The Road Accident Fund (RAF), which has been technically insolvent since 1981, has made great strides towards addressing its legacy challenges in the two financial years since the launch of its five-year turnaround strategy.
This is the view of RAF chair Thembelihle Msibi, who said on Friday that this includes the significant reduction in administrative costs in the fund’s 2020/21 financial year, particularly the more than 40% reduction in legal costs to R3.9 billion from R7 billion in the 2018/2019 financial year.
However, the 2022 Budget Review reveals that the RAF in 2020/21 accounted for 83.7% or R374.6 billion of the liabilities of the government’s social security funds.
The other funds are the Unemployment Insurance Fund (UIF) and Compensation Fund.
Transport Minister Fikile Mbalula stressed on Friday that the dire financial situation of the RAF requires the government to find creative ways to ensure that the taxpayer receives value on the investment they make through the fuel levy, without abdicating its responsibility to provide a social security net to those affected by road accidents.
Msibi said some of the other notable achievements by the fund in its 2020/21 included:
Finalising the RAF’s inputs into the RAF Act amendment proposals, including the key proposal for unrealised payments to replace the lump sum payment.
Publication of a tender on February 26 2021 for an implementation partner for the digitisation of the claims system for the RAF, with the fund now “at an advanced stage of onboarding an implementation partner”.
Embarking on a review of the RAF’s organisational structure to ensure it is fit for purpose and finalising the appointment of the RAF CEO and chief financial officer, with other key executive appointments to follow.
Achieving a clean audit for the 2019/2020 financial year.
Msibi said the proposed shift away from lump sum payments will help the government deal with the challenge of people getting a R4 million or R5 million lump sum payment and “blowing it” within a year.
“Those same people then come back into the government system and try and get some other benefits,” she said.
Msibi said the RAF will be formally publishing the fund’s final tariffs for implementation before March 31, and has made progress in expediting claim settlements.
“Although challenges still remain with the settlement of claims within 120 days, we are confident the implementation of the minimum requirements for claims lodgement and the integrated claims management system will assist in expediting claims settlements,” she said.
Mbalula said there is a need to understand the context of the interventions that are being implemented to turn the RAF around and ensure its sustainability.
He said the RAF has operated on a financially unsustainable model for a number of decades and there has not been a nexus between the fuel levy and the number of accidents that occur on public roads.
This challenge is exacerbated by the ever-increasing administrative costs of the RAF scheme, he said.
Mbalula said 40%, or more than R17 billion of the revenue the RAF collects, goes to administrative costs – with only 60% or R26 billion received by claimants.
The RAF is funded by a levy on the petrol price and was established to provide compensation for loss or damage wrongfully caused on the road.
“Bringing RAF back to financial stability requires both a regulatory overhaul and operational improvement,” said Mbalula.
“The regulatory overhaul is mandated by the RABS [Road Accident Benefit Scheme] policy, which requires of us to complete the transformation of the RAF into a benefit scheme that is fully integrated into the broader social security net.”
Mbalula added: “We have given the green light to the board to move with speed in adopting a new business operating model, and it is currently seized with its implementation.”
To illustrate the quantum of the challenge that stifles the RAF from the effective implementation of its mandate, Mbalula said R10.6 billion of the R41 billion the RAF receives from fuel levy goes towards legal costs.
Included in the R26 billion paid to claimants are further “success fees” to the plaintiff attorneys as part of the contingency fees agreement entered into between the claimants and their legal representatives, he said.
“Some of the people who are injured don’t even get the lion’s share of this money. It goes to the lawyers,” said Mbalula.
“We are straightening that arm in terms of law and that is the mandate I have given to this board to implement.
“We have been ripped off. They are ripping us off through a scheme that we need to straighten out,” he said.
Litigation with Auditor-General
The RAF is involved in litigation with the Auditor-General (AGSA) about what it claimed earlier this year relates to material errors of law committed by the AG in issuing an adverse audit opinion for the RAF’s 2020/21 annual financial statements.
The fund said this adverse audit opinion was issued “simply because AGSA holds a different opinion from the RAF as to which accounting standard ought to be applied in the preparation of the RAF’s 2020/21 annual financial statements”.
Msibi said they have unsuccessfully tried to resolve this matter without going to court and stressed that the RAF holds the AG in high regard.
“Just because we are having litigation on one particular issue, it does not mean that we cannot … and do not want to work with the office of the AG,” she said.
The RAF board during the 2019/20 financial year decided to seek assistance from the Special Investigating Unit (SIU) after the fund’s internal forensic unit identified preliminary evidence of fraud and corruption.
The board was particularly concerned about 506 duplicate payments amounting to R143 billion paid to plaintiff attorneys and a further 167 payments amounting to R44 billion paid to sheriff’s offices and plaintiff attorneys, which resulted from duplicate writs of attachments.
It said it was also inundated with allegations of fraudulent bills of costs by plaintiff attorneys.
President Cyril Ramaphosa proclaimed a SIU investigation.
RAF CEO Collins Letsoalo said on Friday the RAF is giving the SIU its full cooperation.
“It will help us not only to uncover any graft at the RAF but we potentially can recover money that was corruptly siphoned from RAF over the past years,” he said.
Letsoalo said the RAF has started collection of these duplicate payments but this has unfortunately pitted the fund against the representatives of the payments.
“There is a lot of information that is being peddled to create the impression of an implosion of the RAF,” Letsoalo claimed.
Letsoalo said the RAF has decided as a result to be more transparent and release every quarter the names of the top 20 law firms that have been paid an amount by the fund and the amount paid in the ageing of that debt.
This is in response to allegations the claims of some law firms were paid sooner than others and the oldest debt or claims were not paid first.
Organisation Undoing Tax Abuse (Outa) CEO Wayne Duvenage said Outa does not have confidence in Letsoalo and his executive management team and called for an experienced former head of a major insurance company to be brought in to manage the turnaround of the RAF and eradicate abuse of the system through excellent digitisation and programmes that pick up fraud, corruption, double claims and the like.
“I don’t see how he [Letsoalo] and his team has that expertise, skill set or the understanding of what is required,” said Duvenage.
He added that the RAF was profitable 15 years ago but people have been allowed to enter the system and abuse it and nobody has the brakes on.
“Now it’s a mess. How do you unravel all of that? You start with a clean slate with zero based budgeting, put in all the rules and you manage the vultures, you manage the fictitious claims, which requires almost the launch of a new business case,” he said.
Duvenage highlighted that between 12 and 14 years ago the RAF received less than R4 billion a year but now receives more than R40 billion a year.
Accident and death rates are still the same but payments have shot up by 250% in this period, he said.