamation R44

Adv Andy Mothibi, Head, Special Investigating Unit (SIU), took Members through the presentation which covered the details of Proclamation R44 and the areas of focus for the investigation. These included:

• Duplicate claim payments made to attorneys, claimants and sheriffs, and change of mandates; Procurement and tender irregularities (fruitless and wasteful expenditure);
• Payments made to service providers in terms of the RAF Act and/or contracts;
• Invoices submitted to the RAF, including bills of cost; and
• Fraudulent claims.

[See the presentation for further details on the observations, risks and challenges of this investigation]

Discussion

Mr Lees asked the SIU about the ten contracts and the four referrals, and when these contracts were entered into by whom. Who had been running the organisation at the time?

Adv Mothibi replied that part of the maladministration investigation would investigate the failure of people – former employees of the RAF, and non-executives employed at the time.

Mr Leonard Lekgetho,  Chief National Investigations Officer, SIU, who was the lead investigator, indicated that the dates were different, ranging from 2018 to 2020.

Ms Mente asked about the timeframes of the commencement of the investigation and its conclusion, because people may resign during the investigation and successfully claim their pension. Was there a mechanism whereby any implicated persons may be prohibited from accessing their pension funds?

Adv Mothibi said that when employees were implicated during an investigation, often when the SIU approached them, they would find that these employees had resigned. However, the SIU would approach the Tribunal to freeze the pension fund from paying any implicated and responsible employees. Those who paid acknowledgement of debts (AODs) must be traced back and mitigate the risk of the personnel that may resign. He had instructed the legal team that anyone who may have contributed to the losses of the RAF, when approaching the Tribunal the RAF must also cite those who had left, whether during civil or criminal proceedings.

The investigation started in 2022, and the proclamation was made in December 2021. The SIU was ensuring that the investigation was completed quickly. The projected completion date was March 2024. An interim report would be submitted before the investigation was finalised.

The Chairperson said that the SIU’s investigation would be left alone to run its course ,and the Committee would take comfort in the interim reports.

Change of accounting policy

Ms B van Minnen (DA) said that after seven months, nothing seemed to have changed or happened. There had been numerous attempts to hold the board to account. They had seen the correspondence from the previous and current Ministers. The Minister certainly appeared to be losing patience. Regarding alternative dispute resolution, the RAF saw this as conditional and imposing too many pre-conditions, but what had the RAF done to move forward positively? She was concerned that conditions had even been put down, and asked the RAF to unpack the withdrawal conditions and on what basis the RAF thought that could be done. The RAF had also suggested a specific mediator.

Ms Msibi said that RAF had proposed a mediator, but it was not conditional for that mediator to be used. It had done so to fast-track the process. The AGSA could propose a different mediator.

Ms Van Minnen said by the time the board met with the AGSA next month, it would be eight months since the process was started. However, nothing of substance had been happening. Why did it take eight months to meet with the AGSA? Had there been any movement on this matter emanating from a dispute that the RAF created?

Ms Msibi replied that the RAF understood that there was a dispute, hence the proposal for mediation. The RAF had been requesting meetings with the AGSA itself, but it was happening only next month. However, the RAF had met with AGSA officials in previous meetings.

The Chairperson said that the AGSA disputed nothing, but the AGSA audited the RAF, and the disputer here was the RAF. The bottom line was that this was not a mutual dispute -- it was the RAF that was disputing an AGSA outcome because the audit had been done.

Ms Van Minnen asked why the board wanted to meet specifically with the AGSA, and what would happen if there was no progress in that meeting. What would it take for the RAF to accept that it was incorrect and at what point would it buckle down and do what was required?

Mr Letsaolo stepped in to say that as part of the mandate letter (paragraph 60 – Dispute Resolutions), different layers of the dispute must first be applied and implemented as steps before meeting with the AGSA itself. In this case, there was a technical dispute, and if Members had considered the presentations by the AGSA to the Committee, it would have conceded that there was a dispute.

Ms Van Minnen asked if the RAF would go back to litigation if no consensus was reached at the planned meeting with the AGSA in May.

Mr Letsaolo hoped that a determination would be reached, and further litigation would be unnecessary. The RAF envisaged the alternative dispute resolution (ADR) process, and it sought to present its case to an independent forum for assessment and resolution. The engagement with the Minister indicated there was an understanding that there was a dispute. The difficult part was the non-involvement of the RAF’s regulator in the prudential authority. One of the developments that came up was a decision by the Public Sector Classification Committee, which had classified the RAF. If Members reviewed the Institutional Sector Classification Guide of the Reserve Bank of March 2017, it was clear that the RAF was a social security fund. In December 2022, there was also a guide issued by the same Committee, stating the same thing. The nature and state of the RAF must be determined as part of the process regarding agreeing or disagreeing with the AGSA.

Ms Van Minnen asked if there was a potential for the RAF to return to litigation if the meeting with the AGSA was not productive.

Mr Letsaolo said that the RAF would not want to see that, but he did not want to preempt the outcome of the alternative dispute resolution mediation.

Ms Van Minnen said that it had been brought up that the matter of costs was also in dispute, even though this dispute had been caused solely by the RAF. What was the view as to the cost of this process which had lasted months? 

Mr Letsaolo replied that there were proposals on costs at this point, and there was consensus that there was a dispute. At all material times, there had been efforts to resolve this matter but due to its technical nature, there were always going to be costs associated with this dispute.

Ms Van Minnen was concerned that the RAF found itself in a position where it ended up in litigation for virtually every matter and had high litigation costs. She would like to see the costs in the previous financial year spent on litigation versus the actual processing of claims and performing its role. She wanted to see the percentage spent in detail. The time and finances of the RAF seemed to be going towards litigation more than its actual work. She wanted to see how much the RAF had spent on litigation costs and how the appeal for the Legodi judgment was being funded.

Mr Letsaolo confirmed that it was funded through the RAF because Section 15 of the RAF was clear about personal costs, and how these costs come about. There was a cover that came from the insurance aspect of the decision taken, but it only came at the end. For now, it was funded by the RAF, but if in the end, it was such that the costs must be paid, the insurance would pay the costs.

Ms Van Minnen asked about the Discovery matter, and the issue with medical aids. The Supreme Court of Appeal (SCA) had refused leave to appeal, but the RAF was appealing the matter in the Constitutional Court. Therefore, it was presumed that the RAF was funding that, even though the SCA had refused its leave to appeal.

Mr Letsaolo said the RAF had reduced more than 70% of its litigation costs. The current and new model was structured in a delict manner, meaning avoiding litigation was impossible in the claims process. When management arrived at the RAF, its litigation costs had been sitting at R10.6 billion. The money that the RAF collected was R43 billion. The new model was structured in such a way that more money was paid to claimants. Money was taken away from litigation costs to the claimant side. These litigation costs had been reduced by more than 30%. Previously, for every rand collected, at least 40 cents was going towards administrative costs, which had been turned in the new model. Hence, the battle with the panel of attorneys. For actuarial costs, the RAF was paying R10 000 per calculation, and no one did that in this industry, and management had intervened in that regard.

He said medical aids were responsible for prescribed minimum benefits which, in terms of Regulation 8, must be paid fully, as well as emergency medical conditions. What they had been doing was paying the money as a statutory obligation on their side, and then sending lawyers to claim that money from the RAF. This was the core of the dispute by the RAF on this matter, as it would be cost-effective if medical aids approached the RAF to pay the money instead of asking members to claim and pay back the money. This was like paying someone a retirement annuity and asking the person to claim the R2 000 from SASSA. Constitutionally, it was something that must be addressed at that level, because there was a principle which, if left unchallenged, would create challenges for the state.

The Chairperson said that the RAF was still in a dispute, and did not want the figures to be taken as final figures. A qualification must be placed on them because the question would come as to what extent the new model was linked to the changes in the accounting standard. The Committee wanted to get a full picture before taking these figures into account once the annual reports had been submitted.

Mr Letsaolo said the figures would appear in the 2020/21 and 2021/22 annual reports. The issue around the accounting policy did not affect this part -- it was related to long-term accounting for accountability.

The Chairperson asked who the mediator was, and if he/she had come from a pool of people. Was the RAF going to the mediation process with a view to asserting that the accounting standard was in dispute? The Accounting Standards Board (ASB), Treasury, Ministry, AGSA and Scopa thought differently about applying this accounting standard. Was the RAF going into that mediation to affirm that accounting standard, and contend that the AGSA was wrong? What was the RAF’s case proposition for mediation with the AGSA?

Mr Letsaolo said that it was to inform the AGSA that the RAF was a social security fund.

The Chairperson interjected, and said they were back to September 2022, because RAF was going to mediation to convince the AGSA that the RAF’s accounting standard was right, and the AG was wrong.

Mr Letsaolo said if both parties agreed on the nature of the RAF, that would take care of all the other issues.

The Chairperson asked if it was RAF’s position that its applied accounting standard should stand.

Mr Letsaolo said yes.

The Chairperson said that they were back to September 2022, and time was being wasted with 'gymnastics.' As a technical committee, the PSCC's classifications were not binding either.

Mr Letsaolo said that the Reserve Bank had classified RAF as social security fund in Section 3.5 in March 2016. What the RAF got in December was a reaffirmation that it was a social security fund. It was binding. The AG was classified as a constitutional institution in the very same classification. The reality was that this classification binds, and it did so at the International Monetary Fund (IMF) level as well.

Mr Lees said it seemed the board and the executive of the RAF had lost the confidence of everyone they did business with. He suggested that the solution to this significant recurring problem was for the executive and the board to resign and accept that they could not move this issue and the RAF forward, and they could then get on with what the RAF should be doing.

Mr Somyo said that the Committee could not go on arguing about the same matter. The AGSA did not prescribe the standard and its audits were based on the prescribed standard. The Accountant General and Treasury prescribed a list of choices that institutions like the RAF could use for their accounting policies.

The life of the board had reached its full term and it was living on borrowed time. If this continued, the Minister should consider evaluating the board and management’s existence, because the country risked losing its assets under this board and management. Matters seemed to be dealt with carelessly.

Ms Mente said this matter had not been done in good faith, but in arrogance. After all the remedies and the interventions, Parliament and AGSA the RAF continued to exercise and use the mechanism that the RAF was being called out of order for. The board and management still believed that they were right. The IMF did not govern this country and the institutions that assisted in governing this country were saying otherwise, but nothing happened. One could not defend and protect arrogance through the RAF Act.

On the classification issue of the RAF, there were processes to follow. The RAF must first follow that process and not expect everyone else to follow suit without subjecting its classification to the proper processes. The Ministry was failing them – there was no board in RAF, and the Committee could not be held to ransom based on that belief. The Ministry must dissolve the board, because the RAF would continue incurring litigation costs at the expense of the taxpayers.

The Chairperson affirmed that since September 2022, nothing had changed but a legal expedition anchored in arrogance. The board was an island of correctness, and this matter had become a fishing expedition at the expense of the taxpayer. Parliament was an irritation -- oversight and accountability were an irritation for the RAF board and management. The Committee held the AGSA’s assurance as an ‘alpha and omega’. The change of the accounting standard was just accounting gymnastics for the RAF to cook its books.

The Committee’s outlook was that the board was not fit for purpose. The Minister should be advised as such, and that she must submit a report as to why the board had not been appointed as it should have been, and provide a roadmap towards appointing a board. If the board remained in place for this period, the Committee should get an assessment of why these individuals should remain employed. The Committee had no confidence in the board and whether this process was being done in good faith.

The Committee was suspending the session until the annual reports had been submitted. It was placing this issue in the Minister’s court.

Mr Letsaolo said the proposed mediator was Mr Philip Ginsburg, SC.

Mr Lees asked for a record of the default judgments against the RAF. Members had heard how this new system had changed things, so he wanted a report of all default judgments since the CEO took over the reins. He asked for this to be submitted along with the other submissions, like the legal costs’ breakdown.

Deputy Minister's comments

Deputy Minister Mangcu said that it had been excruciating to sit through these proceedings, and assured Members that the door would not be revolving on this board and management. If one looked at the letters that the Minister had written to the chairperson, this remained very clear. As a benefit of the doubt, one may say maybe the RAF was correct, but the approach and the timing in which this manner was being dealt with was the issue. If one looked at what the ASB said in its affidavit in September 2022, what militated against the relief claimed by the RAF was that it would unduly prevent the AG from performing her statutory obligations, and that no exceptional circumstances were justifying such reference.

Whatever was due to Parliament and the institutions of oversight must be submitted. The Ministry was not flinching on that. The Minister had said that if it failed to happen, she would exercise her rights as a shareholder, hence the time granted to the RAF to submit everything due to Parliament.

The letter by former Minister Mbalula had not created conditions, and it seemed that these two processes had become conditional on each other. It was explicit that the RAF must withdraw from the court and explore other alternative dispute resolutions. The conditionality posture of the RAF was regrettable, and it was the Ministry’s view that the RAF must withdraw the court case unconditionally.

The other issue the ASB had raised in its affidavit was that if the RAF argument were entertained, it would delay the execution of the AG’s functions and the principle of separation of powers may permissibly be breached, and the public interest was against such interference. All the statutory instruments referred to above demanded swift, accurate and importantly, transparent financial affairs of public entities. This requirement of transparency was even more acute in the current state of concerns regarding public entities in South Africa. The Department was resolute and clear on this matter. It also noted all the resolutions of the Committee and the submissions that must be made to it.

The Ministry would soon meet with the RAF at the request of the Minister. The RAF must cooperate fully with the AGSA and whoever submitted what was due to Parliament.

The Chairperson said perpetual litigation and disclaimers created a conducive and enabling environment for corruption. Things needed to change so that there was clarity and transparency in its affairs, therefore there was urgency in the investigation.

The meeting was adjourned.