R25.5 billion deficit over five years — Can RAF afford to pay out claims?

Nicholas Mokoena, deputy business unit leader at the Auditor-General, told the Standing Committee of Public Accounts (Scopa) on Tuesday that the Road Accident Fund (RAF) has accumulated a deficit of R25.5 billion over the past five years.

Mokoena told Scopa that the fund received an adverse opinion for its audit outcome for the 2023/24 financial year.

An adverse opinion occurs when an auditor fundamentally disagrees with how management has prepared its financial statements.

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This means that the statements do not fairly represent the entity’s state of affairs.

The RAF was embroiled in a legal battle against the AGSA as the two entities disagreed on whether the fund was a social benefit fund or an insurer.

As a result, the RAF did not use the Generally Recognised Accounting Practice (GRAP) prescribed by the Public Finance Management Act (PFMA) for it as a government entity. Instead, the RAF used the International Public Sector Accounting Standards (IPSAS) 42, which differs from the GRAP.

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The adverse opinion was the result of its accounting practice.

RAF deficit

Mokoena told Scopa that a deficit of R25.5 billion was reported over five years, of which R1.5 billion was reported in the 2023/24 financial year.

This means the RAF’s liabilities far exceed its total assets.

The RAF is mandated to settle accident claims within 120 days, but this has not happened for years. This has resulted in a backlog the fund is struggling to clear.

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“The RAF has financial difficulties and may not be able to pay liabilities as they fall due. RAF did not achieve the target relating to the reduction of the 3-year-old open claims,” said Mokoena.

“This indicator measures the rate at which RAF reduces backlog claims or claims on the system for three years or more. The target was 20%, and the achievement was 16.91%.

“The non-achievement is due to many historic claims not being processed due to inadequate information required to finalise them. Management needs to put more effort into meeting the set target. This ultimate achievement will ensure the delivery of the RAF’s mandate.”

The fund’s financial statements indicate the institution cannot cover current and long-term claims.

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“The RAF is currently unable to pay immediately, but they have continued operating like this where they pay their debts as and when the funds become available,” said Mokoena.