Road Accident Fund’s accounting blunder ‘of Steinhoff proportions’ slammed by MPs

A 16-member senior team from the ailing Road Accident Fund (RAF) came under fire from members of the Standing Committee on Public Accounts (Scopa) for insisting on continued court action against the Auditor-General (AGSA) and the disclaimer opinion that it failed to interdict.

The RAF board, representatives from the AGSA, the Office of the Accountant-General at National Treasury, and the Accounting Standards Board (ASB) appeared before Scopa on Tuesday.

The RAF, an entity within the Department of Transport, is yet to table its annual report before Parliament.

Using dubious accounting to ‘hide liabilities’

The entity took the AGSA to court after the latter’s condemnation of the RAF for changing its accounting method from the International Financial Reporting Standards (IFRS) to the International Public Sector Accounting Standards (IPSAS 42), which AGSA said led to the understating of its staggering liabilities.

The RAF was accused of trying to hide its liabilities through the use of a different accounting standard.

According to the AGSA, the RAF statements were not prepared in accordance with the proper accounting policy, had material misstatements regarding liabilities, and were not supported by proper records.

The AGSA tabled the disclaimer audit opinion report in Parliament on 31 May after a failed court interdict by the RAF that sought to prevent the release of the report.

In June, the entity and Transport Minister Fikile Mbalula cited the sub judice rule before Scopa as an excuse for why they wouldn’t answer for the contentious financial statements, the disclaimer opinion, and the more than R300 billion in liabilities plaguing the ailing entity.

Attempt to ‘bamboozle Parliament’

DA MP Robert Lees said the RAF’s court action was an “academic exercise,” comparing problems at the entity to those of Steinhoff and sugar producer Tongaat Hulett’s accounting scandals.

“The RAF has been bankrupt for many years. we have examples of misstatements of massive amounts in Steinhoff and one from my home province – Tongaat Hulett… they are the examples. Miscalculations is exactly the situation we have here.”

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He said the RAF litigation against the AG was meant to “bamboozle” Parliament into agreeing to a possible bailout for the RAF.

“This whole process of going to court is an academic exercise in some way to find a compromise. I don’t know why we’re at court. What are we trying to achieve other than to bamboozle Parliament, which has to ultimately fund this liability?

“Is this going to change the numbers in this report and say to Parliament ‘dont worry, there’s no real liability here – R360 billion is now nil in the current financial year – its gone… Don’t fuss, you don’t have to go to lenders to meet these liabilities…’? That’s my concern, chairperson.

“We are spending huge amounts going to court, we have 16 people who came down to Cape Town on taxpayer’s expense, stayed in hotels last night… What are we achieving by doing this? Get on with the job, meet your obligations. Make sure fraudulent claims are not processed. That’s your job. This court process just baffles me.”

RAF’s accounting doesn’t meet Accounting Standards Board requirements

According to Lizzete Labuschagne from the Office of the Accountant-General, her unit concluded that IPSAS 42 was not be available for use by the RAF, as it wasn’t listed in what she called directive 5 issued by the ASB.

“Directive 5 of the ASB sets out the reporting landscape for public sector entities for a given reporting period.  A standard needs to be specifically listed in Directive 5 for it to be available for use.  Directive 5 has the same authority as an accounting standard,” she told the MPs.

Economic Freedom Fighters (EFF) MP Veronica Mente asked the RAF team who advised them to go to court and why.

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“On what basis are you challenging the AGSA? Are you enforcing a standard we don’t use as a country? A standard that cannot be measured by anyone assigned to [dealing with] accounting standards in this country?”

RAF advised not to go to parly to account

RAF board chairperson Thembelihle Msibi said it was difficult to answer some of the MP’s questions because the entity was advised by lawyers not to appear before Scopa.

“The board took the decision to change the accounting practice after a process that unfolded. The decision to go to court was also taken by the board. There’s also the issue of what RAF business is… Is it insurance or a social benefit fund? We as ourselves have a legal opinion that says we shouldn’t come before the committee, however, we decided that wouldn’t be feasible.

“The reasons from the legal opinion was because this matter is still sub judice, and we could be in contempt of court. That’s why my colleagues and I have problems answering some of these issues as some differ in terms of how AGSA looks at the processes and how we do the same. There’s contention around this issue and it’s still in court.”

Scopa chairperson and IFP MP Mkhuleko Hlengwa told Msibi that deferring to a judicial process won’t stop the committee from doing its oversight work.

“We are well within our constitutional right to continue with this hearing, notwithstanding what’s happening in the other arm of the state. This parliament can subpoena anyone. That legal advice is misleading you.

“The sub judice rule doesn’t apply to Parliament processes. We can make a determination that would be wholly binding on yourselves.”

Mbalula must also answer

Deputy Minister of Transport Sindisiwe Chikunga told Scopa that the RAF matter required the presence of Mbalula.

“We request that we look at this matter and come back to Scopa. This kind of matter will require the minister’s articulation.

“Having listened, I think it would be prudent that we sit down with the minister and then write back to the committee on our position and way forward,” she said.

Regarding the ongoing litigation, AGSA said it had filed answering affidavits, and the RAF was expected to file replying affidavits, after which the high court will set a date for the hearing.

Special Investigating Unit must dig into RAF

Hlengwa said his committee was against the RAF’s change of the accounting method, urging the Special Investigative Unit (SIU) to continue with an investigation.

The RAF must “shape up or ship out,” he said.

“We disagree with the changing of the accounting policy and therefore disagree with the court action. Noting AGSA report, we’ll make the committee report as a matter of priority.

“The SIU can continue with its work at RAF and bring this issue to a legal and prosecutorial conclusion. Ultimately, it is not desirable to have institutions of State not being able to agree to an extend that a court should resolve policy matters. This sets a dangerous precedent in that courts will ulimately become players and referee in policy making.

“RAF must accept that audit outcomes will result in things that didn’t turn out right, and in this case, a disclaimer. It is part of the process… Let’s not try and circumvent it with creative measures. The public depends on RAF, so you either shape up or ship out,” he said.

Last year, Mbalula told reporters that the RAF was the “biggest liability after Eskom.”

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