Concerns over RAF’s ability to continue amid financial woes

Auditor -General Tsakani Maluleke has expressed doubt on the Road Accident Fund’s ability to continue as a going concern at the end of 2023-24 financial year.

Auditor -General Tsakani Maluleke has expressed doubt on the Road Accident Fund’s ability to continue as a going concern at the end of 2023-24 financial year.

Published Oct 4, 2024

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Auditor -General Tsakani Maluleke has expressed doubt on the Road Accident Fund’s ability to continue as a going concern at the end of 2023-24 financial year.

In her audit 2023-24 report tabled in Parliament, Maluleke said RAF has an accumulated deficit of R25.5 billion and the total liabilities exceeded its total assets by R25.4bn.

“These events or conditions indicate that a material uncertainty exists that may cast significant doubt on the public entity’s ability to continue as a going concern,” she said about the public insurance fund that received an adverse audit opinion for a second year in a row.

But, CEO Collins Letsoalo defended the fund’s financial position, saying it was well documented.

“Its liquidity and solvency have been under pressure for decades. This is mainly the result of the lack of a nexus between revenue (assets) and expenditure (liabilities),” Letsoalo said.

He stated that the revenue collected was not based on the risk profile attributable to claims or the occurrence of road accidents, but rather on the litres of fuel purchased each month. The RAF paid out these funds as compensation, mostly in lump sums, to claimants.

“It is important to indicate that these challenges did not start in 2019, but date back to the Fund’s establishment in 1946 as a compulsory insurance scheme under the Motor Vehicle Assurance Act, 1942,” Letsoalo added.

In her report, Maluleke found that RAF submitted financial statements for auditing purposes that were not prepared in accordance with the prescribed financial reporting framework as required by the Public Finance Management Act (PFMA).

RAF amended the accounting policy to recognise claims liabilities in accordance with International Public Sector Accounting Standards (IPSAS) 42.

Maluleke said the use of IPSAS 42 was not appropriate as it fundamentally differed with the Standards of the Generally Recognised Accounting Practice’s (GRAP) conceptual framework for general purpose financial reporting in terms of the timing of recognising liabilities.

“The accounting policy adopted by the RAF in the prior years, up to 2019/20 is appropriate and the entity should consider reverting back to it until such time that the local accounting standard for entities with insurance like activities is developed by the standard setter.

“Any changes to the accounting policy in future should be done in accordance with the requirements of the standards.”

The report said Maluleke was unable to determine the full extent of the misstatement of claim liabilities, claims expenditure and related disclosure notes, as it was impracticable to do so. The RAF, however, maintained that the reporting principles applied in the financial statement were in line with the PFMA and the standards of GRAP, including any interpretations, guidelines and directives issued by the Accounting Standards Board, National Treasury guidelines and King IV.

According to Letsoalo, the RAF’s 2020-2025 strategic plan was premised on presenting a complete departure from the litigious and financially wasteful model.

“It focused on the investigation and timeous settlement of claims, and on reducing claims-related and administrative costs. These initiatives saw a significant reduction in administrative costs, including legal, assessor and actuarial costs.”

He said the target for legal costs was exceeded by 3.6% against a baseline of R9.4 billion in 2023-24.

“If the litigation strategy had not been implemented, these costs would have escalated to R17.1billion in 2023-24 and to more than R50 billion by 2027-28.” He said there has been a steady decrease in new claims registered since 2020 from 303 695 to 79 377 in 2023-24.

“This decrease is mainly attributed to the introduction of minimum requirements for lodging claims, which resulted in a significant improvement in the quality of claims registered.”

Cape Times

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