South African Wine Industry Trust; Road Accident Fund: Hearings on Audited Financial Statements

Public Accounts (SCOPA)

24 June 2008
Chairperson: Mr T Godi (APC)
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Meeting Summary

South African Wine Industry Trust Hearing
The Committee expressed their displeasure at having to assess an abridged version of the South
African Wine Industry Trust’s Annual Report. They complained that this would not allow them to form a full opinion on what was happening within the entity.
Members were also upset that it had been a difficult and long process in getting the Trust to appear before Parliament. The Trust explained that on receiving the Committee’s request they had been told by the Minister’s Office that the Trust was obligated to report to the Minister, while the Minister then reported to the Committee. The Committee was also displeased that the Trust had sought a legal opinion that would tell them whether or not to attend the hearing, as the Trust was obligated by law to attend the hearing if a request was put to them to appear before Parliament.

Members discussed the bad publicity that the trust had received from the media. The Trust explained that reports in the media were a misrepresentation of the facts.

Members also discussed why the Trust decided to sue a Member of the Committee when previously they had stated that they knew that Members did not wish to harm the Trust and that the media had fuelled controversy that did not exist between the two entities. The Trust explained that the correspondence between a Committee Member and a trustee caused the Trust to change its opinion, as they did not think that the correspondence was helpful.

The Committee looked at the Trust’s financial viability, problems with the structure of the trust, the need for more funding, the Trust’s eight-year working relationship with PriceWaterhouseCoopers and the Wine Industry Transformation Charter.

The Committee was also concerned about a National Agricultural Marketing Council report that showed the Trust’s assets to be more than the Trust’s Annual Report showed. The Trust explained that the difference in amounts was because the Trust had impaired its empowerment loans. This was explained in the notes to the financial statements.

Road Accident Fund hearing
Members expressed concern that the Road Accident Fund had been insolvent for four years. The Fund explained that the root reason was that the current funding model did not allow them to see the relationship between revenue and expenditure. A new Revenue Requirement Model was being established that was used by regulators and would help the fund to see how much revenue was needed to cover expenditure.

Members discussed difficulties experienced in the claims management processes, the lack of approved policies and procedures, employee training, weaknesses in the information system, not attending to claims on time and default judgements, prevention of fraud and the bonus policy.

The Road Accident Fund explained that many of the problems that were encountered would be solved, as there were new systems and policies that would be implemented. They also explained that more funding was needed in order for the Fund to be able to clear their backlog in claims payments as well as their deficit.      

National Treasury stated that way to solve the liquidity issue was to get the Road Accident Fund Amendment Act promulgated. The RAF said the anticipated date for the implementation was 1 August 2008. The Act would cap the RAF’s expenses. However, it would not address the existing cash flow problem or the RAF’s debt. The RAF believed that there was a deficit in the RAF because they had received too little money in the past to pay claimants. The deficit would increase every year if the RAF did not receive more funding.

The CEO’s bonus of 100% of salary at R120 million per year was also highlighted. 

Meeting report

Opening Remarks
The Chairperson noted that this was the first time since the formation of the South African Wine Industry Trust, that they would appear before Parliament. He stated that he was happy to have this exchange of information. The National Agricultural Marketing Council (NAMC) had commented on SAWIT in their Annual Report, therefore it was important that SAWIT reported on its state of affairs. The Committee also wanted the opportunity to separate rumours from fact about SAWIT.  
  
South African Wine Industry Trust Hearing
The Chairperson informed the Standing Committee on Public Accounts (SCOPA) that the financial statements that they were assessing was the abridged version of the full audited financial statements. This deprived the Committee of the opportunity to assess the report properly and to have a proper opinion on what the full financial report contained. 

Ms Thandi Ndlovu, Chairperson of SAWIT, stated that the Trust’s inability to respond earlier to the request to appear before the Committee was motivated by the fact that they provided the Minister of Agriculture and Land Affairs with feedback on the institution’s state of affairs on a continual basis. Therefore, when SAWIT received the SCOPA’s request to appear, they immediately presented this to the Minister’s Office and they were reminded by the Minister’s Office that the Minister was responsible for the oversight of SAWIT and the Minister had the responsibility of reporting to the Committees of Parliament. SAWIT decided to appear before Parliament when the institution was reminded by the Committee of provisions and rules in the Constitution that said that they had to appear before the Committee.

The Chair asked if it was the summons that the Committee had sent to SAWIT that changed their minds about appearing before Parliament.

Ms Ndlovu stated that its legal team had advised SAWIT that the institution needed to respond positively to the summons.

The Chair noted that SAWIT had received a legal opinion the previous year that had pointed them in a different direction.

Ms Ndlovu explained that at that time, the lawyers told them that SAWIT did not have any legal obligation to report directly to Parliament; they had to report to the Minister responsible for oversight over SAWIT’s actions. Therefore they needed to ask the Minister to make the submission to Parliament.

The Chairperson stated that the basic summary was that the Minister prevented SAWIT from reporting to Parliament.

Ms Ndlovu stated that this was incorrect. SAWIT was an independent trust and that was why they sought an opinion from their lawyers about the Committee’s request to appear before Parliament.

The Chair stated that he was more interested in the outcome of the opinion. He wondered how the fact that the Committee had the right to summons anyone to appear before the Committee had escaped SAWIT’s lawyers.

Ms Ndlovu stated that she did not know. She took the legal advice as the correct advice.

The Chairperson informed SAWIT that the Committee had read a few stories about the institution that were not very flattering. He asked to what extent the stories were factual; to what extent they were motivated by malice and to what extent the stories contained a misrepresentation of facts.

Ms Ndlovu told Members that the reports in the media were based on a misrepresentation of facts. This misrepresentation was based on the fact that, since its inception, the Trust was an area of contestation between various players who had an interest in the wine industry. Therefore the Trust was not able to satisfy fully the expectations of various players in the industry. Reports in the media were a gross misrepresentation of what the Trust stood for and what it did.

The Chair asked SAWIT why they did not sue anybody for misrepresenting them.

Ms Ndlovu stated that SAWIT was a custodian of money that had to go to causes; they could not spend all of the funds on receiving legal advice. The media reports were analysed and it was felt that the best way to dispel rumours and myths about SAWIT was to continue the Trust’s work.

The Chairperson noted that at some point, the Trust threatened to sue one of the SCOPA Members. He wondered if this was just a threat.

Ms Ndlovu stated that it was. She explained that SAWIT felt that Members of Parliament had the responsibility of approaching the Trust if there were any questions of clarity. Members were to approach the Trust in a structured environment to seek those answers.

The Chair explained that this was why they had requested SAWIT to appear before the Committee previously; Members wanted to hold a discussion in a structured environment. This contradicted what Ms Ndlovu was saying.

Ms Ndlovu explained that SAWIT felt that the Member concerned should have approached SAWIT and the trustees to seek clarity on the issues that were being raised. The intention was never to sue anybody.

The Chair noted that in the 2006 Annual Report, the Auditor expressed an opinion on SAWIT’s financial viability. It was unfortunate that he did not have the 2007 Annual Report. He asked if SAWIT was satisfied that the entity still had “sound footing” and was able to meet its obligations and realise its mandate.

Mr Charles Erasmus, the Chief Executive Officer for SAWIT, stated that in 2006 the trustees had to strategically consider the future of the Trust and the available resources in the Trust that would allow it to continue its work in the future. In 1998 a bilateral agreement was entered in to between KWV and the government, which gave the Trust a ten-year term to deliver on the mandate. Two of the key objectives in the mandate were social development and support to key functions of the industry with research and development. The term would end in February 2009. In 2006, the Trust reviewed how much money it had left, the mandate in terms of that original agreement and the period remaining to the Trust. Two years prior to this review, the Trust had entered in to an empowerment transaction with KWV in which they dispersed about R145 million. In 2006, the Trust was left with just enough financial resources to conclude the term of the original bilateral agreement. However, in discussions with the Ministry of Agriculture in 2006 it showed that the Trust still had much to accomplish before the end of its term. They had only achieved a fraction of their mandate, which was to transform the wine industry. The expectation was that SAWIT would have made significant inroads in the industry’s transformation during the Trust’s ten-year period. In essence, Mr Erasmus was saying that the KWV agreement stood out as an important achievement for SAWIT.

The Chairperson asked where SAWIT stood in relation to their mandate and the agreement with KWV.

Mr Erasmus explained that after the 2006 review, SAWIT made the decision to refinance and to recapitalise the existing and remaining investment of the Trust to have a life beyond February 2009. The only investment that they had made was the KWV empowerment transaction. Since 2006, SAWIT was engaged in a process to find a way to unlock this investment so that the Trust could have a life beyond February 2009 and so it could fulfil its mandate.

The Chair asked if the Trust had been successful.

Ms Ndlovu stated that the Trust had been successful to some extent. They hoped, in the next few weeks, to enter in to a strategic partnership with an entity that would refinance their loans. Apart from the KWV investment, there were other investments that were made, including investments in emerging wine businesses owned by black people. The trustees’ felt that a vehicle was needed that would continue to sustain those businesses with funding and mentorships.

The Chairperson noted that the Committee was talking to an entity that was just about to fold.

Ms Ndlovu stated that the entity was not about to fold. She was explaining that the Trust had spent the first four or five years of its lifespan dealing with structural issues. The mandate could not be executed because of the Trust’s structure.

The Chairperson asked what the problem was with the structure.

Ms Ndlovu stated that there was a Trust with six trustees appointed by KWV and seven trustees appointed by the Minister. The Trusty could not function for the first few years after they were established because there was no coherent vision amongst trustees. Each “block” of trustees represented their own constituency and therefore the decision-making process around the strategy and vision made executing the mandate a problem. She wanted the Members to take note of the fact that the current trustees felt that they had managed to put together a coherent vision in the last four to five years. There was a common mandate, vision and programme. The trustees felt that the next few years was when the implementation of programmes and projects would really require a sustained entity. The Trust was asking Parliament for a vehicle to be created that would sustain the work that was started.

The Chairperson wanted to know what would happen if the funding was not forthcoming.

Mr Mike Ratcliffe, Deputy Chairperson for SAWIT, explained that while SAWIT was not an entity that was about to fold, it was an entity that was approaching the end of its lifespan and funding. He believed that there were considerable number of projects that were started that SAWIT could contribute to. However, the reality was that there would not be funding to take the Trust past February 2009 and the bilateral agreement. SAWIT felt that there was still a lot of work to be done but without recapitalisation, an injection of funds, a new mandate from government or support from various government departments there was no point in continuing.    

The Chairperson stated that there were always initiatives that the entity could engage in to acquire funding; however, the reality was that the current mandate would expire in February 2009. The current mandate had a funding model that would not be continued. New sources of funding had to be sought. This is where government came in.

Mr T Mofokeng (ANC) wondered why expenditure for establishing farmers, project support and community work were decreasing. He also asked if SAWIT had stopped all travel and accommodation fees for trustees in 2007 in order to fund a particular programme.

Mr Sakkie van der Vyfer, Financial Adviser for the Trust, stated that overseas travel was abandoned. The Trust also ruled that company directors would attend Trust meetings, therefore there was no double travelling fees. The fees costs for travelling and accommodation were noted as part of attending meetings. The Trust did not utilise the funds specifically on projects; it was just a general saving made as an effort not to spend so much money.

Mr Mofokeng thought that the aim of the Trust was to try to help less fortunate people and empower them. It was therefore strange that most of SAWIT’s directors were from wealthy areas.

Ms Ndlovu stated that Mr Mofokeng was referring to the old Trust. The current composition of the Trust reflected what Mr Mofokeng wanted - that directors were helping the less fortunate. The current composition of the Trust showed that trustees came from the farm workers community and from wine makers. Trustees such as Prof Kader Asmal had expertise in governance and others had expertise in trade unions.

Mr P Gerber (ANC) asked how many times the Minister of Agriculture had stopped SAWIT from coming before Parliament.

Ms Ndlovu answered that the Minister had never stopped SAWIT from appearing before SCOPA. SAWIT had interacted with the Minister’s Office after they had received the invitation to appear before the Committee. The Minister’s Office then reminded them that the Minister was responsible for giving the reports to the Committee. This was why SAWIT had to seek an independent legal opinion as to what the Trust should do.

In reply to Mr Gerber asked what the costs of the legal opinion amounted to, Mr van der Vyfer stated that an opinion was round about R10 000.

Mr Gerber discussed letters of correspondence between Mr Erasmus and the Chair of the Committee. He stated Mr Erasmus had written a letter to the Chair on 20 November 2007. The media had capitalised on the SAWIT-SCOPA relationship and the media created a controversy that did not exist. According to the letter, both SAWIT and SCOPA had been quoted out of context to fuel unnecessary miscommunication and controversy. Mr Erasmus had accepted the explanation that none of the SCOPA Members deliberately intended to cause malicious harm to SAWIT or to make malicious statements to the media. However, on 28 February 2008, another letter was written to Mr Gerber saying that SAWIT would take legal action if the Member did not change his statements by 5 March. He wanted to know what happened between November and February that changed Mr Erasmus’ mind about the situation.

Mr Erasmus stated that in addition to the correspondence between SAWIT and SCOPA, there was also correspondence between a member of SAWIT, Prof Kader Asmal, and a Member of the Committee. The latter letter that was referred to was in relation to the correspondence between Prof Asmal and the Member. Since writing the letter on 28 February, the trustees felt that the ongoing correspondence between SAWIT and SCOPA did not help anyone.

Mr Gerber commented that one of the most important rules when running an entity was to establish all the facts. He stated that accusations were made on comments that were made. A hearing was held with the National Agricultural Marketing Council (NAMC). The 2007 NAMC Annual Report showed that there was R170 million in assets within SAWIT. Yet, SAWIT’s 2006/07 Annual Report showed R16 million as assets. He wanted to know why there was a discrepancy. Mr Gerber also defended himself saying that he had not made any accusations about SAWIT. As proof, the meetings were all on DVD. SAWIT had to establish the facts first.

Mr M Stephens (DA) wanted to know why there was resistance to appearing before Parliament. After receiving the request from the Committee, SAWIT asked for a legal opinion rather than meeting with the Committee. This gave the impression that SAWIT had something to hide.

Ms Ndlovu stated that SAWIT was not scared of anything and that they had nothing to hide. The fact of the matter was that the people who served on the Trust wondered why they were supposed to appear before Parliament, as they were obligated to report to the Minister of Agriculture. They then sought a legal opinion as to whether they were forced to appear before the Committee. SAWIT did not have any intention of hiding anything.

Mr Stephens stated that this was unacceptable, as he did not understand how SAWIT could ever have thought that they did not have to appear before the Committee. He wondered if SAWIT came before the Committee because they were forced by law to come.

Ms Ndlovu stated that it was not about doing something right or wrong; it was simply about process and the advice of the Minister.

Mr Stephens wondered if SAWIT had ever taken the time to see how Parliament operated. Each and every department reported to their Minister as well as to Parliament directly. He asked why SAWIT chose to ignore Parliament after the request was sent to them.

Ms Ndlovu explained that SAWIT did not ignore Parliament. SAWIT was of the opinion that they reported to their Minister who then reported to Parliament. She reminded Members that the Trust was an independent body that reported to Minister, as the Minister reported to Parliament. SAWIT was in no way undermining Parliament; they thought they were following process.

Mr V Smith (ANC) stated that the message that the Committee wanted to send to SAWIT was that Members were not impressed with their attitude.

Mr Gerber noted that the NAMC’s Annual Report stated that SAWIT had R170 million in assets, yet the SAWIT Annual Report showed that they had R16 million in assets. He wanted to know where NAMC would get that figure and if there was miscommunication between the two entities.

Mr van der Vyfer asked Members to look at the audited 2006 financials and the draft financial statements of 2007. Members would see that there was a figure of empowerment loans being impaired to zero. The reason for the impairment was the audit requirements. The auditors wanted certainty on the recoverability of those loans. SAWIT then settled for a total impairment of the empowerment loans. There was a note in the financial statements that explained the impairment and it also represented the difference between the net asset value of SAWIT’s financials and the net asset value in the NAMC report.      

The Chairperson asked if this explanation was given to the NAMC. If members of the public assessed the report, the figure in the report would have sent out a message that was undesirable.

Mr van der Vyfer stated that it was explained to the NAMC and the situation was also clearly described in the notes in the financial statements.

The Chair stated that he understood, however there was still a clear disjuncture between the reports. He asked if SAWIT ever sought an explanation for why the figure was kept at R170 million, as it sent out the wrong message.

Mr van der Vyfer answered that he had not seen the NAMC report, however, the facts regarding the amount could be found in SAWIT’s financials.

Mr Gerber noted that the NAMC had budgeted R60 000 for an investigation in to SAWIT’s financials. A report was given to the Minister on 8 March 2007 and the Committee had only received the report the previous day. The NAMC investigated whether the funds received by SAWIT were appropriately spent, whether funds were used in accordance with the legal framework, the sustainability of the SAWIT business model, and the legality and equity aspects of utilising funds. This report was received without recommendations or annexures outlining every cent that SAWIT has given to non government organisations (NGOs). The Committee wanted this information. The Council found that there were questions regarding the broadness of present trustees and a lack of focus by trustees. There seemed to have been a lack of forward planning, of empowerment processes and how funds were allocated. There was a lack of decision structures and judicious discipline and monitoring of spending. Spending was also not in line with the Trust’s Deed. The NAMC decided to have a forensic audit because of time constraints and because no evidence was found of any irregularities. This was an issue that SCOPA needed to deal with once the resolution on SAWIT was dealt with.

Ms Ndlovu stated that SAWIT had not received the full NAMC report with recommendations either. They were also in a position where they did not know what was recommended in the report.

The Chair asked why SAWIT did not have the report with recommendations if it was written about them.

Mr Erasmus stated that SAWIT had the same official report that the Committee received, which was without any recommendations. He also said that SAWIT had made suggestions based on some comments made in the report, where they felt that the comments were not clear enough. SAWIT also requested to see the recommendations so that they could engage with the NAMC about it.  

The Chair stated that the NAMC report had come out more than a year ago, yet they were only requesting to see the recommendations now. He asked why SAWIT had not gotten the recommendations sooner.

Ms Ndlovu stated that there had not been any response to SAWIT’s formal request as yet.

Mr Smith wanted to know who commissioned the NAMC report, because if they did not act on what was contained in the report then it could be considered fruitless expenditure. He asked if SAWIT was advised to change any of its work methods.

Ms Ndlovu answered that the Minister’s Office had invited SAWIT to interact with the Minister and her officials and to discuss a way forward for SAWIT. SAWIT was informed that part of the recommendations stated that there was to be a restructuring of the Trust and greater interaction with government in terms of assisting the Trust and recapitalising the finance. There had been ongoing discussions around what the NAMC report recommended and what the Minister thought was the way forward. 

Mr Gerber noted that SAWIT has used PriceWaterhouseCoopers (PWC) as its auditor for eight years, yet the auditors refused to attend the meeting. It was worrying that PWC audit fees were very high and they performed many other services for SAWIT. He wanted to know what other services PWC did for SAWIT.

Mr Erasmus stated that PWC performed three functions for SAWIT: the auditing function, they handled tax exemptions and they managed the SAWIT wage bill. Since the new trustees took over in 2005, SAWIT took over most of the in-house financial responsibilities.

Mr Smith wondered if SAWIT and PWC renewed their contract every year and if it was desirable to have the same auditor for eight years.

Mr Erasmus stated that the entity could have the same auditor for eight years, however they had also used other support when it was required. Trustees considered the renewal of the contract annually.

Mr H Bekker (IFP) asked if “work impairment” was the same as doubtful debts, provision for bad debts and the possibility that the total amount would be written off.

Mr van der Vyfer stated that it was the same.

Mr Gerber noted that the new Trust Deed referred to the Minister of Agriculture and Land Affairs thirty-eight times. The Minister had the right to table SAWIT’s reports in Parliament. No SAWIT reports had been tabled in the past eight years. This was a problem.

Mr Gerber commented that the Wine Industry Transformation Charter was financed by SAWIT. He wanted to know who drafted it on behalf of the Trust.

Mr Erasmus stated that the Charter took close to twelve months to draft. SAWIT financed the process leading up to the drafting of the document. This included the broad-based consultation with all the stakeholders within the wine industry. It was a difficult process to ensure sufficient buy-in from all the stakeholders so that they could have the document in the format in which it was currently. The Wine Council produced the document in its final format last year. The Wine Council had the primary responsibility to develop the document and before them it was the South African Wine and Brandy Company. These were the primary beneficiaries that received money from SAWIT for drafting the Charter.

Mr Gerber stated that in the 2004 Annual Report there was a BEE conference that was sponsored for R1.139 million. He asked who organised the conference.

Ms Ndlovu stated that at that point they were working very closely with the Minister of Agriculture and Land Affairs. The idea was to get all the stakeholders across the industry to participate in a series of engagements and workshops. Therefore it was not just a once-off cost; it was a series of meetings.

Mr Gerber understood that the Minister was in charge of the engagement.

Ms Ndlovu stated that she did not say that. She said that there were a series of engagements with stakeholders in preparation for the conference that aimed to bring all the stakeholders together. The money was not allocated to the Minister to host the conference; it was allocated to the process of getting the industry together.

Mr Gerber asked for clarity on the bursary that was awarded to the previous CEO.

Mr Erasmus stated that the bursary was for him to study; however, it was before his time so he was not sure.

Mr Gerber addressed the trustees and directors remuneration. He asked for an explanation as to why the remuneration increased from R141 000 in 2000 to R1.1 million in 2006. Also, staff costs increased from R214 000 in 2000 to R1.6 million in 2007. He asked SAWIT to explain increases in trustees remuneration, staff costs, consultancy costs and travelling fees.

Mr Erasmus stated that the first Trust Deed that was amended in 2005 restricted spending for operational expenditure to 5% of SAWIT’s annual income. The amended Trust Deed allowed trustees to apply their minds on the basis of applications that were received from communities.

Ms Ndlovu explained that as the Trust grew there was a need to engage activities within and outside of South Africa. SAWIT had a foundation that was based in the United States that supported emerging farm workers and winemakers in the country. Therefore, overseas travel increased.

Mr Gerber noted that the 2001, 2002 and 2003 financial reports were all signed by the previous Chairperson of SAWIT, Mr Pieterse, and PWC on 1 September 2003. He asked if this meant that they did not have an annual report for those three years. He also wanted to know why they did not have any financial statements for 2001, 2002 and 2003.

Ms Ndlovu stated that the first few years of the Trust’s lifespan were focused on restructuring the Trust to enable trustees to do the work that they were doing today. The fact that they had only consolidated their financials in 2003 was testimony that the body of trustees at that time had come in to an organ that was not functioning properly.

Mr G Koornhof (ANC) asked if there were progress reports on projects that dealt with small emerging farmers that were funded by SAWIT. He also wanted SAWIT to explain the increase in entertainment costs since 2000.

Mr Erasmus referred to the first phase of an independent evaluation of all the projects that SAWIT funded. This report was submitted to the Committee. In terms of entertainment costs, SAWIT would provide Members with a detailed written response. He explained that entertainment did not necessarily refer only to trustees gatherings and strategic workshops; it also referred to stakeholder liaison and stakeholder engagements.   

Mr Bekker asked if SAWIT was going to receive better financing than they had before or if financing would stay the same.

Ms Ndlovu stated that the intention was always to get better deals. They would only entertain better proposals. Proposals from interested bidders were subject to the Trust being satisfied that the proposals were better than the previous ones.

Mr Stephens stated that the Trust had a social and public responsibility to do a particular job and to report on it properly.

Road Accident Fund (RAF) Hearing
The Chairperson informed the Road Accident Fund that the Committee was unhappy that they could not engage two weeks before at the agreed upon time.

Mr Stephens was concerned that the RAF had been classed as insolvent for the past four years. According to the Auditor-General (AG), this was because the RAF’s funding from the fuel levy was not sufficient to meet the liabilities of the Fund. He asked what the RAF was doing about this.

Mr Veli Mahlangu, Acting Chairperson for RAF, stated that the basic problem was that the RAF’s business model was not worked out “scientifically”. There was no relationship between the entity’s expenditure and its income. The RAF’s income came from the fuel levy, which they did not have any control over. From the outset, the RAF indicated that a new business model was needed that would address this problem. The RAF was in the process of creating a new model.

Mr Stephens asked the RAF for more information on the new business model that they wanted to implement.

Mr Mahlangu stated that the RAF was canvassing a buy-in from all the stakeholders so that they could have a new model.

Mr Joseph Modise, CEO for RAF, informed the Committee that the RAF operated as a state-controlled monopoly in the country when it came to personal injury claims. One of the things that was lacking in the RAF was that the entity never had a regulator. The model that would be used would be a Revenue Requirement Model that was used by regulators. The model would look at the business part of the road accident fund, accident claims, economic drivers and cost structures. The model would then tell the RAF how much revenue they should have to cover expenses; it would tell the RAF how much of the fuel levy the South African public should be paying for the RAF to be sustainable.

Mr Stephens asked the RAF to remind the Committee how much of the fuel levy did the RAF receive at the moment. 

Mr Modise replied that it was 46.5 cents.

Mr Stephens asked if this figure was dependent on the fuel price.

Mr Modise stated that it was not a percentage of the fuel price. It was a fixed amount.

Mr Stephens asked if the RAF ever considered a model where revenue was not collected from the fuel levy.

Mr Modise stated that the benefit to having a fuel levy system was that one could ensure that there was compliance. The only downside was the way that the fuel levy was structured. The limitation that the RAF currently had was that the entity’s entire economic model stated in legislation that the RAF could only receive income from one source, which was the fuel levy. The RAF could not even design products that would allow the institution to receive other sources of income.

Mr Stephens agreed that a revision of the law was needed. His feeling was that there was less fairness in the fuel levy system than in other systems because the fuel levy system did not discriminate between the different classes of motor vehicles. There should be differentiation between private motor cars and those used for commercial purposes.

Mr Modise stated that if the legislation was not as prescriptive as it was then the RAF would have implemented other revenue systems.

Mr Stephens suggested that the RAF assess the legislation and put forward a comprehensive change in legislation so that it was fair, equitable and sustainable.

Mr Stephens noted that there were difficulties in the claims management process. There seemed to be problems with timelines, completeness of information and duplicate payments that were made that were not detected by the system. He asked how the RAF was addressing this matter.

Mr Modise stated that the RAF was addressing the issues in a number of ways. A new management system had been introduced and the system was being modernised.

Mr Stephens stated that according to the AG, the root cause of the internal control problems was that there were no approved policy implemented that would ensure that procedures were in place.

Mr Modise explained that the board had adopted all the policies that were needed to run the RAF. The RAF was in the process of implementing an Enterprise Planning Solution. The new claims management system was also being rolled out which would solve the problem of duplicate payments. Disciplinary action was taken against staff that were not implementing policies that needed to be implemented.

Ms L Mabe (ANC) asked how many disciplinary cases there were and to what extent they were carried out.

Mr Modise replied that the RAF could supply the Committee with a written response detailing the exact number of cases.

Mr Stephens commented that disciplinary action could not be taken against an employee that did not do the job correctly if they were not trained to do the work. He asked what the RAF did to ensure that people were trained properly before they were put into their positions. There needed to be a training model for every position so people knew what to do to avoid disciplinary action.

Mr Modise stated that there was job-specific training. Training started with induction programmes. Manuals were given to staff at their induction and extra training was always given when there was a rollout of new systems.

Mr Stephens stated that the AG also reported weaknesses related to their information systems. Management could not be carried out during the audit because the RAF management had indicated that there were no significant changes made to the information and technology environment and that the findings in the 2005/06 report were still applicable. He asked why nothing was done for such a long time.

Mr Modise stated that the RAF was going through a great change. The RAF was rolling out new systems and processes. Training and implementation of new systems resulted in there being delays in changes being seen. 

In reply to the Chair asking if the Head of Information and Communication Technology (ICT) position had been filled, Mr Modise said that it was.

Mr Stephens said that the AG had said that action was not taken because the Head of ICT position was vacant.

Mr Modise stated that he always had a head of ICT. There was never a time when there was not somebody in the Head of ICT position. He disagreed with the AG’s statement, as there was always somebody who performed that function.

Mr Stephens asked if Mr Modise was saying that the AG had misinformed Parliament by saying that the RAF’s ICT position was vacant when it was not.

Mr Modise stated that he was saying that there was always a Head of ICT in place. As long as he was CEO of the RAF there had always been somebody in that position, even if that person was just Acting Head of ICT.

Mr Stephens addressed material non-compliance with legislation. He was referring particularly to the 120 days that the RAF had to respond to claims. Apparently there were often situations when the RAF did not meet this objective.

Mr Modise replied that there was a backlog of unprocessed claims. The RAF was tackling the issue at the moment and the backlog has decreased from 500 000 claims to 300 000 claims. The backlog could have been reduced more, had there been more funding. The legislation also made it difficult to process claims immediately.

Mr Stephens noted that when the RAF refused a claim and they were summoned, then there was a certain period of time in which the RAF had to respond. The AG said that this was not always done.

Mr Modise replied that this was the exception rather than the rule.

Mr Stephens asked if there were default judgements against the RAF.

Mr Modise stated that there were.

Mr Stephens commented that this resulted in wasteful costs.

Mr Modise assured the Committee that the RAF was improving its systems and policies so that the situation could be taken care of.

Mr Stephens asked what the RAF was doing about default judgements.

Mr Modise answered that there were processes in place to stop them. There was a specialist division in place to verify if claims were valid. If the RAF had more funding, then they would have had a smaller claims backlog and fewer default cases.

Mr Stephens asked if there were procedures in place to contain fraud.

Mr Modise replied that there were two kinds of fraud: systemic fraud and opportunistic fraud. There were new systems in place that would prevent opportunistic fraud from happening. Systemic fraud occurred when people claimed and they were not really injured. These kinds of claims occurred because of loopholes in the legislation. Medics found it difficult to prove if the injuries were real or not and therefore the RAF had to pay the claimant.

Mr Smith commented that the RAF had been “pleading poverty” all morning, yet the entity had allocated R35 million for bonuses to be paid the following year. He also wondered why the CEO had received a 153% bonus.

Mr Mahlangu stated that the R35 million bonus was a provision and that the actual bonus payment was R20 million. Despite the outcry for funding, there was work that was done. He thought the amount shown in the report for the bonus paid to the CEO in the report was a mistake. His contract stated that he could be paid up to 100% of his salary as a bonus.

Mr Smith stated that the report showed that the CEO received a 153% bonus. If this was a printing error then the Committee expected the RAF to correct the mistake before it went to print again.

Mr Modise replied that the Total Cost of Employment (TEC) contained all the components of the salary such as allowances. There were no miscalculations, it just seemed like a mistake because of the way the figure was presented.

Mr Smith stated that his point was that there were journalists at the meeting that would see the amount. The public could think that there were civil servants that were receiving 153% bonuses.

Mr Casper Greeff, Director for the RAF, stated that the CEO’s bonus was 100% of his total employment package.

Mr Smith asked for a breakdown of the R20 million performance bonus.

The Chairperson stated that the RAF must submit the breakdown in writing.

Mr Smith stated that the Committee also wanted the bonus policy in writing. He noted that there were claims that were requested but not yet paid to the amount of R48 million. It was difficult to believe that there was R48 million in claims that were not paid at the year-end. He asked how old the claims were.

Mr Modise replied that there was always year-end cut off processes. The RAF paid almost R700 million to claimants every month.

Mr Smith asked what the RAF’s leave policy was. The entity had R16 million in accrued leave. He stated that the general trend now was for people to take their leave or lose it. It seemed that the RAF was going in the wrong direction.

Mr Modise replied that the RAF used a standard leave policy that said that if employees did not use their leave, then they would lose it.

Mr Smith stated that the RAF needed to work the leave provision down. He also noted that the RAF was giving away money that was not budgeted for. He asked the Treasury to comment on the deficit that the RAF was experiencing.

A representative of the National Treasury stated that it was important for the Committee to note that internationally, fault based systems were expensive and most countries found it difficult to manage income and expenditure. She thought that the Committee focused too much attention on income when they needed to understand the tools in the government’s hands to address the expenditure side. The way to solve the liquidity issue was to get the Road Accident Fund Amendment Act promulgated.

A RAF board member commented that they had a finalised the Act. However, the finalised version could only be implemented when the regulations were consulted and approved by the Minister. The anticipated date for the implementation was 1 August 2008. The Act would cap the RAF’s expenses. However, it would not address the existing cash flow problem or the RAF’s debt. A new funding model would address its future dispensation, debt and the RAF’s cash flow problem. The RAF was going to implement the Act with the necessary financial control mechanisms.

Mr Greeff stated that there was a deficit in the RAF because they had received too little money in the past to pay claimants. It was his opinion that the deficit would increase every year if the RAF did not receive more funding.  

The meeting was adjourned. 

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