The R500bn Road Accident Fund accounting question nobody wants to answer

The current full-scale Standing Committee on Public Accounts (Scopa) inquiry into the Road Accident Fund is only the fourth of its kind since 1994, a distinction reserved for crises of such magnitude that normal oversight mechanisms are considered insufficient.

This rare method of fact finding has seen some early wins, if only to confirm what everyone was thinking: the fund is technically bankrupt, paralysed by toxic leadership and entangled in a billion-rand web of irregular contracts.

Read more: Making sense of the Road Accident Fund crisis

“The RAF made this an accounting problem,” an auditor told MPs, “and then started to look at when do we start recognising a liability? Shouldn’t some of it be in the notes as a contingent liability?”

Creative accounting illusions

The auditor is, of course, referring to the fact that RAF management ditched the government-approved accounting framework in favour of Ipsas 42, an international public-sector standard never sanctioned by National Treasury.

That switch slashed the fund’s stated claims liability from R330-billion to R27-billion, as if cooking the rulebook could change the dish.

The Auditor-General’s office called the manoeuvre “not suitable for our schemes” and warned that liabilities excluded under Ipsas, like accidents that have occurred but not yet resulted in claims, were effectively being hidden off the books.

That was just the second session of the first day of last week’s hearings.

“The Road Accident Fund is currently vacillating between two realms,” testified RAF spokesperson McIntosh Polela, “one very, very hopeful… but we also have this situation where the RAF finds itself in a toxic mess. There’s a cancer. It is fatted (like a calf).”

Scopa heard that the RAF took this route without seeking legal advice, an omission that may amount to reckless and wasteful expenditure under the Public Finance Management Act.

The art of the deal

Financial engineering wasn’t the only art form on display. Scopa dissected a procurement regime that resembled a personal fiefdom.

Two marketing contracts acquiring services from Media Mix 360 and Dzinga Productions were each worth R500-million over five years. In one year alone, the RAF spent R161-million with Media Mix 360, overshooting its own budget ceiling by 60%.

Invoices revealed the now infamous bucket hats, billed at R11,500 per head, and branded water bottles at R85. Even Polela straight up admitted the prices “seem exorbitant”.

Then there were the former CEO Collins Letsoalo’s personal security receipts: a board-approved R480,000 a year limit ballooned to R150,000 a month, including a hired BMW 5 Series and hotel stays for bodyguards.

One committee member quipped that “no other state entity pays its executives to live like rappers on tour.” But behind the humour was outrage: millions squandered while victims have waited years for settlements that, in some cases, have still not been paid.

In his defence

Scopa also unearthed a disturbing work culture. Senior managers were suspended for years – in one case, five years and four months – on full pay. But it was not the same for all – one witness described being cut off from their salary without warning, losing benefits, and “having to finance my daughter’s education” while under suspension.

Letsoalo told the inquiry his actions were aimed at “efficiency and compliance”, insisting that “all units must comply with PFMA regulations”. He argued that insourcing legal and medical services would save costs and reduce “excessive expert fees”.

Read more: Scopa chair Zibi says inquiry into ‘broken’ RAF could be precedent-setting

His critics countered that rejecting the Government Communication and Information System (GCIS), a cheaper and more compliant service, in favour of private agencies defied logic. Even the RAF’s internal cost analysis showed the GCIS was still cheaper, but Letsoalo dismissed it as “not cost-effective”.

The result was chaos: advertising campaigns promoting “direct claims” were abruptly cancelled, media slots wasted and millions written off as fruitless expenditure.

It was also Action SA's maths that arrived at a metric to contextualise the losses suffered from the RAF New Form 1.  Action SA researchers assumed 426 000 unprocessed claims over three years at an average payout of R286 000. They estimated R128.1-bn in hidden liabilities, which is just one part of the R500bn total, once you include the more-than-R350bn missed through faulty accounting.

What the culture is feeling

Interestingly, legal practitioners, like DSC Attorneys partner Kirstie Haslam, explain that the RAF’s woes stem not from the Road Accident Fund Act itself but from administrative collapse.

“The RAF’s financial predicament is the symptom of rampant incompetence,” she said, “and it’s unacceptable to reduce compensation because of your own mismanagement.”

There are also concerns about the government's proposed Road Accident Benefit Scheme that would make things worse by replacing compensation with capped “benefits”. Victims would get less, and lawyers would have fewer grounds to challenge decisions. “[This approach] treats the symptom, not the cause,” Haslam said.

But what are we learning?

The hearings continue to confirm what many already know about the RAF: it’s not a straightforward financial crisis. Oh, and administrative incompetence makes it worse, with accounting fraud hiding the scale.

The legal profession is right that administrative failure shouldn’t trigger rights-limiting legislation. The government is right that the current system is financially unsustainable. What neither side wants to acknowledge is that both can be true simultaneously.

At least Parliament is getting the evidence to demand accountability. The question is whether anyone has the political courage to fix the governance disaster first, then have an honest national conversation about what road accident compensation should be. DM