Road Accident Fund Amendment Bill: deliberations

Meeting report

TRANSPORT PORTFOLIO COMMITTEE
19 November, 2003
ROAD ACCIDENT FUND AMENDMENT BILL: DELIBERATIONS

Chairperson: Mr J Cronin (ANC)

Documents handed out:
Submission by Judge C Greenland
Submission by Munro Consulting
Submission by Coalition (not presented)
Submission by Law Society of South Africa (not presented)
Annual Report to the Audit Committee of RAF (part 1, part 2, part 3, part 4 & part 5)

SUMMARY
The Portfolio Committee on Transport heard submissions by Judge Greenland and Mr Munroe on the Road Accident Fund (RAF). Both inputs significantly impacted on the Committee's standpoint on the RAF by outlining a number of problems facing the organisations. The main question was what kind of practical capacity existed in the Fund to implement the roll-out of instalment payments. There were also some controversial accusations made by Mr Greenland relating to fraud, corruption and the misuse of funds by the RAF.

MINUTES
The Chairperson reported that a delegation from the Committee had travelled to Johannesburg on 18 November to hear the Road Accident Fund's (RAF) response to concerns raised during the public hearings. The Committee also met with the executives of the RAF Board and heard their opinions on the Bill. The Committee concluded that many of the issues pertained not so much to legality, as to the practical capacity of the RAF.

Submission by Judge Chris Greenland
Mr Greenland, the former CEO of RAF, presented his own opinion on the RAF Amendment Bill. At the outset he made it clear that he had unresolved anger against the previous Chairperson of the Fund, Adv Kessie Naidu. The proposed amendments had his support in principle but he condemned the present RAF management for failure to deliver on its mandate. The CEO, Humphrey Kgomongwe, was not qualified or experienced in the field of law and insurance. The RAF's deterioration had occurred despite a doubling of internal capacity and administrative expenses between 1999 and 2002. By mid-2002, the reinsurance had escalated to R100 million - an increase of some 2 7000%. This implied that the Fund, as presently managed, was uninsurable. It lacked strategic planing and reform. The Internal Audit Report had listed numerous weaknesses in an IT department that lacked functional integrity. Other allegations corresponded to inappropriate capacity building, financial impropriety and lack of management capacity. Many corruption allegations required closer examination. (See Mr Greenland's submission for details).

Discussion
The Chairperson underlined that Mr Greenland presented serious allegations about Road Accident Fund, many of which appeared to be backed up by the Independent Internal Audit. However, the pursuit of the internal problems within RAF was not the Committee's immediate concern. Nonetheless, Mr Greenland's presentation confirmed the RAF's lack of practical capacity to deal with instalments.

Mr S Swart (ACDP) said that he would support an investigation of the allegations raised by Mr Greenland. He asked if the "Finalisations" department (as described in the submission) was linked to the Undertakings department.

Mr Greenland explained that the "Finalisations" was a department specifically created in the claims environment. The department would stop a payment to the claimant and conduct a thorough investigation.

Mr Swart enquired about the reinsurance premium that was increased from R3.6 million in 1999 to R100 million in 2002. He thought that the matter corresponded to the amendment clause on non-residents. He asked whether, if the reinsurance lapsed, it go would back to R3 million or whether it would escalated due to systemic problems within the organisation.

Mr Greenland said that there would have been a limited escalation in the reinsurance premium of approximately R2.7 million due to the 7% increase in the accident rate per annum and the devaluation of Rand. The escalation to R100 million was not explicable, other than in terms of a risk profile deteriorating rapidly.

Mr S Farrow (DA) thanked Judge Greenland for being so frank and supported the proposal to fully investigate these problems. He asked him for advice on the legal process that would ensure a proper investigation.

Mr Greenland said that he was not qualified to give advice on the way the investigation should be followed. He did, however, repeat his plea from staff that a proper investigation be conducted.

Mr P Sibande (ANC) asked Mr Greenland for clarification on whether the reinsurance issue involved local politics.

The Chairperson said that in his understanding, because large reinsurance firms were not South African, they were not concerned with local issues but rather with business risk calculations.

Mr Greenland said that in assessing whether the RAF was a well-managed fund, the reinsurance firms were truly independent and not influenced by local politics.

Mr Prince Zulu (IFP) thought there was need for reform as well as independent research of the RA. He asked which process should come first. If the RAF underwent the reform without prior research, it could potentially not achieve the desired result.

Mr Greenland said that two things had to occur. Firstly, the victim's representatives (lawyers) had to be properly consulted, and secondly, the legislative model had to reflect the best model. The new model would be more complex to manage than the present one, hence he urged the Committee to take into account the management capacity. The investigation into RAF internal weaknesses was needed and should be followed with capacity to implement the new model.

Mr T Mhambi (Senior Manager, Corporate Communications, RAF) said the RAF welcomed any independent examination of the situation within the organisation. The current management was very proud of their record in trying to turn around the Fund that they found riddled with problems, conflicts, fraud and corruption, many of which took place during Chris Greenland's terms as a management member and Acting CEO. He indicated that Mr Greenland left the Fund in circumstances of some disagreement (the legal agreement between him and the RAF precluded public announcement of the details). Making these circumstances known could change the Committee's perception of the issue.

Mr Greenland agreed to waive the confidentiality behind the termination of his employment at RAF, provided that Mr Mhambi reciprocated in a similar manner on his own employment history.

The Chairperson interrupted that he would not allow personal disputes to overshadow the main purpose of the meeting. If needed, the Committee members could find detailed information on the internal problems in the Annual Audit Report, which was distributed prior to the meeting.

Mr Mhambi referred the Committee to the Auditor Generals of the RAF to familiarise the members with the details of the Internal Audit Report. He refuted Mr Greenland's media statement that the "RAF alleged that the lawyers highjacked the system". He also noted that Mr Greenland drafted the amendments to the RAF Amendment Bill and that he was a primary mover of the process. He questioned whether, in Mr Greenland's opinion, the RAF lacked the capacity at that stage. On a different note, he said that the RAF Board was currently working on appointing new executive management of RAF. The salaries within the RAF were handled in a way as in any other organisation, where individual managers negotiated their respective salaries. The RAF Chief Legal Advisor had never expressed any complaints about his salary.
The matter of reinsurance was in the hands of Mr Greenland before he left the RAF. Although the RAF was concerned with the escalation of the premium, the management had to take into account that South Africa was a major accident region and that the number of fraudulent claims was on the rise.
There was never any strategic planing while Mr Greenland was a manager. In 2002, a strategic plan was completed and followed up with individual business plans. Mr Greenland took active part in the drafting process. Until Mr Greenland left the RAF, he was in charge of managing the arbitration and mediation. The requirements of Mr Greenland's procurement document excluded a number of previously disadvantaged people, which in turn slowed down the process. The Corporate Communications Department was set up to assist victims who wished to launch their own claims directly. The RAF, as a public entity, was obliged to assist them and was doing so in practice. On the issue of CHRIMS (medical project), Mr Mhambi explained that the R5.5 million settlement was not made by Mr Anderson (RAF), as alleged by Mr Greenland. It was actually an agreement between the Fund's legal team. With regards to disciplinary cases catalogued in Mr Greenland's submission, Mr Mhambi said that when allegation of fraud, corruption or any impropriety was presented, people were suspended from doing their jobs and the RAF conducted investigations. In the case of Mr Anderson, an independent arbitrator resolved the case by giving Mr Anderson a final warning. On the issue of management capacity, Mr Mhambi said that there had been voices against appointing a new CEO of RAF with no legal skills. However, the Board made its decision based on the fact that the organisation needed to address not only legal, but also managerial problems. Mr Mhambi concluded that Mr Greenland was actively involved in the system, procedures and planing of the RAF as well as in drafting of the legislative amendments to the Bill, and was now trying to humiliate the organisation. He also noted that the document presented by Mr Greenland had been faxed from one of the very legal entities that had been in the forefront of opposing this proposed Bill.

Mr Swart asked for an explanation of the RAF dealings with the Alexander Forbes Compensation Technologies and the outcome of the disciplinary process.

Mr Mhambi said that R47 million had been advanced to the Alexander Forbes Compensation Technologies with Mr Anderson's understanding that it was in line with the accepted procedures.At the time, a number of medical service providers had engaged this firm as their agent to present claims directly to the RAF in accordance with provisions of the Act.
Alexander Forbes was given money to settle the claims in cases where normally summons would have been issued. The reconciliation of the amounts as dispersed by the agent, was presented to the Auditor General. It was subsequently found that the advancement of the money was not proper and Mr Anderson was then charged. There were areas where Mr Anderson was found guilty after the independent arbitrator concluded that the money should not have been advanced without the necessary authorisation.

The Chairperson asked whether the claims by medical providers, which were later processed through the Alexander Forbes, had undergone the test of fault or no fault.

Mr Mhambi said that the claims lodged by medical service providers via Alexander Forbes were subjected to regular scrutiny in terms of the merits determining the degree of fault. The agent and the Fund conducted their own independent assessments but the merit was measured by the RAF. There were cases where the two subsequently differed in terms of the amounts involved.

Mr Farrow questioned the RAF's capacity to deal with the number of claims as it shared the assessment role with outside agents. He asked who had made the decision to allow this conduct and why.

Mr Mhambi said that there was no outsourcing and that Alexander Forbes was not employed by the RAF but by the hospitals. The agent was not paid by the RAF that only paid the claims of the medical service providers.

Mr Swart asked whether all 35 allegations had been investigated by the Auditor General.

Mr Mhambi said that the Auditor General would be able to better answer that question. The ICT situation, as reflected in the audit report, constituted a large part of the charges brought against the ICT executive and as a result, he was later dismissed. In the case of financial management that lacked proper monitoring controls of the procurement process and awards of tenders, it had been decided that the forensic investigations, NCIB and Ikanyeng, would not be given any more work until there was a contract in place. The RAF also stopped any advance of payments to the Fast Tracking of Claims Project. A large number of other cases were acted upon by the management. The new Board had recently decided that the RAF should consider outsourcing the internal auditing department, partly on the advice of the National Treasury.

Several of the members (Mr Cronin, Mr Farrow, Mr Schnemann, Mr Prince Zulu and Mr Swart) expressed their concerns with the internal problems facing the Road Accident Fund and the constraints of practical capacity to rollout the instalment payments.

Submission by Munro Consulting
Mr Munroe discussed issues relating to the RAF cash flow implications, its financial sustainability and the practicalities of implementation of the RAF Amendment Bill. He concluded that the implementation of the current proposals could result in significant cash flow savings in the first few years, but these would disappear within the next 5 - 10 years. Hence they had to be adjusted for the significant extra IT and administration costs. The proposals increased total long-term costs very significantly. The cashflow cost would very soon exceed the short-term annual savings. The proposed system was sustainable without very large future increases in the fuel levy. The proposals implied significant and complex administrative capabilities. A unique IT administration & payment system was needed.
Proposals implied an extension in the lifetime of the current RAF from about 10 years to about 50 years. However, in light of the Satchwell Commission recommendations, investing in a new complex "temporary" procedure did not make financial sense.

Discussion
The Chairperson identified three distinctive but interrelated challenges, namely, the existing capacity of the RAF, the constitutional challenge, and the financial crisis of the Fund. The Chair suggested separation of the discussion on the Amendment Bill into areas that the Committee already agreed upon, and the ones that still needed more consideration in the light of the submissions, such as the clause on retrospectivity. The Committee could then proceed with implementing that part of the Amendment Bill that contained matters such as prescribed tariffs, emotional damage, non-residents, etc. The members supported the Chair's proposal.

Mr S Mphahlele (Manager, Legal Services Department) said that the primary objective was to resolve the cashflow situation of the Fund. The main goal of the Bill was to achieve the progressive realisation of the right to social security. There was no doubt that the Road Accident Fund was created to guarantee social security within their available resources. He questioned whether parting with some of the objectives of the Bill would still comply with the intention of the proposed legislation and whether it was wise to proceed with only the "cosmetic" amendments, which had no serious impact on the lives of road accident victims. The constitutional challenge should not pose a threat to passing the Bill. The Department had done everything possible to accommodate all of the concerns raised. In the event where Parliament refused to support these measures, it could not later require the government to account for its failure to attain certain objectives. He consequently urged the Committee to support the proposed RAF Amendment Bill.

The Chair said that the Committee assumed full responsibility over the legislation process. No members of the Committee had an interest in the collapse of the Fund and he urged an intense process of consultation between the government and the RAF. He disagreed with the Department's comment that many of the amendments in the Bill were of a cosmetic nature. The Committee was not ready to pass the Bill in its present form, hence the Chair advised that the Bill be either passed in a reduced version or give it more time for consideration.

Mr Farrow expressed his annoyance with the position presented by the Department and said that the Committee's role would not be undermined or reduced to a function of a "rubber stamp" when passing a legislation.

The Chairperson agreed with Mr Farrow's observation and suggested that the Committee continue discussion on the Amendment Bill next week.

The meeting was adjourned.