The standing committee on public accounts (Scopa) concluded its first week of hearings into the financial and governance failures at the Road Accident Fund (RAF) with testimony from the Special Investigating Unit (SIU) that revealed systemic breaches of fiduciary duty, procurement irregularities and financial mismanagement.
Appearing before the committee on Friday, SIU head Andy Mothibi presented preliminary findings arising from a presidential proclamation authorising the investigation.
The SIU confirmed the RAF’s decision to disestablish its panel of attorneys without board approval or a replacement framework resulted in a surge of default judgments totalling R4.78bn between 2018 and mid-2023.
“The rationale for such a decision is flawed in both administration and in law,” Mothibi said, noting the board, as the accounting authority under section 51 of the Public Finance Management Act (PFMA), failed to interrogate the operational and financial risks associated with the strategy.
Conflict of interest, ethical breaches
The SIU further disclosed that the RAF entered into a corporate legal services contract by piggybacking on the Government Employees Pension Fund’s panel, engaging 13 firms without following prescribed procurement processes. The contract, initially budgeted at R10m, was extended four times — three of which lacked board approval — and resulted in payments of R26.6m.
One firm, Malachi Incorporated, received 90% of the work, valued at R164m, and was found to have paid monies to a family trust linked to an RAF executive. The same firm also provided personal legal services to the executive, raising concerns of conflict of interest and ethical breaches.
Procurement irregularities extended to the Joburg regional office building, where the former CEO authorised a re-evaluation of bids outside the RAF’s supply chain policy.
The cancellation of tender RAF00010/2019 was not published as required under regulation 13 of the Preferential Procurement Policy Framework Act (PPPFA), and the CEO’s actions exceeded his delegated authority.
Governance failure
The SIU confirmed the board ratified these decisions post facto, a practice it described as indicative of governance failure.
Additional findings included duplicate payments to law firms and sheriffs amounting to R340m, blocked payments totalling R482m, and fruitless expenditure on unused SAP licences valued at R1.8m.
The SIU noted that blocked payments — often imposed without proper basis — accumulate interest and distort the RAF’s liquidity position. “The block payment approach presents a misleading picture of liquidity within the RAF,” the SIU stated, warning such practices may result in financial misrepresentation and audit risk.
The committee also heard that the RAF’s use of alternative bank accounts to shield funds from legal attachment lacks internal controls and may contravene principles of transparency and accountability under section 217 of the constitution.
The committee will interrogate the basis on which the board authorised this litigation, given the AG’s constitutional mandate and the statutory framework under the PFMA.
— Songezo Zibi
Scopa chair
The SIU is preparing litigation before the Special Tribunal to declare several procurement processes invalid and has referred matters to the National Prosecuting Authority and the Legal Practice Council where criminality or professional misconduct is suspected.
Scopa chair Songezo Zibi said the committee expects the board to account for its approval of litigation against the auditor-general (AG), which seeks to compel the AG to apply accounting standards not sanctioned by the Accounting Standards Board.
“The committee will interrogate the basis on which the board authorised this litigation, given the AG’s constitutional mandate and the statutory framework under the PFMA,” Zibi said.
The inquiry also raised concerns about the appointment and vetting of senior RAF officials, with the SIU reporting allegations that executives were hired without due process, including one individual who allegedly absconded while facing 12 counts of financial misconduct at the City of Johannesburg.
The SIU noted that internal interference and intimidation of staff have hindered its investigation and the former CEO has yet to respond to the right of reply issued in June 2024.
The committee will resume hearings this week with a focus on procurement and financial management. The SIU’s interim findings have been submitted to the presidency, and systemic recommendations have been conveyed to the RAF’s acting CEO.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.