INTEGRATED ANNUAL REPORT 2013/14. We Care

Transcription

1 INTEGRATED ANNUAL REPORT 2013/14 We Care

2

3 TABLE OF CONTENTS Executive Summary 2 PART A: GENERAL INFORMATION 3 RAF s General Information 4 List of Abbreviations/Acronyms 5 Scope of the Report 6 Foreword by the Chairperson 8 Chief Executive Officer s Overview 13 Statement of Responsibility and Confirmation of Accuracy for the Integrated Annual Report 23 Strategic Overview 24 Legislative and Other Mandates 25 Orgnisational Structure 27 PART B: PERFORMANCE INFORMATION 29 Auditor-General s Report: Predertermined Objectives 30 Situational Analysis 31 Performance Information by Programme 78 Revenue Collection 91 Capital Investment 92 PART C: GOVERNANCE 93 Introduction 94 Portfolio Committee 94 Executive Authority 94 Accounting Authority/The Board 95 Risk Management 104 Internal Control Unit 110 Internal Audit and Audit Committee 110 Compliance with Laws and Regulations 112 Fraud and Corruption 112 Minimising Conflict of Interest 114 Code of Conduct 114 Health, Safety and Environmental Issues 114 Corporate Secretary 115 Social Responsibility 115 Report of the Audit Committee 125 PART D: HUMAN RESOURCE MANAGEMENT 129 Introduction 130 Human Resource Oversight Statistics 137 PART E: FINANCIAL INFORMATION 141 APPENDIX A: BRANCHES AND SATELLITE OFFICES 204 INTEGRATED ANNUAL REPORT 2013/14 1

4 EXECUTIVE SUMMARY Number of employees has increased from 1,881 to 2,288. Revenue increased by 13%. Claims processing improved by 47% to R22.2 billion. Productivity improved due to the new organisational structure and business processes. The organisation proactively engaged with road accident victims through our RAF on the Road community outreach campaign. During the year under review, we interacted with more than 16,000 claimants out of the office and settled claims to the value of R376 million. More than 220,000 calls were responded to by the Call Centre. The organisation took proactive and decisive steps to render business operations more accessible and efficient. 147,168 new claims were received and 240,783 claims were finalised. Average value of a claim increased by 58% from R65,844 to R104,091. Average RAF legal spend per claim increased by 29% from R16,015 to R20,645. Average claimant legal spend per claim increased by 21% from R52,656 to R63,734. Average funeral costs increased by 8% from R10,425 to R11,245. Average loss-of-support claims increased by 13% from R347,861 to R392,744. Average loss-of-earnings claims increased by 21% from R535,050 to R649,912. Average general damages claims increased by 45% from R152,329 to R221,003. Average medical claims increased by 25% from R7,761 to R9,740. Open and reopened claims reduced by 13,945 from 212,085 to 198,140. Audit findings were resolved and risk mitigation measures implemented. The organisation adopted a performance management system for all staff and succession management plan for Management. The number of staff grievances was reduced. The organisation was awarded a Clean Audit by the Auditor-General of South Africa for the 2012/13 and 2013/14 financial years. The draft Road Accident Benefit Scheme (RABS) Bill has been published for a second round of public comments. Cash expenditure on claims exceeded the net fuel levy by R1.9 billion (9%) due to a higher number of claims being settled. Cost-to-income ratio for the financial year increased to 29%. Total cost as percentage of total expenditure decreased by 3%. The fiscal unsustainability of a compulsory motor vehicle insurance scheme remains a challenge. 2 ROAD ACCIDENT FUND

5 Part A: General Information INTEGRATED ANNUAL REPORT 2013/14 3

6 RAF s GENERAL INFORMATION Registered name Road Accident Fund Physical address Eco Glades Office Park Witch-Hazel Avenue Centurion 0046 Postal address Private Bag X178 Centurion 0046 Telephone number(s) (Customer Care Share Call Number) Website External auditors Auditor-General of South Africa Bankers Standard Bank Corporate/Board Secretary Ms JR Cornelius 4 ROAD ACCIDENT FUND

7 List OF ABBREVIATIONS/ACRONYMS AGSA Auditor-General of South Africa Amendment Act RAF Amendment Act, 2005 (Act No. 10 of 2005) APP Annual Performance Plan ATMP Advance Time Process Manager BBBEE Broad-based Black Economic Empowerment BEC Bid Evaluation Committee BEE Black Economic Empowerment BSC Bid Specification Committee CEF Central Energy Fund CEO Chief Executive Officer CFO Chief Financial Officer CoE Centre of Excellence COO Chief Operations Officer CPI Consumer Price Index CRMP Compliance Risk Management Plan CSN Customer Service Network CSR Corporate Social Responsibility CSSS Comprehensive Social Security System DMP Demand Management Plan DoT Department of Transport EE Employment Equity EWS Employee Wellness Services EXCO Executive Management Committee FAR Fixed Assets Register FID Forensic Investigation Department GAAP Generally Accepted Accounting Practices GDP Gross Domestic Product GIBS Gordon Institute of Business Science GRAP Generally Recognised Accounting Practices GRI Global Reporting Initiative HC Human Capital HR Human Resources HSC Hospital Service Centre IBNR The number of claims incurred, but not yet reported ICA Information Collection Agent ICAS Independent Counselling and Advisory Services ICT Information and Communications Technology IDTT Inter-departmental Task Team IFRS International Financial Reporting Standards IT Information Technology King III King Code on Corporate Governance LOE LOS MBA MBL MoU MTEF MVA NPA NT OECD OHS PAIA PAJA PCC PCOT Loss-of-earnings Loss-of-support Master of Business Administration Master of Business Leadership Memorandum of Understanding Medium-Term Expenditure Framework Motor Vehicle Accident National Prosecuting Authority National Treasury Organisation for Economic Co-operation and Development Occupational Health and Safety Promotion of Access to Information Act, 2000 (Act No. 2 of 2000) Promotion of Administrative Justice Act, 2000 (Act No. 3 of 2000) Procurement Control Committee Portfolio Committee on Transport PFMA Public Finance Management Act, 1999 (Act No. 1 of 1999) PMO Programme Management Office POPI Act Protection of Personal Information Act, 2013 (Act No. 3 of 2013) PR Public Relations RABS Road Accident Benefit Scheme RABSA Road Accident Benefit Scheme Administrator RAF Road Accident Fund RAF Act Road Accident Fund Act, 1996 (Act No. 56 of 1996) REMCO Remuneration and Human Resources Committee RMEC Risk Management and Ethics Committee RRM Revenue Requirement Model SAP Enterprise Resource Planning System SAPIA South African Petroleum Industry Association SAPS South African Police Service SARS South African Revenue Service SCM Supply Chain Management SCOPA Standing Committee on Public Accounts SOE State-owned Company TEC Total Employment Cost Transitional Act RAF (Transitional Provisions) Act, 2012 (Act No. 15 of 2012) UN United Nations Unisa University of South Africa ZAR South African Rand PART A: GENERAL INFORMATION INTEGRATED ANNUAL REPORT 2013/14 5

8 SCOPE OF THE REPORT Introduction The Road Accident Fund (RAF) welcomes the opportunity to present an Integrated Annual Report for the year ending 31 March 2014 in line with the National Treasury (NT) Annual Report Guide for Public Entities, the King Code on Corporate Governance for South Africa 2009 (King III), the Protocol on Corporate Governance in the Public Sector (2002) and the Global Reporting Initiative (GRI) Guidelines. In essence, corporate governance embodies processes and systems by which corporate enterprises are directed, controlled and held to account 1. Oversight entails reviewing, monitoring and overseeing the affairs, practices, activities, behaviour and conduct 2 of an administrative authority to ensure that it meets its objectives. Reporting Cycle The RAF s objective with this report is to provide its stakeholders with an integrated view of the RAF s organisational, operational and financial performance for the financial year 1 April 2013 to 31 March It furthermore demonstrates the RAF s commitment to integrity, transparency and accountability. It is the aim of the RAF to provide a complete and balanced view of its performance, including both the challenges and the successes, for the 2013/14 financial year, as well as those likely to form part of its future. The RAF remains committed to being accountable to its stakeholders. It defines stakeholders as persons, groups or organisations that have a direct stake in our business, since they can affect or be affected by our activities, objectives and policies. The way the organisation engages with and responds to its stakeholders is described under the heading, Social Responsibility (Part C), of this report. Reporting Boundary This Integrated Annual Report covers the organisational, operational and financial performance of the RAF, including the audited financial results for the period 1 April 2013 to 31 March 2014 in terms of section 55(1) of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA). The narrative of the report is structured around the NT Annual Report Guide for Public Entities. In addition, the report covers the social, environmental and broader economic impacts of the organisation s activities in Part C: Social Responsibility. The RAF acknowledges that its sustainability platform represents the beginning of a journey towards the maturation of its sustainability management and is inextricably linked to its business objectives. Reporting Principles The reporting principles applied are in line with the PFMA, South African Standards of Generally Recognised Accounting Practice (SA Standards of GRAP), including any interpretations, guidelines and directives issued by the Accounting Standards Board, NT Guidelines, King III (to the extent possible) and the GRI Guidelines. During the current financial year, no new GRAP standards were applied for the first time. Significant Restatements The provision for diesel rebate was incorrectly calculated in the prior period. When the adjustments to the provision for the last three months of the 2012/13 financial year were posted, the provision that had already been raised was not reversed and therefore the provision for diesel rebate was overstated (refer to Notes 13 and 35 of the Annual Financial Statements). The Incurred But Not Reported (IBNR) claims were incorrectly disclosed as a contingent liability in the past three financial years (refer to Notes 12 and 35 of the Annual Financial Statements). 1 Department of Public Enterprises Protocol on Corporate Governance in the Public Sector, p National Treasury Governance Oversight Role Over State-Owned Entities, pp ROAD ACCIDENT FUND

9 Supporting Documentation In accordance with the NT template and guidelines, the RAF s Integrated Annual Report 2013/14 includes the following information: General Information; Performance Information; Governance; Human Resource Management; and Financial Information. Audience The stakeholders addressed by this report include, among others, the Parliament of the Republic of South Africa, the Executive Authority, national, provincial and local government, industry-related organisations, trade unions, employees, suppliers, existing and prospective customers (local and foreign), the media, and the public. PART A: GENERAL INFORMATION INTEGRATED ANNUAL REPORT 2013/14 7

10 FOREWORD BY THE CHAIRPERSON Introduction On behalf of the Board of Directors of the Road Accident Fund (RAF), it is my privilege to present the organisation s Integrated Annual Report and the Annual Financial Statements for the financial year ending 31 March This report differs vastly from those of previous financial years due to a new Annual Report specimen and guidelines issued by the South African NT. The report has been prepared in accordance with the King Report on Corporate Governance for South Africa 2009 (King III), which states that Integrated reporting should be focused on substance over form and should disclose information that is timely, relevant, accurate, honest and accessible and comparable with past performance. It should also contain forward-looking information. We trust that the RAF s Integrated Annual Report for 2013/14 provides a holistic and integrated view of the RAF s performance in terms of its finances, operations and sustainability. As with any other business, the RAF is affected by general economic conditions and other environmental factors, as well as the extent to which it manages its costs effectively. According to a recently published Organisation for Economic Co operation and Development (OECD) Economy Report 3, South Africa is making progress. Per capita incomes are growing, public services are growing, health indicators are improving, crime rates 3 Organisaton for Economic Co-operation and Development (OECD) Economy Report. 8 ROAD ACCIDENT FUND

11 are falling and demographic trends are favourable. The public finances are in better shape than those of many OECD countries, the financial system is healthy and core inflation is stable and within the Reserve Bank s target zone. However, a high proportion of the population is out of work, as has been the case for most of the past three decades. Moreover, income inequality, educational outcomes and a greater demand for public service delivery warrant closer attention. Environmental challenges such as climate change and water scarcity threaten the sustainability of economic growth, while high current account deficits represent a point of macroeconomic vulnerability. According to this report, at a macroeconomic policy level, the country s deficit expanded rapidly in cyclically adjusted terms during the global economic crisis and has reduced gradually since. Much of the increase in public spending came through large increases in the public sector wage bill, while public investment has fallen as a share of total expenditure. With core inflation remaining well contained, monetary policy has been eased cautiously. Education remains a critical problem. Skill mismatches represent one aspect of the persistently high unemployment rate, especially for the youth. If South Africa is to achieve full employment, the quality of basic and vocational education has to be improved. The policy framework for addressing green issues, including climate change and water scarcity, is sound, but implementation has been slow, in part due to limited administrative capacity. In the electricity and water sectors, there are similar problems: supply is struggling to keep up with demand in a setting in which prices, where they exist, do not cover total costs, let alone reflect environmental externalities. PART A: GENERAL INFORMATION It is against this background that fuel consumption for road use decreased by 2.9% to 18,907 mega litres in the 2013/14 financial year from 19,473 mega litres in the previous financial year. The implied net fuel consumption experienced by the RAF showed an increase of 3.9% to 21,123 mega litres based on the average net fuel levy income received, divided by an average levy in cents per litre. The RAF received an 8c per litre increase in its fuel levy, lifting the levy from 88c in the previous financial year to 96c in the year under review. The expectation is that this trend will continue in the medium-term. Strategy and Performance of the RAF The 2013/14 financial year saw the RAF efficaciously continuing on its path of change. Overall, change was well received within the organisation owing to a number of factors, inter alia, alignment of organisational systems to support needed changes, which included a sound change and succession management plan, a well-executed performance management system, rewards for and recognition of top performers, stringent disciplinary approaches, fair compensation, internal promotions and the hiring of new staff in critical positions. This was augmented by frequent and honest communication, operational efficiency, leadership commitment, and the perceived need for change to design appropriate strategies in order to avoid change failures or resolve troubled change projects. It was an eventful year in which the RAF s leadership inserted passion and passionate people into the organisation s processes and outcomes. Productivity and excellence became the hallmarks of the institution, with leadership, employees and even customers becoming fervent about the brand and what it does. It was a year in which two more values, i.e. excellence and efficiency were approved by the Board and added to the longstanding values of the organisation. Goals became specific, measurable and linked to time limits. The organisation won an award for a clean audit by the Auditor-General, implying that there were no governance findings during the 2012/13 financial year, and the long-awaited Road Accident Benefit Scheme (RABS) Bill was approved for a second round of publication. The RAF s leadership inserted passion and passionate people into the organisation We bid farewell to the old Board and welcomed the new Board. The need for a review of Board Committee structures was identified and Committees were refined to align focus areas to the new strategic structure. To this end, the following Committees were established: The Operational and Information Technology Committee (OPSIT); the Remuneration Committee and Human INTEGRATED ANNUAL REPORT 2013/14 9

12 Resources Committee (REMCO); the Audit Committee; and the Risk Management and Ethics Committee (RMEC). OPSIT is responsible for overseeing the efficient and cost-effective payment of claims; rendering quality services; expanding and ensuring optimal access to services; ensuring optimal capacity; and processes, equipment and infrastructure. REMCO is responsible for overseeing and ensuring optimal capacity; people and performance. The Audit Committee is responsible for overseeing financial reporting, ensuring adequate financial resources, maintaining a sound system of internal controls, and setting of controls and addressing of weaknesses. RMEC is responsible for overseeing and introducing RABS, assessing and treating risks, ensuring that significant operational exceptions are managed, and maintaining compliance. In addition, the Board realised that it was important and necessary to ascertain what the priority areas of work are, as the RAF s success depends on these areas being attended to. Subsequently, a refined set of strategic priorities was identified. It was decided to: Determine and execute the strategy by maintaining operational plans to achieve the Annual Performance Plan (APP) targets, using scorecards to determine performance standards and monitoring, evaluating, performing and reporting at all times. To this effect, 83% of the targets outlined in the 2013/14 APP were achieved; and the 2014/15 APP was approved by the Board and the Minister of Transport. Pay claims efficiently and cost-effectively by maintaining the organisational structure and processes; maintaining an available and practical Information Communication Technology (ICT) infrastructure; maintaining and implementing regulations, as well as proposing changes; implementing projects and business plans (e.g. outstanding claim reduction plans; Project Siyenza); driving production through result-oriented performance management; managing litigation internally and externally, directly and indirectly and monitoring outputs through objective Business Intelligence tools. Successes in respect of the aforementioned include the following: Daily, weekly and monthly performance reporting and management took place. The full financial year showed a reduction in personal, supplier and awaiting-cost claims. More than R22 billion worth of claims payments were made in 2013/14, an all-time high. Render quality services by establishing and maintaining (qualitative and quantitative) quality assurance functions; and surveying and testing services and perceptions. To this end, Quality Assurance Managers in the regions have tested operational performance and compliance across all regional teams. The Compliance business unit conducted reviews of all business processes. The Complaint experience has reduced when compared to prior quarters. An independent customer satisfaction survey has shown a material improvement in satisfaction and service perceptions. Overall service perception increased to 64% from 52% and customer satisfaction went up to 72.8% from 66%. 10 ROAD ACCIDENT FUND

13 Expand access by promoting and marketing the mandate, brand and service offering; expanding the number of access points, intermittent and permanent; and maintaining available and accessible access across all modes. A hugely successful Four Cities RAF on the Road took place in in Soweto, Mthatha, Umlazi and Secunda simultaneously on 15 March 2014 and saw the RAF servicing 7,638 claimants and settling claims to the value of R164,715 million on the day. Leases for the four Customer Service Centres (CSCs) in Kimberley, Polokwane, Bloemfontein and Mahikeng have been concluded and staffing of the four offices is almost complete. Over 26,000 calls are now attended to by the Call Centre on a monthly basis. Ensure optimal capacity in terms of people and performance by recruiting, remunerating, managing and retaining skilled staff; identifying talent and managing succession; training and developing, while managing outliers; and recognising and rewarding performers within the organisation. Highlights in this regard include the following: The staff complement now stands at 2,288 and work is underway to conclude the final appointments of 252 vacant posts; the vacancy rate has now reduced to below 10% and the APP target has been met; succession plans for Executives, General Managers, Senior Managers and Managers have been developed; the new Chief Strategy Officer has taken office and the new Chief Financial Officer will commence her duties on 1 June Ensure adequate financial resources by accounting accurately; reporting systematically; forecasting revenue and expenditure; modelling cash flows; quantifying the provision; and engaging stakeholders such as the Department of Transport (DoT), the NT and the Financial Services Board (FSB). To this end, financial management has continued in line with approved processes. A Finance Functional Review was conducted by Internal Audit and the Finance function was found to be of an acceptable maturity level, save for Procurement where a clear turnaround strategy is required. Continued engagements with the DoT, NT and FSB have taken place on legislative, budgetary and operational requirements, as well as emerging risks. Maintain a sound system of internal controls by setting of controls in terms of maintaining a policy environment, Delegation of Authority (DoA) framework, and implementing combined assurance. Achievements in this regard include the following: The Policy business unit has been formally established in the Legal division and a Policy Development framework has been implemented. Combined Assurance Forum meetings have taken place and this function is being bedded down. Address weaknesses by evaluating controls and identifying weaknesses; resolving and reporting these timeously. Weaknesses have been addressed. Comprehensive audits were conducted in Finance, Procurement, IT and HR during the year under review. Introduce RABS by drafting, consulting and proposing legislation; engaging stakeholders; and supporting the DoT. The RAF developed draft rules and forms for the new RABS administrator, which have been published concurrently with the revised draft RABS Bill and Regulations for a second round of public comment. Assess and treat strategic risks by maintaining an Enterprise-wide Risk Management Framework; preventing, detecting and managing fraud; identifying and treating emerging risks within the confines of the Risk Appetite (RA) and Risk Bearing Capacity (RBC). Achievements in this regard include the following: The Enterprise-wide Risk Management Framework has been maintained. An internal audit revealed that the RAF s risk maturity level has improved to Level 4. Fraud management has continued and work is underway to reduce the accumulated backlog of referrals. The RAF s risk appetite was adopted and reporting against the appetite takes place on an on-going basis. The most prominent risk during the period under review related to the outcome of the Court case on the panel of attorneys tender which was declared invalid and the subsequent correspondence by the outgoing panel of attorneys. The risk was treated, stakeholders were timeously informed and legal advice was utilised to respond to each challenge. At this juncture, the old panel is handing over claim files. Ensure that significant operational exceptions are managed by managing the business across all portfolios; monitoring and evaluating key indicators; proactively identifying and reporting exceptions; and keeping a close eye on the materiality framework, risk appetite, Delegation of Authority, reputational exposure and appeals. To this end, daily, weekly and monthly operational and financial reporting takes place. Irregular, fruitless and wasteful expenditure is reported and corrective action is taken where any employee s conduct, performance, or behaviour is inappropriate. Maintain compliance by managing operational, administrative, financial, governance and legal matters; and testing and reporting compliance. Achievements in this regard include the following: Compliance to laws, policies, and procedures is closely monitored by the new Compliance unit. PART A: GENERAL INFORMATION INTEGRATED ANNUAL REPORT 2013/14 11

14 Strategic Relationships During the year under review, the Board met with a number of strategic partners, inter alia, the Minister and Deputy Minister of Transport, DoT officials, the Portfolio Committee on Transport (PCOT), Transport sister entities, the Statutory Actuary, the FSB, representatives of the insurance industry, the Judiciary and various other Provincial and Local Government stakeholders. Challenges Some high-level challenges which have been attended to include, but are not limited to, the following: The number of open claims transiently returned to previous levels during the year, but this was rectified by year-end. Despite a predictable fuel levy increase, the fuel levy income has grown below the Consumer Price Index (CPI). The RAF only received an 8c per litre fuel levy increase, which is fast becoming a predictable trend. It is also noteworthy that the RAF s liability is growing faster than the CPI. Finally, the panel of attorneys tender which was challenged before it was even adjudicated posed another challenge to the continuity of the RAF s litigation work. The Year Ahead There is growing recognition of the RAF s mandate and contribution to society as Government s consoling arm. Great expectation rests on our shoulders based on recent performance. It is important that optimal focus is placed on the strategic priorities that the Board has identified; and that Management executes the required work effectively. Acknowledgements I wish to express my sincere gratitude to the outgoing Board for their sterling contribution to the RAF over the past couple of years and a warm word of welcome to the newly appointed Board. On behalf of the new Board, I wish to thank the Honourable Minister of Transport, Ms Dipuo Peters, and the Deputy Minister of Transport, Ms Sindisiwe Chikunga, as well as the entire DoT team for their unwavering support during the 2013/14 financial year. Furthermore, we would like to thank the PCOT, together with our partner stakeholders, for the assistance and guidance offered to the RAF during this financial year. Finally, we would like to thank the Chief Executive Officer, Dr Eugene Watson, for his tireless efforts in turning the RAF into the excellent organisation we all know it can be. Our thanks also go to the Management and staff of the RAF for their on-going loyalty and dedication. Dr NM Bhengu Chairperson of the Board Date: 31 July ROAD ACCIDENT FUND

15 PART A: GENERAL INFORMATION CHIEF EXECUTIVE OFFICER S OVERVIEW Introduction The RAF s Integrated Annual Report 2014 is centred on the principles and recommendations of King III and NT s Regulations. The report focuses on putting the financial results in perspective by reporting on how the RAF has impacted, both positively and negatively, on the socio-economic life of all users of South African roads. This overview of the 2013/14 financial year forms part of the Annual Financial Statements of the RAF for the year ended 31 March 2014 in accordance with section 55(1)(d) of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (as amended by Act No. 29 of 1999) (PFMA). The RAF, as established by the Road Accident Fund Act, 1996 (Act No. 56 of 1996), (RAF Act), is listed as a National Public Entity in accordance with Schedule 3A of the PFMA. The Board of Directors is the Accounting Authority in terms of the PFMA. Achievements During the year under review, the RAF departed from a legacy of less than stellar performance. Employees are now well aware that the RAF exists to render support to victims of car crashes and their families, providing support financially, medically and by way of indemnification. Change management is no longer a programme, but is viewed as a way of life, setting the organisation apart and seeing performance improve despite changes to the Board, Executive, the structure and operating environment during the year under review. Business processes have been laid down and now shape the team s daily work. Our physical and virtual presence has been expanded and INTEGRATED ANNUAL REPORT 2013/14 13

16 access to the RAF is now greater than it ever has been. Our national footprint has been expanded with 83 hospital service centres (HSCs) in place and an officer present in every province. The four customer service centres (CSCs) in Kimberley, Bloemfontein, Mahikeng and Polokwane, where no presence existed, are almost ready for ribbon cutting and official opening. Over 16,000 claimants were engaged at our highly revered RAF on the Road road shows and more than 220,000 telephone calls were managed by our Call Centre. Claims are efficiently administered and the number of open claims has reduced year-on-year to what is now less than half of what it was five years ago. The number of open and reopened claims reduced to 198,140 from 212,085 (2012/13) and the total awaiting compensation or legal cost payments reduced by 47,627 from 279,912 (2012/13) to 232,285 during the period under review. Claim payments are almost twice what they were two years ago and now exceed an unprecedented R22 billion for the year under review. Beyond the money, the value of our claim payments touches lives like the fact that over 7,000 funeral claims were paid by the RAF (in the context of 14,000 road fatalities per annum). A segregated organisational structure was rolled out and over 211,000 claim payments were made under the structure, with greater control and accountability. Complaints are transparently measured, assessed, investigated and resolved, whilst extracting lessons for business to learn. Our team has grown by almost 22% in number and a large number of the appointments that have been made are internal resources, who are growing, developing and shining. Recognising its role as part of our public service, equity and female gender representation distinguish the RAF from many organisations. At a corporate level, our governance framework complies with King III, our risk maturity level is higher than that of many public and private entities, and our credibility as a recognised authority on road safety and road accident insurance mechanisms is growing, especially since our assistance to the families of those who lost their lives in the horrific Pinetown and Moloto crashes during the year under review. Our tireless support at crash scenes sees us often leading Government s support initiatives. Over 20,000 people follow our social media footprint eager to keep track of what the RAF is doing, when and where. Performance is entrenched as the primary internal driver, where even our social partner, the South African Transport and Allied Workers Union (SATAWU), has placed a great emphasis on ensuring that we have a solid performance management system in place. A culture of performance accountability has been ingrained in the employees of the RAF, where they understand that if they perform, they are rewarded. Where they don t, they are managed with a view to lifting performance. Standards of accountability have been set. It is clear that the RAF is on the move, that the RAF is performing and that a new legacy is being written. Notwithstanding the provisions of the Act, certain Law Societies made provision in their rules for members to charge in excess of the percentages prescribed by the Act. Many attorneys disregarded the law and the fundamental rights of victims of road accidents. Beyond the money, the value of our claim payments touches lives Following various Court rulings that these common law contingency agreements could not exceed 25%, one law firm proceeded to elevate the appeals right up to the Constitutional Court. On 20 February 2014, the Constitutional Court delivered judgment in respect of the constitutionality of the Contingency Fees Act. At issue was whether it is justifiable for personal injury lawyers to charge contingency fees outside of what the Act provides. Personal injury lawyers typically assist road accident victims to claim from the RAF. The judgment was in respect of two interwoven cases. The first was that of Ronald Bobroff & Partners who challenged a Full Bench of the North Gauteng High Court who had ordered them to provide an itemised account to Ms Juanne De la Guerre and to refund what they had overcharged her. The second was that of the South African Association of Personal Injury Lawyers (SAAPIL), of which Bobroff is the president, which challenged the constitutionality of the Contingency Fees Act. Both cases were heard simultaneously by the Full Bench of the High Court. 14 ROAD ACCIDENT FUND

17 The Constitutional Court found no merit in Bobroff and SAAPIL s challenge as a whole, dismissing the argument that the Contingency Fees Act was irrational because it applied only to lawyers. In handing down judgment, the Court pointed out: The right of access to justice is that of the legal practitioner s clients, not that of the legal practitioners themselves. The ruling by the Constitutional Court paves the way for road accident victims to pursue claims amounting potentially to millions of rand where fees in excess of the law were charged. Future road accident victims will also be far more cautious in approaching personal injury lawyers rather than the RAF directly. This is indeed a major feat for the RAF and a great step forward for the rights of claimants. In addition to other marketing events, exhibitions and promotions, our RAF on the Road community outreach programme remains the organisation s flagship marketing campaign. During the year under review, the RAF took its service offering to more than 16,000 claimants in disadvantaged communities countrywide and settled claims to the value of R376 million. The RAF is changing, and it is changing for the better. Our current mantra is: Let s finish what we have started General Financial Review and Spending Trends of the RAF Total revenue for the year grew by 13%, from R18.1 billion to R20.5 billion, as a result of 8 cents per litre increase in the RAF Fuel Levy, despite a moderate decrease in the volume of fuel sold over the previous financial year. Net fuel levies accounted for 99% or R20.3 billion of total revenue. The RAF recorded a deficit of R17.3 billion in the financial year under review compared to a deficit of R8.5 billion in the previous year. The deficit is directly related to the provision for outstanding claims, which increased from R83 billion (2012/13) to R97 billion in the current year, as well as an increase in settlements relating to a higher cash pay-out on claims. PART A: GENERAL INFORMATION The Statement of Financial Position reflects the extent to which the RAF remains under-capitalised. A net deficit of R90.8 billion was recorded for 2013/14 (2012/13: R73.5 billion). It remains noteworthy that the RAF has been technically insolvent for over three decades, yet it continues to honour its obligation to claimants. This is due to the fact that non-current liabilities have not been funded at any point in the scheme of arrangements existence. Claims expenditure (excluding the increase in the provision for outstanding claims) has increased by 47% to R22.3 billion (2012/13: R15.2 billion). During the year under review, 109% of fuel levy income was used to pay claims expenditure, compared to 85% in 2012/13. The RAF had to use its cash reserves to pay claims, reflecting an efficiency gain. Total expenditure for the year, excluding the increase in the provision for outstanding claims, increased by R7.2 billion to R23.6 billion (2012/13: R16.4 billion) as a result of improved productivity and higher claim costs. Actual cash claims expenditure of R22.2 billion accounted for 94% of total expenses, with the balance being made up of employee costs, i.e. R907 million (4%) and administration and other costs, i.e. R467 million (2%). The RAF recorded cash reserves of only R2.5 billion on its Statement of Financial Position at year-end (R3.6 billion decline versus R2 billion growth in the previous financial year) as resources were utilised to pay claims. Cash reserves related to the nature and volume of claims received and processed. Management interventions have been implemented to optimise claim payments, efficient business processes are in place, additional staff members have been provided for and alternative claim administration measures have been implemented. These interventions have led to improved claims processing during the year which have impacted heavily on the RAF s cash reserves. The inequitable allocation of economic resources, as a result of the legislative framework, continues under the current compensation arrangement. Of the R22 billion paid out towards claims: More than R1.2 billion was paid in medical costs; Over R4.6 billion was spent on legal and expert costs; R5.9 billion was paid in general damages primarily to persons not seriously injured; and R10.4 billion was paid for loss-of-earnings and -support. Success fees (contingency fees) paid to attorneys were estimated to be in excess of 25% of compensation, exacerbating the hardship victims of accidents suffer. In addition, the average time taken to settle a claim still ranged between 12 and 60 months, primarily because of the need to prove fault and the subjectivity in determining loss-of-earnings and -support benefits. INTEGRATED ANNUAL REPORT 2013/14 15

18 During the year under review, the RAF was able to reduce the number of outstanding claims where no payments were made. This was reduced significantly to 198,140 from 212,085 in the previous financial year despite constrained income. The detailed review of the results of the RAF for the year ended 31 March 2014 is included under the Situational Analysis contained in Part B of this report. During the current financial year, no new GRAP standards were applied for the first time. The Annual Financial Statements are prepared in accordance with the prescribed SA Standards of GRAP issued by the Accounting Standards Board as the prescribed framework by NT. Changes in the Application of GRAP 19 In the RAF s 2011/12 Annual Financial Statements it changed its application of GRAP 19, which deals with liabilities and provisions. Specifically, the RAF accounted for Incurred But Not Reported (IBNR) claims as a contingent liability rather than as a provision, because in terms of its founding legislation the legal obligating event had not materialised. In the RAF s 2012/13 audited Annual Financial Statements, the same treatment of the IBNR was applied. On 25 July 2014, following previous engagements, the Auditor-General advised that the IBNR does meet the GRAP 19 definition of a provision and should have been reflected in the Statement of Financial Position as such, and to now comply with this, that the RAF needs to amend the prior periods in line with GRAP 3 as with prior period error disclosures to ensure compliance with fair presentation. The Auditor-General, in keeping with two opinions the RAF solicited from major Accounting and Professional Services Firms, asserts that the obligation to make a claim payment arises when an accident happens. The RAF has complied with the Auditor-General s position and presents its Financial Statements in this Integrated Annual Report accordingly. It must, however, be noted that the legal obligation, under the Road Accident Fund Act, No. 56 of 1996 (the Act), is to make a payment determined solely by section 17 of the Act which states: subject to any regulation made under section 26, in the case of a claim for compensation under this section arising from the driving of a motor vehicle where the identity of neither the owner nor the driver thereof has been established, be obliged to compensate any person (the third party) for any loss or damage which the third party has suffered as a result of any bodily injury to himself or herself or the death of or any bodily injury to any other person, caused by or arising from the driving of a motor vehicle by any person at any place within the Republic, if the injury or death is due to the negligence or other wrongful act of the driver or of the owner of the motor vehicle or of his or her employee in the performance of the employee s duties as employee. 16 ROAD ACCIDENT FUND

19 At its core, the RAF operates a common law, delictual system of compensation, which has been codified by the Act. The common law principles of delict apply to claims against the RAF. These principles require the claimant to prove (a) that someone else was responsible for, or contributed to, the road accident (fault); (b) the other person must have acted unlawfully, i.e. there must not be a reason in law to forgive the other person for causing, or contributing to, the road accident; (c) the other person must have acted negligently or intentionally, i.e. the other person must not have observed the level of care of a reasonable person that the law requires; (d) the injury and/or loss (damage) of the claimant must be proven; and (e) there must exist a link between the road accident and the damage. If any one or more of the aforementioned elements are not proven, liability in delict does not arise. Capacity Constraints and Challenges Adversarial Compensation System During its lifespan, the motor vehicle accident (MVA) compensation system has been plagued by numerous challenges, including service delivery problems, restricted access to medical care, long settlement delays, spiralling costs, insufficient funding to pay claims, an ever-growing liability, multiple, complex and legalistic hurdles due to the adversarial nature of the system, and uncertainty as to whether compensation is ultimately used for the intended purpose. PART A: GENERAL INFORMATION Vacancy Rate In 2012/13, the organisational structure was revised with the introduction of segregated functions and expansion of teams in the claims processing environment. 833 appointments were made during the reporting period and the vacancy rate has now reduced to below 10%. The staff complement now stands at 2,288 and work is underway to conclude the final appointments of 252 vacant posts. Information Communication Technology Environment The Information Communication Technology (ICT) Master Systems Plan (MSP) serves as the strategic document that guides the ICT Department to obtain its strategic objectives. The current ICT MSP was approved by the Board for the period Subsequent to the approval of the ICT MSP, there have been significant changes that transpired within the department. These included the appointment of new ICT senior leadership, a realignment of the ICT organisational structure, and an increased demand of ICT services by the business. During this time it was also noted that there was a pressing need to modernise the ailing and obsolete technology infrastructure of the RAF, in order to cater for business growth and to ensure increased availability of ICT systems. A combination of these factors has, in turn, necessitated a review of the current ICT MSP. A resolution was adopted to utilise the current ICT MSP as a base from which to formulate a longer-term five-year ICT Strategic Plan, which will encapsulate all ICT-related requirements, including budget and human resources, that are essential to meet the current challenges of the ICT environment within the RAF, and to better position the ICT Department to provide superior service to its clients and to create optimal alignment to the RAF business strategy. Legal Costs It is untenable that 21% of total payments of R22 billion (an improvement on 25% in the prior year) are still being spent on legal fees with R1.7 billion spent on RAF s legal costs and R2.9 billion spent on claimant s legal costs. 90% of claims are still represented by attorneys and are subjected to a litigious finalisation process. RAF Fuel Levy It is necessary to reiterate that the RAF operates in an environment where: Funding, or contributions via the RAF Fuel Levy are not associated with claim frequencies and costs, which sees an acute disjuncture when productivity improves. The beneficiary base is not constituted by past, present or future contributors to the RAF Fuel Levy; The benefit available to beneficiaries or claimants is not defined and in some instances is not limited to a maximum value; and Social security is not limited to protecting income, providing support or funding healthcare needs, but extends to all of these key elements of social security. INTEGRATED ANNUAL REPORT 2013/14 17

20 Compensation for Loss-of-support/earnings Compensation for loss-of-income/earnings and -support seems to be on an upward trend. The reasons for this are as follows: The introduction of the Amendment Act increased passenger claims to the average of any other claim where the driver was the sole cause of the accident. These claims were previously limited to R25,000. As a result of the Amendment Act decreasing claims volumes materially, plaintiff attorneys are increasingly finding any possible way, even if the injuries are not that serious, to prove future loss-of-earnings capacity. The result is that claims that could have been settled for less than R100,000 are now being proven as fairly material claims, with medical reports to substantiate the loss-of-earnings. Offers made by claims handlers are no longer accepted at previous levels and matters are brought to the Courts where substantial awards are being made on loss-of-earnings. This has also escalated legal fees. It appears that Courts are less stringent on the requirements for loss-of-earnings considerations. Minimal proof of loss-ofearnings is accepted, particularly where the testimony of self-employed road accident victims, who are not paying taxes and have no income and expenditure statements as evidence, is heard and judgment is made on the basis of victims testimonies. Previously, loss-of-support claims were quantified on the basis of the agreement between the RAF and the attorney. More recently, a new trend has developed whereby industrial psychologists reports are introduced, with career progression and promotions factored in, to inflate the loss-of-support claim. In the past, claims for minor children were projected, based on the parents educational background. This impacted negatively on the previously disadvantaged sectors of the population, which represent the majority. With social and political changes, these claims are no longer settled on this basis and have become million-rand settlements. Cost of Service Delivery A matter of extreme concern for the RAF is that the cost of service delivery remains disproportionately high in relation to the compensation paid in comparison with the RAF Fuel Levy received, more so because the bulk of the cash that the RAF pays is in respect of loss of amenities of life and general damages, as opposed to medical costs and loss-of-income and -support. The RAF s administration costs remained at 7% of income. A further challenge presented itself in the form of a Panel of Attorneys tender that was issued by the RAF during the year under review. Joubert Galpin Searle Inc., Z Abdurahman Attorneys and Rehana Khan Parker Attorneys brought an application in the Port Elizabeth High Court in November 2013, seeking to set aside the awarding of a tender to provide specialist litigation services to the RAF. The Court ruled in favour of the plaintiffs on 25 March 2014, compelling the RAF to recommence the tender process. The focal point of the application was the process followed by the RAF in correcting an administrative error related to the duration of the tender process in question, rather than the unfairness of the process itself. The order of invalidity of the tender process has been suspended until 1 December 2014 and, until such time, the newly appointed panel is allowed to continue acting on the RAF s mandate and the old panel s contracts remain terminated by effluxion of time. The principles of administrative justice are held in high regard by the RAF and the RAF has therefore designed a handover plan that seeks to avoid any interference with the administration of justice. As a point of reference, there has already been a successful handover of some files in the Eastern and Western Cape provinces. Efficient handover processes were recognised by the Court ruling and this serves as sound assurance for claimants whose matters are under consideration in the various Courts. Costs associated with this handover exercise are attributed to the copying of and perusal of a file by a new panel attorney and the legal fees of the handing over panel. These are necessary costs that are incurred whenever a file changes hands. It is inevitable in a changing business environment that every three years such costs may be incurred when a new panel is appointed and an old one is phased out. Another aspect of service delivery is the fact that delays in claims finalisation prejudice victims and increase the RAF s liability as historical trends have shown that generally the later a claim is finalised, the higher the liability of the RAF. In light of the above, the RAF has resolved to place more focus on settling long outstanding claims. Other challenges include, but are not limited to, issues common to all delictual systems; environmental issues; issues specific to the South African system and internal challenges. The programmes contained in the Revised Strategic Plan seek to mitigate the negative effects that the challenges have on the ability of the RAF to deliver on its mandate in line with its vision and mission. 18 ROAD ACCIDENT FUND

21 The fiscal unsustainability of the current scheme of compulsory motor vehicle insurance remains a fundamental challenge for the RAF, primarily due to failed attempts to link income to expenditure since the implementation of the scheme more than 60 years ago. The unsustainability, unreasonableness, unaffordability and inequity of a fixed fuel levy income-based scheme providing (in most instances) unlimited compensation was recognised by government and resulted in amendments to the RAF Act (2008). Through these legislative amendments, universal limits and thresholds were placed on the RAF s liability. The amendments have had mixed results, including: A reduction in the number of claims received; A reduction in the RAF s expenditure on general damages; An increase in the quantum of settlements in respect of loss-of-support and loss-of-earnings claims due to the focus shifting from general damages to the aforementioned heads of damages; and An increase in litigious matters to pursue maximum compensation. Discontinued Activities In line with a directive issued by NT in January 2014 regarding cost-containment measures, the RAF complied by issuing an internal directive and discontinuing a large number of initiatives, inter alia, SADC sports events, social and team-building events, curbing travelling and accommodation costs, purchasing of newspapers for all units, reduction of electricity by switching off all unused appliances and lights after hours, single-page printing, etc. PART A: GENERAL INFORMATION New or Proposed Activities Project Siyenza is an initiative aimed at partially outsourcing the processing of approximately 40,000 files to private sector companies with a view to speeding up the settlement of claims. Two bidders were appointed and the first batch of files was dispatched to the winning bidders in February By March, the project had seen 2,259 files handed over, 128 assessed, and 3 settled. Project Siyenza also sees the cost of administration fixed, thereby creating an incentive for the service providers to provide efficiently. The year under review also saw the initiation of the procurement of new panels of attorneys, assessors and funeral parlours for the RAF. Request for Roll-over of Funds The RAF submitted a request to the NT at the start of the current financial year for the retention of an amount of R6.1 billion from surplus funds accumulated in the 2012/13 financial year to be carried over to the 2013/14 financial year for the purpose of improving on the number of claims settled during the current financial year. The RAF improved on its claims settlement initiatives during the current financial year and the number of outstanding claims awaiting compensation and legal cost payment has improved to 232,285 from 279,912 at the end of the previous financial year. Supply Chain Management Supply Chain Management (SCM) systems are in place in accordance with the PFMA; NT Regulations, Instructions and Notes; the Preferential Procurement Policy Framework Act; the Broad-based Economic Empowerment Act; as well as the SCM Policy Framework. 78 bids were issued during the 2013/14 financial year. Of the 78 bids, a total of 28 bids were finalised, 11 were cancelled by business, 12 resulted in non-awards, and 3 were awaiting approval by the Board and/or CEO at year-end. A total of 2 were handed over for contracting, another 2 were advertised, 4 were under evaluation, another 4 were at the adjudication stage and a total of 12 were awaiting evaluation. In order to optimise the SCM function, a full diagnostic assessment was conducted by an independent audit firm to ensure that weaknesses are remedied. Challenges faced by the RAF s SCM during the financial year included the following: The department lacked capacity. Consultants were employed to address the challenge, whilst new positions were created and filled. Lack of specific SCM skills within the Procurement business unit. A directive was issued to include relevant staff training on SCM policies and procedures in personal development programmes of staff. Training will be monitored on an on-going basis. INTEGRATED ANNUAL REPORT 2013/14 19

22 Procurement processes are outdated when compared to current needs. The department lacked a clear vision, mission and strategy. Definitive action has been taken which has seen the team expanded, new Senior Managers appointed, a new Revised Process Manual developed and expanded automation being rolled out. Audit Report Matters in the Previous Year The RAF received a clean audit by the Auditor-General in the previous financial year and the organisation received an award in this regard. Addressing Financial Challenges The Board and Management are committed to implementing plans to curb the growing deficit caused by the rising provision for outstanding claims. As part of these plans, the RAF engages with NT and the DoT on an on-going basis to resolve the short-, medium- and long-term funding position of the RAF. Revenue and productivity have not been matched. The RAF has put all available cash to efficient use, which has seen the number of open claims reduce. Continued productivity is dependent on the availability of cash. The RAF manages liquidity on a day-to-day basis and claims are paid from available cash reserves. In addition, the RAF constantly focuses on cost-reduction measures to improve efficiencies and to avail more cash for the payment of compensation. Measures are being introduced internally, such as the roll-out of enhancements to operational claims systems and processes, as well as the RAF on the Road campaign to deal with claimants directly rather than through third parties. These interventions have already yielded cost reductions and are expected to reduce costs even further in the medium to longer term. At this juncture one in five claims registered is a direct claim. Seven years ago, the RAF s number of outstanding claims (i.e. open and unpaid claims) increased to 450,000. This was, inter alia, caused by legislative challenges, inefficiencies in the claims processing environment and the fact that the main source of revenue for the RAF, the fuel levy, had increased in relation to inflation and not the claims experience. However, over subsequent years, the RAF has realised a reduction in the number of outstanding claims where no compensation was paid at all and by 31 March 2014 the number had decreased to 198,140. Management successfully introduced a number of interventions designed to optimise claims processing and to reduce the number of accumulated open claims. Some of these measures included the following: Designed, documented and implemented operational business processes across the organisation. Rolled out a re-aligned organisational structure with clear segmentation and segregation of claims processing at the core. Improved claims processing in terms of turn-around times and adherence to defined processes. Introduced the highly revered community outreach programme, RAF on the Road taking the RAF s service offering to far-flung communities of the country. Performed a full review and staging of all claim files. Implemented a performance management system. Cash holdings at the end of March 2014 were R2.5 billion, down from R6.1 billion at the end of March This significant reduction in cash holdings is directly associated with an improved productivity and an increase in the average cost of settling claims. The RAF performed a cash flow forecast with the assistance of its Statutory Actuary. The cash payments are mainly driven by the initiatives undertaken in the claims environment to speed up the rate at which claims are settled and paid. The increasing trend in the amounts of claims paid per quarter shows an increase in the rate at which claims are settled. Furthermore, the increase in cash payments is associated with an increase in the number of payments made. As the organisation continues its efforts to improve the rate at which claims are settled, more claims will be paid out each month. Assuming that the trend in claim settlements is maintained over the next few quarters, there is a real risk of the organisation depleting its surplus cash resources. It is anticipated that early in 2014/15 this risk will materialise. 20 ROAD ACCIDENT FUND

23 With readily available cash reserves, the organisation can continue its efforts to improve the claims settlement rate and reduce the number of open and unpaid claims without any liquidity concerns. However, if the available cash resources are limited to the currently projected cash inflows from the fuel levy, then there is a real risk that by late 2014 (or earlier) cash outflows will have exhausted cash holdings which accumulated over the last few years. As a result of improved efficiencies in the operating environment, there is a real risk that the RAF will find itself without the necessary funds to honour its commitments to claimants. At that point, the RAF will be forced to slow down the claims settlement process or prioritise the payment of claims, which may be counter-productive and contrary to its statutory mandate. The consequences of a slow-down in claims processing are mainly threefold: The number of outstanding claims may increase, thereby reversing the benefits the RAF has realised; Claimants may be deprived of the benefits afforded to them by the RAF Act; and The legal industry may resort to legal action to force the RAF to settle claims and incur unwarranted legal and associated costs. It is important to set an appropriate level of funding for the RAF which will obviate the constant liquidity challenges that have impacted on the RAF for decades. Establishing an appropriate funding level where productivity against statutory obligations is seen is critical. PART A: GENERAL INFORMATION Events after the Reporting Date No undisclosed material events took place between the Statement of Financial Position date and the authorisation of the Annual Financial Statements. Economic Viability As at 31 March 2014, the RAF had an accumulated deficit of (R90,925,544,000) and the RAF s total liabilities exceeded its assets by (R90,797,758,000). The key factor here is the actuarial provision for claims incurred which projects future payments for claims which may have arisen. The Annual Financial Statements of the RAF are largely influenced by the actuarial provision for claims incurred. This figure provides a view of what future payments will be made for claims that have been lodged. Government agencies that provide social benefits need not include this provision on their Statement of Financial Position in accordance with GRAP 19. The principle of going concern was used in preparing the Annual Financial Statements. This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business. On an annual basis, following the Minister of Finance s Budget Speech in Parliament, the Taxation Amendment Act indicates what the applicable fuel levy will be for the financial year. The National Budget, inclusive of the fuel levy amount, is submitted and approved by the South African Parliament via the Taxation Amendment Act. Government also commits to the RAF budget in its Medium-Term Expenditure Framework (MTEF). The RAF will manage the cash resources to ensure that short-term liabilities are met. In the past, the RAF received additional financial support from NT in the form of cash injections over and above the normal fuel levy income as and when it faced liquidity problems. During the 2006 financial year, it received a cash injection of R2.502 billion and in the 2009 financial year it received R2.550 billion. The Board and Management are committed to implementing plans to contain the growing deficit caused by the rising provision for outstanding claims. As part of these plans, the RAF has engaged NT and the DoT in discussions to resolve the short-, medium- and long-term funding position of the RAF. It is clear that productivity has improved. In light of the profound negative impact of road traffic accidents on its victims from a health, vocational and social perspective, these victims not only require, but deserve to have their claims against the RAF assessed and finalised in a speedy and efficient manner. INTEGRATED ANNUAL REPORT 2013/14 21

24 Conclusion During the year under review, the RAF aimed to be an accessible organisation that pro-actively interacts with victims in a caring, supportive and solution-orientated manner and where liability attaches to it, to provide compensation in a time-efficient and cost-effective manner, while continually exhibiting the highest standard of financial and risk management. Productivity improved due to the new organisational structure and business processes and claims processing, in particular, increased by 47% to R22.2 billion. RAF staff interacted with more than 16,000 claimants in remote areas of the country and settled claims to the value of R376 million out of the office, while 220,000 calls were responded to by the Call Centre. 147,168 new claims were received and 240,783 claims were finalised. The number of open claims reduced, audit findings were resolved, risk mitigation measures were implemented, a performance management system for all staff and a succession management plan for Management were implemented, and the organisation received a Clean Audit award from the Auditor-General for the 2012/13 financial year. A shift was made in respect of the RAF s focus on the socio-economic impact of crashes on families, homes and communities, and people were put first exactly as intended where the Constitution speaks to the principle of Batho Pele. Importantly, seriousness was introduced in respect of what the RAF is, what it should be and what its employees, as loyal officers, are required to do. Acknowledgements I wish to express a sincere word of thanks to the Minister of Transport, Ms Dipuo Peters, and the Deputy Minister, Ms Sindisiwe Chikunga, for their on-going assistance in seeking solutions to the challenges faced by the RAF during the period under review, as well as all the officials at the DoT. As the Executive Management of the RAF, our gratitude is also extended to the Chairperson and Members of the Portfolio Committee on Transport for the unfettered guidance provided throughout the year. A warm message of thanks is extended to the outgoing Board, and the Chairman, Vice-Chairman, and members of the new Board for the candid guidance, leadership, enthusiasm and dedication shown since their appointment. A word of appreciation also goes to the RAF Executives and staff for their continued support, loyalty and diligence. We have met 83% of our 2013/14 Annual Performance Plan (APP) targets, showing that the RAF, as an organisation, will not cower when faced with challenges. In conclusion, we recognise those who have lost their lives, been injured or who have lost a loved one in a motor vehicle accident in the financial year under review. Our responsibility going forward remains firmly fixed on alleviating the suffering which has arisen and continues to result from negligence on our roads. Dr EA Watson Chief Executive Officer Date: 31 July ROAD ACCIDENT FUND

25 STATEMENT OF RESPONSIBILITY AND CONFIRMATION OF ACCURACY FOR THE Integrated ANNUAL REPORT To the best of my knowledge and belief, I confirm the following: All information and amounts disclosed in the Integrated Annual Report are consistent with the Annual Financial Statements audited by the Auditor-General. The Integrated Annual Report is complete, accurate and is free from any omissions. The Integrated Annual Report has been prepared in accordance with the guidelines on the Annual Report as issued by NT. The Annual Financial Statements (Part E) have been prepared in accordance with the GRAP standards applicable to the RAF. The Accounting Authority is responsible for the preparation of the Annual Financial Statements and for the judgements made in this information. PART A: GENERAL INFORMATION The Accounting Authority is responsible for establishing and implementing a system of internal control that is designed to provide reasonable assurance as to the integrity and reliability of the performance information, the human resources information and the Annual Financial Statements. The external auditors are engaged to express an independent opinion on the Annual Financial Statements. In our opinion, the Integrated Annual Report fairly reflects the review of operations, the performance information, the human resources information and the financial affairs of the RAF for the financial year ended 31 March Yours faithfully Dr EA Watson Chief Executive Officer Date: 31 July 2014 Dr NM Bhengu Chairperson of the Board Date: 31 July 2014 INTEGRATED ANNUAL REPORT 2013/14 23

26 STRATEGIC OVERVIEW Vision To provide the highest standard of care to road accident victims and to restore balance in the social system. Mission To provide appropriate cover to all road users within the borders of South Africa; to rehabilitate persons injured, compensate for injuries or death and indemnify wrongdoers as a result of motor vehicle accidents in a timely, caring and sustainable manner; and to support the safe use of our roads. Values The following values drive everything that we do and the manner in which we do it: UBUNTU We care for and support our customers. We care for and support each other. SOLUTION FOCUSED We offer solutions. We take responsibility for our actions. EXCELLENCE We execute our duties with dedication and fortitude while pursuing excellence across the business. We are driven by a desire to succeed which we realise through intelligent planning and commitment to delivery. EFFICIENCY Doing the right thing with the least amount of resources. In our endeavours we strive to optimal output from the time, cost and effort invested. PRIDE We commit to and demonstrate integrity, honesty, consistency and fairness in our actions and decisions. We model the highest standards of personal and professional behaviour. 24 ROAD ACCIDENT FUND

27 LEGISLATIVE AND OTHER MANDATES Schedule in Terms of the PFMA The RAF is a juristic person established by an Act of Parliament, namely, the Road Accident Fund Act, 1996 (Act No. 56 of 1996), as amended (RAF Act). It is listed as a national public entity in accordance with Schedule 3A of the Public Finance Management Act (PFMA). The RAF commenced operations on 1 May 1997, assuming at the time, all the rights, obligations, assets and liabilities of the Multilateral Motor Vehicle Accidents Fund. Constitutional, Functional and Policy Mandates The central goals of the RAF, being that of service delivery and the optimisation of its business and ultimate sustainability are significantly reliant on the legislative environment in which it operates. As mentioned above, the RAF was established by the RAF Act, section 3, which stipulates that the object of the Fund shall be the payment of compensation in accordance with this Act for loss or damage wrongfully caused by the negligent driving of a motor vehicle. The customer base of the RAF, therefore, comprises not only the South African public, but all foreigners within the borders of the country. The RAF provides two types of cover, namely personal insurance cover to accident victims or their families, and indemnity cover to wrongdoers. PART A: GENERAL INFORMATION Road Accident Fund (Transitional Provisions) Act, 2012 The RAF Act of 1996 was amended in 2005, and the RAF Amendment Act, 2005 (Act No. 19 of 2005) (the Amendment Act) came into effect on 1 August However, soon after promulgation of the Amendment Act, a number of claimants challenged the constitutionality of section 18 thereof (related to the R25,000 passenger claims limit in the RAF Act). Parliament remedied the defect through the promulgation of the Road Accident Fund (Transitional Provisions) Act, 2012 (Act No. 15 of 2012) (the Transitional Act), which came into effect on 13 February Claimants whose claims arose under the RAF Act, prior to it being amended by the Amendment Act, and whose claims were limited by the R25,000 passenger limitation section and which claims have not prescribed or been finally determined by settlement or court order, have an election under the Transitional Act to have their claim determined under the RAF Act (prior to its amendment by the Amendment Act), or to have the claim determined in accordance with a transitional regime provided for in the Transitional Act. This brought about three different frameworks which the RAF currently administers, namely the RAF Act, the Amendment Act and the Transitional Act. Road Accident Benefit Scheme Bill The current scheme of arrangement being based on fault, insurance principles and common law, remains inequitable, wasteful and open to abuse. The transformation of the current scheme, as envisaged in the recently published Road Accident Benefit Scheme (RABS) Bill, will address many of the challenges facing the RAF that are constraining its ability to deliver on its mandate in an effective and efficient manner. In addition, a no-fault, fixed benefit scheme will ensure smooth alignment with the Comprehensive Social Security System (CSSS) envisaged by Government. The benefits of the proposed RABS are: Providing for a fully funded scheme that is reasonable, equitable, affordable and sustainable; Expanding access to benefits by removing the requirement to establish fault as a determinant to qualify for benefits and reducing disputes by removing the fault requirement and by providing pre-determined benefits; Making available timely and appropriate healthcare benefits based on a reasonable tariff; Simplifying claims procedures; Wider cover to persons injured in road accidents; INTEGRATED ANNUAL REPORT 2013/14 25

28 Fewer exclusions from benefits; Defined benefits which promote affordability; and Alleviating the burden on our Courts through the establishment of an internal appeal procedure. (It is important to note that almost 50% of Court matters relate to road accidents.) The DoT published a revised version of the Road Accident Benefit Scheme Bill, 2014 (the Bill) in Government Gazette No after year-end. The Gazette includes the Department s RABS Regulations and the draft RABS Rules and Forms of the Road Accident Fund Board. Interested persons have been invited to submit comments within 60 days of publication. An earlier version of the Bill was published for public comment on 8 February 2013 in Government Gazette No Following receipt of public comments, the Bill was redrafted. New Regulations, Rules and Forms were also drafted to enable a better understanding of how the proposed scheme would operate in practice. The Bill provides for a new no-fault benefit scheme and a new Administrator called the Road Accident Benefit Scheme Administrator (RABSA), which will replace the current RAF and compensation system administered by it. In terms of a fundamental overhaul, the legislation proposes that the RAF be replaced by the RABSA and that the current adversarial system be replaced with a scheme which is based on principles of social security and social solidarity. The key change proposed by the draft legislation is a move away from the insurance based system of compensation which has been largely unchanged in South Africa since its inception in 1946, to a system of defined and structured benefits. The RABS Bill forms part of an initiative to replace the third party compensation system currently administered by the RAF with a new scheme that is reasonable, equitable, affordable and sustainable. The Bill, Regulations, Rules and Forms are available from the Government Printer and on the websites of the DoT and the RAF at and 26 ROAD ACCIDENT FUND

29 ORGANISATIONAL STRUCTURE Executive Corporate Secretariat Executive Authority Board of Directors Chief Executive Officer Chief Audit Executive PART A: GENERAL INFORMATION GM: Assurance and Monitoring SM: Internal Audit Chief Operations Officer Chief Strategy Officer Chief Financial Officer Chief Human Capital Officer Chief Information Officer Chief Marketing Officer SM: Analytical Reporting GM: Risk Management SM: Financial Accounting SM: Organisational Development GM: Application Development & Modernisation SM: Communications RGM: Johannesburg GM: Corporate Legal Service SM: Management Accounting SM: Capacity and Capability Building SM: Governance, Risk and Security SM: Public Relations and Media RGM: Pretoria GM: Programme Management Office SM: Treasury SM: Centre of Expertise SM: New Service, Architecture and Process Management SM: Marketing RGM: Durban GM: Stakeholder Relations SM: Financial Reporting SM: Shared Services SM: Application Development and Support SM: Call Centre RGM: Cape Town GM: Forensic Investigations SM: Supply Chain Management SM: Learning and Development SM: Infrastructure RGM: East London SM: Strategy and Reporting SM: Customer Service SM: Business Support Service SM: Strategy, Risk and Compliance SM: Facilities Management INTEGRATED ANNUAL REPORT 2013/14 27

30 RAF Organisational Structure Review The creation and filling of leadership positions, e.g. the new Executive positions, the additional tier of General Managers and Senior Managers have opened more communication lines resulting in quicker response and turnaround times and ensuring that decisions are made timeously. The creation of Regional General Managers and Senior Managers for both Operations and Support in the Regions has allowed for more effective and efficient stakeholder relations with the provincial and local government tiers. The entrenchment of the new organisational structure, approval of new delegations, decentralisation of functions (especially in the regions) have allowed regions to be autonomous, deliver services in an efficient and effective manner where they are actually required. 28 ROAD ACCIDENT FUND

31 Part B: PERFORMANCE INFORMATION INTEGRATED ANNUAL REPORT 2013/14 29

32 AUDITOR-GENERAL S REPORT: PREDERTERMINED OBJECTIVES The Auditor-General of South Africa (AGSA) currently performs the necessary audit procedures on the performance information to provide reasonable assurance in the form of an audit conclusion. The audit conclusion on the performance against predetermined objectives is included in the report to Management, with material findings being reported under the Predetermined Objectives heading in the Report on Other Legal and Regulatory Requirements section of the Auditor-General s report. Refer to page 143 of the Integrated Annual Report for the Auditors Report, published in Part E: Financial Information. 30 ROAD ACCIDENT FUND

33 SITUATIONAL ANALYSIS Service Delivery Environment The RAF is affected by general economic conditions and other environmental factors, and by the extent to which it manages its costs effectively. These factors are illustrated in the figure below. Revenue Cost Road activity Fuel sold Number and severity of accidents Levy on fuel Volume of claims Grants and investment revenue Financial Position Value of claims Administrative costs Third-party costs PART B: PERFORMANCE INFORMATION Figure B1 Factors influencing the RAF s financial position The nexus of all these factors is road activity in South Africa: The number of vehicles on the road influences the amount of fuel sold, which in turn affects the revenue granted to the RAF by NT. This revenue comprises the RAF Fuel Levy, together with ad hoc government grants and minor income from investments, to equal the RAF s total revenue. The number of vehicles on the road also influences the number of accidents, although many other factors influence this statistic, particularly the relative severity of accidents. Volume and severity of accidents influence the volume and average value of claims made against the RAF. Claims, combined with the cost of third parties, such as attorneys and medical/legal experts, and the RAF s administration costs, equal the RAF s total costs. Key Value Drivers Revenue RAF Fuel levy Volume of fuel sold Expenditure Number of claims Claims expenditure Statement of Financial Position + + = Outstanding claims provision Cash available RAF Key Value Drivers Figure B2 Key value drivers of the RAF Claims payments comprise the RAF s largest expense item. Liquidity is determined by the cash available after claims and other expenses have been paid out for a specific period. Liability is largely composed of outstanding claims that need to be settled, along with their associated costs. Whilst the value drivers presented may appear conceptually simple, they are driven by multiple other factors. Claims expenditure is influenced, for example, by whether a claimant chooses to claim directly or to be represented by an attorney; awards made INTEGRATED ANNUAL REPORT 2013/14 31

34 by Courts that determine precedent; the number of expert witnesses called and the time taken from date of accident to date of finalisation of the claim. As a consequence of these revenue and cost drivers, the outstanding claims provision, which has been growing over the last three decades, has increased exponentially in recent years. The socio-economic role of the RAF augments its legal mandate and frames the important position it occupies in the provision of contributory social insurance within the social security environment. This socio-economic role of the RAF is to reintegrate victims of road accidents back into society from a health and economic perspective and to protect wrongdoers and their families from financial ruin. Over the next three financial years, the RAF Strategy will be anchored on four main pillars, i.e.: A legislative dispensation that is aligned to the principles of social security; Effectively manage the RAF s finances and pursue sustainability; A customer-centric, operationally effective and efficient RAF; and A transformed and capacitated RAF. Each pillar aims to deal with specific challenges that the RAF faces. In addition, these will form the basis on which subsequent performance and operational plans will be developed. Benefits realised by the organisational structure during the review period include: Manageable span of control from CEO to supervisor levels; Unambiguous reporting lines; Enhanced capacity to manage, especially in the regions; Delegation of authority to enhance swift decision-making; Consolidation of operational processes; Consolidation of risk mitigation functions into one business unit; Stakeholder management elevated and managed by one function; Clear segregation of responsibilities, which optimises controls; Management of complaints is centrally co-ordinated; and Enhanced business reporting is now evident. Organisational Environment At a management level, the RAF saw a large number of audit findings resolved and many risk mitigation measures implemented, as captured in the risk register. Leadership Forum meetings involving top leadership levels were held and there is a better appreciation of the need for leaders to lead. The Corporate Secretariat established the Ethics Office and the RAF now sees more pointed visibility of action lists, draft minutes and resolutions. New procedures and policies were introduced, and a new modus operandi was set in the bargaining chamber in respect of employee relations, where significant effort went into ensuring that legitimate grievances are addressed. At a staff level, the RAF saw the adoption of a performance management system, a reduction in the number of grievances and an improved recognition of what standards are required of RAF employees. Communication between divisions and within divisions has also improved. The Human Capital Department cleared many of the grievances and disputes which existed within the RAF, whilst also setting in place procedures and protocols in respect of escalating and lodging matters. An extensive recruitment drive saw over 800 appointments made in 2013/14. The Risk team put in place a new policy framework, register and reporting framework. In 2013/14, a total of 478 arrests and 573 convictions were made for proven fraud. The Legal team established the Compliance, Complaint and Promotion of Access to Information Act, 2000 (Act No. 2 of 2000) (PAIA) functions. 32 ROAD ACCIDENT FUND

35 The RAF s Programme Management Office (PMO) re-established the governance framework and the Road Safety team made the RAF s presence felt within the Transport fraternity. Following the need to modernise the ailing and obsolete technology infrastructure of the RAF, the Information and Communication Technology (ICT) unit assessed IT capacity, people and infrastructure, and reviewed all projects to work towards successful completion. Numerous system updates were made and a set of clearer strategic and operational plans were approved. Downtime and system availability improved and necessary updates and upgrades were and are being rolled out. The Finance team performed well, as is evident by the Clean Audit Award the RAF received from the Auditor-General in the 2012/13 financial year. The establishment of an actuarial audit function was seen and outsourced. Procurement administrators were brought on board to expedite the procurement of goods and services. The Claims team processed claims under the new structure, and early signs of the value of the segregated structure are visible. The regional units were established under the newly created role of General Managers and regional support functions were put in place. A spatial plan was approved for the next five years and a number of teams were moved to Head Office. The Marketing and Communications team put the RAF on the map. The highly revered RAF on the Road community outreach campaign continued to raise brand awareness and showed citizens that the RAF is indeed writing a new legacy of service delivery for and to claimants. At a corporate level, the RAF enjoyed good media coverage, including the profiling of the Executive team in a number of publications. PART B: PERFORMANCE INFORMATION The RAF recognises that it is imperative to capacitate the entity to address its most pressing performance areas, i.e. the reduction of the number of open claims and the promotion and fulfilment of direct claiming. Operationally, the RAF took proactive and decisive steps to render its business operations more accessible and efficient. The organisational structure was aligned to current and future service requirements, while the national service footprint has been expanded and functional areas segregated. Operating Environment Of the 240,783 total claims finalised in the financial year, a large number of claims payments were at values less than R1,000 and less than R10,000 (Graph B1). This can be ascribed to the accelerated approach to supplier claims, which allowed for hospitals and other service providers to be paid directly by the RAF. As a result, the RAF managed to reduce outstanding supplier claims more effectively than that of personal claims. (It is important to note that the graph that follows reflects payments per category and not finalised claims.) INTEGRATED ANNUAL REPORT 2013/14 33

36 Average Size of Claims Paid 100,000 90,000 88,386 Number of Claims Payments per Category 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, ,418 77, ,028 <R1,000 51,422 55,829 41,543 R1,000 R9,999 37,259 18, ,100 2,536 R10,000 R19,999 30,197 4,662 12,544 2,736 R20,000 R49,999 12,706 1,562 3,794 1,107 R50,000 R99,999 10, , , , , , R100,000 R250,000 R500,000 R249,999 R499,999 R999,999 1, R1,000,000 >R5,000,000 R4,999,999 Category Number of claims 2013 (personal) Number of claims 2014 (personal) Number of claims 2013 (supplier) Number of claims 2014 (supplier) Graph B1 Average size of claims paid During the financial year, the RAF continued to receive and settle high volumes of small claims, with more than 95% (average of pre- and post-amendment Act claims) being for settlement values below R50,000 (Graph B2). 120 Cumulative % of Claims Paid Cumulative % of Claims Paid per Category <R1,000 R1,000 R9,999 R10,000 R19,999 R20,000 R49,999 R50,000 R99,999 R100,000 R250,000 R500,000 R1,000,000 >R5,000,000 R249,999 R499,999 R999,999 R4,999,999 Category % of claims 2013 (pre-amendment Act) % of claims 2014 (pre-amendment Act) % of claims 2013 (post-amendment Act) % of claims 2014 (post-amendment Act) Graph B2 Cumulative % of claims paid 34 ROAD ACCIDENT FUND

37 Claims Values The composition of claims payments continues to reflect the inadequacies of the existing fault-based, common law system of compensation. The planned introduction of a no-fault system (RABS) should address these wastages over the longer term. In the short term, Management believes that interim legislative changes could address some of the wastages. Of the R22.2 billion (2012/13: R15.1 billion) cash paid out in respect of claims for the 2014 financial year, R17.6 billion (i.e. 79%) (2012/13: R11.4 billion (i.e. 75%) represented compensation pay-out. The balance of 21% (2012/13: 25%) comprised legal and other expert fees (Graph B3). The year also saw a positive reduction in legal and other expert fees when compared to total expenditure. Composition of Claim Payments R million 25,000 4,633 20,000 15,000 3,691 3,417 3,559 2,686 10,000 PART B: PERFORMANCE INFORMATION 5, ,685 9,368 8, Financial Year 11, , Compensation and medical costs RAF and claimant legal costs Graph B3 Composition of claims payments Operational Statistics The RAF s operational statistics for the current and previous financial years are reflected below. Reference Units 31 March March March 2012 New claims registered 1 No. 147, , ,859 : Personal claims No. 53,230 47,159 52,445 : Suppliers No. 93, , ,414 Total: Increase/(decrease) % Personal claims: increase/(decrease) % Supplier claims: increase/(decrease) % Claims finalised 2 No. 240, , ,043 : Personal claims No. 115,736 53,537 68,637 : Suppliers No. 125, , ,406 Total: Increase/(decrease) % Personal claims: increase/(decrease) % Supplier claims: increase/(decrease) % Definitions 1. New claims registered: Claims received and registered by the RAF during the financial year. 2. Claims finalised: Claims processed in the supplier and personal-claim categories with finalised status. INTEGRATED ANNUAL REPORT 2013/14 35

38 Claims Lodged (Registered) 200, , , , , ,168 Number of Claims 140, , ,000 80,000 60,000 52, ,414 47, ,153 53,230 93,938 40,000 20, Financial Year 2014 Total lodged Personal claims Supplier claims Graph B4 Claims lodged/registered Claims Finalised 300, , ,783 Number of Claims 200, , ,000 50, ,043 68, , ,130 53, , , , Financial Year 2014 Total finalised Personal claims Supplier claims Graph B5 Claims finalised 36 ROAD ACCIDENT FUND

39 During the 2013/14 financial year, 147,168 claims (personal claims: 53,230, supplier claims: 93,938) were registered (Graph B4). 240,783 claims were finalised (personal claims: 115,736, supplier claims: 125,047) (Graph B5); and 232,285 were still outstanding (personal claims: 215,665, supplier claims: 16,620) (Graph B6). A total of 62% of the finalised claims were claims that were registered in the 2013/14 financial year. A total of 12% were claims (which were repudiated during the current year, but registered during the current and previous financial years) finalised during the reporting period. 7% were claims that were finalised and which were moved to undertakings status. 19% were claims which represented the reduction in the 2013/14 outstanding claims. Claims Outstanding Number of Claims 300, , , , , , , , , , ,665 PART B: PERFORMANCE INFORMATION 50,000 43,672 43,747 16, Financial Year 2014 Total outstanding Personal claims Supplier claims Graph B6 Claims outstanding Outstanding claims are comprised of claims where compensation has not been paid and claims where compensation has been paid, but legal cost payments are awaited (which are not solely under the control of the RAF). Outstanding claims decreased by 17% from 279,912 at the end of the previous financial year to 232,285 at the end of the reporting period. This was mainly influenced by a reduction in the number of open and reopened claims totalling 198,140 where compensation had not been paid and legal cost claims totalling 34,145 were still outstanding at the end of the 2014 financial year compared to the number of open and reopened claims of 212,085 and legal cost claims of 67,827 at the end of the previous financial year. The number of open and reopened claims at the end of the 2014 financial year decreased by 7% to 198,140 compared to 212,085 claims at the end of the previous financial year. A further total of 34,145 were awaiting legal cost payments. This is indicative of the large number of compensation payments now being made. Reopened claims at the end of the current financial year decreased by 11% to 14,899 from 16,648 at the end of the previous financial year. This serves as tangible confirmation that claims are not being classified as finalised prematurely. Outstanding claims are further broken down into supplier, non-supplier, direct and represented claims, as well as post- and pre-amendment Act claims, as per the tables that follow. INTEGRATED ANNUAL REPORT 2013/14 37

40 Outstanding claims (supplier and non-supplier) No compensation Open Reopened Sub-total Compensation paid, legal costs awaited Total awaiting compensation or legal cost payment Outstanding claims as at 31 March 2013 Personal claims 167,316 16, ,519 52, ,165 Supplier claims 28, ,566 15,181 43,747 Total 195,437 16, ,085 67, ,912 Movement of claims during the year Personal claims 962 (1,446) (484) (20,016) (20,500) Supplier claims (13,158) (303) (13,461) (13,666) (27,127) Total (12,196) (1,749) (13,945) (33,682) (47,627) Outstanding claims as at 31 March 2014 Personal claims 168,278 14, ,035 32, ,665 Supplier claims 14, ,105 1,515 16,620 Total 183,241 14, ,140 34, ,285 Outstanding claims (direct and represented) No compensation Open Reopened Sub-total Compensation paid, legal costs awaited Total awaiting compensation or legal cost payment Outstanding claims as at 31 March 2013 Personal claims Direct claims 29,235 1,110 30,345 1,392 31,737 Represented claims 138,081 15, ,174 51, ,428 Supplier claims Direct claims 22, ,799 1,977 24,776 Represented claims 5, ,767 13,204 18,971 Total 195,437 16, ,085 67, ,912 Movement of claims during the year Personal claims Direct claims 1,213 (2) 1,211 (288) 923 Represented claims (251) (1,444) (1,695) (19,728) (21,423) Supplier claims Direct claims (9,661) (51) (9,712) (1,257) (10,969) Represented claims (3,497) (252) (3,749) (12,409) (16,158) Total (12,196) (1,749) (13,945) (33,682) (47,627) Outstanding claims as at 31 March 2014 Personal Direct claims 30,448 1,108 31,556 1,104 32,660 Represented claims 137,830 13, ,479 31, ,005 Supplier Direct claims 13, , ,807 Represented claims 1, , ,813 Total 183,241 14, ,140 34, , ROAD ACCIDENT FUND

41 Outstanding claims ( Post- and Pre-amendment Act) No compensation Open Reopened Sub-total Compensation paid, Legal costs awaited Total awaiting compensation or legal cost payment Outstanding claims as at 31 March 2013 Personal claims Post-amendment Act claims 102,446 1, ,991 7, ,757 Pre-amendment Act claims 64,870 14,658 79,528 44, ,408 Supplier claims Post-amendment Act claims 23, ,723 10,897 34,620 Pre-amendment Act claims 4, ,843 4,284 9,127 Total 195,437 16, ,085 67, ,912 Movement of claims during the year Personal claims Post-amendment Act claims 21, ,994 2,764 24,758 Pre-amendment Act claims (20,158) (2,320) (22,478) (22,780) (45,258) Supplier claims Post-amendment Act claims (10,422) (8) (10,430) (9,768) (20,198) Pre-amendment Act claims (2,736) (295) (3,031) (3,898) (6,929) Total (12,196) (1,749) (13,945) (33,682) (47,627) PART B: PERFORMANCE INFORMATION Outstanding claims as at 31 March 2014 Personal Post-amendment Act claims 123,566 2, ,985 10, ,515 Pre-amendment Act claims 44,712 12,338 57,050 22,100 79,150 Supplier Post-amendment Act claims 13, ,293 1,129 14,422 Pre-amendment Act claims 1, , ,198 Total 183,241 14, ,140 34, ,285 Repudiated claims Repudiated claims ended 31 March 2014 Opening balance 1 April ,937 Personal claims 25,928 Supplier claims 4,009 Movement during the year (14,201) Personal claims (16,096) Supplier claims 1,895 Closing balance 31 March ,736 Personal claims 9,832 Supplier claims 5,904 Repudiated claims decreased from 29,937 in the 2012/13 financial year to 15,736 in the current financial year. The decline in repudiations was due to reviewing the claims processing status of all claims on an on-going basis. A full audit was completed during the previous financial year to determine the exact composition of the number of outstanding claims. The audit data assisted in identifying the claims processing life cycle and determining the actions to be taken to facilitate settlement. Claims had been split into logical groupings and were fast-tracked to settlement. Direct claims received special attention in this regard. Validity checks were also performed ensuring that potential fraudulent files were uncovered and investigated. INTEGRATED ANNUAL REPORT 2013/14 39

42 During the number of outstanding claims audit, claims were identified for immediate settlement to eliminate the number. A dedicated unit was established and tasked with the elimination during the year under review. Plaintiff attorneys also engaged with the RAF with regard to block settlement of claims. Individual claim payments per claims category Reference Units 31 March March March 2012 Claims payments All claims 1 R'm R22,000 R15,000 R12,500 Rand value per claim Ave. R104,091 R65,844 R54,808 Total individual claim payments No. 211, , ,905 Personal claims 2 R'm R21,500 R14,400 R12,100 Rand value per claim Ave. R194,676 R138,345 R99,614 Total individual claim payments No. 110, , ,728 Supplier claims 3 R'm R500 R600 R400 Rand value per claim Ave. R5,215 R4,950 R3,379 Total individual claim payments No. 100, , ,177 Claims payments per heads of damage General damages 4 R'm R5,900 R4,000 R3,900 Rand value per claim Ave. R221,003 R152,329 R83,534 Total individual claim payments No. 26,511 26,363 46,174 Loss-of-earnings 5 R'm R7,700 R4,600 R3,200 Rand value per claim Ave. R649,912 R535,050 R433,739 Total individual claim payments No. 11,865 8,636 7,191 Loss-of-support 6 R'm R2,700 R1,600 R1,100 Rand value per claim Ave. R392,744 R347,861 R295,970 Total individual claim payments No. 6,760 4,684 3,783 Medical compensation 7 R'm R1,200 R1,100 R800 Rand value per claim Ave. R9,740 R7,761 R5,870 Total individual claim payments No. 103, , ,975 Funeral costs 8 R'm R90 R70 R50 Rand value per claim Ave. R11,245 R10,425 R9,259 Total individual claim payments No. 7,630 6,303 5,339 Claimants' legal costs 9 R'm R2,900 R2,300 R2,300 Rand value per claim Ave. R63,734 R52,656 R38,534 Total individual claim payments No. 45,561 43,841 60,402 RAF's legal costs 10 R'm R1,700 R1,400 R1,200 Rand value per claim Ave. R20,645 R16,015 R14,878 Total individual claim payments No. 84,739 85,846 83,786 Definitions 1. All claims: All claims settled by the RAF. 2. Personal claims: A personal claim is a claim submitted by any person (the third party) for any loss or damage which that person has suffered as a result of any bodily injury to himself/herself, or the death of, or any bodily injury to any other person. 3. Supplier claims: A supplier claim is a claim submitted directly to the RAF by a person/institution that provided medical treatment and accommodation to the victim of the accident. 4. General damages: General damages represent compensation paid by the RAF for loss of amenities of life, pain and suffering, disability and disfigurement. 5. Loss-of-earnings: Loss-of-earnings represents past and future loss in earnings incurred by the accident victim as a result of a motor vehicle accident. 6. Loss-of-support : Loss-of-support represents past and future loss-of-support incurred by the accident victim s family as a result of a motor vehicle accident. 7. Medical compensation: Medical compensation represents past and future medical costs incurred by the accident victim as a result of a motor vehicle accident. 8. Funeral costs: Funeral costs represent cost of interment or cremation of the accident victim arising from a motor vehicle accident. 9. Claimants legal costs: Claimants legal costs are expenses paid to accident victims attorneys and experts for their assistance provided to the accident victim in lodging a claim with the RAF. 10. RAF s legal costs: The RAF s legal costs are expenses paid to the RAF s panel attorneys to represent the RAF in legal cases against it. 40 ROAD ACCIDENT FUND

43 Composition of Claim Payments 8% 13% 35% 6% 0% 26% 12% Loss-of-earnings Loss-of-support General damages Funeral costs PART B: PERFORMANCE INFORMATION Claimant medical cost Claimant legal and expert cost RAF's legal and expert cost Graph B7 Composition of claim payments Age Analysis of Claims Claims younger than one year decreased from 38% in 2013 to 29% in The bulk of claims outstanding at year-end were mainly claims older than three years, which is indicative of the difficulties faced when claims are litigated and require extensive expert opinion and time in Court (Graphs B8 and B9). Claims Age Analysis as at 31 March 2014 (%) Percentage of Total Outstanding Claims Financial Year % of claims younger than one year % of claims between 1 and 2 years % of claims between 2 and 3 years % of claims older than 3 years Graph B8 Age analysis of claims in percentage INTEGRATED ANNUAL REPORT 2013/14 41

44 Claims Age Analysis as at 31 March 2014 (Number of Claims) 120, ,207 Number of Total Outstanding Claims 100,000 80,000 60,000 40,000 20,000 77,810 74,800 33,267 33,006 79,718 54,499 46,189 49,028 69,845 38,471 46,738 91,837 54,509 29,284 66,271 58,321 35,324 26,158 78, Financial Year Number of claims younger than one year Number of claims between 2 and 3 years Number of claims between 1 and 2 years Number of claims older than 3 years Graph B9 Age analysis of claims in numbers Operations and Finance remain the core business functions of the RAF. Below, follows a comprehensive overview of both historical and current trends. 42 ROAD ACCIDENT FUND

45 Financial Overview The RAF s summarised financial and operational results for the current and past financial years are reflected below. Statement of Financial Position 31 March 2014 R million Restated 31 March 2013 R million Restated 31 March 2012 R million Assets Current assets Cash and cash equivalents 2,505 6,144 4,245 Receivables from non-exchange transactions 4,769 4,153 3,884 Receivables from exchange transactions Other financial assets Consumable stock ,426 10,465 8,296 Non-current assets Property, plant and equipment Intangible assets Total assets 7,694 10,717 8,572 PART B: PERFORMANCE INFORMATION Liabilities Current liabilities Payables from exchange transactions Other financial liabilities Provision for outstanding claims 24,083 20,361 16,399 Other provisions ,531 21,695 17,411 Non-current liabilities Other financial liabilities Provision for outstanding claims 72,917 62,477 56,208 Employee benefits ,961 62,524 56,249 Total liabilities 98,492 84,219 73,660 Net liabilities (90,798) (73,502) (65,088) Reserves Revaluation reserve Accumulated deficit (90,926) (73,626) (65,160) Total net deficit (90,798) (73,502) (65,088) INTEGRATED ANNUAL REPORT 2013/14 43

46 Statement of Financial Performance 31 March 2014 R million Restated 31 March 2013 R million Restated 31 March 2012 R million Revenue Revenue from exchange transactions - Investment income and other revenue Revenue from non-exchange transactions Transfer revenue - Net fuel levies 20,278 17,883 16,989 Total revenue 20,516 18,143 17,104 Expenditure - Claims expenditure (excluding provision for outstanding claims) 22,280 15,202 12,216 - Reinsurance premiums Employee costs Depreciation, amortisation and impairments Finance costs General expenses Total expenses 23,654 16,378 13,222 (Deficit)/surplus before provision for outstanding claims (3,138) 1,765 3,882 Provision for outstanding claims (14,162) (10,230) (24,961) (Deficit)/surplus for the year (17,300) (8,465) (21,079) Cash Flow Statement 31 March 2014 R million 31 March 2013 R million 31 March 2012 R million Net cash flows from operating activities (3,589) 1,914 3,114 Cash flows from investing activities (50) (15) (6) Net increase/(decrease) in cash and cash equivalents (3,639) 1,899 3,107 Cash and cash equivalents at the beginning of the year 6,144 4,245 1,138 Cash and cash equivalents at the end of the year 2,505 6,144 4, ROAD ACCIDENT FUND

47 Financial Ratios Reference Units 31 March 2014 Restated 31 March 2013 Restated 31 March 2012 Profitability (Deficit)/surplus to revenue 1 % Operating (deficit)/surplus to revenue 2 % Return on average equity 3 % Return on average total assets 4 % Cost to income ratio 5 % Liquidity Cash to claims cover ratio 6 Months Current ratio 7 Ratio Net working capital 8 R'm (18,105) (11,230) (9,115) Net working capital excluding claims provision 9 R'm 5,977 9,131 7,284 Solvency Total assets to total liabilities 10 % Definitions 1. Surplus/(deficit) to revenue: Total surplus or deficit as a percentage of revenue. 2. Operating surplus/(deficit) to revenue: Total surplus or deficit before provision for outstanding claims as a percentage of revenue. 3. Return on average equity: Total surplus or deficit for the financial year as a percentage of average net deficit at year-end. 4. Return on average total assets: Total surplus or deficit for the financial year as a percentage of average total assets during the financial year. 5. Cost-to-income ratio: Total administration and human resources costs including RAF and claimant legal and expert costs as a percentage of total income during the financial year. 6. Cash-to-claims cover ratio: Cash and cash equivalents at the end of the financial year divided by average monthly claims expenditure for the financial year (compensation and legal costs). 7. Current ratio: Total current assets divided by total current liabilities. 8. Net working capital: Current assets minus current liabilities. 9. Net working capital excluding claims provision: Current assets minus current liabilities excluding provision for outstanding claims. 10. Total assets to total liabilities: Total assets as a percentage of total liabilities. PART B: PERFORMANCE INFORMATION Financial Position Analysis of Important Financial Indicators 120, ,000 R million 80,000 60,000 40,000 20, Financial Year Provision for outstanding claims Accumulated deficit Net fuel levy income Total cash claims expenditure Graph B10 The widening gap between income and deficit INTEGRATED ANNUAL REPORT 2013/14 45

48 Financial Health Profitability The RAF recorded a net deficit for the 2013/14 financial year of R17.3 billion (2012/13: net deficit R8.5 billion) (Graph B11). This was mainly due to an increase in the provision for outstanding claims of R14.2 billion (2012/13: increase of R10.2 billion). Operating and HR costs increased during the year under review and a higher fuel levy was realised. This contributed to a net deficit of R3.1 billion before catering for the provision for outstanding claims. Efforts to reduce the number of outstanding claims resulted in higher claims expenditure (in cash), together with an increase in the provision for outstanding claims. These totalled an amount of R36.4 billion (2012/13: R25.4 billion) and far exceeded the revenue received from fuel levies of R20.3 billion (2012/13: R17.9 billion). Cash and cash equivalents decreased from R6.1 billion during the previous financial year to R2.5 billion at the end of the reporting period. Cash balances were substantially lower at the end of the period due to mostly higher (cash) claims expenditure. 10,000 Profitability 5, ,882 1,765 R million (5,000) (10,000) (15,000) (20,000) (25,000) (30,000) (24,961) 2012 (21,079) (10,230) 2013 (8,465) (3,138) (14,162) 2014 (17,300) Financial Year (Deficit)/Surplus before provision for outstanding claims (Deficit)/Surplus for the year Provision for outstanding claims Graph B11 Profitability of the Fund Solvency and Capitalisation The RAF remains grossly under-capitalised with liabilities exceeding assets by R90.8 billion (2012/13: R73.5 billion) (Graph B12). The only assets of substance, other than cash, are land and buildings worth R152 million. Similar organisations to the RAF elsewhere in the world have, as one of their major assets, investments that cover as much as 110% of the full outstanding liability. Funding for the RAF has historically focused on only the current liability, and not on funding the non-current liability. It is on this basis that the RAF has continued to trade for three decades, despite being technically insolvent. Several discussions took place between the RAF and NT during the reporting period and NT intends to continue to fund the RAF on a pay-as-you-go basis. 46 ROAD ACCIDENT FUND

49 The net deficit of the RAF has continued to grow (Graph B12) despite the increase in the RAF Fuel Levy determined by NT. It is clear that there is no correlation between the annual increase in the Fuel Levy and the increase in the need to settle claims. Total assets are lower mainly due to lower cash balances, although a higher net fuel levy receivable. The total liabilities are higher mainly as a result of the increase in the provision for outstanding claims. Overall, the net deficit is substantially larger compared to the previous reporting period. The RAF achieved an operational deficit of R3.1 billion for 2013/14 prior to the increase in the provision for outstanding claims had been taken into account. This is mainly due to an increase in claims expenditure as a result of an increase in both productivity and the average cost to settle a claim. Solvency R million 20,000 0 (20,000) (40,000) (60,000) 8,572 10,717 7,694 PART B: PERFORMANCE INFORMATION (80,000) (100,000) (120,000) (73,661) 2012 (65,089) (84,220) 2013 (73,502) (98,492) 2014 (90,798) Financial Year Total assets Total liabilities Graph B12 Solvency of the Fund Liquidity and Cash Holdings As at 31 March 2014, current liabilities of the RAF exceeded current assets by R18.1 billion (2012/13: R11.2 billion) (Graph B13). Liquidity is managed on a day-to-day basis. Claims are paid from available cash reserves. The cash reserve that was built up during the 12 months prior to the reporting period in relation to previous financial years has been reduced. The ideal scenario is to have cash holdings sufficient to pay claims for at least two months in advance at any given point in time. From the graphs that follow, it is evident that the RAF cash resources are not sustainable. Current results reflect that liquidity is declining, and that the high cash balance of R6.1 billion accumulated during the 2012/13 financial year was only temporary in nature. For the period ended 31 March 2014, the cash balance declined to R2.5 billion. This was mainly due to increased claims expenditure during the year under review (Graph B14). INTEGRATED ANNUAL REPORT 2013/14 47

50 Liquidity 15,000 10,000 8,296 10,465 7,426 5,000 0 R million (5,000) (10,000) (15,000) (9,115) (11,230) (20,000) (25,000) (30,000) (17,411) 2012 (21,695) 2013 (25,531) 2014 (18,105) Financial Year Total current assets Total current liabilities Net current liabilities Graph B13 Liquidity of the RAF Cash Holdings 7,000 6,000 6,144 5,000 4,245 R million 4,000 3,000 2,505 2,000 1, Financial Year 2014 Graph B14 Cash holdings of the RAF 48 ROAD ACCIDENT FUND

51 Cost of Service Delivery The RAF constantly focuses on cost-reduction measures to improve efficiencies and to avail more cash for the payment of compensation. The cost-to-income ratio for the financial year increased to 29% (2012/13: 27%). Administration costs remained at 7% (2012/13: 7%), RAF legal and expert costs decreased to 8% (2012/13: 9%) and claimants legal and expert costs increased to 14% (2012/13: 13%) (Graph B15). It is clear that the costs within the RAF s control are well contained. Internal measures, such as the roll-out of enhancements to operational claims systems and processes, as well as RAF on the Road campaigns to deal with claimants directly rather than through third parties, have already yielded cost reductions and are expected to reduce costs even further in the medium to longer term. Cost-to-income Ratio PART B: PERFORMANCE INFORMATION 25 Percentage Financial Year Claimants' legal and expert costs as % of total income RAF's admin costs as % of total income RAF's legal and expert costs as % of total income Total costs as % of total income Graph B15 Cost-to-income ratio Revenue Collection The RAF obtains its funding from several sources, namely: RAF Fuel Levy; Government grants paid by NT when there is a pressing need (not during the year under review); Borrowings/loans, which are an allowed source of funding according to the RAF Act (this option has not been used to date); Investment income, acquired from invested funds that occasionally result when the RAF s operational capacity prevents it from paying out all its funds; and Reinsurance income. INTEGRATED ANNUAL REPORT 2013/14 49

52 Sources of revenue 2013/ /13 Actual Actual amount (Over)/under amount (Over)/under Estimate collected collection Estimate collected collection R 000 R 000 R 000 R 000 R 000 R 000 Net fuel levy 20,930,664 20,278, ,653 17,853,056 17,883,806 (30,750) Investment 668, , , , ,802 (95,727) Other income - 1,918 (1,918) - 3,581 (3,581) Reinsurance revenue (153) - 1,577 (1,577) Total 21,598,699 20,516,443 1,082,256 18,012,131 18,143,766 (131,635) As indicated in Graph B16 below, the total revenue of the RAF has increased over the years. For the period ending 31 March 2014, an increase of R2.4 billion (13%) in total revenue was recorded when compared to the corresponding period last year. This is primarily attributable to: The net RAF Fuel Levy which increased by 13% to R20.3 billion (2012/13: R17.9 billion); Investment income which decreased by 7% to R236 million (2012/13: R255 million); and Reinsurance and other income which decreased by 60% to R2 million (2012/13: R5 million). 25,000 Composition of Total Revenue 20,000 17,104 16,989 18,144 17,884 20,516 20,278 R million 15,000 12,683 12,566 14,526 14,474 10,000 5, Financial Year Total revenue Government grant Net fuel levies Reinsurance and other income Investment income Graph B16 The increase in total revenue over the past five years Fuel Levy The growth in the RAF Fuel Levy income (Graph B16) arose primarily as a result of the 8 cents per litre fuel levy increase, from 88c/ι (2013) to 96c/ι (2014), effective from the beginning of the financial year. The volume of total petrol and diesel usage in the country decreased by 2% to 22,7 mega litres for the period April 2013 to March 2014 (April to March 2012/13: 23,2 megalitres) (Graph B17). 50 ROAD ACCIDENT FUND

53 Megalitres 23,500 23,000 22,500 22,000 21,500 21,000 20,500 20,000 19,500 20, Fuel Volumes per Financial Year 23,263 23,155 21, , PART B: PERFORMANCE INFORMATION Financial Year Total fuel sales Graph B17 Growth in fuel levy income Source: Statistics on Fuel Sales Volume SA: Petrol and Diesel Department of Energy (DoE) At these levels, the RAF Fuel Levy represents 6.7% of the total fuel price at the pump, which averaged more than 1,331 cents per litre in Gauteng for the year under review (Graph B18 and Figure B3). 1,600 Historical Analysis of RAF Fuel Levy vs. Fuel Price and Basic Fuel Levy 1,400 1,320 1,355 1,432 1,200 1,222 1,239 Cents 1, , /2010 5/2010 6/2010 7/2010 8/2010 9/ / / /2010 1/2011 2/2011 3/2011 4/2011 5/2011 6/2011 7/2011 8/2011 9/ / / /2011 1/2012 2/2012 3/2012 4/2012 Date 5/2012 6/2012 7/2012 8/2012 9/ / / /2012 1/2013 2/2013 3/2013 4/2013 5/2013 6/2013 7/2013 8/2013 9/ / / /2013 1/2014 2/2014 3/2014 Gauteng fuel price c/ι RAF Fuel Levy c/ι Basic fuel levy c/ι Graph B18 Historical analysis of the RAF Fuel Levy versus fuel price and basic fuel levy INTEGRATED ANNUAL REPORT 2013/14 51

54 Wholesale margin 2.2% Secondary distribution 0.8% Secondary storage 1.2% Gauteng Petrol 95 ULP (c/ι) 31 March 2014 R14.32/liter Dealer margin 9.7% Transport cost 2.0% Pump rounding 0.0% Levies and taxes 23.8% Fuel levy 14.8% Customs and excise duty 0.3% RAF Fuel Levy 6.7% Petroleum products levy 0.0% BFP 60.3% Slate levy Incremental inland 1.1% transport recovery levy 0.2% Demand side management levy 0.7% Figure B3 Breakdown of petrol price (Gauteng) 31 March 2014 Source: South African Petroleum Industry Association (SAPIA) 52 ROAD ACCIDENT FUND

55 Diesel Refund The refund on diesel provided to certain industrial sectors of the economy increased by 35% to R2.7 billion (2012/13: R2 billion). The refund, which represents more than 11% of the RAF Fuel Levy income, is a major concession on income due to the RAF. The refund has continued to grow steadily over the years (Graph B19). Diesel Refund 3,000 R million 2,676 2,500 1,981 2,000 1,547 1,500 1,189 1,092 1,000 PART B: PERFORMANCE INFORMATION Financial Year Graph B19 Refund on diesel Investment Income Investment income decreased by 7% to R236 million (2012/13: R255 million), mainly due to lower average cash holdings during the year caused by an increase in claims expenditure owing to higher claims processing during the year. The cash expenditure on claims has exceeded the net fuel levies by R1.9 billion or 9% for the current financial year. The average interest rate on cash investments remained stable at 5.07% (2012/13: 5.15%). Cash holdings for the period ended 31 March 2014 was R2.5 billion compared to R6.1 billion in the previous financial year (Graph B16). Reinsurance Income The RAF enters into reinsurance treaties with major international reinsurance companies to cover catastrophic accidents. During the review period, the RAF recovered reinsurance claims to the value of R153,000 (2012/13: R1.6 million) from reinsurance companies. This trend has resulted in fewer claim incidents qualifying for reinsurance claim recoveries. The RAF s reinsurance recoveries derive from a portion of the total claims per incident that is in excess of the retention limit. In view of the aforesaid, reinsurance recoveries are expected to show a general decrease from prior financial years (Graph B16). RAF Fuel Levy The primary source of income for the RAF compensation scheme is a levy raised on fuel. The levy is measured in terms of cents per litre on petrol and diesel fuel sold in South Africa and forms part of the general fuel tax regulated by government. The fuel levy per litre is set by NT on an annual basis, whereas total fuel sales are influenced by a number of macro-economic factors. The RAF annually requests an increase in the RAF Fuel Levy from NT based on a financial model and a calculation of its costs during the coming year. The full extent of the RAF Fuel Levy requested is seldom granted. This is because NT has historically set the levy INTEGRATED ANNUAL REPORT 2013/14 53

56 on a pay-as-you-go basis rather than with the purpose of establishing a fully funded position for the RAF. During the 2013/14 financial year, the RAF Fuel Levy was set at 96 cents per litre. The South African Revenue Service (SARS) administers the collection of the fuel levy and pays it to the RAF in accordance with provisions of the Customs and Excise Act, 1964 (Act No. 91 of 1964) and the RAF Act. The two main variables that determine the income of the RAF are the volume of petrol and diesel sold per annum and the rate of the levy. The RAF Fuel Levy can be viewed as a compulsory contribution to social security benefits which is used only for the specific purposes as provided for in legislation. The RAF Fuel Levy collection process is depicted in the figure below. Oil Refineries / Companies Fuel Retailers Industry Consumers Motoring Public Petrol and diesel consumption RAF Fuel Levy collected by SARS (One to two months after the fuel leaves the refinery) RAF Fuel Levy deposited with National Treasury RAF Fuel Levy paid to the RAF via the Department of Transport (50% paid one month after receipt by National Treasury. The remaining 50% two months after receipt by National Treasury) Diesel rebate refunded to SARS (Set-off) Diesel rebate refunded to industrial customers Figure B4 RAF Fuel Levy collection process 54 ROAD ACCIDENT FUND

57 Fuel Levy Statistics RAF Fuel Levy statistics for the past five years are reflected below: Financial year Units 31 March March March March March 2010 Fuel consumption for road use:* Megalitres 18,907 19,473 19,636 18,543 17,792 * Estimated fuel sales for road used (based on Council for Scientific and Industrial Research (CSIR) Report CR-2002/79 which recommended that 98% of all petrol sales and 70% of all diesel sales should be allocated for road use purposes Financial year Units 31 March March March March March 2010 RAF Fuel Levy: Petrol c/ι Diesel c/ι Gross fuel levy: R/m 22,954 19,865 18,536 15,663 13,658 Diesel refund: R/m (2,676) (1,981) (1,547) (1,189) (1,092) Net fuel levy: R/m 20,278 17,884 16,989 14,474 12,566 Diesel refund % of gross fuel levy % 11.66% 9.97% 8.35% 7.59% 8.00% Implied average fuel consumption (Gross fuel levy/raf Fuel Levy c/ι) Megalitres 23,910 22,574 23,170 21,754 21,341 Implied average fuel consumption subject to diesel refund (Diesel refund/raf Fuel Levy c/ι) Megalitres (2,787) (2,252) (1,934) (1,651) (1,706) Implied average net fuel consumption (Net fuel levy/raf Fuel Levy c/ι) Megalitres 21,123 20,323 21,236 20,103 19,634 PART B: PERFORMANCE INFORMATION Source: South African Petroleum Industry Association (SAPIA), Department of Energy (DoE), Road Traffic Management Corporation (RTMC) INTEGRATED ANNUAL REPORT 2013/14 55

58 RAF Fuel Levy Cents/Litre Cents Financial Year Graph B20 RAF Fuel Levy cents/litre Net Fuel Levy 20,278 16,989 17,884 12,566 14,474 R million 13,658 15,663 18,536 19,865 22,954 (1,092) (1,189) (1,547) (1,981) (2,676) Financial Year Gross fuel levy Diesel refund Net fuel levy Graph B21 Net fuel levy 56 ROAD ACCIDENT FUND

59 Total Expenditure Total RAF expenditure increased by 42% to R37.8 billion (2012/13: R26.6 billion). Staff and administration costs, at 3% and 1%, respectively, remained a relatively small portion of total expenses. Total claims expenditure, inclusive of the provision for outstanding claims at 96% of total expenditure, increased by 43% to R36.4 billion (2012/13: R25.4 billion) (Graphs B22 and B23). Analysis of Total Expenditure R million 40,000 35,000 30,000 25,000 20,000 15,000 14,264 15,177 15,222 16,198 37,177 38,183 25,433 26,609 36,442 37,816 PART B: PERFORMANCE INFORMATION 10,000 5, Financial Year Admin and other Claims expenditure including provision Total expenditure Graph B22 Expenditure % 1% Composition of Total Expenditure 3% 2% % 95% Claims expenditure Staff costs Administrative and other expenses Graph B23 Composition of expenditure INTEGRATED ANNUAL REPORT 2013/14 57

60 Staff Costs Staff costs for the financial year, at R0.90 billion, were 18% higher compared to the previous reporting period (2012/13: R0.76 billion). The main reasons for the increase were: Increases in the total cost component of salaries averaging 8%. Staff numbers increased by 22% to 2,288 (2012/13: 1,881) (Graph B24). Staff Count 2,500 2,288 2,000 1,960 1,872 1,844 1,881 Number of Permanent Staff 1,500 1, Financial Year Graph B24 Staff numbers increased in the 2013/14 financial year Administration and Other Costs Total administration and other costs for the 2014 financial year, at R0.47 billion, were 13% higher compared to the previous reporting period (2012/13: R0.41 billion). The increased variance was mainly due to inflation, as well as an increase in administration costs related to staff numbers. 58 ROAD ACCIDENT FUND

61 Claims Expenditure and the Growth in the Claims Provision Total claims expenditure (inclusive of the provision for outstanding claims) for the reporting period, at R36.4 billion, was 43% higher than the corresponding period last year (2012/13: R25.4 billion). The increase was mainly attributable to higher claims expenditure (in cash) of more than R7 billion over the previous financial year, together with an increase of R14.2 billion in the provision for outstanding claims, due to the following: Higher Claims Processing and Payment Amounts Claims expenditure (excluding the provision for outstanding claims and inclusive of year-end accruals) for the year is 47% higher than the 2013 financial year. This was due to an upward trend in claims processing (productivity) throughout the year, as well as an increase in average cost of settling claims. This was despite an overall increase of R14.2 billion in the provision for outstanding claims. Change in the Composition of the Claims Expenditure The increase in the provision for outstanding claims during the 2014 financial year was mainly driven by a 15% increase in the outstanding claims liability for personal claims and a 45% increase in the provision for undertaking claims liability when compared to the 2012/13 financial year provision for outstanding claims. This is as a result of an increase in the average cost of settling personal claims. The total value of the provision for outstanding claims arising from the actuarial valuation performed for the 2013/14 financial year increased to R97 billion. PART B: PERFORMANCE INFORMATION At an individual claim level, it was found that over 80% of the total expenditure was for claims less than R50,000 in value, but that this represented less than 10% of the overall spend (Graphs B25 and B26). Number of Claims Compensation Payments as % of Total Percentage (%) Financial Year Less than R50k R50k R100k R100k R125k R125k R500k R500k R1 million R1 million R3 million >R3 million Graph B25 Number of claims as a % of compensation payments INTEGRATED ANNUAL REPORT 2013/14 59

62 R Value Total Claims Payments % of Total Percentage (%) Less than R50k R50k R100k R100k R125k R125k R500k R500k R1 million R1 million R3 million >R3 million Graph B26 Value of claims payments % of total The total cash pay-out for claims (excluding year-end accruals) increased by 47% to R22.2 billion (2012/13: R15.1 billion) mainly as result of improved productivity in claims operations during the year under review. Higher average claims values were experienced as a result of the increased movement towards higher-cost loss-of-earnings claims, as well as higher-than-inflation increases in tariffs, costs and compensation. This, in turn, was influenced by an increase in the outstanding claims provision of R14.2 billion, being 39% more than the increase in the previous financial year (2012/13: R10.2 billion). Total claims expenditure also included a net accrued value totalling R95 million of payments accrued at the end of the financial year, together with the reversal of the accrual for payments in the previous financial year (2012/13: R113 million) (Graph B27). 60 ROAD ACCIDENT FUND

63 R million 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 (5,000) 2, , Composition of Claims Expenditure 24,961 10,230 2, ,786 12,507 15,090 (291) , , PART B: PERFORMANCE INFORMATION Financial Year Claims paid in cash Accruals Net increase/(decrease) in provision Graph B27 Composition of claims expenditure Total Liability for Outstanding and IBNR Claims Consistent with previous years, the RAF made use of statutory actuaries to estimate the provision for outstanding claims, which includes and is informed by both the liability for claims reported and the claims which have not been reported. The actuaries estimated that the RAF could still expect to pay an estimated total amount of R97 billion (in March 2014 monetary terms) in respect of accidents that occurred prior to 1 April If the RAF held assets of R97 billion, this, together with interest earned on the assets, was estimated to be sufficient to cover these future payments. R97 billion is, therefore, the total estimated discounted liability for outstanding claims. This estimated liability, including IBNR, was determined by separately considering the following four components: Personal claims (non-undertakings, non-supplier); Supplier claims; Undertaking payments; and Allowance for legal cases (such as Mvumvu, Paixao, Van Zyl, etc.) Each component contributed as follows to the total liability: Component Liability (R billion) % Personal claims Supplier claims Undertaking payments Allowance for legal cases The accounting treatment of the total liability for outstanding claims is explored further in Notes 12 and 35 of the Financial Statements for the year under review. INTEGRATED ANNUAL REPORT 2013/14 61

64 The expected future payments in respect of personal claims were arrived at by first estimating the number of outstanding claims for each accident year, grouping these claims into seven homogeneous groups and then multiplying the estimated outstanding number of claims in each group by the average amount (in March 2014 monetary terms) expected to be paid per claim. These average amounts per group differed per accident year because, on average, larger claims take longer to settle. On the assumption that the investment return on notional assets could have been equal to claims inflation, the total estimated discounted liability equals the liability in March 2014 money terms, which is R97 billion. Graph B28 reflects the estimated number of outstanding personal claims for each accident year, split up into settled claims, unsettled reported claims and incurred but not reported (IBNR) claims. The Amendment Act was introduced on 1 August 2008, and the accidents periods before and after this date are shown separately. 250,000 Estimated Number of Ultimate Personal Claims Number 200, , ,000 50, , , , ,625 1, ,565 1, ,827 1, ,531 2, ,312 3, ,935 5, ,569 8, ,763 15, ,591 8, ,709 13, ,097 28,829 25,283 15,785 24,311 2,019 10,347 23,843 9,382 5,037 21,104 18,473 1,392 10,730 41, Old Act (4 months) (8 months) New Act Settled Unsettled reported IBNR Graph B28 Estimated ultimate personal claims 62 ROAD ACCIDENT FUND

65 The estimated number of ultimate personal claims is expected to fall into the groups as shown in Graph B29 and Graph B30 below. The split for accident years 2008 and 2011 is shown separately to illustrate the impact of the RAF Amendment Act. Breakdown of Ultimate Personal Claims for the Accident Year Ending 31 March 2008, Subdivided into Groups 5% 79% 2% 2% 8% 2% 1% PART B: PERFORMANCE INFORMATION Group A: No payments Group C1: Injury: No general damages Group C3: Injury: General damages and loss-of-earnings Group D2: Death funeral only Group B: Only costs Group C2: Injury: General damages and no loss-of-earnings Group D1: Death with loss-of-support Graph B29 Ultimate pre-amendment Act claims by type Breakdown of Ultimate Personal Claims for the Accident Year Ending 31 March 2011, Subdivided into Groups 11% 12% 41% 11% 5% 13% Group A: No payments Group C1: Injury: No general damages Group C3: Injury: General damages and loss-of-earnings Group D2: Death funeral only 6% Group B: Only costs Group C2: Injury: General damages and no loss-of-earnings Group D1: Death with loss-of-support Graph B30 Ultimate post-amendment Act claims by type INTEGRATED ANNUAL REPORT 2013/14 63

66 For post-amendment Act claims, there were not enough claims settled to allow a similar analysis. Therefore, the RAF calculated the average cost per new Act claim settled to date, and assumed the same future increases or decreases (as above) per group would apply to these amounts for new Act claim settlements. Most other statistics pertaining to claim payments in this Integrated Annual Report are broken down into heads of damage as opposed to the groups breakdown used for estimating the liability of outstanding claims. Claims falling into any group could have payments in respect of different heads of damage. The table below demonstrates the relationship between the groups and the heads of damage. Group: B C1 C2 C3 D1 D2 Supplier Total R million R million R million R million R million R million R million R million Heads: Medical ,297 Loss-of-earnings , ,243 Loss-of-support Funeral General damages - - 5,495 2, ,507 RAF legal ,688 Claimant legal , ,637 Other - - (18) (36) (9) - - (63) Total ,806 9, ,356 The discounted provision in respect of outstanding personal claims (excluding the provision for outstanding liability in respect of undertakings issued and supplier claims) was estimated to be R89,149 million, made up as per Graph B31 for the different accident years. It is clear that the liability is largely constituted of a provision for claims over the last six accident years, which still needs to materialise. Estimated Liability for Outstanding Personal Claims per Accident Year 20,000 17,335 R'million 15,000 10,000 9,248 11,133 10,679 12,689 14,208 5,000 0 Pre ,101 1,660 Accident Year 2,780 4,996 Graph B31 Estimated liability for outstanding claims, excluding undertakings and supplier claims 64 ROAD ACCIDENT FUND

67 The discounted provision in respect of outstanding undertaking payments was estimated to be R7,255 million, made up as shown in Graph B32 for the different accident years. Estimated Liability in Respect of Undertakings 1,000 R'million PART B: PERFORMANCE INFORMATION 0 Pre Accident Year Graph B32 Estimated liability for undertakings INTEGRATED ANNUAL REPORT 2013/14 65

68 Contingency Fees Contingency fees charged by plaintiff attorneys have long exceeded the 25% maximum cap as stipulated by the Contingency Fees Act. For illustrative purposes, assuming that attorneys contingency fees amounted to 50% of compensation during the year under review, only R8.8 billion of the cash paid out by the RAF for the period ended 31 March 2014 (2012/13: R5.7 billion) actually reached the victims of accidents. This means that as much as 60% of all claims disbursements made by the RAF are paid to attorneys, as opposed to the claimants. This is precisely why the RAF believes that the current legislative model is wasteful, since the cost of service delivery is disproportionately high in relation to the compensation paid and the RAF Fuel Levy received (Graph B33). 25,000 Composition of Claim Payments Including Estimated Contingency Fees 20,000 8,776 R million 15,000 10,000 5,000 4,343 2,686 4,684 4,474 3,417 3,559 5,699 3,691 4, ,343 4,684 4, Financial Year 5, , Compensation and medical costs RAF and claimant legal costs Contingency fee Graph B33 Composition of claim payments including estimated contingency Composition of Claims Payments The composition of the compensation portion of the claims (Graph B34) indicates that a major component of the claims (in cash) that the RAF pays out is in respect of general damages and loss of amenities of life, as opposed to medical and funeral costs. For accidents that occurred after 1 August 2008, general damages are only paid out if a serious injury has been sustained, which is in line with the RAF Amendment Act. During the 2014 financial year, R5.9 billion (2012/13: R4.0 billion) was paid out as general damages. This represents 33% (2012/13: 35%) of the compensation paid (excluding legal fees). In proportion to total pay-outs, general damages have shown a decrease over the past three financial years. It is expected that the RAF Amendment Act will result in further decreases in general damages claim payments. The Minister of Transport prescribed a list of non-serious injuries on 15 May 2013, which also simplifies the serious injury assessment process. Medical payments, at R1.2 billion (2012/13: R1.1 billion), represented 7% (2012/13: 10%) of compensation paid. Loss-of-income and -support payments of R10.4 billion (2012/13: R6.2 billion) represented 59% (2012/13: 55%) of compensation paid, and funeral costs, at R0.09 billion (2012/13: R0.07 billion), represented 0.5% (2012/13: 0.6%) of compensation paid. 66 ROAD ACCIDENT FUND

69 R million 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, ,685 3,177 4, ,369 4,108 4, Composition of Compensation ,948 4,263 3, Financial Year 11,398 6,216 3, , ,552 10,368 5,856 1, PART B: PERFORMANCE INFORMATION Total compensation Claimant medical costs Loss-of-earnings and -support Funeral costs General damages Graph B34 Composition of compensation INTEGRATED ANNUAL REPORT 2013/14 67

70 Undertakings Medical cost payments are inclusive of certificates issued to claimants by the RAF to cover future medical treatments, known as undertakings. An undertaking is regarded as active if a claim is made against it during the year. The total number of undertakings certificates issued increased to 137,925 (2012/13: 120,986). The number of active undertakings in respect of which payments were made stabilised at ±3% of all undertakings issued (2012/13: 3%) (Graph B35). This is in line with the nature of the instrument issued, since most injuries arising from motor vehicle accidents heal and do not represent chronic illnesses. Undertakings 160, , , , , , , , ,000 Number 80,000 60,000 40,000 20, ,438 2,164 2,850 4,122 4, Financial Year Total undertakings Active undertakings Graph B35 Undertakings (future medical treatment) 68 ROAD ACCIDENT FUND

71 Payments in respect of all undertakings issued for the 2014 financial year amounted to R234 million (2012/13: R168 million) (Graph B36). Undertakings Amount Paid R , , , , , , ,000 82,009 85,984 50,000 PART B: PERFORMANCE INFORMATION Financial Year Graph B36 Undertakings paid out In keeping with the need to provide support to road crash victims, the increase in the number of total active undertakings is seen as a positive change. INTEGRATED ANNUAL REPORT 2013/14 69

72 Foreign Claims Claims by foreign visitors to South Africa continued to form a large proportion of high-value claims due to an increasing influx of foreign visitors to the country. Since the bulk of payments to foreign nationals are made in their currency of origin and they are accustomed to unlimited benefits with regard to loss-of-earnings in their own countries, foreigners claims have dominated high-value claims in the pre-amendment Act dispensation. With the promulgation of the RAF Amendment Act, loss-of-earnings and loss-of-support payments to foreigners have been capped at R160,000 per annum, adjusted for inflation on a quarterly basis since August The current cap at financial yearend was R215,320. As at 31 March 2014, 14% (2012/13: 14%) of the value of the estimated liability of claims in excess of R5 million comprised claims by foreign nationals (Graph B37). It is important to note, however, that the actual claimed amounts can exceed the estimated value of the claim. Estimated Outstanding Liability for Claims in Excess of R5 Million as at 31 March 2014 as at 31 March % 14% 25% 75% 86% 86% Total RSA Total foreigners Graph B37 Estimated outstanding liability for claims >R5 million 70 ROAD ACCIDENT FUND

73 High-value Claims Although the number of high-value claims (claims where compensation paid is greater than R500,000) as a percentage of the total claims finalised increased during the year, these claims still represent a relatively small proportion of total claims finalised by the RAF during the current financial year, i.e. 3.80% of the total number finalised (2012/13: 2.49%) (Graph B38). Percentage 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% Finalised Number of Claims where Compensation Paid is Greater than R500,000 (in Real Terms) as Percentage of Total Finalised Claims 1.69% 2.49% 3.80% PART B: PERFORMANCE INFORMATION 1.00% 0.50% 0.50% 0.72% 0.00% Financial Year Graph B38 Number of claims compensated >R500,000 as a % of total claims finalised In terms of total Rand value paid, these claims constituted 51.4% of the total compensation paid out during the reporting period (2012/13: 47.4%) (Graph B39) % Rand Value of Compensation Claim Payments Greater than R500,000 as Percentage of Total Compensation Paid 50.00% 47.40% 51.38% 40.00% 38.23% Percentage 30.00% 24.83% 31.28% 20.00% 10.00% 0.00% Financial Year Graph B39 Rand value of claims >R500,000 compensated as a % of total compensation paid INTEGRATED ANNUAL REPORT 2013/14 71

74 Claims Categories and Averages Claims settled by the RAF differ materially when the composition of the claims is considered. The following graph (Graph B40) and analysis provides insight into the average number of claims paid during the year, as well as the composition of these claims. Operations Head of Damage Average Cost per Claim Average Rand Value of Claim Payments 700, , , , , , , , , ,931 5, , ,091 26, ,003 11, ,912 6, , ,620 9,740 11,245 7,630 84,739 20,645 45,561 63, , , , ,000 50,000 0 Total Individual Claim Payments Personal Claims Supplier Claims Total Claims General Claims Loss-of- Earnings Loss-of- Support Medical Funeral RAF Legal and Other Claimant Legal and Other Financial Year 2014 Average Rand value Total individual claims Operations Head of Damage Average Cost per Claim Average Rand Value of Claim Payments 600, , , , , , , , ,839 4, ,855 65,844 26, ,329 8, ,050 4, , ,305 7,761 10,425 6,303 85,846 16,015 43,841 52, , , , ,000 50,000 0 Total Individual Claim Payments Personal Claims Supplier Claims Total Claims General Claims Loss-ofearnings Loss-ofsupport Medical Funeral RAF Legal and Other Claimant Legal and Other Financial Year 2013 Average Rand value Total individual claims Graph B40 Heads of damage Average cost per claim 72 ROAD ACCIDENT FUND

75 Total Claim Payments The average Rand value of all claims paid increased by 58% during the financial year from R65,844 to R104,091 (2012/13: increase of 20% from R54,808 to R65,844). The average increase in payments per claim from 2010 to 2014 has been 27% per annum. This increase was due to the increase in both productivity and average cost to settle a personal claim especially those in respect of loss-of-earnings, loss-of-support and general damages when compared to lower-value supplier claims. The total number of individual claims payments decreased by 7% during the financial year from 227,855 to 211,099 (2012/13: increase of 1% from 225,905 to 227,855). The average decrease in the number of claims settled between 2010 and 2014 has been 9% per annum. Personal Claims The average Rand value of all personal claims paid increased by 41% at the end of the financial year from R138,345 to R194,676 (2012/13: increase of 39% from R99,614 to R138,345). The average payment of personal claims has increased by 30% per annum from 2010 to the end of the 2014 financial year. The main reasons for this are unpacked below under the different heads of damages. The total number of individual personal claim payments increased by 6% at the end of the 2014 financial year from 104,016 to 110,168 (2012/13: decrease of 14% from 120,728 to 104,016). The average decrease in the number of payments per claim from 2010 to the 2014 financial year has been 11% per annum. PART B: PERFORMANCE INFORMATION Supplier Claims The average Rand value of all supplier claims paid increased by 5% at the end of the review period from R4,950 to R5,215 (2012/13: increase of 46% from R3,379 to R4,950). The average payment of supplier claims has increased by 16% from 2010 to the end of the 2014 financial year. The decrease in the average payment per supplier claim is attributable to higher amounts claimed during the financial year. The total number of individual supplier claim payments decreased by 18% at the end of the 2014 financial year from 123,839 to 100,931 (2012/13: increase of 18% from 105,177 to 123,839). The average decrease in the number of claims from 2010 to the end of the review period has been 4% per annum. General Damages The average Rand value per general damages claims paid increased by 45% during the financial year from R152,329 in the previous financial year to R221,003 (2012/13: increase of 82% from R83,534 to R152,329). The average payment for general-damages claims has increased by 45% per annum between 2010 and the current financial year. The number of individual general-damages claims showed a slight increase of 0.6% from 26,363 in the previous financial year to 26,511 (2012/13: decrease of 43% from 46,174 to 26,363). On average, the number of claims in respect of general damages has decreased by 26% per annum since This claims category continues to be abused, as most of the claims for general damages are not for serious injuries. The RAF Amendment Act should address this anomaly over time. Loss-of-earnings The average Rand value of all loss-of-earnings claims paid increased by 21% at the end of the 2014 financial year from R535,050 to R649,912 (2012/13: increase of 23% from R433,739 to R535,050). The average loss-of-earnings payment per claim has increased by 15% from 2010 to the end of the 2014 financial year. The total number of individual loss-of-earnings claim payments increased by 37% at the end of the 2014 financial year, from 8,636 in the previous reporting period to 11,865 (2012/13: increase of 20% from 7,191 to 8,636). On average, the number of claims in respect of loss-of-earnings has increased by 13% per annum since Only 11,865 out of a total of 110,168 individual claim payments were paid towards loss-of-earnings. This represents 11% of the total number of claims paid, but accounts for a significant proportion of the overall expenditure. This emphasises the level of abuse of the current dispensation. INTEGRATED ANNUAL REPORT 2013/14 73

76 The average settlement over the past few years has increased far in excess of the growth in gross national income and average wage and salary increases throughout the country. The introduction of the RAF Amendment Act will, however, not result in a material reduction in the payment of loss-of-earnings, despite the cap being set at R160,000 per annum adjusted for inflation, currently at R215,320. This is due to most South Africans earning an annual income of less than the capped amount. In addition, more accident victims will become entitled to claim for loss-of-income and loss-of-support as a result of the removal of the R25,000 limit on passenger claims. Loss-of-support The average Rand value of loss-of-support claims paid increased by 13% at the end of the 2014 financial year from R347,861 to R392,744 (2012/13: increase of 18% from R295,970 to R347,861). The average loss-of-support payment per claim has increased by 16% per annum since The average number of individual loss-of-support claims payments increased by 44% at the end of the 2014 financial year from 4,684 to 6,760 (2012/13: increase of 24% from 3,783 to 4,684). The average number of claims has increased by 19% per annum since Medical Compensation The average Rand value of all medical cost claims paid increased by 25% at the end of the 2014 financial year from R7,761 to R9,740 (2012/13: increase of 32% from R5,870 to R7,761). The average medical cost payment per claim increased by 14% per annum since The average monthly individual medical cost claim payments decreased by 19% at the end of the 2014 financial year from 127,305 to 103,620 (2012/13: increase of 12% from 113,975 to 127,305). The average number of claims for medical costs has decreased by 8% per annum since Funeral Costs The average Rand value of funeral costs claims paid increased by 8% at the end of the 2014 financial year from R10,425 in 2013 to R11,245 (2012/13: increase of 13% from R9,259 to R10,425). The average payment per claim for funeral costs has increased by 11% per annum since The average number of individual claims payments for funeral costs increased by 21% at the end of the 2014 financial year from 6,303 in the previous reporting period to 7,630 (2012/13: increase of 18% from 5,339 to 6,303). On average, the number of funeral cost claim payments increased by 19% per annum over the past five years. RAF s Legal Costs The average Rand value of the RAF s legal cost payments per claim increased by 29% at the end of the financial year from R16,015 in the previous financial year to R20,645 (2012/13: increase of 8% from R14,878 to R16,015). The average increase in the RAF s legal cost payments per claim has been 16% per annum from 2010 to the end of March The average number of individual RAF legal cost payments per claim for the 12 months decreased by 1% at the end of the 2014 financial year from 85,846 at the end of the previous reporting period to 84,739 (2012/13: increase of 2% from 83,786 to 85,846). There has been an average decrease of 3% per annum in the number of RAF legal cost payments per claim since Claimants Legal Costs The average Rand value of claimants legal costs settled increased by 21% at the end of the 2014 financial year from R52,656 in the previous reporting period to R63,734 (2012/13: increase of 37% from R38,534 to R52,656). The average claimants legal cost payments per claim increased by 42% per financial year since This is mainly as a result of increases in the tariffs being set by an independent Rules Board. The RAF contributes significantly to litigation costs in the country and should be granted the opportunity to provide its inputs with regard to the calculation and setting of new tariffs. 74 ROAD ACCIDENT FUND

77 The average total of individual claimant s legal cost claim payments increased by 4% at the end of the 2014 financial year from 43,841 to 45,561 (2012/13: decrease of 27% from 60,402 to 43,841). The average number of individual claimant s legal cost payments per claim decreased by 19% per annum over the five-year period. The current system benefits attorneys who, despite being paid their legal costs in full by the RAF, continue to charge a contingency fee to the claimants. The current fault-based system of compensation results in vast legal costs being incurred in determining fault and the quantum of the payment. A properly defined no-fault compensation system in the future should see significant savings in this regard. Key Policy Developments and Legislative Changes The NT Instruction 01 of 2013/2014: Cost Containment Measures was issued by the Acting Accountant-General on 19 December 2013, and came into effect from 1 January The RAF had to ensure that its Accounting Authority instituted appropriate expenditure control measures, and is now compliant with the mandatory provisions of the NT Instruction. The enactment of the Protection of Personal Information Act, 2013 (Act No. 3 of 2013) (POPI Act) in the latter part of November 2013 meant that the RAF had to review the manner in which it manages the personal information of its customers and employees, as well as its system s ability to protect such personal information. An implementation plan was developed and implemented to ensure compliance with the Act by April PART B: PERFORMANCE INFORMATION The Use of Official Languages Act, 2012 (Act No. 12 of 2012), which came into effect on 2 May 2013, promotes inclusive linguistic diversity and recognition of the use of previously suppressed official languages. The RAF is adapting its operations, policies and other documentation to comply with the prescripts of this Act. Parliament s promulgation of the Transitional Act, which came into effect on 13 February 2013, means that the RAF now administers three different frameworks, namely the RAF Act, the Amendment Act and the Transitional Act. The current legislative environment hinders rather than enables the RAF s attainment of its vision. The draft RABS Bill was published for comment on 8 February The RABS Drafting Team, which includes RAF representatives, considered the comments received of the draft Bill, and consulted with certain organs of state regarding their comments. A number of commentators indicated that the RABS Bill lacked detail and that commenting on the proposed scheme was therefore challenging. In order to address this comment, it was decided to include a set of draft Regulations, draft Rules and draft Forms for comment when the revised RABS Bill is again published for a second round of comments ensuring widespread and effective consultation. The RAF, as a member of the RABS Drafting Team, will continue to support the DoT in reviewing the comments received following the next round of public consultation and with the legislative process that will follow. Appreciating the need for the RABS Bill to be converted into enacted legislation, a number of the RAF s performance indicators and targets are aimed at amending the legislative and regulatory environment, so as to align these to principles of social security and ultimately bring into being legislation to govern a no-fault benefit scheme for victims of road accidents. At the point in time when the RAF ceases to exist, the then Board of the RAF will be deemed to have been appointed as members of the Board of the new Road Accident Benefit Scheme Administrator (RABSA) and the CEO and staff will be deemed to have been appointed by RABSA. All claims that arose prior to the date on which RABS comes into effect shall be administered by RABSA in accordance with the legislation applicable at the time of the claim arising. Claims under the RAF Act will be possible for many years after RABS has come into effect, e.g. the claim of a minor injured in an accident before RABS comes into effect may be lodged up to 21 years into the future; the claim of a person who is subject to a legal disability (e.g. a person under curatorship or admitted to mental health establishments) will be possible for as long as the legal disability persists; and an undertaking certificate issued under the RAF Act to compensate a claimant in respect of future medical treatment cost incurred as a result of injuries sustained in the accident may, depending on the terms of the undertaking, have to be honoured for as long as the claimant is alive. INTEGRATED ANNUAL REPORT 2013/14 75

78 Therefore, the different legislative schemes that RABSA will be required to administer are: Claims arising prior to 1 August 2008 under the RAF Act; Claims arising on or after 1 August 2008 under the RAF Amendment Act; Claims in terms of the Transitional Provisions Act; and The new claims arising from the effective date of RABS. The introduction of RABS will go a long way in addressing some of the key challenges that the RAF is faced with to allow it to achieve its strategic objectives. Strategic Outcome-oriented Goals The RAF s Revised Strategic Plan , is anchored on four strategic outcomes aimed at addressing the numerous challenges faced by the RAF, mainly due to the nature of its business. The diagram below illustrates the strategic outcomes that will guide the RAF over the next four years, as well as the key focus areas per strategic outcome. Amend current legislation Publication of Amendment Act to revise medical tariffs Provision of input to RABS Steering Committee towards a comprehensive social security system A legislative dispensation that is aligned to principles of social security Effectively manage the Fund s finances and pursue sustainability Reduced deficit and improved sustainability Provision for claims assessed quarterly and independently peer reviewed Reduction in legal costs Compliance to applicable legislation and policy on claims payments Managed operational costs Improved customer service Improved stakeholder relations Improved claims processing and reduce turnaround times Reduced prevalence of fraud Active participation in Road Safety Initiatives A customer-centric, operationally effective and efficient RAF by 2017 A transformed and capacitated RAF by 2017 Reduction in sick leave abuse and vacancy rate Performance management fully implemented Recognition of employees committed to demonstrating RAF values Achievement of Broad-Based Black Economic Empowerment targets Achievement of Employment Equity targets Figure B5 Strategic outcomes 76 ROAD ACCIDENT FUND

79 The outcome indicators for each strategic goal are as follows: Strategic Goal 1: A legislative dispensation that is aligned to principles of social security Description Contribute towards legislative enablement by: Amending the current RAF Act; Establishing a legislative framework to give effect to the approved RABS Policy; and Defending challenges against the RAF. Outcome indicators Achieve the promulgation of an amendment to section 18 of the RAF Act: Publish a maximum fee for serious injury assessment; Publish a single medical tariff; Publish an increase to the emergency medical tariff; Revise the assessment methodology to determine serious injury; Amend the current Road Accident Fund Act, 1996 (Act No. 56 of 1996), as amended by Act No. 19 of 2005; Legislation to bring into being a no-fault fixed benefit scheme; and Provide input on the Inter-departmental Task Team (IDTT) to align RAF and RABS for integration into the Comprehensive Social Security System (CSSS). Strategic Goal 2: Effectively manage the Fund s finances and pursue sustainability Description Increasing revenue, reducing costs and implementing other means to recapitalise the RAF. Outcome indicators Percentage reduction in the deficit; Provision for claims incurred assessed quarterly and annually; Annually review claims records and data; Percentage reduction in legal costs (year-on-year); Increase the number and percentage of direct claims (direct claims as a % of total personal claims); Reduce the conversion rate of direct personal claims to represented personal claims; Manage and monitor operational cost to improve sustainability of the RAF; Number of writs received; and Prevalence of accidents accurately forecasted. Strategic Goal 3: A customer-centric, operationally effective and efficient RAF by 2017 Description Positive, direct relationships with customers based on an optimised operating model, which is more accessible and efficient and reduces the need for third party legal support. PART B: PERFORMANCE INFORMATION Outcome indicators Reduce the number of open claims; Reduce processing turnaround times of supplier, personal, funeral and undertakings claims (from date lodged to payment date); Reduce processing turnaround times of claims for loss-of-earnings/support and general damages (from date lodged to payment date); Optimise hospital service centres and expand the RAF s footprint; Operationalised information collection agents; Reduce the prevalence of litigated cases; Improved conviction rate; Number of claimants attended to at road shows and service centres; Implement claim system enhancements; Manage and monitor system availability and uptime; and Increase the percentage of direct personal claims settled (direct claims settled as a % of total personal claims). Strategic Goal 4: A transformed and capacitated RAF by 2017 Description Build an institution that is performance-driven and values the customer, and improve the awareness of the RAF brand. Outcome indicators Level of adequacy of talent to fill mission critical positions and improved leadership capacity and capability; Performance assessments conducted quarterly; Recognise employees who exhibit RAF values through performance; and Contribute towards government s social and economic transformation agenda. INTEGRATED ANNUAL REPORT 2013/14 77

80 PERFORMANCE INFORMATION BY PROGRAMME Information by Programme Strategic Objective: A Legislative Dispensation that is Aligned to the Principles of Social Security In facilitating legislative enablement, the RAF is responsible for motivating and proposing amendments to the current legislation and supporting legislative processes that the DoT embarks on, as well as participating in relevant structures. In measuring achievement of targets under this strategic programme, the following assumption should be considered: The RAF does not have any control over the legislative process. The National DoT is responsible for driving the legislative process. The RAF, therefore, contributes and supports the process. Contribution to the Organisation s Key Strategic Outcomes The liability and procedural provisions of the Road Accident Fund Amendment Act, 2005 (Act No. 19 of 2005) (the Amendment Act) came into operation on 1 August Shortly thereafter, the Law Society of South Africa and 10 other applicants brought an application challenging the constitutional validity of a number of the provisions of the Amendment Act and Regulations to that Act and also reviewing certain actions of the Minister of Transport taken in terms of the Amendment Act. The legislative changes proposed and undertaken are critical for the achievement of key measures linked to other strategic outcomes. Any significant changes or shifts in terms of the underlying factors in this regard may result in significant changes as to how the other measures are crafted and targets set. A list of other amendments to the current legislation was proposed to the Minister of Transport during the 2013/14 financial year and Ministerial approval is awaited. Legislative amendments awaiting approval include proposals to develop a single tariff, which will cover both non-emergency and emergency tariffs charged by service providers. This is in response to the judgement that was delivered by the Constitutional Court on 25 November 2010 in the matter brought about by the Law Society of South Africa and Others vs. the Minister of Transport and the RAF. The Court held the non-emergency medical tariff to be inconsistent with the Constitution and made an order that the Minister should prescribe a new tariff. The Regulation to prescribe a period for acceptance or rejection of the RAF 4 form, 90 days from date of registration was published by the Minister of Transport on 15 May 2013 and implemented. The target of publishing a maximum fee for serious injury assessment was also completed in the first quarter of the 2013/14 financial year. Furthermore, the RAF provides support and assists the DoT with the process to have the legislation enacted and establish RABS that conforms to the government s Comprehensive Social Security System (CSSS) plans. The RABS Policy will see the current system being transformed into a no-fault fixed benefit scheme based on the principles of social security, and will best meet the needs of all users of South African roads by providing a reasonable, equitable, affordable and sustainable scheme that focuses on medical requirements and rehabilitation. Strategy to Overcome Areas of Under-performance Not applicable under this strategic programme. During the 2013/14 financial year, the RAF met all the targets contained under this strategic objective. The RAF continually provided support to the DoT in relation to the legislative process. Changes to Planned Targets Not applicable There has been no in-year change in the performance indicators or targets under this strategic programme. 78 ROAD ACCIDENT FUND

81 A LEGISLATIVE DISPENSATION THAT IS ALIGNED TO THE PRINCIPLES OF SOCIAL SECURITY Performance indicator 1. To motivate and support the DoT, to effect changes to the current legislation, law and regulations to reduce areas of wastage and inequities by: 1(a) Amending the Road Accident Fund Act 56 of 1996, as amended. 1(b) Publishing a maximum fee for serious injury assessments. 1(c) Publishing a Regulation to prescribe a period for acceptance or rejection of RAF 4 form within 90 days from date of registration. Legend Actual achievement 2012/13 The target to commence the process in terms of publishing the proposed process and requesting comments regarding the promotion of Administrative Justice Act (PAJA) was achieved. In the third and fourth quarter additional requests were received to motivate for comprehensive amendments to the RAF Act to establish a new no fault dispensation. The target to support the DoT in developing and proposing a tariff for serious injury assessment and medical-legal reports was met. Regulation awaits Ministerial approval. Publication drafted and awaiting Ministerial approval. Planned target 2013/14 Support DoT in submission of Draft Bill to be certified by the Office of the Chief State Law Advisor and Government consultation process commenced. Publish Regulation and implement tariff. Redraft Regulation if required and have Regulation published by Minister of Transport. Actual achievement 2013/14 The RAF provided support to the DoT to commence the Chief State Law Advisor and Government consultation processes. The Bill was approved by the RAF Board in the meeting held on 29 January 2014 for submission to the DoT. The task of publishing a maximum fee for serious injury assessment was completed in the first quarter of the 2013/14 financial year. The Amendment Regulation 2013 was published on 15 May 2013 and implemented. The task to redraft the Regulation and have it published by the Minister of Transport was completed in the first quarter of the 2013/14 financial year. The Amendment Regulation 2013 was published on 15 May 2013 and implemented. Deviation from planned target to actual achievement for 2013/14 The Bill is awaiting Ministerial approval. Task completed with the publication of the Regulation dated 15 May Task completed with the publication of the Regulation dated 15 May Comment on deviations The Board reviewed and approved the RAF Amendment Bill 2014 for submission to the Minister of Transport. The Bill was submitted to the Minister of Transport on 30 January A maximum fee for serious injury assessment was published in the Government Notice dated 15 May Proposed serious injury assessment tariff should not exceed R2, (excluding VAT), or adjusted fees determined by the Minister. Regulation 3 (e) published in the Government Gazette dated 15 May 2013 prescribes that the RAF must within 90 days from the date on which the serious injury assessment report was sent to the RAF, handle, accept or reject the report or direct the third party to submit himself/herself to a further assessment. PART B: PERFORMANCE INFORMATION Target achieved or exceeded Target partially achieved Target not achieved INTEGRATED ANNUAL REPORT 2013/14 79

82 A LEGISLATIVE DISPENSATION THAT IS ALIGNED TO THE PRINCIPLES OF SOCIAL SECURITY Performance indicator 1(d) Publishing a nonemergency medical tariff. 1(e) Conducting annual reviews of emergency medical tariff. 1(f) Review serious injury assessment and amend Road Accident Fund Act, 1996 (Act No. 56 of 1996) and 2008 Regulations Act if a more speedy and less costly assessment method established. Actual achievement 2012/13 The target to develop a proposed non emergency tariff, submit to DoT on the proposed tariff was met. The proposal and consultation took place in the current year, and the procurement process to appoint a service provider has commenced. The annual emergency tariff was reviewed. Specification was done and inputs were received from DoT, incorporated and approved by the Board to formally request the DoT to publish the final regulation. Planned target 2013/14 Appoint service providers; submit proposed tariff to DoT for publication and commence consultative process by 31 March Review emergency medical tariff annually by Quarter Three. Appoint service providers and obtain approval for alternate assessment method. Actual achievement 2013/14 The RAF provided support to the DoT to commence the Chief State Law Advisor and Government consultation processes. A service provider was appointed and the proposed tariff was tabled in the Board meeting that was held on 29 January The tariff is included in the Bill under 1(a) above. The tariff was approved by the RAF Board in the meeting held on 29 January 2014 for submission to the DoT. The annual emergency medical tariff was reviewed in the first quarter of the 2013/14 financial year. The Board notice giving effect to the new adjustment was published in the Government Gazette published on 28 June A service provider was appointed during the 2013/14 financial year. The RAF Amendment Bill 2014 was drafted in line with the recommendations of service providers. These recommendations were considered and approved by the RAF Board for submission to the DoT to amend the RAF Act as in 1(a) above. Legend Target achieved or exceeded Target partially achieved Target not achieved Deviation from planned target to actual achievement for 2013/14 The Bill is awaiting Ministerial approval. Task completed with the publication of the Board notice published on 28 June 2013, giving effect to the new adjusted medical tariff. The draft Amendment Bill approved by the RAF Board is awaiting Ministerial approval. Comment on deviations The Board reviewed and approved a single medical tariff for submission to the Minister of Transport. The tariff was submitted to DoT on 30 January 2014 to embark on an inter-governmental consultative process. Government Board Notice dated 28 June 2013 pronouncing the annual increase of the medical tariff by 6.3% retrospectively with effect from 1 April The RAF Amendment Bill 2014 includes amendment of section 1, 17 and 26. Section 17(1A) which specifically states that Assessment of serious injury shall be based on a prescribed method adopted after consultation with medical service providers and shall be reasonable in ensuring that injuries are assessed in relation to the circumstances of the third party. 80 ROAD ACCIDENT FUND

83 A LEGISLATIVE DISPENSATION THAT IS ALIGNED TO THE PRINCIPLES OF SOCIAL SECURITY Performance indicator 2. To support the DoT to enact legislation to bring into being a no-fault fixed benefit dispensation (RABS). Actual achievement 2012/13 The bill was finalised and the DoT is preparing submission to the Minister to publish the bill for comments. Planned target 2013/14 Support DoT in publishing the Bill for comments and commence Parliamentary legislative process by 31 March Actual achievement 2013/14 The published RABS Bill has been revised and specific provision has been made in this Bill for the Minister of Transport to consult on draft RABS Regulations. Prior to the Bill coming into effect, approval is being sought from the Minister to re-publish the Bill. Provision is also made for the Board of the RAF to develop and consult on draft RABS Rules and draft RABS Forms, prior to the Bill coming into effect. The RAF has in the interim developed draft RABS Rules and draft RABS Forms to publish for comment concurrently with the next publication of the revised RABS Bill and draft RABS Regulations.The Bill was approved by the Board in a meeting held on 29 January 2014 for submission to the DoT. Deviation from planned target to actual achievement for 2013/14 Public comments received, necessitated the revision of the Bill in order to mitigate the risk of potential future legal challenges which may be brought about by perceived lack of public consultation and participation. Comment on deviations Parliamentary process will only commence after the re-publishing of the Bill for public comments. The DoT is seeking the mandate from the Minister of Transport to republish the Bill for a second round of public comments. PART B: PERFORMANCE INFORMATION Legend Target achieved or exceeded Target partially achieved Target not achieved Strategic Objective: A Solvent, Liquid and Sustainable RAF The RAF s focus is on financial sustainability and seeking options to capitalise the organisation. The RAF actively engages with the NT and the DoT to determine fuel levy allocation increases annually. Furthermore, the RAF commenced with the process of developing strategies aimed at reducing legal and operational costs through internal cost management initiatives. These interventions and strategies have yielded positive results, leading to a reduction of the legal and expert cost-to-compensation paid ratio to 20.9% compared to the 27% recorded in the 2012/13 financial year. Contributory factors leading to the improved legal and expert cost-to-compensation paid ratio is the drive undertaken by the RAF to increase direct claims. Strategy to Overcome Areas of Under-performance The net deficit has increased by 24% compared to the net deficit recorded in the previous financial year. This is as a result of, amongst others, improved productivity resulting in an increase in claims expenditure (excluding accruals and provisions) of more than R22 billion, an increase in the provision for claims due to an increase in the average cost of claims payments. Strategies to manage under-performance in this area has been to continuously monitor the deficit by conducting a quarterly actuarial assessment of the deficit, an annual review and a clean-up of the claims database, as well as accident forecasting. The Board will give consideration to whether this is a strategic aspiration, rather than one based solely on actuarial forecasts. Changes to Planned Targets Not applicable There has been no in-year change in the performance indicators or targets under this strategic programme. INTEGRATED ANNUAL REPORT 2013/14 81

84 A SOLVENT, LIQUID, SUSTAINABLE RAF Performance indicator 3. Reduced deficit and improved sustainability. Actual achievement 2012/13 R51.5 billion, revised to R73.5 billion as at 31 March Planned target 2013/14 5% annual reduction of the net deficit. Net deficit for the 2012/13 financial year (R73.5) billion. *As per prior year error on reporting provision for outstanding claims as per GRAP 19. Actual achievement 2013/14 Net deficit for the year ending 31 March 2013 was R73.5 billion*. Net deficit for the period ended 31 March 2014 was R90.8 billion. An increase of 24% in the net deficit has been recorded. *Prior year net deficit has been revised from R51.5 billion to R73.5 billion due to the prior year errors on the provision for the diesel rebate and the provision for outstanding claims. Deviation from planned target to actual achievement for 2013/14 For the target to be achieved, net deficit should have been reduced by 5% to R69.8 billion. Net deficit grew to R90.8 billion a deviation of R21 billion. Comment on deviations An annual actuarial valuation of the claims incurred was received and accounted for in the 2014 Annual Financial Statements. The provision for outstanding claims for the 2013/14 fiscal year is evaluated at R97 billion. The sharp increase in the net deficit during the 2013/14 financial period is due to a net increase in claims provision by R14.2 billion compared to the R10.2 billion recorded in the previous financial year. There has also been a sharp increase in claims (cash) paid in the 2013/14 financial year to R22.2 billion a 47% increase compared to the R15.1 billion reported in the previous financial year. This is attributable to increased productivity in the claims processing environment, which led to a reduction in cash holdings of the RAF during the period as well as an increase in the personal claims liability which is as a result of an increase in the average cost to settle personal claims which increased by 41% due to the popularity of loss-ofearnings brought about by the MVA litigation environment. An annual peer review/ independent actuarial valuation is currently underway. Legend Target achieved or exceeded Target partially achieved Target not achieved 82 ROAD ACCIDENT FUND

85 A SOLVENT, LIQUID, SUSTAINABLE RAF Performance indicator 4. Provision for claims incurred assessed quarterly and an independent peer review conducted. 5. RAF claims data and records audited. 6. Reduction in legal costs year-on-year legal costs as a percentage of claims payments. 7. Increased percentage of direct claims originated (direct personal claims as a percentage of total personal claims). Actual achievement 2012/13 Provision for claims incurred was assessed for the year 2012/13 by the Statutory Actuary and an annual assessment conducted by an independent actuary. Management completed a review of claims files and data. Legal costs as a percentage of total claims expenditure excluding medical costs for the 2011/12 financial year: 29%. Total legal costs (claimants and the RAF s legal costs) for the 2012/13 financial year: R3.691 billion and the total claims expenditure excluding claimant medical costs for 2012/13: R billion. Legal costs as a percentage of the total claims expenditure 26.45%. Planned target 2013/14 Provision for claims incurred assessed annually by Statutory Actuary and an annual assessment conducted by an independent actuary. Complete management review of claims files and records during the second quarter. 2% year-on-year reduction in legal costs. Actual achievement 2013/14 An annual provision of claims incurred has been conducted by a Statutory Actuary. An assessment by an independent actuary is currently underway. Management review of claims files and records is complete. An audit report on gaps identified was issued to Management and an action plan has been developed to correct identified weaknesses. Legal costs as a percentage of total claims expenditure excluding medical costs for the 2012/13 financial year: 26.45%. Total legal costs (claimants and RAF s legal costs) for the period ending 31 March 2014: R4.633 billion and total claims expenditure excluding claimant medical costs for the 2013/14 financial year: R billion Legal costs as a percentage of total claims expenditure 22.12%. 20% 20% annual increase Direct claims originated in the 2013/14 financial year were 14,205. Total personal claims originated in the 2013/14 financial year were 53,231. Direct claims constitute 25.25% of total personal claims lodged. The 25.25% is greater than 20%. Deviation from planned target to actual achievement for 2013/14 An annual actuarial valuation of the claims incurred has been conducted. One review of claims files and data was required for the year and was conducted and finalised in the third quarter. Target exceeded by *4.33% from the set baseline of 26.45%. *( = 4.33%) Target is exceeded by 26.7%. Comment on deviations The annual target to have an actuarial valuation of the claims provision has been met. A peer/independent review is currently underway. The gaps identified by Internal Audit on the audit of claims files and records necessitated a comprehensive cleanup exercise that will be conducted in the 2014/15 financial year. A project plan has been developed and will be approved in the first quarter of the 2014/15 financial year. The annual target to reduce legal costs as a percentage of total claims payments by 2% year-on-year from the baseline of 26.45% has been achieved. The annual target to increase direct claims registered by 20% annually has been achieved. PART B: PERFORMANCE INFORMATION Legend Target achieved or exceeded Target partially achieved Target not achieved INTEGRATED ANNUAL REPORT 2013/14 83

86 A SOLVENT, LIQUID, SUSTAINABLE RAF Performance indicator 8. Reduced % of direct personal claims becoming represented, i.e. % reduction in baseline. 9. Managed and monitored operational costs to improve the sustainability of the Fund. 10. Reduction in the number of writs of execution. Actual achievement 2012/13 The number of direct claims that became represented in the 2012/13 financial year was 1,768 with a quarterly average of 442. *A baseline has been established at 6%. OPEX had a favourable variance of 18.3% and CAPEX had a favourable variance of 72%. Total number of writs in the year 2011/12 : 11,656. Total number of writs in the year 2012/13: 7, % decrease in the number of writs of execution had been achieved. Planned target 2013/14 20% reduction from set baseline of 6% i.e. (6 x 80% = 4.8%). 10% negative variance per expenditure grouping, but not exceeding the overall organisational budget. 20% reduction in the number of writs of execution year-onyear. Actual achievement 2013/14 Number of direct personal claims that became represented for the 2012/13 financial year was 1,215. Number of open direct claims for the 2013/14 financial year was 30, % of the total number of open direct claims was converted to represented claims. Overall organisational operations and capital expenditure budget for the period ending 31 March 2014: R1.562 billion. Overall actual CAPEX and OPEX spending for the 2013/14 financial year: R1.379 billion. Average number of writs for the 2012/13 financial year: 7,844. Number of writs for the 2013/14 financial year: 5,595. Percentage reduction: 28.6%. Deviation from planned target to actual achievement for 2013/14 The target to reduce direct claims from being converted to represented claims has been exceeded by 1%. There was a 12% saving against the budget. Target exceeded by 8.6%. Comment on deviations The conversion of direct claims is closely managed by the Operations Department with support from the Forensic Investigation Department. All converted direct claims are investigated immediately and claimants are contacted immediately by the Forensic team to determine the rationale for the change in mandate. It is however, noteworthy that a number of claimants contacted, claimed not to have consented to the change in mandate. Subsequently, the majority of claimants contacted agreed to being converted back to direct claimants. A Direct Claims unit has been established within the claims processing environment. The institutionalisation of the Direct Claims unit in Operations will drastically reduce the number of direct claims being converted as the team aims to improve service delivery for direct claimants. Target has been achieved, although the negative spending is above the targeted 10%, the overall organisational budget has not been exceeded. The annual target of 20% reduction in the number of writs of execution year-on-year has been achieved. Legend Target achieved or exceeded Target partially achieved Target not achieved 84 ROAD ACCIDENT FUND

87 A SOLVENT, LIQUID, SUSTAINABLE RAF Performance indicator 11. Accurate forecasting of prevalence of accidents. Actual achievement 2012/13 Not scheduled in the 2012/13 financial year. Planned target 2013/14 One (1) forecast by 31 December Actual achievement 2013/14 An accident forecasting report was finalised during February The report is intended to be used to forecast the prevalence of accidents. Legend Target achieved or exceeded Target partially achieved Target not achieved Deviation from planned target to actual achievement for 2013/14 A forecasting report of prevalence of accidents has been finalised and approved at Executive Management (EXCO) level. Strategic Objective: A Customer-centric, Operationally Effective and Efficient RAF by 2017 Comment on deviations The report will be used internally to forecast the prevalence of accidents and assist the RAF with the claims valuation process. In the Revised Strategic Plan, the RAF has undertaken to implement measures to achieve operational efficiency and a seamless and appropriate customer experience. Intended operational efficiencies aim to make the RAF s systems and processes more efficient. In addition, the RAF s national footprint will be expanded and customer interaction points optimised to ensure that the total experience for the customer is of a consistently high standard. PART B: PERFORMANCE INFORMATION An organisational realignment embarked upon during the 2012/13 financial year sought to improve operational efficiency, improve internal controls, streamline business processes and segregate duties, primarily focusing on reducing the time taken to settle claims and reduce the number of outstanding claims. Improving customer experience still remains a priority in the remaining Medium-Term Strategic Framework period. The RAF has in the current year increased the number of hospital service centres (HSCs) and has taken its service offering to more than 20,000 claimants through its RAF on the Road campaigns, as well as other RAF events. The improved brand awareness is assisting the RAF in encouraging direct claiming as opposed to attorney represented claiming. Strategy to Overcome Areas of Under-performance The target to decrease the turnaround times for funerals, general damages, loss-of-earnings and medical costs has not been achieved in the 2013/14 financial year. This is a result of the targeted intervention by Management to reduce long outstanding claims. It should also be taken into consideration that the litigation process linked to these claims also contributes to the lengthy turnaround times in processing these claims. Highlighted below, are some of the implemented interventions aimed at reducing turnaround times and improving service delivery. Case-flow management aimed at managing litigated claims. The preferred method of conducting litigation by the Judiciary is within a case management regime. Judges encourage pre-trial conference wherein issues are narrowed; Block settlements on non-litigated matters that have not been placed on the Court-roll yet is on-going; and Regular block settlements (meetings with plaintiff attorneys). Changes to Planned Targets Not applicable There has been no in-year change in the performance indicators or targets under this strategic programme. INTEGRATED ANNUAL REPORT 2013/14 85

88 Linking Performance with Budgets Sub-programme name 2013/ /13 Actual (Over)/under Actual (Over)/under Budget expenditure expenditure Budget expenditure expenditure R 000 R 000 R 000 R 000 R 000 R 000 Claims expenditure (excluding provision for outstanding claims) 18,144,000 22,280,094 (4,136,094) 12,607,682 15,202,388 (2,594,706) Provision for outstanding claims 25,931 14,162,000 (14,136,069) 1,063,040 10,230,436 (9,167,396) Total 18,169,931 36,442,094 (18,272,163) 13,670,722 25,432,824 (11,762,102) A CUSTOMER-CENTRIC, OPERATIONALLY EFFECTIVE AND EFFICIENT RAF BY 2017 Performance indicator 12. Reduced number of open claims, i.e. claims where payment of compensation and/or legal costs must still be made. Actual achievement 2012/13 212,085 open and re-opened claims (O&R status) for the year ending 31 March Planned target 2013/14 Actual achievement 2013/14 200,000 Number of open claims (O&R status) as at 31 March 2014: 198,140. Number of open claims at (S status) as at 31 March 2014: 34,145. Legend Target achieved or exceeded Target partially achieved Target not achieved Deviation from planned target to actual achievement for 2013/14 Target has been exceeded by 1,860 claims. Comment on deviations During the first and second quarter of 2014, an increase in the number of open claims was experienced. This was mainly due to the roll-out of the organisational re-alignment process. With the new structure, claims are now processed within specific pillars and increased volumes of claims are now attended to due to streamlined segregation of duties. Management has in the last three quarters of the 2013/14 financial year implemented various outstanding claims initiatives to improve performance on this primary target. Individual performance has been closely monitored on a daily and weekly basis, and interventions implemented where necessary. Management has also implemented recognition awards, which assisted in improving the performance culture, as well as motivated and encouraged outstanding performance. Improved productivity and claims processing has led to an overall increase in total claims expenditure, which is 22% above the budget and 4% higher than forecasted for the financial year. 86 ROAD ACCIDENT FUND

89 A CUSTOMER-CENTRIC, OPERATIONALLY EFFECTIVE AND EFFICIENT RAF BY 2017 Performance indicator 13. Reduced turnaround times for the processing of supplier and funeral claims, as well as undertakings (from date lodged to date of payment). 14. Reduced turnaround times for the processing of claims for medical costs, lossof-earnings/ support and general damages (from date lodged to date of payment). 15. All Hospital Service Centres (HSCs) optimised and national footprint expanded. Actual achievement 2012/13 Planned target 2013/14 Actual achievement 2013/ days 300 days - Funeral claims: 599 days - Supplier claims: 211 days *Weighted average number of days: 238 days. *Weighted number of days is used to calculate reported achievement. This is due to the fact that more than 90% of claims in this pool relate to supplier claims and less than 10% to funeral claims. 1,336 days 1,200 days - Medical costs: 1,304 days. - Loss-of-earnings: 1,343 days. - Loss-of-support: 1,110 days. - General damages: 1,648 days. Average number of days 1,351 days. 75 functional HSCs were in place, and an assessment was conducted in the current HSCs. Quality assurance reviews conducted in 75 HSCs; additional 10% introduced and national footprint expanded as per indicators of review undertaken in the 2012/13 financial year. 83 HSCs are currently in operation. Quality assessment reviews in existing hospitals have been conducted by the Compliance unit. ICT also conducted an independent quality assessment in respect of network accessibility to the service centres. Deviation from planned target to actual achievement for 2013/14 Target exceeded by 62 days. Target not achieved by 151 days. 83 HSCs are operational across the nine provinces. Quality assessments were conducted in existing hospitals. The RAF s initiative to expand its national footprint and improve its service offering to all MVA victims will see the opening of four additional customer service centres during the first quarter of the 2014/15 financial year. Comment on deviations The target of 300 days turnaround time for processing of funeral and supplier claims has been achieved. Interventions to improve the turnaround times for processing funeral claims will be implemented and closely monitored in the 2014/15 financial year. The target for the listed heads of damages has not been met. However there has been a significant improvement during the year under review. The positive performance results recorded are due to various Management interventions implemented during the financial year. Management implemented stricter measures to monitor performance and implemented corrective actions on a weekly basis. It should also be taken into account that this target is highly impacted by the initiative to reduce the outstanding claims implemented by Management. These initiatives focused on long outstanding claims, resulting in increased turnaround times. Target to have 83 operational HSCs has been exceeded by one additional HSC. The national footprint has been expanded by opening seven additional HSCs in the current financial year. The HSCs are located across the nine provinces. Quality assessments were conducted in the existing centres to ensure that the centres comply with level 1 standards (basic RAF office requirements). PART B: PERFORMANCE INFORMATION Legend Target achieved or exceeded Target partially achieved Target not achieved INTEGRATED ANNUAL REPORT 2013/14 87

90 A CUSTOMER-CENTRIC, OPERATIONALLY EFFECTIVE AND EFFICIENT RAF BY 2017 Performance indicator 16. All operational procedures reviewed and compliance tested annually. 17. Twenty functional Information Collection Agents (ICAs) appointed. 18. Reduced prevalence of litigated cases (i.e. number of claims expressed as a percentage of open claims at the end of the financial year) where the claimant referred the matter to the Courts. Actual achievement 2012/13 All operational procedures were reviewed. Not scheduled in 2012/13. Total number of claims that had summonses (trigger of litigation) was 27,083 as at 31 March Total number of open claims as at 31 March 2013 was 195,437. *The baseline is established at 14%. Baseline revised to 13%. This was due to non-inclusion of R status claims in the number of open claims. The baseline should have been calculated as: Number of litigated claims in the 2012/13 FY: 27,083 divided by total number of open claims (O&R status) 212,085 = 13% Planned target 2013/14 Annual review completed by 31 July functional ICAs operational by 31 March Litigated cases reduced by 10% year-on-year. Actual achievement 2013/14 All operational procedures were reviewed during the 2013/14 financial year. Operational and support processes have been reviewed and tested for compliance. 22 ICA MoUs have been signed with various collection agents within the MVA value chain. Number of litigated cases for the 2013/14 financial year: 36,379. Number of open claims for the 2013/14 financial year (O&R status): 198,140. Litigated claims represent 18.36% of open claims to date. Legend Target achieved or exceeded Target partially achieved Target not achieved Deviation from planned target to actual achievement for 2013/14 Task has been completed. Operational and support services processes have been reviewed and tested for compliance. Target exceeded by 2 MoUs. 22 ICA MOUs have been signed to date and are currently being operationalised % is higher than the set target of 11.7% (13% x 90%). Comment on deviations Target for an annual review of operational procedures has been completed and a draft compliance report has been submitted to Management. Target has been achieved. Accident/crash information is already sourced and received from various agents that are involved in the MVA value chain. The process to identify stakeholders that will contribute to the collection of accident information commenced in the 2013/14 financial year. A number of agents have been brought on board to assist the RAF in compiling a comprehensive database with the intention of speeding up the processing of claims and eradicating fraud. The claims process is litigious in nature. It should be noted that more than 80% of claims are represented claims. It is envisaged that increased direct claiming will contribute towards the reduction in the number of litigated cases. With the drive undertaken by the RAF to improve brand awareness and the initiatives to expand the national footprint and expand on the RAF service accessibility to all claimants across the country, the number of litigated cases should decrease. Litigation management processes are continually being enhanced by the regions. Block settlement meetings with plaintiff attorneys are on-going to settle matters without trial dates being set. 88 ROAD ACCIDENT FUND

91 A CUSTOMER-CENTRIC, OPERATIONALLY EFFECTIVE AND EFFICIENT RAF BY 2017 Performance indicator 19. Improved fraud conviction rate (i.e. number of convictions during financial year as a % of number of investigations during financial. 20. Number of claimants engaged at road shows per annum. Actual achievement 2012/13 Number of convictions was 234 and the number of cases investigated and closed: 4,572. *Baseline for the conviction rate established at 5.1%. Number of claimants engaged at road shows was 13,155. Planned target 2013/14 10% improvement in the conviction rate recorded annually. Actual achievement 2013/14 Number of convictions for the 2012/13 financial year: 234. Number of convictions reported for the 2013/14 financial year: 573. Thus an improvement of 145% ( = 339 / 234). 20,000 The number of claimants engaged at road shows, including other RAF events and all RAF on the Road campaigns: 20,490 for the 2013/14 financial year. Deviation from planned target to actual achievement for 2013/14 For the target to be met there should have been ( % = 258) convictions recorded in the 2013/14 financial year. Target exceeded by 490 claimants engaged. Comment on deviations Conviction rate target has improved by more than 100% compared to convictions recorded in the 2012/13 financial year. The number of claimants engaged at road shows and activations undertaken by regional offices were not taken into account throughout the financial year. Verifiable registers have subsequently been obtained from regional offices and the count included in the total number of claimants engaged at various road shows held during the 2013/14 financial year. The four cities RAF on the Road campaign that was held on 15 March 2014 contributed to the achievement of this target, as this campaign attracted more than 7,600 claimants. PART B: PERFORMANCE INFORMATION Legend Target achieved or exceeded Target partially achieved Target not achieved Strategic Objective: A Transformed and Capacitated RAF by 2017 The RAF has recognised that effective communication, people and leadership are critical to ensure that the highest standard of care is provided to accident victims to restore balance in the social system, as is the RAF s vision. The RAF aims to capacitate the organisation and promote accountability and a performance-driven ethos. Furthermore, the RAF will continue to promote and comply with legislation and policies relating to employment equity and preferential procurement. Strategy to Overcome Areas of Under-performance Not applicable All the targets under this strategic objective have been met. Changes to Planned Targets Not applicable There has been no in-year change in the performance indicators or targets under this strategic programme. INTEGRATED ANNUAL REPORT 2013/14 89

92 Linking Performance with Budgets Sub-programme name 2013/ /13 Actual (Over)/under Actual (Over)/under Budget expenditure expenditure Budget expenditure expenditure R 000 R 000 R 000 R 000 R 000 R 000 Employee costs 974, ,172 67, , ,641 65,600 Total 974, ,172 67, , ,641 65,600 A TRANSFORMED AND CAPACITATED RAF BY 2017 Performance indicator 21. Reduction in the vacancy rate. 22. Number of performance assessments to measure operational efficiency. 23. Recognition of employees who exhibit RAF s values through performance. Actual achievement 2012/13 Vacancy rate baseline established at 14% for the 2012/13 financial year. 95% of staff formally assessed for the year to 31 March Planned target 2013/14 2% less than previous year s vacancy rate. Formal performance assessments of all staff quarterly employees recognised through staff notifications and certificates awarded. Actual achievement 2013/14 Approved budgeted posts: 2,540. Number of filled positions: 2,288. Number of vacant positions: 252. *Vacancy rate at 31/03/14: 9.9%. *Vacancy rate at 31/03/13: 14%. 99% of employees were formally assessed in the fourth quarter of the 2013/14 financial year. Total number of employees recognised in the 2013/14 financial year was 417. Legend Target achieved or exceeded Target partially achieved Target not achieved Deviation from planned target to actual achievement for 2013/14 An annual reduction of more than 5% from the set baseline of 14%. For the target to be achieved, the vacancy rate should be no more than 12% (14 2). Target to formally assess employees has been achieved. The 1% of employees not assessed relates to employees who are currently on suspension, maternity leave and newly appointed employees. Fourth quarter assessments are currently underway, as well as contracting for the 2014/15 financial year. Targeted number of employees recognised has been exceeded by 367. Comment on deviations Target has been achieved. An annual target of 95% of staff formally assessed has been achieved. More than 417 employees have been formally recognised. 90 ROAD ACCIDENT FUND

93 A TRANSFORMED AND CAPACITATED RAF BY 2017 Performance indicator 24. RAF s contribution towards Government s social and economic transformation agenda. Legend Actual achievement 2012/13 89% B-BBEE total spend. - Female staff (RAF: 59% of the total employees versus 50/50 national target as per the Department of Labour). - Black staff (RAF: 74% of total employees versus national target of 79.2%). - Staff with disabilities (1.7% of total employees versus 2% Board target). Planned target 2013/14 100% B-BBEE total spend. Achieve/exceed Employment Equity (EE) target of 90%. Actual achievement 2013/14 B-BBEE spend was assessed at 100% for the 2013/14 financial year. Total number of employees with an equity status* employed: 2,215. Total number of employees: 2,288. Number of employees not classified with an equity status: % of employees fall within the designated group of employees with an equity status. *Designated groups classified as blacks inclusive of both genders, as well as white females. Deviation from planned target to actual achievement for 2013/14 Target was achieved at 100% compliance in respect of B-BBEE. The target requires the RAF to reach/ exceed 90% employment of people with an equity status. Method of calculation as per the Annual Performance Plan: Number of employees with an equity status employed/ total number of employees x 100. The RAF exceeded the target by more than 6%. Comment on deviations Overall B-BBEE spend for the period ended 31 March 2014 increased by 3% when compared to the third quarter. Favourable results were attributable to: - The accounting for B-BBEE spending relating to the panel of attorney s B-BBEE certificate that expired during the year. - 10% increase in panel of assessors due to additional B-BBEE certificates received from the panel of assessors. The target to achieve/ exceed 90% of employees with an equity status has been achieved. Less than 4% of employees do not fall under the equity designated groups, i.e. white males. The RAF also recorded 100% compliance to the plan as per the Annual EE Report submitted to the Department of Labour. PART B: PERFORMANCE INFORMATION Target achieved or exceeded Target partially achieved Target not achieved Revenue Collection Revenue collection is discussed in detail under Organisational Environment on page 49 of this report. INTEGRATED ANNUAL REPORT 2013/14 91

94 Capital Investment The table below outlines progress made on capital investment and asset management plans. Progress made on implementing the Asset Management Plan Infrastructure projects completed in the current year and progress in comparison to what was planned at the beginning of the year Infrastructure projects in progress and expected completion date Plans to close down or downgrade any current facilities Progress made on infrastructure maintenance Developments relating to the above expected to impact on the RAF s current expenditure Details as to how asset holdings have changed over the period under review, including disposals, scrapping and loss due to theft Measures taken to ensure that the RAF s FAR remain up-to-date during the period under review Current state of the RAF s capital assets e.g. what % is in good, fair or bad condition Major maintenance projects undertaken during the period under review Progress made in addressing the maintenance backlog during the period under review The Asset Management Plan was implemented and communicated on 22 November 2013 to all regions. Timelines for the finalisation of the annual asset verification was 7 February 2014, whereafter all anomalies were finalised before the Fixed Assets Register (FAR) was updated. The asset verification process was completed by the middle of March, and an Executive Summary submitted to the CEO for endorsement. Office alterations and tenant installation included: Tenant installation, Head Office: R4,547,188 Eco Glades Block F, HR area: 31 January 2014 Eco Glades Block F, Risk, Legal, Compliance, Stakeholder Management, PMO areas: 15 February 2014 Eco Glades Block F, COO, Marketing and Security office areas: 31 March 2014 Eco Glades Block F, Financial Manager office area construction to be finalised by end of April 2014 Menlyn offices: Construction of carports was initiated and will be completed in November The reception area was assessed to be refurbished and completed in November None All completed within financial year. One lease for file storage (800 m²) was terminated. All buildings are kept in good condition. Additional human resources were appointed to cater for maintenance per region. Maintenance-related costs escalated due to an increase in office space at Head Office. Fixed assets acquisitions amounted to R31.40 million (nationally). The carrying value of assets disposed due to being obsolete or redundant amounted to R884,000, which excluded losses due to theft amounting to about R240,000 (these assets will be scrapped upon the finalisation of the insurance claims process). Asset Verification Plan implemented in November 2013 which was due to be completed by all regions by end February Responsibilities migrated and the Internal Audit Unit did an assessment and made recommendations to improve. Estimate condition of assets: 33% of assets are in a good condition, 58% in a fair condition and 9% are in a poor condition and are currently being disposed of or are being prepared for disposal. None. There is no significant maintenance-related backlog. Infrastructure projects* 2013/ /13 Actual (Over)/under Actual (Over)/under Budget expenditure expenditure Budget expenditure expenditure R 000 R 000 R 000 R 000 R 000 R 000 Property, plant and equipment 51,069 31,400 19,669 48,405 8,402 40,003 Intangibles 29,737 19,640 10,097 19,339 6,940 12,399 Total 80,806 51,040 29,766 67,744 15,342 52,402 * The RAF has no Infrastructure projects 92 ROAD ACCIDENT FUND

95 Part C: GOVERNANCE INTEGRATED ANNUAL REPORT 2013/14 93

96 Introduction Corporate governance embodies processes and systems by which public entities are directed, controlled and held to account. In addition to legislative requirements based on a public entity s enabling legislation, and the Companies Act, corporate governance with regard to public entities is applied through the precepts of the Public Finance Management Act (PFMA) and run in tandem with the principles contained in the King Report on Corporate Governance (King III). Parliament, the Executive Authority and the Accounting Authority of the public entity are responsible for corporate governance. Portfolio Committee Parliament exercises its oversight role of the RAF by evaluating its performance by interrogating its Annual Financial Statements and other relevant documents which have to be tabled, as well as any other documents tabled from time to time. This oversight role is fulfilled by the Portfolio Committee on Transport (PCOT) and the Standing Committee on Public Accounts (SCOPA). PCOT oversees service delivery and performance in accordance with the mandate and Corporate Strategy of the RAF. It reviews financial and non-financial information, such as efficiency and effectiveness measures, and therefore reviews the non-financial information contained in the Integrated Annual Report of the RAF. PCOT is also concerned with service delivery and enhancing economic growth. SCOPA oversees the financial performance and accountability of the RAF in terms of the PFMA. It therefore reviews the Annual Financial Statements and audit reports of the RAF s external auditor. Executive Authority As illustrated below, the National Assembly has legislative power and maintains oversight of the National Executive Authority and the RAF as an organ of state. In addition, Parliament oversees the Executive Authority, who is required to provide it with full and regular reports concerning matters under its control. Parliament of the Republic of South Africa Representing the South African Public Minister of Transport Being the Executive Authority Board of Directors Being the Accounting Authority Figure C1- Executive Authority reporting structure The Minister of Transport is the Executive Authority of the RAF and is concerned with the financial viability and risks of the RAF, as well as policymaking and monitoring of policy implementation to ensure that the RAF effectively delivers on its mandate. The Financial Services Board, in terms of the Financial Supervision of the Road Accident Fund Act, 1993 (Act No. 8 of 1993), performs a supervising role over the financial position of the RAF. Oversight by the Executive Authority rests by and large on the prescripts of the PFMA, which governs/gives authority to the Executive Authority for oversight powers. 94 ROAD ACCIDENT FUND

97 The RAF Act provides that the Executive Authority can appoint or dismiss members of the Board, including the Chairperson, Vice-chairperson and Non-executive Directors. The Minister also appoints the CEO on such terms and conditions as may be determined by the Board. Whenever it is necessary to appoint a member to the Board, the Minister shall, by notice in the Government Gazette and national news media, invite persons or bodies who have an interest in the operations of the RAF to nominate candidates who comply with the criteria mentioned in subsection 1(b) of the RAF Act, as amended. The Minister will then publish a list of nominees received in response to such invitation, which will include the names of the relevant nominators. The name and expertise of the newly appointed (or reappointed) Board member will be published in the Government Gazette. Whenever a position on the Board becomes vacant before the expiry of the term of office, the Minister may appoint any other competent person to serve for the unexpired portion of the term of office of the previous member, irrespective of when the vacancy occurs. PART C: GOVERNANCE The RAF Board submits quarterly reports, including management accounts, a report on actual performance against predetermined objectives, PFMA compliance checklist, BEE report and an Audit Committee report, to the Executive Authority in accordance with NT Regulations and within 30 days of the end of a quarter. Accounting Authority/The Board Introduction The Board acts as the Accounting Authority of the RAF and is accountable to the Executive Authority for the performance and affairs of the RAF. It constitutes a fundamental base for the application of corporate governance principles in the RAF. The processes and practices of the Board are underpinned by the principles of transparency, integrity and accountability and an inclusive approach that recognises the importance of all stakeholders and of managing stakeholder relationships and perceptions to ensure the viability and sustainability of the RAF. The Role of the Board In line with King III, the Board is tasked with providing ethical leadership, managing the organisation s ethics effectively and ensuring that the entity is not only a responsible citizen, but is manifestly so. Corporate governance principles should be adhered to, while fully appreciating that strategy, risk, performance and sustainability are integrated. Broadly speaking, the Board is expected to act in the best interests of the entity. With the prescripts of King III and NT in mind, the role of the RAF Board comprises the following: It holds absolute responsibility for the performance of the RAF; It retains full and effective control over the RAF; It ensures that the RAF complies with applicable laws, regulations and government policy; It is responsible for formulating and implementing policies that are necessary to achieve the RAF s strategic goals and maintain good governance; It has unrestricted access to information of the RAF; It formulates, monitors and reviews corporate strategy, major plans of action, risk policy, annual budgets and business plans; It is responsible for the integrity of the sustainability report, based on the principles of transparency and accountability; It ensures that the Executive Authority s performance objectives are achieved; It monitors the efficiency and effectiveness of management and supports management in implementing Board strategies and policies; It manages potential conflicts of interest; It develops a clear definition of levels of materiality; It attends annual meetings; INTEGRATED ANNUAL REPORT 2013/14 95

98 It ensures that the Annual Financial Statements are prepared; It appraises the performance of the chairperson; It ensures effective Board induction; and It maintains integrity, responsibility and accountability. This means that the Board is responsible for determining the overall direction of the RAF. This is guided by a five-year Strategic Plan and Annual Performance Plan, both of which were submitted to the Executive Authority, the Minister of Transport, by the end of January 2014, as prescribed in terms of NT Instruction Note No. 33. During the period under review, the Board adopted its Performance Information Management Policy governing performance responsibilities and reporting. In addition, the Board annually revises the Delegation of Authority Framework, which defines the delegation of powers, duties and functions to management. The RAF Board reviews its processes and practices on an on-going basis to: Ensure compliance with legal obligations; Ensure the maintenance of appropriate internal controls, as well as risk management policies and practices; Ensure the use of RAF funds in an economical, efficient and effective manner; Ensure that IT governance is aligned with the RAF s performance and sustainability objectives; Ensure adherence to good corporate governance practices that are continuously benchmarked; and Assess the impact of the RAF s operations on society, the economy and the environment. Board Charter As recommended by King III, the Board is governed by the RAF Corporate Charter, which details the roles, structures and functions of the Board, its various sub-committees, chairpersons and the CEO. Composition of the Board The RAF is headed and controlled by an effective and efficient Board, comprising independent Non executive Directors representing the necessary skills to strategically guide the RAF. The Board consists of 11 Non-executive Directors, including a DoT representative. The RAF Board is diverse in respect of origin, gender, race and education. Together, the members bring a wealth of experience and expertise to the RAF and reflect the nature of its business. 36% of the Board members are women, while 81% are from historically disadvantaged communities. The standard term of a Non-executive Director is three years. Non-executive Directors are eligible for re-appointment for a further two terms. The Executive Management team is appointed by the CEO after consultation with the Board. Executive Management is employed on the basis of a fixed-term contract. The maximum duration of fixed-term contracts is five years. The Board is required to meet as often as the business of the RAF requires, but at least four times a year. 96 ROAD ACCIDENT FUND

99 RAF Board PART C: GOVERNANCE Dr NM Bhengu Non-executive Director (Chairperson) Mr V Mahlangu Non-executive Director (Vice-chairperson)* Mr D Coovadia Non-executive Director (Vice-chairperson) Mr JN Masekoameng Non-executive Director* Mr T Moyo Non-executive Director* Adv. DS Qocha Non-executive Director Ms NZ Qunta Non-executive Director* Adv. MJ Ralefatane Non-executive Director* Mr DK Smith Non-executive Director Ms A Steyn Non-executive Director Mr LED Hlatshwayo Non-executive Director Dr KLN Linda Non-executive Director Mr TP Masobe Non-executive Director Ms R Mokoena Non-executive Director Mr AM Pandor Non-executive Director Mr TB Tenza Non-executive Director Dr EA Watson CEO (Ex officio) * Term expired 30 September 2013 INTEGRATED ANNUAL REPORT 2013/14 97

100 Name Dr NM Bhengu Mr V Mahlangu Date Designation appointed Non-executive 01/10/2010 Director Re-appointed (Chairperson) 01/10/2013 Non-executive Director (Vice Chairperson) Mr JN Masekoameng Non-executive Director Mr T Moyo Non-executive Director Date resigned 01/10/2010 Term expired 30/09/ /10/2010 Term expired 30/09/ /10/2010 Term expired 30/09/2013 Area of Qualifications expertise MBChB (University Medical of Natal), Diploma in Anaesthetics (College of Medicine of South Africa), MBA (Wales University, Cardiff ), Master of Public Health, Healthcare Management (Harvard University) Diploma in Public Human Relations (Damelin), resources National Certificate in Business Administration (Technikon SA), Small Business Development Programme (Unisa), Certificate in Public Sector Governance (Unisa), Certificate in Management Studies (MANCOSA), MBA (General) (MANCOSA) BCom (University of the Witwatersrand), Higher Diploma in Tax Law (University of Johannesburg), Certificate in Labour Law (Unisa), MBL (Unisa School of Business Leadership) BCom (Accounting) (ROMA), Postgraduate Diploma in Strategic Management (Baruch College City University of New York), MBA (Finance) (Cardiff Business School, Wales University), Risk Management (University of Stellenbosch), Graduate Diploma in Company Direction (Graduate Institute of Management), Executive Development Programme (Harvard Business School), AIRMSA Financial sector Risk management Board directorships Nestlé Non executive Director None Matlotlo Trading CC and Epistar Orion SA (Pty) Ltd, Yokoyo Investments (Pty) Ltd, Alpha Tours Africa (Pty) Ltd, Innovida SA Dubai (Pty) Ltd, Innovida South Africa (Pty) Ltd, Push Umlozi (Pty) Ltd Board committees Chairpersons Committee (Chairperson) Remuneration and Human Resources Committee Operations Committee Information Technology Committee Chairpersons Committee Operations Committee (Chairperson) Audit Committee Risk Management and Ethics Committee Chairpersons Committee Risk Management and Ethics Committee (Chairperson) Audit Committee Remuneration and Human Resources Committee Information Technology Committee Chairpersons Committee No. of meetings attended* 5 of 7 4 of 4 4 of 4 4 of 4 98 ROAD ACCIDENT FUND

101 Name Adv. DS Qocha Ms NZ Qunta Adv. MJ Ralefatane Mr DK Smith Ms A Steyn Date Designation appointed Non-executive 01/10/2010 Director Re-appointed 01/10/2013 Non-executive Director Non-executive Director Non-executive Director Non-executive Director Date resigned 01/10/2010 Term expired 30/09/ /10/2010 Term expired 30/09/ /10/2010 Re-appointed 01/10/ /10/2010 Re-appointed 01/10/2013 Area of Qualifications expertise BA (Law) (National University of Lesotho), LLB (National University of Lesotho), Strategic Leadership Programme (GIBS), Broadcasting Policy and Regulation (LINK Centre, University of the Witwatersrand), Telecoms Policy Regulation and Management (LINK Centre, University of the Witwatersrand), General Intellectual Property Course (WIPO) BAdmin (University Finance of Zululand), BCom (Hons) (University of Pretoria), MCom (Economics) (University of Pretoria), MBA (University of Oxford Brookes, UK) and Corporate Governance Certificate (Unisa) BProc (UNIN), LLB (UNIN), LLM (Labour Law) (Rand Afrikaanse Universiteit), Certificate in Labour Relations (University of Pretoria) and Certificate in Human Rights (University of Pretoria) BSc (University of Stellenbosch) FASSA, International Senior Management Programme (Harvard Business School) BSc (University of Stellenbosch) and various other related courses Board directorships Board committees Law None Remuneration and Human Resources Committee (Chairperson) Law Actuarial Mintek, KwaZulu- Natal Tourism Authority Sanlam Ltd, Mediclinic International Ltd, Reinsurance Group of America (SA) Operations Committee Risk Management and Ethics Committee Chairpersons Committee Information Technology Committee (Chairperson) Audit Committee Remuneration and Human Resources Committee Chairpersons Committee Risk Management and Ethics Committee Audit Committee Remuneration and Human Resources Committee Audit Committee Operations Committee Operations and Information Technology Committee Medical None Risk Management and Ethics Committee Remuneration and Human Resources Committee Operations Committee Operations and Information Technology Committee No. of meetings attended* 6 of 7 3 of 4 4 of 4 5 of 7 7 of 7 PART C: GOVERNANCE INTEGRATED ANNUAL REPORT 2013/14 99

102 Name Mr LED Hlatshwayo Mr D Coovadia Dr KLN Linda Mr TP Masobe Ms R Mokoena Date Designation appointed Non-executive 01/10/2011 Director Re-appointed 01/10/2013 Non-executive Director (Vice Chairperson) Non-executive Director Non-executive Director Non-executive Director Date resigned Area of Qualifications expertise BCom (University of Finance Zululand), BCompt (Unisa), BCompt/ CTA (Hons) (Unisa), CA (SA) and MBA (University of North West, Potchefstroom) 01/10/2013 BCompt, BCompt (Hons) (Unisa), FCIS, CA (SA) 01/10/2013 MBChB (University of Natal) Healthcare Service Management Certificate Advanced Management Programme (Manchester Business School UK), Postgraduate Diploma in Healthcare Information (Winchester University) 01/10/2013 BA (Hons) Economics, MSc Health Economics (University of London), International Executive Development Diploma, Advanced Health Leadership 01/10/2013 BJuris (University of Zululand), LLB (University of Natal), various certificates Medical Law Board directorships Board committees No. of meetings attended* Central Energy Audit 6 of 7 Fund, PetroSA Committee (Chairperson) Risk Management and Ethics Committee Information Technology Committee Chairpersons Committee Sanlam Ltd, Mediclinic International Ltd, Reinsurance Group of America (SA), member of various audit committees Childsafe South Africa Liberty Health, Health Systems Trust, Council for Medical Schemes ARMSCOR, ACSA Regulation Committee, ATNS Regulation Committee, Gauteng Rental Housing Tribunal Chairpersons Committee Audit Committee Remuneration and Human Resources Committee Operations and Information Technology Committee Audit Committee Operations and Information Technology Committee Risk Management and Ethics Committee (Chairperson) Remuneration and Human Resources Committee Chairpersons Committee 4 of 4 3 of 4 4 of 4 4 of ROAD ACCIDENT FUND

103 Name Mr AM Pandor Mr TB Tenza Designation Date appointed Date resigned Qualifications Area of expertise Non-executive 01/10/2013 BCompt Accounting Auditing Director (Unisa), BCompt Accounting Hons (Unisa), Certificate in Theory of Accounting, CA (SA), MBA (Henley Management College (UK), Certified Information Systems Auditor, Certified in the Governance of Enterprise IT Director- 2010/01/01 Secondary Teachers None General (DG) Diploma (Indumiso representative College), BCom (Unisa), BCom (Hons) (Unisa), Master of Arts in Applied Economics (University of Michigan, USA), Executive Development Programme (Vaal University of Technology) Board directorships No. of Board meetings committees attended* Operations 4 of 4 and Information Technology Committee (Chairperson) Risk Management and Ethics Committee Chairpersons Committee Audit Committee Risk Management and Ethics Committee Remuneration and Human Resources Committee Operations Committee Information Technology Committee Operations and Information Technology Committee Dr EA Watson CEO (Ex officio) 7 of 7 7 of 7 PART C: GOVERNANCE * A total of 6 Board meetings took place during the financial year. (Three meetings were held during the previous Board s term and three during the current Board s term). The Annual General Meeting between the Stakeholder and the Accounting Authority took place on 27 September Board Committees The RAF Board is fully constituted and supported by various committees, which perform oversight over Management s tactical operations. Each committee has an approved annual work plan based on the roles and responsibilities as contained in the respective terms of reference, King III, applicable provisions of the PFMA, and various Institute of Directors in Southern Africa (IoDSA) position papers. Quarterly progress reports pertaining to the annual work plans are considered by the respective committees and reported on to the Board. Independent assurance on compliance with annual work plans is provided by Internal Audit, and the sub-committees have achieved substantive compliance in terms of their work plans. INTEGRATED ANNUAL REPORT 2013/14 101

104 Committees: 1 March 2013 to 30 September 2013 Committee No. of meetings held No. of members Name of members Audit Committee 4 7 Mr LED Hlatshwayo (Chairperson) Mr T Moyo Adv. MJ Ralefatane Mr JN Masekoameng Ms NZ Qunta Mr DK Smith Mr TB Tenza (DG representative) Dr EA Watson (CEO (Ex officio)) Risk Management and Ethics Committee 3 7 Mr T Moyo (Chairperson) Mr JN Masekoameng Adv. DS Qocha Ms A Steyn Adv. MJ Ralefatane Mr LED Hlatshwayo Mr TB Tenza (DG representative) Dr EA Watson (CEO (Ex officio)) Remuneration and Human Resources Committee 4 7 Adv. DS Qocha (Chairperson) Mr V Mahlangu Mr T Moyo Ms NZ Qunta Adv. MJ Ralefatane Ms A Steyn Mr TB Tenza (DG representative) Dr EA Watson (CEO (Ex officio)) Operations Committee 2 6 Mr JN Masekoameng (Chairperson) Mr V Mahlangu Adv. DS Qocha Mr DK Smith Ms A Steyn Mr TB Tenza (DG representative) Dr EA Watson (CEO (Ex officio)) Information Technology Committee 4 5 Ms NZ Qunta (Chairperson) Mr V Mahlangu Mr T Moyo Mr LED Hlatshwayo Mr TB Tenza (DG representative) Dr EA Watson (CEO (Ex officio)) Chairpersons Committee 2 7 Dr NM Bhengu Mr V Mahlangu Mr LED Hlatshwayo Mr JN Masekoameng Mr T Moyo Adv. DS Qocha Ms NZ Qunta Committees: 1 October 2013 to 31 March 2014 Committee No. of meetings held No. of members Name of members Audit Committee 2 4 Mr LED Hlatshwayo (Chairperson) Mr D Coovadia Mr TP Masobe Mr DK Smith Mr TB Tenza (DG representative) Dr EA Watson (CEO (Ex officio)) Risk Management and Ethics Committee 1 5 Ms R Mokoena (Chairperson) Mr AM Pandor Adv. DS Qocha Mr LED Hlatshwayo Mr TB Tenza (DG representative) Dr EA Watson (CEO (Ex officio)) 102 ROAD ACCIDENT FUND

105 Committee No. of meetings held No. of members Name of members Remuneration and Human Resources Committee 1 5 Adv. DS Qocha (Chairperson) Dr KLN Linda Ms R Mokoena Ms A Steyn Mr TB Tenza (DG representative) Dr EA Watson (CEO (Ex officio)) Operations and Information Technology Committee 1 6 Mr AM Pandor (Chairperson) Dr KLN Linda Mr TP Masobe Mr DK Smith Ms A Steyn Mr TB Tenza (DG representative) Dr EA Watson (CEO (Ex officio)) Chairperson s Committee 1 6 Dr NM Bhengu Mr D Coovadia Mr LED Hlatshwayo Ms R Mokoena Mr AM Pandor Adv. DS Qocha PART C: GOVERNANCE Board Member Remuneration The Minister of Transport determines the remuneration of RAF Directors, taking cognisance of NT guidelines, as well as the RAF s ability to attract and retain the leadership necessary for the turnaround of the organisation. NT annually determines a cost of living increment. Remuneration is fixed at a monthly scale and not based on a per meeting framework. Board members are remunerated for private kilometres travelled in course and scope of their duties. Other Other reimbursements Remuneration allowance Total Name R 000 R 000 R 000 R 000 Dr NM Bhengu Mr V Mahlangu Mr JN Masekoameng Mr T Moyo Adv. DS Qocha Ms NZ Qunta Adv. MJ Ralefatane Mr DK Smith Ms A Steyn Mr LED Hlatshwayo Mr D Coovadia Dr KLN Linda Mr TP Masobe Ms R Mokoena Mr AM Pandor Mr TB Tenza (DG representative) Total 5, ,650 INTEGRATED ANNUAL REPORT 2013/14 103

106 Risk Management Background to Enterprise Risk Management The RAF, as a Schedule 3A public entity, is required in terms of section 51(a)(i) of the Public Finance Management Act (PFMA) to implement and maintain an effective, efficient and transparent system of financial management, risk management and internal control. To fulfil this responsibility, the RAF has adopted (a) the ISO international risk management standards, (b) the public sector risk management framework and (c) risk management principles and guidelines as outlined by King III as its enterprise risk management framework. Combined, these risk management standards are applied through a Board-approved enterprise risk management framework, in identifying critical events and opportunities, assessing risks, monitoring and reporting on risks, implementing controls, decision-making and in all other business processes. Fraud and Corruption The Risk Management and Ethics Committee provides oversight of the fraud and corruption prevention controls and mechanisms within the RAF s operating environment. To this effect: Risk incidents are logged in an operational risk register and monitored; There is sufficient forensic capability in the Forensic Investigation Department; and The RAF has a toll-free whistle-blowing hotline operated by KPMG and employees are encouraged to report any suspected corrupt, fraudulent, criminal or unethical practices. There were no material losses due to criminal conduct during the year under review. 104 ROAD ACCIDENT FUND

107 Risk Philosophy RAF views risk management as a key strategic and business driver that enables the organisation to accurately predict and take advantage of future trends, as it faces a myriad of risks in pursuit of its strategic objectives. Risk management is an essential part of the business strategy and operations that impacts business performance, socio-economic status, service delivery and financial results of the organisation. Risks are viewed and assessed holistically and not in isolation, since a single transaction/ event might have a number of risks and one category of risk can trigger other risks. To this end, the risk management processes at RAF are implemented and embedded into the day-to-day operations of the organisation through various initiatives outlined in the Annual Risk Management Plan. Below is a high-level view of risk management in the RAF: PART C: GOVERNANCE Risk Management in the RAF Risk Management Department Strategic Objectives Board Accountable Strategic Risks Facilitate, enable and report EXCO Responsible Facilitate and enable Business Unit Objectives Business Units Responsible Operational Risks Risk Champions Sections/Regions Responsible The RAF Board is accountable for risk management. The EXCO and management are responsible for risk management. The Risk Management Department facilitates risk management processes in the RAF. Business Unit Risk Champions facilitate risk identification and are enablers of the risk management process. Staff are responsible for identifying risks and implementing treatment strategies to deal with these risks. Figure C2 Risk management in the RAF INTEGRATED ANNUAL REPORT 2013/14 105

108 Risk Governance The RAF Board has promoted the risk matured culture and set the risk management tone through the approval of the Risk Management Policy and Framework. The Board, in discharging its risk management responsibilities, is supported by the Risk Management and Ethics Committee (RMEC), whose main responsibilities, amongst others, are to ensure that the RAF has implemented an effective Risk Management Policy and Plan that will enhance the RAF s ability to achieve its strategic objectives. Furthermore, the Board has demonstrated its governance oversight role over the entire system of risk management by monitoring of the strategic risk profile, tactical risk profile, mitigation plans, emerging risks, materialised risks, accepted risks, avoided risks and key risk indicators in relation to risk bearing capacity, risk tolerance and risk appetite. In fulfilling its governance oversight responsibility, the Board identified seven (7) strategic risks which could threaten the achievement of the RAF s strategic goals and performance targets for the 2013/14 financial year. These are depicted below according to their risk ratings: Current Rating of Strategic Risks Strategic Risks Mapped According to the Consequence and Likelihood Likelihood R7 R4 R5 R6 R1 R3 R2 Top 7 Strategic Risks R1 R2 R3 R4 R5 R6 Fraud and Corruption Information Communication Technology Financial Management Regulatory Framework Service Delivery Stakeholder Pressure 2 R7 People Management Impact Figure C3 Current rating of strategic risks 106 ROAD ACCIDENT FUND

109 An annual risk assessment is conducted for both strategic and operational risks and is aligned with the strategic planning process of the RAF. The risks are documented utilising risk management software and monitored on an on-going basis in relation to risk mitigation strategies, relevance of existing risks and the identification of additional and new risks. The table following provides an overview of mitigation measures implemented and actions still outstanding regarding the RAF s strategic risks. PART C: GOVERNANCE INTEGRATED ANNUAL REPORT 2013/14 107

110 Impacted strategic objective Risk Mitigations implemented A solvent, liquid and R1. Fraud and Corruption sustainable RAF. A customer-centric, operationally effective and efficient RAF. A legislative dispensation that is aligned to principles of social security. A solvent, liquid and sustainable RAF. A customer-centric, operationally effective and efficient RAF. A transformed and capacitated RAF. A customer-centric, operationally effective and efficient RAF. A transformed and capacitated RAF. A solvent, liquid and sustainable RAF. A customer-centric, operationally effective and efficient RAF. The RAF operates in an environment that is targeted by fraudsters, both internally and externally. The RAF has to continuously deal with professional syndicates and individual fraudsters. Considering the transformational state of the organisation, there is a higher propensity for fraud and corruption. R2. ICT IT evolved from simply being a business enabler to being an essential component in implementing the RAF Strategy. The business relies heavily on IT systems to effectively and efficiently deliver on its core function (claims administration) and other key support functions such as Finance (payment of claims). ICT systems are also utilised to manage and protect the large amount of claim transactions and data. Other functions and initiatives, such as the Direct Claim Strategy, HSCs and the expansion of regional offices, depend on ICT to function optimally and to gain competitive advantage. Automation of processes and the ever-evolving nature of IT pose new risks to the RAF that requires pro-active identification and management. R3. Financial Management The RAF Fuel Levy is determined with little regard for the main drivers of the RAF s claims expenditure. The prevailing disconnect between the fuel levy awarded by Government and the RAF s operational cash requirements is the primary cause of the poor liquidity that is being experienced by the RAF from time to time. Due to its unsustainable financial model, the RAF runs at a substantial deficit each year. Consequently, a number of outstanding (open and unpaid) claims have accumulated over time, representing a liability to the RAF. The provision for unpaid claims grows annually due to the expected growth in the cost of settling these claims and interest factors. Since the provision for future claims exceeds the RAF s asset base, the RAF is technically insolvent. Identified fraud hotspots and implemented fraud awareness initiatives. Appointed the Forensic Advisory Panel to direct and determine focus areas in terms of forensic investigations. Published the Code of Conduct Policy, which encompasses the Declaration of Interest and Ethics Commitment Forms, to support the Code of Ethics and to entrench acceptable ethical standards. Conducted an Ethics Assessment Survey. Aligned the ICT Strategy and budget with the Business Strategy. Revised the Citrix architecture. Defined the ICT infrastructure and application roadmap in line with the Business Strategy. Introduced high availability and redundancy on all systems. Investigated fuel sales forecasts, benchmarking with similar organisations globally to determine their funding models, and other sources of income. On-going engagement with NT and the DoT in respect of the Revenue Requirement Model. Actions under way or still to be implemented Capacitation of Forensics Unit with IT Forensics Specialists to enable detection of the latest fraud trends, and prediction of criminal dependencies. Develop and implement the Fraud Prevention Strategy and Plan. Trend analysis, quantification of losses/risks and data analytics in order to develop mitigation measures. Development and implementation of IT 5 year strategy and plans. Integration, stabilisation and availability of the ICT systems. Develop and implement the RAF Security Strategy and latest and relevant IT security tools. Develop and implement a revised ICT Governance Strategy. Implement a suitable funding model. Accurate prevalence of accidents and implementation of the Road Safety Strategy. Actively manage cash flows and efficient monitoring of claims expenditure. 108 ROAD ACCIDENT FUND

111 Impacted strategic objective Risk Mitigations implemented A legislative dispensation R4. Regulatory Framework that is aligned to principles of social security. A solvent, liquid and sustainable RAF. A customer-centric, operationally effective and efficient RAF. A transformed and capacitated RAF. A solvent, liquid and sustainable RAF. A customer-centric, operationally effective and efficient RAF. A transformed and capacitated RAF. A legislative dispensation that is aligned to principles of social security. A solvent, liquid and sustainable RAF. A customer-centric, operationally effective and efficient RAF. A transformed and capacitated RAF. A customer-centric, operationally effective and efficient RAF. A transformed and capacitated RAF. The current scheme is complex and subjective in that it often requires time-consuming and expensive legal procedures to establish fault and the quantum of damages suffered. While the development of RABS is aligned with the DoT s goals, it may take a few years before this new legislation is implemented. Therefore, the RAF considers recommending amendments to the RAF Act. R5. Service Delivery The RAF has a large number of outstanding claims, mainly because of underfunding over the past couple of years. It is therefore unable to pay claims at the rate it receives them. The RAF is busy overhauling its business. The process will lead to the establishment of an organisation that is more customer-centric, effective and efficient. Changes were designed to ensure that customers receive high-quality service, where claims are processed speedily and accurately, costs are contained and fraud eliminated. R6. Stakeholder Pressure The current scheme is complex and subjective in that it often requires time-consuming and expensive legal procedures to establish fault and the quantum of damages suffered. While the development of RABS is aligned with the DoT s goals, it may take a few years before this new legislation is implemented. Therefore, the RAF considers recommending amendments to the RAF Act. R7. People Management The RAF is a labour-intensive service organisation that relies on people to effectively deliver on its mandate. Therefore, the attraction and retention of leadership and a workforce that is appropriately skilled, motivated, performancedriven, customer-centric and committed to providing excellent service is crucial. The RAF invests in growing and developing employees and ensuring optimal staff capacity. RAF resource seconded to the DoT to support RAF matters and provide capacity. Regulation Unit that deals with policy and legislation established within the RAF. On-going stakeholder engagement. Developed and implemented a Backlog Strategy aligned with APP deliverables across the regions. Employees signed performance management contracts with clearly defined targets. Performance is reviewed on a quarterly basis. Reviewed the Direct Claims Strategy and identified focus areas, including setting up of dedicated Direct Claims Departments to improve turnaround times. Appointed Information Collection Agents to facilitate collection of outstanding documents and fast-tracking of settlements. Continuously engaged with the public through the RAF on the Road campaign in all the provinces to enhance accessibility to the RAF s services. Signed MoUs with various stakeholders. Continued to sign MoUs with relevant stakeholders. Developed and implemented the RAF on the Road campaign calendar. Similar road shows also took place. Proactively engaged with media, stakeholders, customers and plaintiff attorneys. Conducted country-wide fraternity engagements, especially with the medical, social, justice and security sectors. Implemented leadership development programmes and forums to ensure a capacitated leadership and achievement of RAF goals. Developed and implemented the Change Management Strategy. Implemented the Recognition and Reward Policy to ensure staff retention. Actions under way or still to be implemented Implement and monitor RABS. On-going monitoring, scanning, advising of changes in the legislative landscape. Trend analysis and Court challenges to inform/improve business processes. Stakeholder relations management. Improve turn-around times throughout the claims process. Optimise, standardise and reengineer claims value chain. Prioritise direct claims. Monitoring of staff, service providers, RAF Panel Attorneys and implementation of quality assurance processes. Implement pro-active litigation management processes. Review the RAF Act and its sub-ordinate prescripts to identify opportunities in improving business efficiency and the financial position of the RAF. Consider and implement proactive media strategies. Implement and monitor the Stakeholder Relations Strategy and Plan. Proactive engagement and prioritisation of stakeholders. Implement and monitor staff retention policies. Review all Human Capital policies. PART C: GOVERNANCE INTEGRATED ANNUAL REPORT 2013/14 109

112 Risk Maturity The RAF is striving to have a risk matured and intelligent culture by 31 March In the last financial year, an independent maturity assessment was conducted to establish the maturity levels of risk management within the RAF. The RAF achieved a maturity level of 4 (managed), which is the second highest maturity level. The RAF has elevated risk management as a strategic enabler and has implemented the following: There are fully operational risk governance structures in place, namely a Risk Management and Ethics Committee (RMEC), Executive Management Committee (EXCO) where risk management is a standing agenda item, Risk Management division, and a Risk Champion Forum (where all Risk Champions from all business units throughout the RAF discuss cross-functional risks). There is a three-year plan developed to assist the RAF to achieve the desired maturity level and maturity is monitored quarterly. Risk Management is part of the performance contracts for all employees within the RAF. All business units and regions have been allocated Risk Champions and Risk Advisors, who monitor and report on emerging, materialised, avoided and accepted risks to the Business, EXCO and RMEC. A Risk Appetite Framework (which includes a Risk Bearing Capacity) has been established, which forms part of the risk-taking philosophy and establishes principles of managing risks. This also includes the escalation process for risks within the RAF. Internal Control Unit Although the RAF does not have an Internal Control Unit, its Compliance Unit (refer to the Compliance with Laws and Regulations section below) fulfils the function of ensuring that all business units comply with the necessary legislation applicable and relevant to public entities, including internal policies, processes and procedures. Internal Audit and Audit Committee Key Activities and Objectives of Internal Audit The RAF s Internal Audit function is an integral part of its corporate governance system. Its purpose is to evaluate whether the RAF s systems of control are effective and to adequately mitigate business risks. Ultimately, the assurance provided by Internal Audit serves to assist the Board in fulfilling its disclosure obligations under its corporate governance codes and to report annually to the Minister of Transport and PCOT on the effectiveness of the RAF s systems of control. Internal Audit assists Management in identifying, evaluating and assessing significant organisational risks and provides reasonable assurance as to the adequacy and effectiveness of related internal controls, i.e. whether controls are appropriate and functioning as intended. Where controls are found to be deficient or not operating as intended, recommendations for enhancement or improvement are provided. The Internal Audit Plan was developed and implemented after taking into account the top risks identified by Management and Internal Audit. A risk-based approach was followed in developing this plan. The plan provides coverage across all major processes of the RAF. Internal Audit also attends to requests from Management. All Management requests during the reporting period were attended to. Key Activities and Objectives of the Audit Committee Among others, the Audit Committee is responsible for monitoring and reviewing the effectiveness of the RAF s Internal Audit function. Each year it considers and approves the Internal Audit Plan, receives and reviews Internal Audit progress reports and approves any changes or shortfall in the Internal Audit Plan. 110 ROAD ACCIDENT FUND

113 Audit Committee Meeting Attendance The table below discloses relevant information on the Audit Committee members. Name Mr LED Hlatshwayo (Chairperson) Mr D Coovadia 2 Mr TP Masobe 2 Mr T Moyo 1 Adv. MJ Ralefatane 1 Mr JN Masekoameng 1 Ms NZ Qunta 1 Mr DK Smith Mr TB Tenza (DG representative) Dr EA Watson (Ex officio) Internal/ Position if internal Date Date resigned/ No. of meetings Qualifications external member appointed term expired attended BCom (University of Zululand), BCompt External - 01/10/2011 6/6 (Unisa), BCompt/CTA (Hons) (Unisa), CA Re-appointed (SA) and MBA (University of North West, 01/10/2013 Potchefstroom) BCompt, BCompt (Hons) (Unisa), FCIS, External - 01/10/2013 2/6 CA (SA) BA (Hons) Economics, MSc Health External - 01/10/2013 2/6 Economics (University of London), International Executive Development Diploma, Advanced Health Leadership BCom (Accounting) (ROMA), External - 01/10/ /09/2013 4/6 Post graduate Diploma in Strategic Management (Baruch College City University of New York), MBA (Finance) (Cardiff Business School, Wales University), Risk Management (University of Stellenbosch), Graduate Diploma in Company Direction (Graduate Institute of Management), Executive Development Programme (Harvard Business School), AIRMSA BProc (UNIN), LLB (UNIN), LLM (Labour External - 01/10/ /09/2013 2/6 Law) (Rand Afrikaanse Universiteit), Certificate in Labour Relations (University of Pretoria) and Certificate in Human Rights (University of Pretoria) BCom (University of the Witwatersrand), External - 01/10/ /09/2013 4/6 Higher Diploma in Tax Law (University of Johannesburg), Certificate in Labour Law (Unisa), MBL (Unisa School of Business Leadership) BAdmin (University of Zululand), BCom External - 01/10/ /09/2013 4/6 (Hons) (University of Pretoria), MCom (Economics) (University of Pretoria), MBA (University of Oxford Brookes, UK) and Corporate Governance Certificate (Unisa) BSc (University of Stellenbosch) FASSA, External - 01/10/2010 3/6 International Senior Management Re-appointed Programme (Harvard Business School) 01/10/2013 Secondary Teachers Diploma (Indumiso External - 01/01/2010 4/6 College), BCom (Unisa), BCom (Hons) (Unisa), Master of Arts in Applied Economics (University of Michigan, USA), Executive Development Programme (Vaal University of Technology) Internal CEO 6/6 PART C: GOVERNANCE 1 Term expired on 30 September Appointed as from 1 October 2013 INTEGRATED ANNUAL REPORT 2013/14 111

114 Compliance with Laws and Regulations The RAF Board and Management recently established an adequately resourced Compliance business unit within the RAF. The unit provides a strong legal governance component to assist the RAF in accurately assessing compliance risks and efficiently monitoring legal compliance. The Compliance Unit works closely with Executive Management and other business units to align goals and ensure proper communication. The Board is responsible for ensuring compliance with all laws and regulations applicable to the RAF. For this reason, Compliance has unfettered access to the Board and the CEO on any compliance-related issues. A Compliance Policy, Charter and Framework are in place to assist the Compliance unit in executing its mandate. Further governing documents that will assist the unit to ensure compliance within the RAF are the RAF Regulatory Universe, the Compliance Risk Management Plan (CRMP), compliance reporting templates and the Compliance Risk Universe. To ensure compliance with legislation, codes, regulations, policies and standards, the Compliance Unit embarked on a compliance review of various departments to determine their level of compliance. The compliance review reports highlighted areas of noncompliance and recommended actions to ensure compliance is achieved or improved. Both monthly and quarterly compliance reports are submitted to the Board and its committees, highlighting all identified compliance risks and transgressions within the RAF. A compliance culture is yet to be embedded within the RAF, hence a compliance programme was developed to ensure the achievement of a compliance mature organisation and to ensure continual improvement on the compliance culture. Fraud and Corruption Fraud Prevention Policy The Fraud Prevention Policy was updated and approved by the Board in A new strategy was also approved, the aim of which is to close down the marketplace for touts by focusing on legal and medical practitioners to discourage them from dealing with touts. Mechanisms in Place to Report Fraud and Corruption The RAF has a Whistle Blowing Policy in place which resides in the Ethics Office. The Forensic Investigation Department (FID) is in charge of the Fraud Tip-off Line through which fraud and corruption can be recorded and in several policies a duty is placed on employees to report suspicious activities to the FID. Officials are required to confidentially disclose suspected fraud and corruption. In the case of a whistle-blower, the incident is reported to the Corporate Secretary or the Chief Audit Executive who then decides which channel to follow. Statistics obtained from the FID for the period 1 April 2013 to 31 March 2014 are evident of the extent of fraud experienced by the organisation, as well as of the RAF s commitment to combatting fraud and corruption. Fraud Tip-off Line The Fraud Tip-off Line is the RAF s confidential and independent reporting hotline which enables employees, customers, suppliers, managers and other stakeholders to raise concerns about conduct that is considered to be contrary to the RAF s values on a confidential basis. 112 ROAD ACCIDENT FUND

115 When a tip-off is received through the hotline, it is sent to the FID Senior Manager who then allocates it to the relevant FID Manager for investigation. Where investigations are finalised and fraud is detected, a criminal docket is registered with the National Prosecuting Authority (NPA)/RAF Fraud Investigation Task Team. The South African Police Service (SAPS) and NPA then takes the matter further whereafter arrests and convictions are made. The Audit Committee holds the oversight responsibility of ensuring the adequacy of the Tip-off Line procedures, while Internal Audit is responsible for the day-to-day monitoring of the process, and ensures that Management is informed about reported issues, and that risks are adequately managed. Political Donations, Gifts and Bribes PART C: GOVERNANCE The RAF is opposed to corruption and illegal practices in all forms. It does not tolerate the giving and receipt of bribes; nor does it condone anti-competitive practices in dealings with government and in the marketplace. The RAF does not permit contributions or donations for political purposes, and requires any lobbying undertaken to be in line with the RAF s ethics and internal policies. The policies with regard to these matters are set out in the Donations Policy. Fraud Cases Reported and Actions Taken The table below outlines activities within the RAF s FID for the year under review. External investigations Files carried over 6,468 Files received 6,102 Files closed 6,467 No. of arrests 478 No. of convictions 573 Repudiations 798 Repudiations claimed amount R113,178,482 Repudiations estimate amount R44,016,588 Total claims no estimate amount 286 Internal investigations Investigations carried over 109 Investigations received 121 Investigations finalised 128 Claim files carried over 305 Claim files on investigations received 213 Claim files on investigations finalised 256 Claim files at hand (month end) 247 Investigations where misconduct/fraud was identified 63 Cases where disciplinary action was recommended 41 Investigations where disciplinary action was instituted 13 Resignations due to or during investigations 5 Suspensions 20 Convictions (internal) 16 Cases registered with SAPS 20 INTEGRATED ANNUAL REPORT 2013/14 113

116 Minimising Conflict of Interest Management, employees and the RAF s business partners are guided by its Code of Business Ethics, which is supported by its Declaration of Interest Policy which relates to the minimising of conflict of interest. Supply Chain Management (SCM) employees, as well as the members of the Procurement Control Committee (PCC), Bid Specification Committee (BSC) and the Bid Evaluation Committee (BEC), are required to declare any conflict of interest by signing a declaration of interest document. Staff members in the Procurement Department also declare business interests through an approved Human Capital process adhering to the RAF s Internal Conflict of Interest Policy. In cases where a potential conflict of interest may arise, the respective members are requested to excuse themselves from the specific meeting in order not to influence the process. All members of staff are also required to sign the Code of Ethics and the Declaration of Interest forms. Code of Conduct During the reporting period, a reviewed Code of Conduct was implemented in the organisation. The reviewed Code of Conduct applies to the Board, Management team and employees to guide their conduct, and for them to exercise care and diligence in the course of their work at the RAF. To ensure consultative participation from labour representatives, the reviewed Code of Conduct was presented to and approved by the Collective Bargaining Council. The council recommended that employees should be encouraged to sign the Code of Conduct and Code of Ethics respectively. Breach of the Code of Conduct is dealt with in line with the RAF s Disciplinary Policy. At the RAF Leadership Forum held in January 2014, all members of the RAF Management signed the Code of Ethics and pledged to adhere to the Code of Conduct and live up to the RAF s values. To demonstrate the RAF s commitment to transparency and accountability, the Code of Conduct is available to the public on the RAF s website and is subjected to annual review in line with legislative amendments. Health, Safety and Environmental Issues In the 2012/13 financial year, the RAF sourced Authority for Safety, Health, Risk and Environmental Quality (ASHREQ) Health and Safety Management (Pty) Ltd to conduct an annual occupational health and safety (OHS) compliance audit. The results indicate general improvements across the board, as outlined in the table below: Region 2012/13 % 2013/14 % Status Eco Glades 80% 89% 9% improvement Menlyn 73% 77% 4% improvement Walk-in Centre (Pretoria) 59% 79% 20% improvement Johannesburg 71% 90% 19% improvement Durban 70% 74% 4% improvement East London 74% 78% 4% improvement Cape Town 90% 96% 6% improvement 114 ROAD ACCIDENT FUND

117 Corporate Secretary The Corporate Secretary s role and responsibilities include, but are not limited to the following: Providing a central source of guidance and support to the Board on matters of good governance. Assisting with the Board induction and training programmes; Ensuring Board and Committee Charters are kept up to date; Preparing and circulating Board documents; Eliciting responses for Board and Board Committee meetings; Drafting annual work plans; Ensuring preparation and circulation of minutes of Board and Board Committee meetings; and Assisting with the evaluation of the Board, Committees and individual Board Members. PART C: GOVERNANCE Social Responsibility Key to the overall strategic objectives of the RAF is its various corporate social responsibility (CSR) initiatives in place across the country. The RAF s CSR approach is defined as an integration of social, environmental and economic contributions towards society. Accountability for Sustainability Accountability for our sustainable development policies, systems, practices, commitments and actions was guided through various committees of the Board, which ensure that the RAF s sustainable development approach, policies and commitments are aligned with global best practice. The governance responsibility for environmental, labour, human rights, society; and product responsibility aspects at the RAF lie with the Board and its committees, while the management responsibility of these aspects lies with the CEO and his Executive team. The RAF considers four key areas of its performance and impacts when it comes to incorporating sustainability aspects into its business, namely: Economic factors; Environmental factors; Social factors; and Governance factors. GRI s Sustainability Reporting Framework is a reporting system that enables all companies and organisations to measure, understand and communicate this information. The RAF strives to comply with this international norm, supported by its values, mission, vision, operational and strategic intent. It must, however, be noted that the RAF does not fully comply with the new GRI 4 reporting framework, but measures are being put in place to improve on this in the next financial year. INTEGRATED ANNUAL REPORT 2013/14 115

118 For ease of reference, the table below contains the page numbers on which relevant sustainability reporting information can be found. GRI reference Description Reference in the Integrated Report Page Strategy and analysis Statement of senior decision-makers, description of impacts, risks and Messages from the Chairperson and CEO 8 and 13 opportunities Organisational profile Organisational profile and details, and Part A: General Information 3 28 scale of organisation, ownership and Appendix A: Branches and significant changes introduced Satellite Offices 204 Report parameters Report profile, scope and boundaries Part A: General Information 6 Governance, commitments and engagements Governance, commitments to external initiatives and stakeholder engagement Part A: General Information Part C: Governance Management approach and key performance indicators Economic performance, service offering, role and impact on SA economy, human resources Messages from the Chairperson and CEO Part B: Performance Information Part D: Human Resource Management Part E: Financial Information 8 and Environmental framework Environmental impact Health, Safety and Environmental Issues 114 Social performance indicators, labour practices and decent work Employment, labour/management relations, occupational health and safety, training and skills Part D: Human Resource Management ROAD ACCIDENT FUND

119 Social Impact on Society Labour Practices Labour practice aspects are discussed in Part D: Human Resource Management. Economic Empowerment As a state entity, the RAF is mandated to contribute towards the transformation of the country through the creation of jobs and a better life for all. Through its partnership with the South African Civic Organisation (SANCO) Development Institute (SDI) and its Pothole Service Delivery Project for co-operatives, the RAF gave impetus to the Presidential proclamation on job creation and advanced the incorporation of women and youth into the broader transport sphere. The project is focused on assisting municipalities (in the main) with their road infrastructure maintenance initiatives through an extensive community upliftment programme delivering job security, public mobilisation and involvement, as well as the transfer of skills. PART C: GOVERNANCE To date, the project has assisted in training and permanently supporting about 65 young people and women, and has seen the repair of more than 5,250 potholes during its launch phase, covering more than 5,000 m² of roads and extending to more than 200 streets. Broad-based Black Economic Empowerment During the period under review, the RAF underwent a Broad-based Black Economic Empowerment (B-BBEE) verification process for the first time since its establishment. The process resulted in the RAF earning a Level 5 B-BBEE status. Work is underway to put in place a B-BBEE Policy and plan, which will improve the RAF s current B-BBEE level. Stakeholder Relations In line with best practice, the institutionalisation of stakeholder relations and engagements is a key focus area of the RAF. To this end, a Stakeholder Engagement Policy and Integrated Stakeholder Strategy were approved by the Board. In terms of key governance tenets, the policy is anchored by King III as well as the South African Inter-governmental Relations Policy of Implementation of the policy is done through the Integrated Stakeholder Strategy, which is aligned with the RAF s strategic objectives, a stakeholder map, as well as a stakeholder engagement plan. Stakeholder relations within the RAF context are aimed at the following outcomes: Equitable and sustainable social development by giving those who have a right to be heard the opportunity to be considered in decision-making processes; Enabling better management of risk and reputation; Allowing for the pooling of resources (knowledge, people, money and technology) to solve problems and reach objectives that cannot be reached by single organisations; Enabling understanding of the complex operating environments, including market developments and cultural dynamics; Enabling learning from stakeholders, resulting in product and process improvements; Informing, educating and influencing stakeholders to improve their decisions and actions that will have an impact on the RAF and on society; and Contributing to the development of trust-based and transparent stakeholder relationships. The broader achievements for stakeholder relations for the year under review included: An accurate forecasting report on the prevalence of road accidents, which was approved by the Board in February 2014; and Signing up 20 information collection agents to enhance the functionality of the RAF s crash data repository. INTEGRATED ANNUAL REPORT 2013/14 117

120 During the reporting period, the RAF s stakeholders were categorised in accordance with their level of impact and influence on the organisation. Below, is a graphical representation of a 360 degree network of stakeholders which have been identified as vital to the RAF s business. Toll industry RTMC SANRAL SATAWU C-BRTA Freight associations Claimants Towing services Employees Medical aid schemes FSB SADC-MVAs FPI ACSA Provinces RTIA NDoT PRASA DGs & HODs SAMSA SAMA Dept. of Health HPCSA Social development HASA SASSA SACC National Treasury CSIR Justice SAPAE SA SAPS Traffic police NPA Advocacy groups Home affairs Taxi associations DoJ & CD Dept. of Labour PCOT Bus associations Figure C4 Stakeholder map The map reflects the RAF s continuous effort to establish and grow strategic and sustainable relations. The global stakeholder map (as depicted) was developed in response to various business needs. Building Key Relationships In the context of the United Nations (UN) Decade of Action for Road Safety , the RAF established relationships with significant partners in its quest to meet the conditions of the UN for each signatory country to halve road accidents by These partnerships include relationships in all spheres of government. 118 ROAD ACCIDENT FUND

121 During the period under review, the Stakeholder Relations team entered into more than 40 meaningful relationships, 20 of which (through MoUs) contributed towards sustainable business activities. Some of the relationships that the RAF has entered into have led to direct interventions in respect of the reduction of road carnage and saving the lives of South African road users. These stakeholder relationships also allowed the RAF to establish additional business enablers, which ensured the enhancement of its core business. The RAF was also able to respond to the challenges identified in the Stakeholder Perception Survey Report. Peripheral and far-flung stakeholders are now starting to understand what the RAF brand represents and what its business proposition is. This has resulted in existing relationships being enhanced and new ones created in areas where the RAF was never given an opportunity to share its business offerings. Road Safety Programmes PART C: GOVERNANCE The RAF conducts a number of road safety programmes that aim to change general road user behaviour and to provide a safe infrastructure for vulnerable road users. Its Road Safety Strategy focuses on both a proactive and reactive approach. Its proactive approach aims to educate road users about the safe use of our roads, which includes programmes such as education for pedestrians, motorists, cyclists and passengers. The reactive approach is based on the infrastructure engineering aspects of road safety, whereby hazardous locations are identified and are remedied through the implementation of low-cost engineering infrastructure interventions. Road Safety in Schools Programme Through the Road Safety in Schools Programme, the RAF visited a number of schools throughout the country to educate learners about road safety. The Child in Traffic section teaches learners the basic rules of crossing the road safely. The Scholar Patrol section provides facilities for learners to assist other learners to cross busy roads to and from schools, and the RAF also contributes scholar patrol uniforms to the learners to enhance visibility. INTEGRATED ANNUAL REPORT 2013/14 119

122 Road Safety Begins with Us Campaign The Road Safety Begins with Us campaign was launched on 28 June 2013 in all RAF regional offices. The objectives of the campaign are: To enhance driving skills amongst the RAF workforce; To create safe and responsible road user behaviour; To encourage compliance with the National Road Traffic Act, 1996 (Act No. 93 of 1996); and To encourage the workforce to take ownership and responsibility for road safety and to become road safety ambassadors. The campaign comprised a vehicle and driver fitness check, defensive driving presentation and a drivers competition. The winner from each region was awarded a full-day advanced driving training. In addition, drivers from four bus companies in North West received defensive driver training. Campaigns among Taxi Drivers As part of the Road Safety Begins with Us campaign, road safety awareness was raised among taxi drivers and operators. The aim was to encourage taxi drivers to take responsibility for their own safety and that of their passengers. Road safety aspects emphasised included visibility, wearing of safety belts, fatigue and driver and vehicle fitness. The Hlokomela Kick-off Campaign, in partnership with the South African National Taxi Council (SANTACO), was also focused on creating road safety awareness and was conducted in a number of taxi ranks. Global Road Safety Week The UN General Assembly called for a Global Road Safety Week as part of its Decade of Action for Road Safety Campaign. The aim of the Road Safety Week was to draw attention to the urgent need to better protect pedestrians worldwide and to generate action on the measures needed to do so. Pedestrians comprise around one quarter of the annual global road deaths. In South Africa, 40% of road fatalities are pedestrians. During Road Safety Week, the RAF participated in a number of activities, particularly road safety walks. 120 ROAD ACCIDENT FUND

123 Cyclist Safety Campaign Cyclists form a large proportion of South African road users. Many use bicycles to transport them to and from work, while others cycle as a sport or leisure activity. Since this group is highly vulnerable to road accidents, the RAF initiated this campaign to promote safe cycling by providing cyclists with helmets, reflective bags and stickers at identified sites. The Cyclists Safety Campaign was piloted in Gauteng where the RAF, in partnership with the AA, distributed 1,000 helmets and reflective packs. Since the launch in 2013, an additional 1,500 helmets were distributed. The RAF aims to intensify this initiative in the coming financial year and will partner with more stakeholders to maximise its impact. The RAF also identified motorcyclists as a vulnerable road user group, and is in the process of establishing partnerships with a number of biker clubs to promote road safety among their members. MoUs will be signed in the 2014/15 financial year. PART C: GOVERNANCE Road Safety Summit The Road Safety Summit, hosted by the Honourable Minister of Transport, Ms Dipuo Peters, took place on 4 5 October With the theme, Together Championing Road Safety 365 Days, the aim was to address the carnage on South Africa s roads. The summit was an inclusive call to all road users and stakeholders to contribute towards ensuring a reduction in road deaths, a decrease in crashes, a change in road user behaviour and voluntary compliance to road traffic rules by road users. Dr Eugene Watson, RAF CEO, did a presentation on the RAF s activities, while staff members participated in a secretariat and co-ordination capacity. Road Safety and Traffic Officials Training Road Safety and Traffic Officers interact with road users on a daily basis in the course of their duties. It is therefore imperative that they are empowered with knowledge about the RAF which they can share with the public. For this reason, the RAF conducted training seminars for these officers in KwaZulu-Natal, North West, Free State, Limpopo and Mpumalanga on the RAF Act and the RAF s activities. The training initiative formed part of the Hlokomela Kick-off Campaign. INTEGRATED ANNUAL REPORT 2013/14 121

124 Impolompolo Project In partnership with Ngembuka Trading, the RAF is involved with the Impolompolo Project, aimed at truck drivers in KwaZulu- Natal. This annual road safety event has been running since the 1990s, with the SABC also on board to instil the culture of respect, compliance to traffic laws and tolerance among road users. Through the project, truck drivers get to interact on a daily basis on Ukhozi FM, where they share information regarding road accidents throughout the province. The annual event took place on 17 November 2013 and was attended by 3,500 people, including truck drivers, members of the general public, officials from the KwaZulu-Natal Department of Transport, RAF officials and representatives from Ukhozi FM. Seatbelt Campaign Approximately 450 South Africans suffer spinal cord injuries through road accidents on an annual basis. Unfortunately, no statistics are available on how many of those were not wearing seatbelts, but there is well documented research available which indicates that wearing a seatbelt significantly reduces the chances of a spinal cord injury should you be in a road accident. In partnership with the QuadPara Association of South Africa, the RAF launched the Seatbelt Campaign under the theme, Buckle Up, We Don t Want New Members. The campaign was promoted at fuel stations on all of South Africa s main routes and more than 9,618 road users pledged to use their seatbelts. Don t Text and Drive Campaign Texting while driving has a detrimental impact on concentration and can have a detrimental impact on driving abilities. Since young drivers between the ages of 18 and 35 are most often guilty of this offence, the Don t Text and Drive campaign is focused on this group of road users. The campaign aims to raise awareness about the risks of distracted driving associated with the use of mobile phones. The first event took place at Park Station in January 2014, with a second event at Baragwanath Taxi Rank. Attendees of the event signed a pledge not to text whilst driving. Infrastructure Interventions The reactive side of the RAF s road safety initiatives is an intervention at hazardous road infrastructure locations to reduce and prevent road accidents. Through these interventions, the RAF partners with local and provincial road engineering authorities to invest in implementing speed calming measures, such as speed bumps and clear road signs, as well as the repair of dangerous potholes. The RAF is in the process of erecting 19 speed bumps and road signs across the country. Most of these speed bumps are used by learners for scholar patrol crossings. One key infrastructure project is the RAF s partnership with SANRAL, RTMC, the DoT in the Eastern Cape and Mnquma Local Municipality to curb the high number of road accidents at the Ndabakazi N2 intersection with a R5 billion infrastructure injection. As part of the project, the RAF launched a community awareness campaign to educate residents on road safety. Since the campaign was launched in Women s Month, it was appropriately themed Women for Road Safety. The event called on the women of Ndabakazi to take responsibility for road safety in their area. The prayer and road block event attracted more than 800 community members and was also attended by the MEC: Roads and Transport, Honourable Thandiswa Marawu; Chairperson of Transport Portfolio Committee: Busisiwe Makaula and a number of RAF Executives. The RAF also visited several schools and taxi ranks in the area to raise awareness about the dangerous intersection. 122 ROAD ACCIDENT FUND

125 Investing in our Community The RAF s CSR initiatives can be defined as an integration of social, environmental and economic contribution towards our society. The RAF is committed to investing in high impact projects that bring about significant social security to the needy. It continues to channel its investment into five focus areas: Poverty alleviation; Education; Health (post-crash care); Road usage awareness; and Environment management. PART C: GOVERNANCE Projects are aligned to the broader national government agenda and are aimed at empowering communities for years to come. The RAF is mindful of the fact that being a responsible corporate citizen is more than ticking off a compliance box or handing over a cheque. It believes in equipping society with the relevant skills and information that enable growth and development. Employee Participation Programmes At the RAF, CSR is not only the responsibility of the corporate organisation, but rather the responsibility of every stakeholder associated with the RAF. Fundamentally, CSR is an enabling pillar to connect the organisation with its employees, and enhancing employee participation in line with the organisation s strategic objectives. The RAF s commitment to CSR enables its employees to jointly participate in eradicating poverty by creating social security to society. CSR Projects The RAF spent more than R2.4 million on its Corporate Social Responsibility during the year under review. The table below reflects the status of the various CSR projects: Project name Description Number of beneficiaries Actual spend Payment of battery powered wheelchair (repairs) A claimant in Lentegeur 1 R1,913 received a wheel chair donation from the RAF. Upon arrival, it was broken, thus RAF undertook to repair it Revamp Kalafong hospital Enhanced access to quality post-crash care About 2,500 crash victims seen per annum R1,000,000 Back to school campaign Soweto Drift Assistance to disadvantaged learners as part of CSR A road safety promotion initiative for youth with an interest in vehicle drifting 4,420 school-going children benefited 2,500 young people in Soweto attended the event that was partly sponsored by the RAF R718,000 R9,854 Food Security Poverty alleviation 360 families R563,070 Procurement of container Balfour Provision of a kitchen 50 children R96,161 facility for Siph uculo crèche in Balfour Bursary payment (7 individuals) The RAF contribution to a schools debating competition aimed at promoting Road Safety in schools 7 matriculants were awarded bursaries for their tertiary qualifications R50,000 INTEGRATED ANNUAL REPORT 2013/14 123

126 RAF on the Road The Marketing and Communications Department launched the RAF on the Road campaign in 2012 as a platform to take the RAF s service offering to the people, educate road users about the RAF and create brand awareness. The campaign has significantly strengthened the RAF s relationship with its customers, stakeholders from the three tiers of government and the media. It provides a platform to market direct claims and, most importantly, it gives RAF staff the opportunity to meet the faces behind the files. RAF on the Road integrates all functions within the RAF, the focus being on service delivery. Services offered to the public on the day include: checking one s claims status, claims originations, settlement of offers, education around the general claims process, complaints and fraud and corruption referrals. During the year under review, 16,074 claimants were engaged and R376 million were made in settlement offers. RAF on the Road was taken to the following areas during the financial year: Place visited Date Place visited Date Balfour 20 April 2013 Polokwane 28 September 2013 Mamelodi 4 May 2013 Kimberley 12 October 2013 Cape Town Nyanga 25 May 2013 Bloemfontein Mangaung 26 October 2013 Venda Thohoyandou 15 June 2013 KwaZulu-Natal Ntuzuma (mini) 19 October 2013 Welkom Thabong 27 July 2013 Cape Town Paarl (mini) 30 November 2013 Mafikeng Barolong 17 August 2013 Port Elizabeth Kwa-Zakhele (mini) 7 December 2013 Mount Frere 31 August 2013 Bushbuckridge 7 December 2013 Port Shepstone 7 September 2013 Upington 8 February ROAD ACCIDENT FUND

127 Report of the Audit Committee The Audit Committee is pleased to present its report for the financial year ended 31 March The Audit Committee is an independent statutory committee appointed by the Board of the RAF. The duties and responsibilities of the Audit Committee as delegated by the Board of the RAF are included in this report. Audit Committee Terms of Reference The Audit Committee has adopted formal terms of reference in the form of its Audit Committee Charter that has been approved by the Board of the RAF. The Committee has conducted its affairs in compliance with this Charter and has discharged its responsibilities contained therein. The Charter is available on request. PART C: GOVERNANCE Audit Committee Members and Attendance The Audit Committee consists of four independent Non-Executive Directors. It meets at least four times per year, as specified in the Audit Committee Charter. The Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Chief Audit Executive, external auditors and other assurance providers (legal, compliance, risk, health and safety) attend meetings by invitation only. During the year under review six meetings were held. Audit Committee 25 Apr May Jul Sep Nov Jan 2014 Total Mr LED Hlatshwayo Yes Yes Yes Yes Yes Yes 6 Mr D Coovadia 2 N/A N/A N/A N/A Yes Yes 2 Mr TP Masobe 2 N/A N/A N/A N/A Yes Yes 2 Mr T Moyo 1 Yes Yes Yes Yes N/A N/A 4 Adv. MJ Ralefatane 1 Yes Yes X X N/A N/A 2 Mr JN Masekoameng 1 Yes Yes Yes Yes N/A N/A 4 Ms NZ Qunta 1 Yes Yes Yes Yes N/A N/A 4 Mr DK Smith Yes Yes X X X Yes 3 Mr TB Tenza 3 Yes Yes X X Yes Yes 4 Dr EA Watson (Ex Officio) Yes Yes Yes Yes Yes Yes 6 1 Audit Committee members term expired on 30 September Audit Committee members appointed as from 1 October DG representative X Apologies were rendered for meetings not attended N/A Not a member at the time of the specific meeting INTEGRATED ANNUAL REPORT 2013/14 125

128 Roles and responsibilities Statutory Duties The Audit Committee s roles and responsibilities include its statutory duties as per the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA), as well as the Treasury Regulations issued in terms of the PFMA and the responsibilities assigned to it by the Board. The Audit Committee executed its duties in terms of the requirements of King III and in instances where King III requirements have not been applied; explanations are outlined in the Corporate Governance Statement included elsewhere in this Integrated Annual Report. The Committee was responsible for performing its duties as set out in the Audit Committee Charter, which included reviewing the following: The effectiveness of the RAF s internal control systems; The risk areas of the RAF s operations to be covered in the scope of the internal and external audits; The accounting and auditing concerns identified as a result of the internal or external audits; The RAF s compliance with legal and regulatory provisions, in particular the Road Accident Fund Act, 1996 (Act No. 56 of 1996); the Road Accident Fund Amendment Act, 2005 (Act No. 19 of 2005); the PFMA, as well as the NT Regulations; The activities of the Internal Audit function, including its work programmes, co-ordination with the External Auditors, the reports of significant investigations and the responses of Management to specific recommendations; The independence and objectivity of the External Auditors; The review of the Financial Statements with specific attention to: - Underlying accounting policies or changes thereto; - Major estimates and managerial judgements; - Significant adjustments flowing from the year-end audit; - Compliance with effective South African Standards of Generally Recognised Accounting Practice (SA Standards of GRAP), the PFMA and other statutory precepts; and - The appropriateness of the going concern assumption. The Audit Committee also undertook the following activities during the year under review: Reviewing and approving the Internal Audit function s Charter and Internal Audit Plan; Conducting investigations within its Terms of Reference; and Encouraging communication between Members of the Board, Senior and Executive Management, the Internal Audit Department; and the External Audit partner. External Auditors During the year, the Audit Committee met with the External Auditors and with the Chief Audit Executive without Management being present. The Audit Committee is satisfied that it complied with its legal, regulatory or other responsibilities. The Audit Committee, in consultation with Executive Management, agreed to the engagement letter, terms, audit plan and budgeted audit fees for the 2014 financial year. Financial Statements and Accounting Policies The Audit Committee has evaluated the Accounting Policies and Financial Statements of the RAF for the year ended 31 March 2014 and concluded that these comply, in all material respects, with the requirements of the PFMA, and were prepared in accordance with the effective SA Standards of GRAP issued by the Accounting Standards Board (ASB). The Audit Committee has established a process to receive and deal appropriately with any concerns and complaints relating to the reporting practices of the RAF. No matters of significance have been raised in the past financial year. 126 ROAD ACCIDENT FUND

129 Unauthorised, Irregular and Fruitless and Wasteful Expenditure The Audit Committee is satisfied with the processes in place to detect and disclose unauthorised, irregular and fruitless and wasteful expenditure. Any unauthorised, irregular and fruitless and wasteful expenditure that exceeds the materiality limit documented in the Materiality Framework will be disclosed. For the year under review, there was no expenditure which breached the materiality limit. Internal Financial Controls The Audit Committee s assessment of the internal financial controls in the claims environment is that the systems, although enhanced, should still be improved. Despite this, and based on the information and explanations given by Management and the Internal Audit function, together with discussions held with the Auditor-General of South Africa on the result of their audits, the Audit Committee is of the opinion that the internal financial controls are adequate to ensure that the financial records may be relied upon for preparing the Financial Statements, and accountability for the assets and liabilities is maintained. PART C: GOVERNANCE Based on the results of the formal documented review of the design, implementation and effectiveness of the RAF s system of internal financial controls conducted by the Internal Audit function during the 2014 financial year and, in addition, considering information and explanations given by Management and discussions with the External Auditor on the results of their audit, the Audit Committee is of the opinion that the RAF s system of internal financial controls is effective and forms a sound basis for the preparation of reliable Financial Statements. Whistle-blowing The Audit Committee receives and deals with any concern or complaints, whether from within or outside the RAF, relating to the accounting practices and Internal Audit of the RAF, the content or auditing of the RAF s Financial Statements, the internal financial controls of the RAF and related matters. Duties Assigned by the Board In addition to the statutory duties of the Audit Committee, as reported above, the Board has determined further functions for the Audit Committee to perform, as set out in the Audit Committee Charter. These functions include the following: Integrated Reporting and Combined Assurance The Audit Committee fulfils an oversight role regarding the RAF s Integrated Report and the reporting process, including the system of internal financial control. Furthermore, the Audit Committee oversees co-operation between the Internal and External Auditors and other assurance providers. A Combined Assurance Forum has been formed which is chaired by the Chief Audit Executive and reports to the Audit Committee on a quarterly basis. The Audit Committee considered the RAF s sustainability information as disclosed in the Integrated Annual Report and has assessed its consistency with operational and other information known to the Audit Committee Members, and for consistency with the Annual Financial Statements. The Audit Committee discussed the sustainability information with Management and has considered the conclusion of the Auditor-General of South Africa. The Audit Committee is satisfied that the sustainability information is reliable and consistent with the financial results, whilst noting that sustainability reporting will be enhanced. The Office of the Auditor-General of South Africa performed an assurance engagement on annual performance indicators included under the heading Performance Information by Programme that forms part of the RAF s integrated sustainability reporting. It is envisaged that such assurance of sustainability information will become more encompassing in line with the recommendations of King III. Going Concern The Audit Committee reviewed a documented assessment by Management of the going concern premise before agreeing that the adoption of the going concern premise is appropriate in preparing the Financial Statements. INTEGRATED ANNUAL REPORT 2013/14 127

130 Governance of Risk The Board has assigned oversight of the RAF s risk management function to the Risk Management and Ethics Committee. Some members of the Audit Committee are also members of the Risk Management and Ethics Committee to ensure that information relevant to these Committees is transferred regularly. The Audit Committee fulfils an oversight role regarding financial reporting risks, internal financial controls, fraud risk as it relates to financial reporting and information technology risk as it relates to financial reporting. Internal Audit The Audit Committee is responsible for ensuring that the RAF s Internal Audit function is independent and has the necessary resources, standing and authority within the RAF to enable it to discharge its duties. The Audit Committee considered and recommended the Internal Audit Charter for approval by the Board. The Internal Audit function s Annual Audit Plan was approved by the Audit Committee. The Internal Audit function reports centrally with responsibility for reviewing and providing assurance on the adequacy of the internal control environment across all of the RAF s operations. The Chief Audit Executive is responsible for reporting the findings of the Internal Audit work against the agreed Internal Audit Plan to the Audit Committee on a regular basis. The Chief Audit Executive has a functional reporting line to the Audit Committee, primarily through its Chairperson and reports administratively to the CEO. The Audit Committee is also responsible for the assessment of the performance of the Chief Audit Executive and the Internal Audit function. Evaluation of the Expertise and Experience of the Chief Financial Officer and Finance Function The Audit Committee has satisfied itself that the Chief Financial Officer has appropriate expertise and experience. The Audit Committee has considered, and has satisfied itself with the appropriateness of the expertise and adequacy of the resources in the finance function and the experience of the senior members of Management responsible for the finance function. Mr LED Hlatshwayo Chairperson of the Audit Committee Date: 31 July ROAD ACCIDENT FUND

131 Part D: HUMAN RESOURCE MANAGEMENT INTEGRATED ANNUAL REPORT 2013/14 129

132 Introduction The main strategic objective of the Human Capital Department is to ensure a transformed and capacitated RAF. The department s human capital programme remains on course to support the organisation in achieving its overall organisational objectives. The function creates an enabling environment in which employees are positioned to effectively execute on the RAF mandate through attraction, continuous learning, development and retention of talent. The structure of the department consists of the following work streams: Organisational Development, Learning and Development, Centre of Excellence, Capacity and Capacity Building, Shared Services and Customer Services. HR Priorities and Outcomes Priority Recruit, remunerate, manage and retain staff Identify talent and manage succession Train and develop while managing outliers Recognise and reward performers Outcomes for the 2013/14 financial year Accelerated the recruitment drive, including finalisation of two Executive appointments. Embarked on a benchmark exercise on salary increases with all DoT entities and recommended the approval of salary scales for 2014/15 based on survey results. Commenced career pathing consultations with Line Managers. Arranged quarterly review sessions for divisional talent forums to review progress on planned interventions for identified performers. Several change management initiatives, including value entrenchment. Optimising operational performance with specific focus on technical skills, training and customer service enhancement. Leadership development programmes were prioritised and initiated as part of development and talent management. Officers were held accountable for poor performance and Managers received guidance and training on workplace discipline. Employees were recognised in the form of spot, monthly and quarterly awards. Employees were awarded the Ethics Award for completion of the ethics survey. Organisational Development Performance Management The RAF considers performance management as a strategic business enabler. The overriding purpose of the RAF s performance management strategy is to enable the management of team and individual performance to ensure the achievement of strategic objectives and business results. A key objective of the RAF performance management comprises a systematic process for performance planning, monitoring and review of employee performance appraisals. It promotes shared accountability and responsibility amongst employees for achieving organisational objectives. The following key activities were embarked on during the reporting period to bolster a culture of high performance and excellence: Aligning Executive, Managerial and employee performance objectives to the Annual Performance Plan (APP) targets. This included adopting a process of defining objectives from the APP, in order for Management and employees to agree on objectives and understand what they need to do in the organisation to achieve these; New performance management contracting and appraisal templates were developed and implemented; The new performance templates are based on the understanding that the achievement of employee targets plays a major role in meeting the RAF s objectives, exceeding its targets and improving overall performance. The RAF performance management system is directly linked to other Human Capital processes and is aligned with the department s reward, recognition and development opportunities to retain and motivate employees and address poor performance. The performance cycle commences with the planning phase on 1 April each year, followed by quarterly reviews in July, October and January, with the final assessment conducted in April the following year. 130 ROAD ACCIDENT FUND

133 As at 31 March 2014, 93% of employees attended training on Performance Management. It must be noted that this is a moving target with new employees joining the organisation on a monthly basis. Maintaining a Skilled and Capable Workforce Succession Management Succession planning is a major priority within the RAF. In order for succession planning to succeed, a talent pervasive mindset, starting at Board and Executive Management level, is cascaded down to all management levels within the RAF. The RAF has embarked on a rigorous process to identify critical positions and proactively identify and develop a pool of potential, high performing successors at each management level. Its learning and development interventions are directly linked to the RAF competence framework and learning and development training solutions. Talent forums have been established in all business divisions, ensuring that talent pools are identified at each level and communicated upward to the Executive Talent Forum. Change Management During the period under review, the RAF trained change champions on being values and brand ambassadors and introduced a Value Entrenchment Programme with the aim of encouraging employees to depict the RAF s values. The change champions meet twice per annum as part of building change capacity, to reflect on organisational cultural issues and to support Managers to implement change programmes and manage resistance. PART D: HUMAN RESOURCE MANAGEMENT Learning and Development During the year under review, Learning and Development focused on the following core interventions: Operational training: Training was conducted on a continuous basis for the hospital-based consultants. This training consisted of the MVA Intermediate/Foundation Course, designed to empower hospital-based consultants to understand and communicate the RAF product. Ad hoc training was also offered for specific interventions requested by Operations. MVA Intermediate/Foundation Course: A compulsory course aimed at all new staff that join the RAF and who enter the claims environment. It covers the RAF s product offering from the origination of a claim through to its finalisation. The course includes both theoretical and practical assessments that test the new recruits competency to proceed into the claims environment. Targeted selection training: A critical intervention in upskilling staff members who conduct recruitment interviews in the methodology of targeted selection. The recruitment process has been fraught with inconsistencies and confusion, as interviewing panels did not understand the targeted selection methodology. PAIA training: The last sessions of the PAIA training were rolled out across the regions. The training was aimed at empowering all staff to deal with the dissemination of information, both within and outside the RAF. The impact of this training has been significant, as staff now have a clear understanding of the PAIA process within the RAF. On-boarding of new recruits: The On-boarding Programme continues on a monthly basis nationwide. Through this programme, newly appointed staff members are enabled to enter the organisation with not only a sound knowledge and understanding of the core values, but also the service offerings of the RAF. Disciplinary skills training: The RAF identified a skills gap in its managerial team in terms of the preparation for and conducting of disciplinary hearings. Training was conducted nationwide to empower the management team with practical skills in dealing with such hearings. SAP system training: This training was aimed at all staff members with access to the Enterprise Resource Planning System (SAP), and supports the practical business processes within the SAP environment. The dedicated SAP trainers, together with the various departments, identify gaps in the knowledge of SAP users and address them accordingly. Claims viewing training: The RAF claims viewing system was recently enhanced to create a more modern and up-to-date look and feel with more user-friendly applications to support the claims handling process. Training was offered on all system changes. INTEGRATED ANNUAL REPORT 2013/14 131

134 2013/14 Training Statistics Cape Town Durban East London Head Office Johannesburg Pretoria Total Leadership Operations ,277 3,483 Soft skills ,531 Systems training ,385 Workshop Total 982 1, ,590 1,350 2,156 8,069 Centre of Excellence The Centre of Excellence (CoE) was established flowing from Human Capital s re-alignment project during the 2013/14 financial year. The unit has focused on building a collaborative team that will drive excellence within the RAF. The following achievements must be noted: Remuneration and Recognition Programmes The CoE finalised the Remuneration Implementation Guidelines for the RAF in line with the approved policies. Road shows were held to communicate the policies and guidelines to ensure compliance with policy and internal equity. The CoE embarked on a benchmark exercise on salary increases for 2014/15 with all DoT entities. The benchmark report was submitted to Remuneration and Human Resources Committee (REMCO) for consideration. The unit participated in the salary adjustment project team in order to ensure that the RAF is ready for implementation of these adjustments as of 1 April The Annual Salary Adjustment Guidelines have been developed in support of the task team that was responsible for the determination of salary adjustments. An aggregate of 548 employees have been recognised as at 28 March 2014, excluding regional awards and the month of March monthly and quarterly awards. A survey was conducted on how total benefits are comparing with the market. The results of this survey will be used to further enhance our remuneration practices in the near future. Policy Development and Research The Centre of Excellence has reviewed 16 Human Capital Policies and out of these only six have been vetted by Compliance and are now with Internal Audit for final sign-off. The six policies that have been vetted for final sign-off are as follows: Transfer; Relocation; Incapacity; Incident and Grievance Policy; Internship and Learnership; and Leave. Seven policies out of the 16 are recommended for removal from the Human Capital Policy Register due to content, cost containment and relevance to Human Capital. The remaining three are still with Compliance for vetting and will be prioritised in the first quarter of the new financial year. The Disability Management Policy has been benchmarked with the Department of Public Service and Administration for submission to the REMCO. 132 ROAD ACCIDENT FUND

135 Knowledge Management The unit has been working on the profiling project for purposes of partnering with the Centre for Public Service Innovation in the new financial year. The costs of absenteeism, incapacity and disability are at an all-time high in the South African workplace. Human Capital regards absence from work as a strong indication of the presence of underlying issues related to health, social circumstances and wellbeing. The Human Capital Department, through its Employee Wellness Services (EWS), has adopted an integrated health and wellness approach to contribute to, inter alia, staff retention, productivity and prompt solution of health and psycho-social issues amongst the organisation s staff. The EWS unit focuses on the following: Employee Wellness Programmes Proactive Maintain health Behavioural change Figure D1 EWS focus Occupational Health Occupational health sites (primary healthcare) Advisory services to OHS Employee Assistance Programmes Reactive Counselling Rehabilitation Preventative Support Advocacy HIV/AIDS PART D: HUMAN RESOURCE MANAGEMENT During the reporting period, the unit provided the following services: 2,500 2,000 Number of Services 1,500 1, Q1 Q2 Q3 Q4 Financial Year EWP HIV Exec-care ICAS utili Figure D2 Combined in-house and outsourced utilisation INTEGRATED ANNUAL REPORT 2013/14 133

136 Managing Absence Amongst others, EWS focuses on staff retention, productivity and prompt solution of health and psycho-social issues to maximise return on investment. Line Management has a significant role to play in managing absenteeism and promoting productivity. During the reporting period, 90% of Line Managers were trained on HIV/Aids and the stigma related to the illness, as well as absence and behavioural problem management. The training provided empowered Line Managers to identify health and wellness problems that might impact on productivity and referral of such issues. The procedures and process mapping was designed and approved in July This will be implemented in collaboration with the Shared Services SAP enhancement project, which will be going out on tender in the new financial year. EWS Initiatives Wellness Seminar In October 2013, EWS hosted a Wellness Seminar to address health and wellness issues in the workplace. National Health Calendar EWS commemorates and celebrates important days on the national health calendar. One such event was the Women s Day celebrations hosted by the Deputy Minister of Transport. In recognising gender equality, the EWS also co-ordinated the celebration of International Men s Day, focusing on issues that affect men in our society. In December 2013, EWS commemorated World Aids Day and Disability Day. National Sports Day This annual event is organised by EWS in line with the government agenda on sports and recreation in the workplace. The National Sports Day was attended by 900 employees from all regions and included sport events for employees with disabilities. 134 ROAD ACCIDENT FUND

137 Inter-fund Games This is an annual tournament between the RAF and the MVA funds of Swaziland, Namibia and Botswana. The CEOs Forum, comprising the CEOs of all four funds, also met during the games to discuss and share strategies and challenges facing MVA victims. Due to cost-containment measures, the RAF s participation has come to an end. Financial Wellness Financial challenges impact on the stress levels of employees, and in a business environment with a high propensity for fraud, EWS found it imperative to investigate this matter further. ICAS, an independent service provider, was commissioned to conduct a garnishee order audit to establish the authenticity and legality of garnishees on the RAF payroll system, over-charging on interest and paid up garnishees. Capacity and Capability Building MVA Funds Human Capital Multi-lateral Agreement The RAF entered into a Human Capital Multi-lateral Agreement with the MVA funds from Botswana, Namibia and Swaziland during the year under review. The agreement recognises the commonality of the MVAs corporate aims and objectives and the need for mutual co-operation. The agreement emphasises, among other things, benchmarking best practices on all human capital practices, sharing of expertise, skills and competencies. The agreement further provides the funds with an opportunity to: PART D: HUMAN RESOURCE MANAGEMENT Exchange ideas and opinions; Work collaboratively to share expertise and experiences; Identify and address training needs; and Build the capability of the various professions within the funds. Shared Services Centre Employee Benefits and Administration Employees continue to enjoy the benefit of two medical schemes. A third medical scheme is being sourced. Pension Fund Board meetings were held quarterly and status reports were submitted to REMCO. A personnel file audit was completed. A report recommending enhancements of the document management system was submitted to the Executive Management. Human Capital Information System An organisational structure clean-up project commenced during the year. A personnel data clean-up commenced on SAP. This process will allow for greater management of personnel information and storage. Salary analysis and verification for annual salary adjustments were finalised. SAP Human Resources access and training on employee engagement was rolled out to the regions. Unpaid leave on the Employee Self-Service (ESS) and Manager Self-Service (MSS) SAP system have been implemented to enable Managers to process unpaid leave. Application of overtime on the ESS/MSS SAP system has also been implemented. This unit s main focus has been to capacitate the RAF by reducing the vacancy rate. Adequate human resources were attracted and retained through the implementation of various resourcing initiatives. The vacancy rate decreased to less than 10% as at 31 March The number of vacancies to be filled in the 2014/15 financial year is slightly more than 200. During the year under review, online recruitment was implemented. The RAF Careers tab has been replaced with the Talent Tech Tab and RAF vacancies now appear on Careers 24 and Jobs Indeed. Job seekers are now able to respond to RAF job adverts online. INTEGRATED ANNUAL REPORT 2013/14 135

138 Customer Services During the year under review, Employee Relations and Capacity Building conducted training for 14 Managers on Chairing of Disciplinary Hearings; 14 Employee Relations opinions were provided and implemented; and various one-on-one coaching sessions were held with Managers/Senior Managers on managing workplace issues. Incidents and Complaints Management Over 164 employee-related matters were referred for intervention and resolved; and these interventions led to a reduction in the number of formal grievances. Litigated Matters (CCMA and Labour Court) Five matters went to the Labour Court including one of a former Executive. Another matter of a former Executive was referred to the High Court. Human Capital Priorities and Future Plans The following priorities have been identified for the 2014/15 financial year: The implementation of the RAF Management Development Programme for entry level Managers to ensure that they possess the necessary confidence and ability to lead, and behavioural skills to mobilise people and groups to turn the organisation s strategic objectives into reality. Implementation of the Human Capital Multi-lateral Agreement engagements with the sister MVA funds of Botswana, Namibia and Swaziland. Decentralisation of the Human Capital functions to the regions for more effective and efficient service delivery. Reinforcing a high-performance culture through on-going performance management training and coaching. Continued talent and succession management ensuring capacity availability of leaders to fill strategic and critical positions. Building capacity in relation to key organisation tools, such as job evaluations, the Tuned Assessment of Skills Knowledge (TASK) grading system and salary structures. 136 ROAD ACCIDENT FUND

139 Human Resource Oversight Statistics Personnel Cost by Programme Programme Total expenditure for the entity (R 000) Personnel expenditure (TEC and Non- TEC HR related costs) (R 000) Personnel exp. as a % of total exp. No. of employees Average personnel cost per employee (R 000) All 37,816, , % 2, Personnel Cost by Salary Band (TEC) Level Personnel expenditure (R 000) % of personnel exp. to total personnel cost No. of employees Average personnel cost per employee (R 000) Top management 3, % 1 3,834 Senior management 24,152 3% 18 1,342 Professional qualified 191,217 25% Skilled 404,533 53% 1, Semi-skilled 131,443 18% Unskilled 2, % Total 757, % 2, PART D: HUMAN RESOURCE MANAGEMENT Performance Rewards Programme Performance rewards (R 000) Personnel expenditure (R 000) % of performance rewards to total personnel cost (R 000) Top management 1,202 3,834 31% Senior management 2,177 24,152 9% Professional qualified 20, ,217 11% Skilled 35, ,533 9% Semi-skilled 11, ,443 9% Unskilled 126 2,058 6% Total 71, ,237 9% Training Costs Business unit Personnel expenditure (TEC and Non-TEC HR-related costs) (R 000) Training expenditure (R 000) Training expenditure as a % of personnel cost No. of employees trained Average training cost per employee RAF learning and development 907,172 12, % 8,103 1,522 INTEGRATED ANNUAL REPORT 2013/14 137

140 Employment and Vacancies Programme 2012/13 No. of employees 2013/14 Approved posts 2013/14 No. of employees 2013/14 Vacancies % of vacancies Top management % Senior management % Professional qualified (45) -18% Skilled 879 1,339 1, % Semi-skilled % Unskilled % Total 1,881 2,540 2, % Employment Changes Staff Complement per Quarter 2,500 2,147 2,288 2,000 1,880 1,971 Numbers 1,500 1, st 2 nd 3 rd 4 th Quarters Graph D1 Staff complement per quarter 138 ROAD ACCIDENT FUND

141 Rates st Staff Turnover Rate per Quarter nd 3 rd Quarters th PART D: HUMAN RESOURCE MANAGEMENT Graph D2 Staff turnover rate per quarter Salary band Employment at beginning of period Appointments Terminations Employment at end of the period Top management Senior management Professional qualified Skilled ,255 Semi-skilled Unskilled Total 1, ,288 Reasons for Staff Leaving Reason Number % of total no. of staff leaving Death 6 5% Resignation 90 79% Dismissal 10 9% Retirement 4 3% Ill health 1 1% Expiry of contract 3 3% Other 0 0% Total % INTEGRATED ANNUAL REPORT 2013/14 139

142 Labour Relations: Misconduct and Disciplinary Action Nature of disciplinary action Number Verbal warning 16 Written warning 27 Final written warning 19 Dismissal 10 CCMA cases Total number of CCMA cases 16 Settled 9 Equity Target and Employment Equity Status Male African Coloured Indian White Levels Current Target Current Target Current Target Current Target Top management Senior management Professional qualified Skilled Semi-skilled Unskilled Total Female African Coloured Indian White Levels Current Target Current Target Current Target Current Target Top management Senior management Professional qualified Skilled Semi-skilled Unskilled Total 1, Disabled staff Male Female Levels Current Target Current Target Top management Senior management Professional qualified Skilled Semi-skilled Unskilled Total ROAD ACCIDENT FUND

143 Part E: Financial Information INTEGRATED ANNUAL REPORT 2013/14 141

144 Table of Contents The reports and statements set out below comprise the Financial Statements presented to Parliament: Report of the Auditor-General to Parliament on the Road Accident Fund 143 Statement of Responsibility by the Board of Directors 145 Report of the Board of Directors 146 Corporate Secretary s Certification 150 Statement of Financial Position 151 Statement of Financial Performance 152 Statement of Changes in Net Assets 153 Cash Flow Statement 154 Statement of Comparison of Budget and Actual Amounts 155 Notes to the Financial Statements ROAD ACCIDENT FUND

145 REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE ROAD ACCIDENT FUND Report on the Financial Statements Introduction 1. I have audited the Financial Statements of the Road Accident Fund set out on pages 151 to 203, which comprise the Statement of Financial Position as at 31 March 2014, the Statement of Financial Performance, Statement of Changes in Net Assets, Cash Flow Statement and the Statement of Comparison and Actual Amounts for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information. Accounting Authority s Responsibility for the Financial Statements 2. The accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with South African Standards of Generally Recognised Accounting Practice (SA Standards of GRAP) and the requirements of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA), and for such internal control as the accounting authority determines is necessary to enable the preparation of Consolidated and Separate Financial Statements that are free from material misstatement, whether due to fraud or error. PART E: FINANCIAL INFORMATION Auditor-General s Responsibility 3. My responsibility is to express an opinion on these Financial Statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the general notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the Financial Statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the RAF s preparation and fair presentation of the Financial Statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the RAF s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the financial statements. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion 6. In my opinion, the Financial Statements present fairly, in all material respects, the financial position of the Road Accident Fund as at 31 March 2014 and its financial performance and cash flows for the year then ended, in accordance with SA Standards of GRAP and the requirements of the PFMA. Emphasis of Matters 7. I draw attention to the matters below. My opinion is not modified in respect of these matters. Going Concern 8. The accounting authority s report on page 146 and Note 36 to the Financial Statements indicate that the Road Accident Fund has accumulated deficits of R90,925,544,000 and that the public entity s total liabilities exceeded its total assets by R90,797,758,000 as at 31 March These conditions, along with other matters as set forth in the accounting authority s report and Note 36, indicates the existence of a material uncertainty that may cast significant doubt on the public entity s ability to operate as a going concern. INTEGRATED ANNUAL REPORT 2013/14 143

146 Irregular Expenditure 9. As disclosed in Note 27 to the Financial Statements, irregular expenditure occurred as a result of non-compliance with supply chain management processes. The total irregular expenditure disclosed amounted to R18,457,000 (2013: R4,327,000) for the financial year under review which constitutes an increase of 327% in comparison with the previous year. Restatement of Corresponding Figures 10. As disclosed in Note 35 to the Financial Statements, the corresponding figures for 31 March 2013 have been restated as a result of an error discovered during 2014 in the Financial Statements of the Road Accident Fund at, and for the year ended, 31 March Additional Matters 11. I draw attention to the matter below. My opinion is not modified in respect of this matter. Report on other Legal and Regulatory Requirements 12. In accordance with the PAA and the general notice issued in terms thereof, I report the following findings on the reported performance information against predetermined objectives for selected objectives presented in the annual performance report, non compliance with legislation as well as internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters. Predetermined objectives 13. I performed procedures to obtain evidence about the usefulness and reliability of the reported performance information for the following selected objectives presented in the annual performance report of the public entity for the year ended 31 March 2014: Objective: A legislative dispensation that is aligned to the principles of social security on pages 78 to 81. Objective: Achieving a customer-centric, operationally efficient and effective RAF by 2017 on pages 85 to I evaluated the reported performance information against the overall criteria of usefulness and reliability. 15. I evaluated the usefulness of the reported performance information to determine whether it was presented in accordance with the National Treasury s annual reporting principles and whether the reported performance was consistent with the planned objectives. I further performed tests to determine whether indicators and targets were well defined, verifiable, specific, measurable, time bound and relevant, as required by the National Treasury s Framework for managing programme performance information. 16. I assessed the reliability of the reported performance information to determine whether it was valid, accurate and complete. 17. I did not raise any material findings on the usefulness and reliability of the reported performance information for the selected objectives. Auditor-General Pretoria 31 July ROAD ACCIDENT FUND

147 Statement of Responsibility by the Board of Directors The Annual Financial Statements have been prepared in accordance with South African Standards of Generally Recognised Accounting Practice (SA Standards of GRAP) including any interpretations, guidelines and directives issued by the Accounting Standards Board (ASB). The Public Finance Management Act (PFMA) requires the Accounting Authority to ensure that the Road Accident Fund (RAF) keeps full and proper records of its financial affairs. The Financial Statements should fairly present the state of affairs of the RAF, its financial results, its performance against predetermined objectives and its financial position at the end of the year in terms of the effective SA Standards of GRAP. The Financial Statements are the responsibility of the Board of Directors (Board). The External Auditors are responsible for independently auditing and reporting on the Financial Statements. These Financial Statements are based on appropriate accounting policies, supported by reasonable and prudent judgements and estimates, and have been prepared on the going concern basis. PART E: FINANCIAL INFORMATION The Board has reviewed the RAF s cash flow forecast for the year ending 31 March 2015 and considered the risks and challenges for the future. In light of this review and the current financial position, the Board is satisfied that the RAF has access to adequate resources to continue in operational existence for the short-term. To enable the Board to meet the above-mentioned responsibilities, the RAF Board sets standards and implements systems of internal control. The controls are designed to provide cost-effective assurance that assets are safeguarded, and that liabilities and working capital are efficiently managed. Policies, procedures, structures and approval frameworks provide direction, accountability and division of responsibilities, and contain self-monitoring mechanisms. The controls throughout the RAF focus on the critical risk areas identified by operational risk management and confirmed by Executive Management. Both Management and the Internal Audit function closely monitor the controls and actions taken to correct deficiencies as they are identified. Based on the information and explanations given by Management and the Internal Audit function, and discussions held with the Auditor-General of South Africa on the result of their audits, the Board is of the opinion that the internal accounting controls are adequate to ensure that the financial records may be relied upon for preparing the Financial Statements, and accountability for the assets and liabilities is maintained. Nothing significant has come to the attention of the Board to indicate that any material breakdown has occurred in the functioning of these controls, procedures and systems during the year under review. In the opinion of the Board, based on the information available, the Financial Statements fairly present the financial position of the RAF at 31 March 2014 and the results of its operations and cash flow information for the year. The Board believes that funds will be available to fund future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business and that it is appropriate to adopt a going concern approach. On an annual basis following the Minister of Finance s Budget Speech in Parliament, the Taxation Amendment Act indicates what the RAF Fuel Levy will be for the applicable financial year. The Financial Statements of the RAF for the year ended 31 March 2014, which have been prepared on the going concern basis, have been approved by the Board and signed on its behalf by: Dr NM Bhengu Chairperson of the Board Date: 31 July 2014 INTEGRATED ANNUAL REPORT 2013/14 145

148 Report of the Board of Directors 1. Introduction The Board of Directors presents its report which forms part of the Annual Financial Statements of the Road Accident Fund (RAF) for the year ended 31 March 2014 to the Minister of Transport, who is the Executive Authority in terms of section 55(1)(d) of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (as amended by Act No. 29 of 1999) (PFMA). The RAF, as established by the Road Accident Fund Act, 1996 (Act No. 56 of 1996), (RAF Act), is listed as a National Public Entity in accordance with Schedule 3A of the PFMA. The Board of Directors acts as the Accounting Authority in terms of the PFMA. 2. Board of Directors and Secretary of the Road Accident Fund The Board of Directors and Corporate Secretary as at the date of this report are as follows: Board of Directors, Non-executive Board Members Dr NM Bhengu (Chairperson) Mr D Coovadia (Vice Chairperson) Appointed on 1 October 2013 Dr KLN Linda Appointed on 1 October 2013 Adv DS Qocha Mr TP Masobe Appointed on 1 October 2013 Mr AM Pandor Appointed on 1 October 2013 Mr DK Smith Ms R Mokoena Appointed on 1 October 2013 Ms A Steyn Mr LED Hlatshwayo Mr TB Tenza (DG representative)* * The Director-General of the Department of Transport or any other Senior Officer in the Department of Transport, designated by him or her for a particular purpose, serves as an ex officio member of the Board. Chief Executive Officer Dr EA Watson Chief Financial Officer Ms LJ Fosu Corporate Secretary Ms JR Cornelius 3. Review of Activities Principal Activities and Results To provide appropriate cover to all road users within the borders of South Africa; to rehabilitate persons injured, compensate for injuries or death and indemnify wrongdoers as a result of motor vehicle accidents in a timely, caring and sustainable manner; and to support the safe use of our roads. The detailed review of the results of the RAF for the year ended 31 March 2014 is included under the Situational Analysis in Part B of this report. 4. Solvency and Going Concern We draw attention to the fact that at 31 March 2014, the RAF had accumulated deficits of R90,925,544,000 and that the RAF s total liabilities exceed its assets by R90,797,758,000. The going concern basis was used in preparing the Annual Financial Statements. This basis presumes that funds will be available to 146 ROAD ACCIDENT FUND

149 finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business. On an annual basis, following the Minister of Finance s Budget Speech in Parliament, the Taxation Amendment Act indicates what the applicable fuel levy will be for the financial year. The National Budget, inclusive of the fuel levy amount, is submitted and approved by the South African Parliament via the Taxation Amendment Act. Government also commits to the RAF budget in its Medium-Term Expenditure Framework (MTEF). The RAF will manage the cash resources to ensure that short-term liabilities are met. It should further be noted that the RAF can only be dissolved by an Act of Parliament which repeals the current Act and will result in the common law residual claim being revived. Once triggered common law delictual claims may be instituted against the wrongdoer, it is also likely that claims would be instituted against the State on the basis that the State is required to ensure that the RAF is funded to pay claims. There has been no indication of this. In the course of this financial year increased productivity saw the number of claims settled reach highs never seen before, however the result was that the cash balance that the RAF closed the year on was significantly reduced from that with which the financial year started. Though the available funding for the 2014/15 financial year remains at levels similar to that of the past and the impact of the Diesel Rebate has also had a material impact, the levels of productivity as seen in the 2013/14 financial year is being maintained. As a result the RAF is in the process of implementing a number of initiatives to ensure its expenditure and commitments can be managed within the available funding while engagements with NT and DoT are ongoing to secure additional funding for short-, medium- and long-term purposes. PART E: FINANCIAL INFORMATION In the past, the RAF received additional financial support from NT in the form of cash injections over and above the normal fuel levy income as and when it faced liquidity problems. During the 2006 financial year, it received a cash injection of R2,502 billion and in the 2009 financial year it received R2,550 billion. The Board and Management are committed to implementing plans to contain the growing deficit caused by the rising provision for outstanding claims. As part of these plans, the RAF has engaged NT and the Department of Transport in discussions to resolve the short-, mediumand long-term funding position of the RAF. The following table depicts the total assets and the total liabilities of the RAF over the past five years. From the table it is clear that the RAF has not been solvent for a number of years. The net liabilities have increased by R17,295,394,000 in the 2013/14 financial year R 000 Restated 2013 R 000 Restated 2012 R 000 Restated 2011 R R 000 Total assets 7,694,347 10,717,258 8,572,312 4,566,637 3,878,585 Total liabilities (98,492,105) (84,219,622) (73,660,604) (48,583,820) (32,308,577) (90,797,758) (73,502,364) (65,088,292) (44,017,183) (28,429,992) 5. Subsequent Events No undisclosed material events have taken place between the Statement of Financial Position date and the authorisation of the Annual Financial Statements. 6. Accounting Policies During the current financial year, no new Generally Recognised Accounting Practices (GRAP) standards were applied for the first time. The Annual Financial Statements are prepared in accordance with the prescribed SA Standards of GRAP issued by the Accounting Standards Board as the prescribed framework by NT. 7. Materiality Framework A materiality framework has been developed for reporting losses through criminal conduct and irregular, fruitless and wasteful expenditure or for significant transactions that require approval by the Executive Authority, as envisaged in section 54(2) of the PFMA. The framework was finalised by the RAF and approved by the Board on 6 February INTEGRATED ANNUAL REPORT 2013/14 147

150 8. Fruitless and Wasteful and Irregular Expenditure Fruitless and Wasteful Expenditure Fruitless and wasteful expenditure of R30,440,500 (2012/13: R20,226,000), relating to interest and sheriff costs, has been disclosed in Note 26 of the Annual Financial Statements. Interest and Sheriff Costs Interest cost is the cost paid for the late payment of the claim compensation as agreed to in a settlement agreement or an order of the court, and taxed legal bills settled through taxation as these costs are due immediately. The interest is charged under the Prescribed Rate of Interest Act of 1975 at 15.5% as per Government Gazette No issued on 1 October Sheriff cost is the cost paid to the Sheriff for its service with regard to serving the warrant of execution (writs) on the RAF. As per the definition in the PFMA, fruitless and wasteful expenditure means expenditure which was made in vain and could have been avoided had reasonable care been exercised. The amounts listed above are costs incurred in the settlement process of claims influenced by external legal processes and time limits legally enforced on the RAF in the settlement of claims. During the financial year, the number of finalised claims has increased to 240,783 (2012/13: 162,130) which is a 49% increase and the settlement of the legal costs has been affected by the higher finalisation rates. The legal costs create operational constraints as there are no legal obligations for plaintiff attorneys to submit the bill within stipulated timeframes and the majority of legal cost bills are disputed because their content or the items billed are incorrect or invalid. The process of taxation of legal cost bills through the office of the Taxation Master is the only option to settle these disputes. The taxation of legal cost bills exposes the RAF to a risk of non-compliance to court processes despite an instruction note from NT that all payments from legal settlements must be paid within 30 days from the date of settlement. Court rules require that taxed bills must be paid immediately after taxation and plaintiff attorneys issue warrants of execution immediately after settlement. As a result payments may comply with the PFMA but not the court rules. The following information relates to the legal cost bills settled through taxation for 2013/14: Number of bills settled through taxation: 26,698 (2012/13: 21,137) and it has increased by 26%. Number of bills where a saving is made through taxation: 25,677 (2012/13: 20,653) and it has increased by 24%. Amount saved through taxation: R966,168,695 (2012/13: R386,559,115) and it has increased by 150%. The success rate in terms of saving legal cost bills is 96% (2012/13: 98%). RAF officials are required to diligently apply the process of the legal cost bills assessment. Writs Standard Operating Procedures (SOPs) are in place to ensure that all taxed bills are paid timeously to minimise the impact of the interest cost at a rate of 15.5%. It must be noted that the sheriff costs from the taxation process cannot be minimised as timeframes are not in place as per court rules requirements. The number of writs received in 2013/14 was 5,595. It is 28.67% lower than in 2012/13. The fruitless and wasteful expenditure is monitored closely by the Executive and Board. There are processes which have been undertaken to ensure that this risk is mitigated. A process to review the applicable interest rate was undertaken by RAF Management with the objective of aligning the current rate to the public sector rate. The Department of Justice has called for public commentary on the proposal. Disciplinary action has been taken against staff members as a result of negligence resulting in the payment of sheriff and interest costs, as well as duplicate payments. During the financial year, 19 final written warnings, 27 written warnings and 16 verbal warnings were issued. 148 ROAD ACCIDENT FUND

151 Irregular Expenditure Irregular expenditure of R18,457,000 (2012/13: R4,327,000) was condoned during the financial year and is disclosed in Note 27 of the Annual Financial Statements. Irregular expenditure arose as a result of: Non-compliance with supply chain management practices, which resulted in irregular expenditure being incurred; Failure to comply with procurement processes when procuring goods or services as stipulated in the Supply Chain Management Policy, and also committing acts that contravened or failed to comply with a provision of the PFMA and the RAF Act; and Non-compliance with the provisions of the RAF Financial Misconduct Policy and PFMA, which constituted financial misconduct and warranted disciplinary actions. Any employee who committed an act which undermined the financial management and internal control systems of the RAF, as required by relevant legislation and policies, is dealt with in terms of the Disciplinary Policy. Employees who make or permit an irregular expenditure or fruitless and wasteful expenditure, as required by section 57 of the PFMA, expose themselves to appropriate disciplinary measures. PART E: FINANCIAL INFORMATION In 2013/14, the RAF instituted disciplinary steps that included the recovery of wasted revenue and dismissals where employees were found to have contravened provisions of the Acts and internal policies. The increase in irregular expenditure was as a result of: ICT licences of R13.9 million that had not been renewed in line with the approved procedures and where instances of under-licensing were detected by management during the year; and The use of recruitment agencies by the Human Capital Department which did not comply with approved procedures. Upon review, the number and type of irregular expenditure had improved from 260 in 2012/13 to 92 at the end of the 2013/14 financial year. This reduction confirms the efficiency of management interventions and a continued reduction is expected. 9. Addresses Business address: Eco Glades Office Park Witch-Hazel Avenue Centurion Approval Postal address: Private Bag X178 Centurion 0046 Website address: The Annual Financial Statements which have been prepared on the going concern basis, were approved by the Accounting Authority on 31 July 2014 and were signed on its behalf by: Dr NM Bhengu Dr EA Watson Chairperson of the Board of Directors Chief Executive Officer Date: 31 July 2014 Date: 31 July 2014 INTEGRATED ANNUAL REPORT 2013/14 149

152 Corporate Secretary s Certification I hereby certify that the RAF has lodged all returns as required by the Public Finance Management Act, 1999 (Act No. 1 of 1999), as amended by Act No. 29 of Ms JR Cornelius Corporate Secretary Date: 31 July ROAD ACCIDENT FUND