Road Accident Fund on the brink of financial implosion

Banele Ginidza

The Road Accident Fund (RAF) is facing a serious crash with the escalating number of road accident claims far exceeding its ability to pay into the foreseeable future.

This comes as fuel levy receipts are barely able to meet the entity's mounting debts while an accounting standards dispute with the Auditor-General of South Africa (AGSA) currently places the liabilities at over R300 billion in the red.

The AGSA's office told Parliament's Standing Committee on Public Accounts (Scopa) on Tuesday that the RAF was nearing a critical financial crisis.

Responding to DA MP Allan Beesly's question, deputy business unit leader at the AGSA, Nicholas Mokoena, and senior audit manager, Siphesihle Mlangeni, said current and long term assets of RAF were unable to cover current and long-term liabilities, according to financial statements.

They said the entity was unable to pay its debt immediately and had been operating like this while they have been paying their debts as the funds become available.

"On what the position the RAF would be if they were to correctly account for the position of claims, we don't have the figure. The determination of amount requires actuarial evaluation. It has not been not done in the current year," Mokoena said.

"But since matter started in 2021, the indicative amount based on the previous financial year was over R300 billion in terms of liabilities. But for this year there is no determined amount. You can clearly see the impact on the Income Statement on the deficit, and the claims liabilities. It is stated as fundamental in our audit opinion."

Mokoena clarified questions from Scopa chairperson, Songezo Zibi, that the dispute about evaluation of the liabilities was from an actuarial perspective, it did not mean the RAF was mismanaging funds to the extent that it was bankrupt.

He said the calculation of liabilities arose because of the number of accidents and victims, rather than what the RAF does on its own.

"We have a situation where the number of accidents and estimation of what it will cost exceeds money RAF gets from the fuel levy. The matter in dispute is more about accounting of all the claims that should be accounted for in accordance with the standard and those claims are quantified through the evaluation," Mokoena said, adding that the RAF's over 90% of irregular expenditure had not been dealt with.

The AGSA issued an overall adverse opinion audit outcome for the RAF due to the use of the principles of the accounting standard (IPSAS 42) that is not allowed leading to a dispute on how provision for outstanding claims liabilities and related claims expenditure were accounted for in the annual financial statements.

This indicates that the financial statements do not fairly present, in all material respects, the financial position, performance, and cash flows of the RAF in accordance with the Standards of Generally Recognised Accounting Practice (GRAP). 

The financial statements submitted for audit were not prepared in accordance with the prescribed financial reporting framework, with the RAF reporting a deficit of R1.5bn for the 2023/24 financial year from R8.4 million in the previous year.

The entity has an accumulated a deficit of R25.5bn, with total liabilities exceeding total assets. These factors are indicators that RAF has financial difficulties and may not be able to pay liabilities as they fall due.

The AGSA reported that irregular expenditure under investigation amounted to R362m and was mainly relating to Project Siyenza where it was identified that no money was recovered or in process of recovery.

"We urge RAF to conclude all outstanding determination processes to ensure effective consequence management," the AGSA said.

BUSINESS REPORT