New RAF board may be declared delinquent

Just a few months into its tenure, the new board of the Road Accident Fund (RAF) is facing the threat of being declared delinquent after failing to reverse the decision of the previous board to institute litigation against the auditor-general (AG).

The legal action centres on the appropriate accounting standard to be used to prepare its 2021-22 financial results and the board’s rejection of directives the fund was given not to proceed with this litigation.

RAF board chair Zanele Francois told parliament’s standing committee on public accounts (Scopa) last month the new board, which was appointed on 1 October, 2023, had found no compelling reasons to change the previous board’s decision to institute litigation against the AG.

Scopa was told the case was heard before a full bench of three judges in the High Court in Pretoria from 30 January to 1 February, with judgment reserved, which prompted severe criticism of the RAF board.

Scopa chair Mkhuleko Hlengwa asked Francois if it was the position of the RAF board that the AG, National Treasury, Accounting Standards Board and the Office of the Accountant-General were all wrong about the accounting standards adopted by the RAF.

Francois ducked this question and claimed she was unable to speak on behalf of the RAF board on the issue because this question had never been posed formally to the board.

Hlengwa believes the RAF board members, without applying their minds properly, allowed the RAF’s executive to go ahead with court action because, if they had applied their minds, the RAF board chair would have confirmed they disagreed with these entities.

He suggested that Scopa institute action to declare the RAF board members delinquent directors for this “fishing expedition” of oversight by the courts.

Attempts by Moneyweb over the past 10 days to obtain further comment from Hlengwa on action to declare the RAF board delinquent have been unsuccessful.

Comment has also been requested from the department of transport but has not yet been received.

The RAF unilaterally changed its accounting standard in 2021 from the International Financial Reporting Standards 4 to the International Public Sector Accounting Standards 42, which means the RAF prepared its financial results as a social security fund rather than an insurer.

The change resulted in its liabilities for outstanding claims plummeting from R331 billion in 2019-20 to R34 billion in 2022-23.

It also led to the RAF receiving a qualified audit opinion from the AG for its 2021-22 and 2022-23 financial results for not fairly presenting its financial position at the end of these periods.

Hlengwa told Scopa the change in the RAF’s accounting standard had “sanitised its liabilities”.

Francois said the new board had found no compelling reasons to change the previous board’s decision to institute litigation against the AG:

It 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, when the RAF was not an insurance company but a social benefit fund.

This error had led to a fundamental misrepresentation of the RAF’s financial statements and the effect of that accounting treatment over the years had ensured that the liabilities of the fund were overstated.