The legal battle between the Auditor-General of South Africa (AGSA) and the Road Accident Fund (RAF) over the legal standing of the fund’s accounting standards may be swaying in the former’s favour, but it is far from over. Parliament recently took the RAF to task for its relentless position on the matter, having insisted in the 2021/2022 financial year on continuing with its own set of standards, which are a deviation from those prescribed by the AGSA – and consequently advised to dissolve its board. The fund stands by its position, but has withdrawn its appeal of a 2022 ruling of the North Gauteng High Court in favour of the AGSA, arising from a dispute brought forward by the fund in relation to the matter.

In response to the withdrawal, Auditor-General (AG) Tsakani Maluleke reiterated in a statement her call for state institutions to not interfere with the functions of her office, and for entities that fall within her scope to respect the Public Audit Act – a guiding piece of legislation for the operations of her office.

At the centre of the legal dispute is what the Standing Committee on Public Accounts (Scopa) called the insistence of the RAF to use its own accounting methods, thereby showing arrogance in its deviation in the 2020/21 financial year from the International Financial Reporting Standards (IFRS) 4 to the Generally Accepted Accounting Standards 3. The latter is used by public institutions, but in the case of the RAF, would drop its liability by as much as 90%, resulting in what the AG views as a misrepresentation of its financial standing.

The RAF was later instructed by both the AGSA and the National Treasury to return to the IFRS, a move that received support from Scopa, but instead of doing this, launched a legal case against the AG in January 2022.

RAF avoiding accountability

In the first instance that the deviation occurred, the AGSA raised concerns over the matter, citing that based on the reporting of that financial year, the RAF stands to misrepresent its financial standing because it would be disregarding a liability of about R300-billion. The fund has been under dire financial strain for some time, with Treasury bailouts mooted to help keep it above water.

Also in dispute is whether it should be classified as a social security fund – as it currently is by the South African Reserve Bank – or a public insurer, for which liabilities are not funded, despite growing exponentially over the years. Both the AGSA and Treasury are of the view that the RAF should account as a public insurer. Despite the hung debate over its status, Maluleke was compelled to deliver her audit opinion on the RAF to Parliament.  

The RAF tried to interdict the report and prevent Maluleke from presenting it, but failed. The AGSA argued that it was within its mandate as the state auditor to table the audit results, as per the Public Audit Act. It is required by law to do so within a certain timeframe after it completes its audit of an entity.

Of the withdrawal of the RAF’s appeal, Maluleke said in the statement previously mentioned: “This is a step in the right direction and a welcome development that confirms our long-held view that the constitutional function of the AGSA as the country’s independent supreme audit institution, should not be interfered with.”

In addition, she shared her discontent with the RAF’s legal action, saying: “airing accounting and auditing matters before the courts is not in the best interest of audit and financial accountability.”

Further to its legal attack of the AG regarding the parliamentary feedback, the RAF also applied for a review of the audit results of the year in question, and this process is set down for October this year.

Small wins on the MI front

When she is not fighting to defend the office’s constitutional mandate in court, however, Maluleke is putting her relatively new powers to good use.

She recently gave her third feedback to the Standing Committee on the Auditor-General on the material irregularity (MI) cases that her office has handled since the 2019 amendment to the Public Audit Act. This amendment effected an extension of powers to demand accountability from auditees, and some leeway in terms of enforcement of sanctions where such accountability does not happen. This time her report was in respect of provincial and national departments.

Maluleke’s presentation highlighted that due to the actions of auditees, some R636-million worth of potential financial loss was prevented, R509-million worth of financial loss was in the process of recovery, and R14-million worth of financial loss had so far been recovered.

Some of the examples cited included the following:

  • R227-million loss prevented after unused vials of a R260-million drug imported by the Department of Defence without the approval of the South African Health Products Regulatory Authority were repatriated to Cuba.
  • R9.7-million recovered from a R11-million overpayment of property rentals by the Property Management Trading Entity to a landlord. The amounts paid exceeded the amount payable as per the lease agreement with the landlord.
  • R500 000 recovered from a supplier who had been paid R1.3-million by the KwaZulu-Natal health department for a sanitiser detergent at a significantly higher price than that mandated by the National Treasury.
  • Disciplinary steps taken against officials of the Department of Cooperative Governance after payments were made to non-qualifying government employees as part of the community work programme. This was because of the AG’s advice on the matter, which the Hawks is also investigating.
  • R6.45-million in estimated financial loss prevented after the Eastern Cape Department of Human Settlements awarded three contracts for housing units to bidders who did not score the highest points. Two of the contracts were set aside.

Material irregularity is defined in the Public Audit Act as “any non-compliance with, or contravention of, legislation, fraud, theft or a breach of a fiduciary duty identified during an audit performed under the Public Audit Act that resulted in or is likely to result in a material financial loss, the misuse or loss of a material public resource, or substantial harm to a public sector institution or the general public.”

For purposes of expanding the AGSA’s powers – which in the past were limited to reporting on, and recommending action to be taken by state institutions to prevent the above-mentioned transgressions – the Act was amended to allow Maluleke’s office to:

  • Refer MIs to relevant public bodies in law enforcement for further investigation.
  • Recommend actions in the audit reports to resolve the MIs.
  • Institute binding remedial action for failure to implement recommendations.
  • Issue certificates of debt where institutions have failed to implement remedial action where financial loss has occurred.

It has not always been smooth sailing, however. There have been some delays in getting MI matters resolved. Reasons range from the slow pace in completing investigations on the part of those bodies to which matters are referred, and delays in recovery process, including liquidation of suppliers; instability at accounting officer/authority level, to and delays in identifying responsible officials and completing disciplinary process.

Maluleke further noted that improvements in the process of resolving MIs were necessary, both from her office and from public bodies on which they rely.

From the committee, Maluleke received praise for the work of her office. In a statement it issued following her appearance before it, the committee noted: “In complimenting the AG, the committee called for a greater collaboration between the AGSA and other bodies such as the Hawks and the committee also called for the culture of action and effective application of consequence management on fraudulent and illegal use of public resources.”