How an important state-owned entity made R300 billion ‘disappear’

The Auditor General of South Africa has criticized the Road Accident Fund for its refusal to use approved accounting standards, delivering another adverse audit outcome for the 2023/24 financial year.

Presenting its audit findings to the Standing Committee on Public Accounts (SCOPA) on Tuesday (11 March), the AGSA said the adverse outcome is the fourth in as many years for the RAF.

This is tied directly to the RAF’s decision in 2019/20 to unilaterally change its accounting standard from the approved International Financial Reporting Standard 4 (IFRS 4) to the International Public Sector Accounting Standards 42 (IPSAS 42).

This resulted in the RAF’s reported liabilities dropping significantly from the R327 billion reflected in the 2019/2020 financial year to only R34 billion in the 2020/2021 financial year – wiping R293 billion in liabilities off the books.

IFRS 4 is the accounting standard approved by the Accounting Standards Board (ASB).

However, the RAF has argued it is not an insurer but rather a social benefit fund—hence its switch to IPSAS 42, which is specifically for social benefit schemes.

The main difference between the two standards is how claim liabilities are considered.

IPSAS 42 only considers liabilities where the claim has been assessed as valid and an offer has been made or a court order issued. In other standards, assessed liabilities are considered from the date of an accident.

The AGSA said the RAF is not empowered to change its accounting standards, as only the ASB can approve this.

This reflects material non-compliance with the Public Finance Management Act (PFMA).

The auditing body also said that the RAF’s financial statements now do not fairly present the fund’s financial position, performance, and cash flows in all material respects—hence the adverse and disclaimed audits.

For its part, the RAF has taken the AGSA to court several times in the past three years in an attempt to block the adverse audits and to set aside disclaimers.

According to the AGSA, the latest update on this litigation is that the RAF’s case challenging its findings at the Supreme Court of Appeal was dismissed in September 2024.

Since then, the fund has filed an application to the President of the Supreme Court of Appeal for reconsideration in November 2024, and the litigants are now awaiting a decision.

Solvency problems

The RAF reported a deficit of R1.6 billion for the 2023/24 financial year (2022/23: R8.4 billion), which means that the entity’s expenditures exceeded its income.

While the group has managed to significantly narrow its annual deficit, the AGSA said there is material uncertainty about its ability to remain a going concern.

“Solvency challenges may impact the ability of the entity to pay accident claims and fulfil its mandate,” the AGSA said.

The RAF’s solvency issues are well known. The fund has been technically insolvent for a long time.

It is also worth noting that even with the accounting standard move that wiped close to R300 billion off the liabilities, the deficit has started accumulating again.

The AGSA noted that RAF has been reporting an accumulated deficit for over a decade, with liabilities far exceeding its assets. The accumulated deficit has been growing year on year.

The fund’s accumulated deficit was R25.5 billion in 2023/24, up from R23.9 billion the year before.

“These factors are indicators that RAF has financial difficulties and may not be able to pay liabilities as they fall due,” the AGSA said.

The auditor general recommended that the RAF’s accounting authority and management revert to using the accounting standards approved by the ASB until an appropriate accounting standard is developed and approved to account for the provision for outstanding claims liabilities.