Simon Nare
The Road Accident Fund (RAF) changed its accounting system in a bid to contain its exploding liabilities and avoid collapse, Parliament’s Standing Committee on Public Accounts (SCOPA) heard this week.
Former acting chief financial officer Boitumelo Mabusela told MPs the fund had reached a point where it could no longer continue operating while remaining technically insolvent year after year and watching its liabilities rise sharply.
Mabusela said the Accounting Standards Board (ASB) had given the RAF the go-ahead to explore a new accounting framework.
The ASB, however, could only advise and had no legal power to block the fund from adopting a different system.
Mabusela, who said she authored the new accounting policy and obtained approval from then chief executive Collins Letsoalo, told the committee that the ballooning liability was the main driver for the switch. It was unacceptable, she said, that the RAF’s liabilities exceeded those of Eskom, which held substantial assets, while the fund itself had virtually none.
By moving to the International Public Sector Accounting Standards (IPSAS), the RAF would be treated more like a social benefit scheme than an insurer, she said. The change would also result in its financial statements looking healthier, with lower reported liabilities.
“Usually such a huge liability would then have big assets associated with it. In this case how is it possible the RAF which is a social benefit scheme can sit with such a huge liability which also was filtering into and making RAF to be insolvent in a way, technically insolvent?
“In a way, if this narrative continues, there can be a point where we would need to close RAF because there is no institution that can run being technically insolvent for a number of years perpetually. But I want to indicate that it’s not like we knew that if we go and look for a specific standard it will give us certain numbers,” she said.
She said the RAF’s annual liability hovered at about R28 billion, excluding prior years and amounts arising from different business units, and that the overall exposure could easily reach R500 billion. This, she said, posed a serious risk to road accident victims who rely on the fund for compensation.
Mabusela told SCOPA that the RAF was reaching the point where it was almost impossible to persuade auditors that it remained a going concern. She acknowledged there was no guarantee the accounting shift would solve the fund’s financial crisis, and said even the board had warned management not to be driven by the effect on the numbers alone, but by whether the new standard was appropriate.
“If it (the new system) had come up with R500 billion that was going to be it. That was going to be the liability of RAF,” she said.
Mabusela conceded that the RAF did not seek legal advice before adopting the new system. She said she was opposed to taking Auditor-General Tsakani Maluleke to court after Maluleke flagged the accounting treatment, but the fund proceeded with litigation anyway. Maluleke won the case, and the RAF spent R10 million in legal fees.
Mabusela also described to MPs how she left the fund after a fallout with Letsoalo, who she said was angered when she interjected during a debriefing meeting on her presentation on the new accounting system.
Almost in tears, she told the committee that Letsoalo reprimanded her in a virtual meeting and that she no longer felt she belonged at the organisation after that incident.
INSIDE POLITICS