RAF achieves unprecedented milestone

Monday, June 7, 2021

The Road Accident Fund (RAF) has achieved a significant reduction in administrative costs of more than R7 billion in the 2020/2021 financial year, says Transport Minister Fikile Mbalula.

Highlighting progress that has been achieved by the RAF in its performance, the Minister said the entity has for the first time in many years posted a surplus of R3.2 billion. 

“This is a dramatic shift from a R5.2 billion deficit on the previous year. Investment income has increased by 152%, year-on-year, from R62 million to R157 million.

“Finance costs have decreased by 62%, year-on-year, from R263 million to R90 million. Writs of execution have reduced by more than 50%, through a legal strategy and stratification of the debt book,” Mbalula said.

The short-term liability has reduced by R2.2 billion, from R17 billion to R14.8 billion, while current assets have increased, including cash position, by more than R4 billion.

On Monday, the Minister together with the Non-executive members of the Board of Control and Chief Executive Officer of the RAF made pronouncements on steps taken to stabilise and improve governance and management at the entity.

The Minister said the RAF has adopted a more appropriate accounting treatment for social benefits, in line with its mandate, than the insurance contracts, previously employed. 

“This has resulted in the massive decrease of the RAF reported liability by R305 billion, bringing the RAF liability to R28 billion and the net liability position to R13.5 billion. This accounting treatment has been independently reviewed by PwC and its accounting experts.

“Pursuant to the implementation of 2020/2021 Annual Performance Plan, the unaudited financial statements approved by the Board for the period ending 31 March 2021, show encouraging signs of the efficacy of the new operating model,” the Minister said.

He said although a combination of factors led to the surplus, it is clear that the 62% decrease in the finance or administrative costs, from R290 million in 2020 to R90 million in 2021, was a significant contributing factor.

“This is testament to the RAF 2020-25 Strategic Plan, which prioritizes reducing administrative costs. What makes the achievement of this surplus even more remarkable is that it was achieved, notwithstanding the devastating impact of COVID-19 on revenue.

“Although the Fund recovered well from the hard lockdown revenue dip, the annual revenue income of R42 billion was still lower that the 2019 level of R43 billion,” the Minister said.

Following an investigation into the claims liability, which at the reporting period ended on 31 March 2020 was R330 billion, the RAF came to the conclusion that applying IFRS 4 Insurance Contracts standard to the Social Benefit activities is not resulting in reliable and relevant information.

“As evidenced by the excellent financial results, there has also been very good progress registered in the implementation of the RAF Strategic Plan and the priorities we agreed to with the Board in the Shareholder Compact.

“In this regard, preliminary unaudited results show an overall performance of 77.8%. This is despite the challenges brought about by COVID-19 and the protracted legal challenge against this new Strategic Plan,” Mbalula said.

He said the developments at the RAF demonstrate that government has turned the corner in addressing the RAF intractable challenges. 

“We are on the right path and we will continue to work towards a sustainable and equitable road accident benefit scheme,” the Minister said. – SAnews.gov.za