Follow-up: RAF non-tabling of annual report & SIU investigations

Meeting report

The Chairperson welcomed everyone present and announced that the SCOPA was currently working on its programme piecemeal, and would be updated as time passed. He further announced that the Committee had received an apology from the Chief Governance Officer on the findings of the heads of arguments that the Road Accident Fund had filed last year.

They had met on 29 November and 6 December 2023 to discuss the public entity’s litigation against the Auditor-General of South Africa (AGSA) on the non-tabling of the 2021/22 annual report, governance issues and the Special Investigating Unit (SIU) investigations which were currently underway. Following these meetings, the Committee had resolved, at the request of the Road Accident Fund (RAF) and the executive authority, to grant the RAF time to finalise all outstanding matters due to the technical nature of the issues and for supporting documents and statements to be submitted. There was an indication that the RAF had come to some sort of direction on the matter towards the end of January. Hence, the first meeting would deal with this matter, which was on the update on the status of the litigation and the tabling of the 2021/22 annual report.

RAF Chairperson's explanation for board decision

Ms Zanele Francois, Chairperson of the RAF Board, commenced with an apology for the Chief Executive’s absence, as he was on leave. She confirmed that the RAF had requested some time for the new board to consider all the available information relating to the litigation on the change of the accounting policy. The board had met towards the end of December last year to consider all the available information and whether it needed to review the previous board’s decision.

The new board had found no compelling reasons to change the previous board’s decision for the following reasons:

• They believed the decision was in the best interest of the RAF and the users of its financial statements, given that the matter was of an accounting nature. The change seeks to correct the historical error of the miscalculation of the RAF claims liability, based on an accounting standard meant for insurance companies, and the RAF was not an insurance company but a social benefit fund.
• They also believed this error had led to a fundamental misrepresentation of the RAF’s financial statements. The effect of that accounting treatment over the years had ensured that the liabilities of the Fund were overstated, thereby fundamentally misrepresenting the financial position and statements of the RAF.
• They also considered that the International Financial Reporting Standard (IFRS) 4, which was a standard that the RAF was expected to use, was an international accounting standard similar to IFRS 42, which was currently in question.
• The Generally Recognised Accounting Practice (GRAP) reporting framework, which was expected to be applied by all government departments and entities, allowed for the use of an international standard in the absence of a relevant standard. The reporting framework also provided that management should use its judgment in developing and applying an accounting policy that results in reliable financial statements.
• The board had to satisfy itself that the decision complied with the prescribed accounting framework within government.
• Finally, the board had satisfied itself that the RAF management had consulted extensively with the Office of the AGSA, the Accountant General and the Accounting Standards Board (ASB), at the time, to attempt to comply with GRAP 3 and ensure that professional advice on the matter was sought. However, due to the disputes, the discussions continued, and the mediation process started. Unfortunately, the Auditor General had walked out of that mediation process and the RAF had been left with no option but to go to the courts, as the AG claimed that she could not change her decision -- only a court could do so.
• In January, the board continued to reach out to the ASB and the Office of the Accountant General (OAG) to set up a technical team to find amicable solutions, even though the matter was already in court. The RAF had met with the AGSA ground team, who were willing in principle to be part of the technical team. Unfortunately, the ASB declined to participate in that technical team, so the alternative dispute resolution (ADR) process fell flat.
• In conclusion, the matter was in court, and the proceedings commenced on 30 and 31 January and 1 February. The matter was now sub judice, and she could not comment further on the matter.

It was in the best interest of the organisation to fix the errors of the past. This matter was bigger than the board or the RAF, and it would assist government departments and entities who could not find appropriate standards to apply in certain conditions.

She also confirmed that the new board had been gazetted, and the finalisation of the 2021/22 annual report was in the capable hands of the Minister, as she was currently seeking legal advice on it.

Regarding the “mistake” by the Chief Governance Officer on her incorrect statement around the issue of filing heads of arguments by the Chief Executive on 30 October 2023, she had submitted an apology to the Committee for her incorrect statement.

The Committee may have also received a report on the security vetting of the RAF executives. Those who had not submitted at the time, had done so to the State Security Agency (SSA).

Lastly, regarding the non-payment of the SIU invoices, the RAF met with the SIU on 2 February with the SIU Head, Advocate Mothibi, and his team. The meeting had been cordial, and the objective had been to find consensus and clear all the issues around communication between the two entities. They had further resolved that the SIU would pay all the recovered funds, and that it would do so urgently. The RAF had also paid the full amount that was due to the SIU of roughly around R5.5 million. It was now awaiting the SIU to process payments for the outstanding amount of R21 million that had been recovered on the RAF’s behalf. The meeting was generally peaceful and clear on the way forward, as the two entities were still working together on ongoing outstanding investigations.

The Chairperson welcomed the remarks, and commented that the sub judice rule did not apply to Parliament as an arm of the state. Secondly, it had been a categoric statement that the AG had “walked out” of a meeting, which needed clarification. Thirdly, the ASB had noted that participation by a technical team in such a process would impair its independence as it was not involved in developing any organisation’s accounting policies, and the RAF was not an exception.

AGSA's response

An AGSA representative confirmed that the RAF informed it of its intention to use the IFRS 42 accounting policy. However, the AGSA disagreed with the use of IFRS 42 and recommended continuing with the existing accounting policy based on IFRS 4, which was also supported by the ASB.

Regarding the ADR process, this took place during the 2021 audit cycle. The AGSA had allowed that process to continue, as the RAF had approached the ASB and the OAG on the matter, but it had continued until 4 December 2021. After this, the AGSA obtained a view and sought to conclude the audit, which had been unduly delayed. The RAF did not expect the views of the OAG at the time, and the AGSA had no legal basis to delay the finalisation of the audit, hence it was concluded, and the RAF had resolved to take the matter to court.

There was no ground for mediation of an audit opinion in terms of the AGSA – certain criteria must be met before an audit report could be reopened or withdrawn. In the RAF's case, the AGSA had applied its criteria, but they were not met, which was communicated in the meeting between the AG and the board chairperson at the time. Mediation on an audit report was not allowed if the criteria were not met. The feedback from the AG was clear that if the RAF proceeded with the litigation, the AGSA was duty-bound to defend its position on the matter. The AGSA had not abandoned the ADR process and it was allowed to happen, hence the involvement of the ASB and the OAG.

As for meeting with the leadership, the AGSA had met with the chairperson of the board and the full audit committee on 4 December 2023, where the basis of the dispute was explained at great length, and there was a suggestion for a technical team, but this was something that the AGSA was not willing to be part of. The AGSA could not be involved in accounting matters, because it must audit them, so it could not be part of any technical team that determined the appropriateness of the standard being used. The ASB was the appropriate body to prescribe the standards that should be applied. The AGSA would audit based on what was approved, and if this matter was in litigation, they could not discuss it further.

The head of AGSA's business unit then updated Members on the status of the court case, and said that the AGSA had filed its heads of arguments on 13 December 2023. The hearing had taken place before a bench of three judges over three days, from 31 January to 1 February. All the parties – the ASB, AGSA and RAF -- had presented their arguments. The hearing was concluded on 1 February.

Discussion

Mr S Somyo (ANC) welcomed the report from the chairperson of the RAF, the acceptance of the correspondence from the Chief Governance Officer, and the fact that the matter was on the verge of finality. Members had advised against going to court due to the costs involved and matters of integrity. The ASB was very clear on its role and how it viewed the entire process. The RAF may be eager to resolve issues, but this was an incorrect approach.

He had reviewed the list of the board members to assess the capacity of the current board, and had found that it had chartered accountants who ought to know how matters of accounting needed to be dealt with. If the RAF failed to make its case in court, the board members and executives who made such a decision must be held personally responsible.

The current board claimed there was no compelling reason to reverse the previous board’s decision, and they should be held personally liable for this if the court judgment went against them.

Mr R Lees (DA) said that the RAF was bankrupt. It was in a chaotic mess and people had not received what was due to them for many years, yet the organisation was fussing about an accounting standard. Sadly, the chairperson of the board had previously indicated that these were errors of the past, yet the matter was still being pursued. The question was, why were they doing this? The RAF had a huge mess to fix, but it was not being fixed. Why were the employees terrified? There was nothing new about the state of the RAF. Members received emails regularly from citizens begging for help – he had also received one yesterday -- yet here they were, talking about an accounting standard.

He asked the RAF, AGSA and the ASB to provide a full costing of this dispute, including the court proceedings. Was the new board also intimidated? This matter has been ongoing until now with no progress made. The institution was bankrupt, no matter how the books were being manipulated by changing the accounting policy. As he was leaving Parliament permanently, he felt this would be one of his saddest regrets, because the impact on the citizens was massive.

The Committee had continuously tried to assist in resolving this matter and had achieved nothing, even with the new board. The court action was not the only option. The RAF must accept the position of the AGSA, and get on with the real work of fixing the organisation, ensuring that employees had desks to work on, ensuring that they had all the resources they needed, cleaning up the papers lying in corridors and paying the people that deserved to be paid – this was the real work that. Even as he left Parliament, he would be an activist and continue to watch what unfolded with the RAF and assist the people who were aggrieved by the lack of services there.

He hoped the Committee’s report to the House would highlight the malfeasance that had taken place at the RAF and the lack of will to make a change and service the people of South Africa.

Ms B van Minnen (DA) agreed with the previous speakers, and said that when she visited the RAF one could see the appalling working conditions people were subjected to and the desperation of people who were waiting for their payouts. She was appalled by how this matter had been ongoing for the past two years, considering everything that had happened. It remained clear that the RAF had no interest in mediation, other than pushing for the current view it holds. This had hijacked the entire organisation, and the corporate veil needed to be pierced. Board members and the chief executive officer (CEO) needed to be held personally responsible for the destruction of this Fund. Urgent action needed to be taken now.

SCOPA Chairperson's comments

The Chairperson expressed his concerns regarding the process that the RAF had followed. He questioned whether the RAF was confident that they had gone about it the right way. He opined that the term “consultation” was merely a euphemism if the process was not properly streamlined. This was because the accounting standard would not have been applicable in this case, as stated by the AG, but the RAF had still gone ahead with it. The ASB, National Treasury and Parliament’s research unit, all shared the same sentiment.

It appeared that the RAF wrongly assumed that various parties were instructing it on which accounting standard to use, when the issue was with the process itself. The RAF had changed the standard or policy without consulting others, and had then expected them to correct it after being told it was not allowed. Despite engineering the audit outcome deliberately, the RAF was now protesting the disclaimed audit outcome. He found it difficult to comprehend why the board would not abandon the litigation, and was concerned about their capacity.

Two and half years later, this matter remains unresolved, and the RAF had no intention whatsoever to listen to anyone. To say the least, he was fed up and did not believe that RAF had engaged in this process in good faith, nor had it been honest. He also did not believe it had taken into consideration the full set of circumstances, other than wanting to be right. It had been wrong to change the accounting standard without following due process. If the court found in its favour, it would set in motion a dangerous precedent for accounting and oversight in the country. The fact that this matter was receiving the attention of the court was problematic. The RAF wanted oversight by the judiciary process and setting up terms of engaging how it wanted to be held accountable while throwing everything else out of the window, hell-bent on a process that suited its attitude but not the reality before them. Not one entity agreed with what the RAF had done.

He had been entertaining the idea that Parliament should consider being part of the court proceedings, because it would open a can of worms for everyone. Departments and agencies would also follow suit. At the stroke of a signature, the RAF had sanitised its liabilities. The Minister had said RAF must fix the books, but he had not meant that it must sanitise the books. From the inception of this issue, there was not a single step taken by RAF that had been correct.

He was tempted to seek the minutes of the board meeting to pursue this matter. He questioned whether this was indeed the position of the board, and was concerned that none of the board members had seen anything wrong with this. The AG had been accused of “walking out” of processes, and the fact that the ASB “does not want to participate” without putting these things in their proper context was extremely distasteful.

After five years serving as Chairperson of SCOPA, he had observed since 2022 while dealing with this matter that the RAF simply did not care – it was all fun and games. What would be dangerous was board capture involvement in this decision. He had an inkling that the board did not apply its mind to the level of fiduciary responsibility and obligation that came with its role.

Mr Somyo asked the chairperson of the RAF board how many of the 12 board members were new and how many had sat on the previous board. He also questioned why the Minister was seemingly reluctant to sign off on the annual report when her predecessor, Mr Fikile Mbalula, had made it clear what the RAF should do.

RAF's response

Ms Francois replied that the RAF had demonstrated significant progress since 2019 and its financial position had improved. The performance of the organisation had improved to 91.3%, and it had been increasing the payments of claimants. It also implemented a customer-centric strategy, including establishing a customer care centre that addressed all customer-related issues daily. There was also a new communication strategy, and it was evident that it had become more accessible and visible on the ground. RAF was paying all its claimants, and the numbers reflected this.

Regarding the bankruptcy issue, in the last three years the RAF had not been receiving any increases in levies, but it had managed to stabilise itself and run the business effectively. The board would continue to endeavour to improve the organisation so that it stopped being dependent on the government. It had not asked government for any bailouts.

The recent restructuring had considered input from the ground and its employees, and encouraging feedback had been received on ensuring that the working conditions of the employees were improved. The RAF was also working around the clock to implement an integrated claims management system in order to do away with paper. Currently, it is paper-based as per the legislation, which needs to be revised to consider automation.

SCOPA Chairperson's response

The Chairperson noted a December 2023 article titled, “Court Dismisses RAF Bid to Appeal the Judgment to Scrapping Onerous Claim Requirements,” and said the RAF lived in the courts. He read various messages that he had received from citizens who had been waiting for RAF payment since 2019. Therefore, he was not certain that it would be the correct outlook to run RAF with a strand of hope that the legislation would change. Parliament was not obliged to amend legislation in the RAF’s favour -- in fact, the Bill may change completely, and it may get an outcome from the public consultations that was not desirable. He would ensure that he drew the attention of the Portfolio Committee dealing with the RAF legislation to the SCOPA’s report on the RAF, whether he was in Parliament or not.

He fundamentally believed that the board chairperson had not applied her mind on this matter. He also found it strange that Ms Francois had said in the previous meeting that she was applying her mind to this matter when she was part of the previous board. He expected her to be updating the new board members, not to be oriented on matters that had taken place when she was there before.

He commented that he would engage the House Chair on this matter as to how it could be monitored closely, and to ascertain what course of action may be applicable. The ramifications of oversight would turn this country upside down, but it was not bothered because the RAF had always defined itself outside of everyone else.

He also requested the rolling cost of litigation now, and the companies contracted, and the minutes on how the board had arrived at this decision that it sees nothing wrong with. SCOPA had received a summary of a summary of what had transpired in that meeting. He was also certain that there would be a basis for SCOPA to call for the board members to be declared delinquent directors for this “fishing expedition” of oversight by the courts.

He asked Ms Francois if it was the position of the board that all the entities -- AGSA, National Treasury, the ASB and OAG -- were wrong regarding the adopted accounting standard by the RAF.

Ms Francois responded that she was unable to speak on behalf of the board, because this question had never been posed formally to the board. She did not have the authority to reply on their behalf, and it must be asked in a fully constituted board meeting. Currently, she does not have an answer to the question.

The Chairperson said when the decision was made to proceed with the court proceedings, the board did not consider what the ASB, the OAG, and the AGSA had indicated. However, they had made submissions on this matter in the presence of the RAF and its board, and had made their position clear. Ms Francois’s response was insufficient and did not constitute an appropriate response from the board chairperson. He asked her again if it was the position of the board that all these entities were wrong. Her response was extremely problematic, because when did she speak, or not speak, for the board? Why had the whole board not been brought here for this interaction? Was it the position of the board that all these entities were wrong, and the RAF was right?

Ms Francois maintained her previous response that she could not speak for the board at this point.

In her professional capacity as an individual, the Chairperson asked her if it was her position that the board was right and everyone else wrong.

Ms Francois maintained her response, and said she represented a board.

The Chairperson said she needed to make up her mind about which was which, because she could not speak for the board, nor could she speak for herself. He cautioned that he would not want to find Ms Francois in contempt of Parliament, because the meeting was constituted in terms of the Powers and Privileges Act, and he would not want to issue a subpoena against her and the board to come and answer. She could not appear before Parliament and say the board had found no compelling reason not to continue with the court action. All these entities had a position on this matter. Did the board have no regard for what these entities had said?

Ms Francois said the board had taken into consideration the views of the AGSA, the OAG, ASB and National Treasury, but the challenge was that the dispute in question remained unresolved. Hence, they were still attempting to find alternative ways to resolve the matter.

The Chairperson interjected, and said that SCOPA had previously encouraged the RAF to ask these entities about which accounting standard to use, if they did not know. He asked again if the position of the board was that the ASB, AGSA, National Treasury, and AOG were wrong.

Ms Francois said to the best of her ability, she had attempted to answer the question.

The Chairperson said the RAF board was challenging this matter because it believed all these entities were wrong. One could easily conclude that no due diligence was applied in this decision-making process, which compelled one to say that the board was delinquent for not considering the expert advice of the entities who operated in this space who had advised the RAF.

Members' comments

Mr Somyo pleaded with the Chairperson to rather wait for the court judgment to come out, because reasoning with the board was bearing no fruit. The directive of the Minister had also been ignored. Going to court was not the preferred route, and a litany of evidence supported this. It would be necessary if the board had reflected on this matter and considered if it had made the right decision. The matter was now moot, because the judgment would come out soon. However, the SCOPA was not happy, and it had not been happy because these matters affected South African citizens and did not end only in the boardroom.

Mr Lees said the general response from Ms Francois was one of complete denial of the chaos and the mess at the RAF. One visit to the RAF’s offices should change the board’s mind about the mess. It was a complete administrative mess. To say that the entity had improved was a complete denial, and he recommended that the board visit its RAF offices because Members had visited these offices and spoken to people. He recalled a time when he had even been denied entry into one of the offices during an oversight visit, and had to push through to gain access. Some of the staff members had been stopped from talking to Members.

He reluctantly accepted Mr Somyo’s suggestion to wait for the judgment, but the implication was that the board was delinquent. The board had allowed the executive to go ahead with a court action without applying their mind properly. If they had applied their mind, the board chairperson would have been happy to say they had applied their mind and disagreed with these entities, hence the court action.

He suggested that the Committee institute an action to declare the board members delinquent directors. The costs requested would be part of that action if the Committee went down that route, as well as the list of messages of the absolute breakdown of service providers at the RAF.

Ms Van Minnen said Ms Francois had reported the board’s position, which was to continue pursuing this matter, but she did not have an opinion on the matter. The RAF was funded by taxes paid for by South Africans, and it was accountable to Parliament, yet there was a complete and utter refusal to be held accountable. It was completely beyond how boards should be behaving, and she suggested that the Committee needed to take the strongest of actions against them because the RAF did not want to be held accountable.

The Chairperson asked what the views of the board were on the position presented by these entities. If they were considered, what position was taken by them?

Ms Francois said that the board had considered all the views and information presented before them, but they had realised that the actual dispute remained unresolved. This was why the board was looking at alternatives to attempt to resolve the dispute.

The Chairperson interjected, and said that these views had been canvassed at great length. He said it was simply that the position of the board that the OAG, ASB and AGSA were wrong. The Committee would consider that to be the position of the board. Beyond this, it was clear that the board did not own this decision because it had appeared before SCOPA and heard for the first time that court papers had been signed, and the board did not know. What remained clear was that the board would rather save those who were party to this court action than the collective integrity and fiduciary duty of the board. Hence, to this day, the board was unable to convincingly own this decision and explain it and its material consequences and effects. The previous and current boards had been privy to the position of the AGSA, the ASB, OAG and SCOPA. The Companies Act made it clear that board members were individually, collectively, and severally responsible and liable for work. Frankly, he had no confidence in this board, and that would be pronounced in the Committee’s report. Delinquency was not off the table.

The Committee requested the establishment of a protocol for it to be able to refer RAF matters as they were received from the public by the Committee. The Committee would meet and deal with this matter further.

The meeting was adjourned.