Senior Road Accident Fund (RAF) officials told parliament’s standing committee on public accounts (Scopa) that the entity had no investment portfolio and its liabilities had been overstated for years, defending a controversial accounting policy change that has since been struck down by the courts.
Chief investment officer Sefotle Modiba conceded under questioning that the fund had no spare cash to invest and confirmed that its money was held with the Corporation for Public Deposits, while chief financial officer Bernice Potgieter maintained that the adoption of International Public Sector Accounting Standard (IPSAS) 42 was the “only option” available to the fund at the time.
Committee chair Songezo Zibi pressed Modiba and Potgieter on the fund’s accounting practices, its liabilities and its borrowing strategy. MPs accused both officials of misleading the committee and contributing to the fund’s precarious financial position, with liabilities estimated in official reports at about R500bn.
Zibi told Modiba that the internal structure he had presented to the RAF board was premised on a law that did not exist. He asked whether Modiba had anticipated a cash injection from the fiscus that would justify an investment portfolio. Modiba conceded that no such injection was imminent and that the fund had no investment portfolio.
Zibi said: “So you constructed it out of nothing. No law, no cash injection from the fiscus imminent. This entire scheme of changing the accounting policy at the end of the year was designed to create a balance sheet that would enable you to access the debt market externally.” Modiba denied this but acknowledged that the structure contemplated borrowing between R15bn and R20bn to settle debts.
Potgieter was questioned on the fund’s decision in 2021 to adopt IPSAS 42 in place of International Financial Reporting Standard (IFRS) 4. The change reduced reported liabilities from more than R300bn to R34bn. Courts have since ruled that the RAF is an insurer and must apply IFRS.
Potgieter told MPs: “The selection of accounting policies will not be an outcome of the court. Our view is that the auditor-general did not follow the directives. Even if the court declares the RAF to be an insurer, the decision comes from the management of the fund.” She maintained that the Accounting Standards Board had not prohibited the use of IPSAS 42 and that the fund’s liabilities had been overstated for years.
Zibi reminded Potgieter that the rule of law required compliance with court rulings and criticised the expenditure of more than R10m in public money on litigation against the auditor-general. “You cannot come here and tell us your wish and ignore the decisions of the court,” he said.
Potgieter responded that correspondence with the Accounting Standards Board had been ambiguous and that the fund continued to weigh its options. She said the draft social-benefits standard under preparation by the board excluded most RAF benefits and that IFRS 4 was not appropriate.
ActionSA MP Alan Beesley accused Potgieter of bringing the chartered accounting profession into disrepute by presiding over five consecutive years of disclaimer and adverse audit opinions. “You have overseen financial reports for five years with disclaimer and adverse findings and you are sitting here as if it’s all rosy. It is not.”
He referred to findings by the Special Investigating Unit of irregular procurement and unreconciled bank statements. Potgieter denied acting inconsistently with her professional obligations.
Modiba confirmed that RAF funds were held with the Corporation for Public Deposits, a subsidiary of the Reserve Bank, and said disclosure had been withheld to prevent attachment of accounts by claimants. The committee noted that this raised questions about transparency and compliance with section 55 of the constitution, which obliges organs of state to account to parliament.
Transport minister Barbara Creecy has written to RAF board chair Lorraine Francois stating that continued legal action against the auditor-general would not be prudent or appropriate. She said the correct mechanism for pursuing alternative accounting standards was through the Accounting Standards Board. Her letter, dated October 25 2024, emphasised that existing standards should be applied until formally amended.
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