This is a formal submission to your Committee by me, as an interested citizen, to assist you in your deliberations as to whether or not your esteemed committee should endorse the adoption of the proposed legislative amendments submitted for enactment by the Road Accident Fund.

A copy has been made available to a Coalition representing the legal, medical and business sector as these sectors have a legitimate interest in the matter.

The submission is founded on the claim that it contains information that is unarguable factually. In addition, as disturbing as the revealed picture is, it can only represent an incomplete picture of the reality.

I voluntarily retired from the High Court bench of Zimbabwe to assist the Botswana Government in the development and reform of its version of the South African Road Accident Fund in January 1992.

Some idea of my functional integrity may be gleaned from the following judgements reported in the SA Law reports.

S v F 1989(1) SA 460. Malaba v Takangovada 1990(3) SA 413. Washaya v Washaya 1990(4) SA 41. Masawi v Chabata 1991(4) SA 764. Fawcett Security v Omar Ent 1991(2) SA 441.

Also numerous judgments reported in the Zimbabwe Law Reports.

In addition the Law Reports have two reports in which I was commended as an advocate by the Supreme Court Of Zimbabwe.

I joined the SA Fund in January 1997 and served as its Acting CEO from 1999 to 2001.

I am a member of the Botswana Fund Board and intimately involved in the reform process of that Fund which, since my involvement, has succeeded in ridding itself of the problems attendant on our fund.

At the outset I make it clear that I have an issue of extreme unresolved anger against the previous Chairperson of the Fund, Adv Kessie Naidu SC.

In this submission however I seek to disabuse my mind of this grievance, refrain from making derogatory statements, provide factual information and constrain myself to objective professional comment on performance/non performance where indicated.

It should be noted that, with some reservations, the proposed amendments have my support in principle. By and large they repose in the written stance that I submitted to the Satchwell Commission and articulated on behalf of Fund management as early as 19 November 1999.

The concepts of –

1. compensation being awarded as and when the loss actually occurs,
2. medical management of victims and
3. mediation/arbitration

were all conceived by me, and supported by other experienced professionals, as being fundamental to an ideal system.

Of present executive management (management) only Kgomongwe was present at the conception of these reforms. However, since he had only just joined the Fund and had no experience of the system, his contribution was minimal. He can be credited with very much later being a strong proponent of "direct payments", i.e., bypassing attorneys in the payment of compensation. This proposal appears to have been withdrawn.

It should be appreciated that the legislative amendments present as a significantly more sophisticated and complex model that will -

1. firstly, further stress the current system which will have to be managed concurrently as the present enormous backlog will have to be "run off", and
2. secondly, require a much higher level of skills and resources than hitherto indicated.

The fundamental issue for any management is whether or not it is succeeding on the mandate it is charged to carry out by its shareholders; in this case by law and the general public.

Legislatively the Fund is required to process claims for compensation arising out of fault based accidents and the Act stipulates that the CEO has to be "skilled" in this field.

Over the past two years the backlog of unprocessed claims trebled from 120 000 odd to over +- 350 000.

The CEO, Humphrey Kgomongwe, is not qualified and experienced in the field, law and insurance. This may, to some extent, explain the problems now faced.

In particular it should be noted that this deterioration has occurred despite a doubling of internal capacity and administrative expenses – from R125 million in 1999 to R237 million in 2002. See Table 2.1 at page 5 of Kgomongwe’s Report.

Notable also is the fact that the other graphs and tables in the Report are good on explaining expenditure but there is a "deafening silence" about delivery and productivity.

In fact there is no attempt at a cost benefit analysis only enthusiastic claims in the text.

Insurance is all about management of risk. The Fund is an insurer of drivers. In turn the Fund itself is insured (reinsured) by international reinsurers against being "wiped out" by claims resulting from a very bad accident.

The premium set to provide such reinsurance cover is the quantification, in financial terms, of how good or bad the Fund’s risk profile is as presently managed.

In 1999 the reinsurance premium was R3.6 million odd.

By mid 2002 it had escalated to R100 million an increase of some 2.7 thousand percent! This is not explained by an increase in the accident rate, which was only 7% per annum. Neither is it explicable in terms of deterioration in the value of the rand.

This was hardly surprising considering that management, inter alia, permitted the Fund’s reinsurance cover to lapse. The result was that the Fund was uninsured at a time in history when it was most exposed and vunerable – during the African Union Conference in Durban and the World Summit on Sustainable Development!

It does not require rocket science to work out that had a bus load of delegates to either of these conferences been seriously injured in an accident, and South Africa is a world leader in this respect, the Fund would have been "wiped out" as a result of the subsequent claims.

Your Committee should be aware that no strategic plan was specifically conceived, devised or formulated until the matter was made an issue particularly by Mr Nigel Bruce in Parliamentary Committee.

Then a plan was formulated employing a facilitator at a cost of R1.1 million! Is this acceptable? Surely the paying public is entitled to expect that Management has the expertise to itself formulate a strategic plan without the incurring of such huge expense.

This can best be demonstrated by actual example.

It will be noted that there is general agreement about one of the key reforms proposed – mediation/arbitration. Why is there such acceptance?

Examination of the relevant history will reveal that after conceiving the concept, as the Acting CEO at the time, I engaged the principal role player, being the legal profession, and in partnership with Western Cape attorneys put in place an experimental model to "test the efficacy of arbitration as a dispute resolution model".

Despite the supposed reluctance of "lawyers" to forego fees their support was such that the experiment succeeded quite spectacularly and an indicated saving of +- R90 million per annum was indicated.

In my understanding national protocol requires that legislative amendments should be put up to Cabinet only after genuine and substantive public consultation has taken place particularly with role players and those most effected.

Now a fundamental truth, which, in my experience, appears to have escaped management on every count, is that whether we like it or not claimants are nearly always represented by lawyers whom they appoint as of choice.

The reality therefore is that the legal profession present as the single most important role player, other than the Fund, as regards the current system and that this is so on account of the "will of the people".

If therefore one is to have respect for principles of a constitutional democracy acceptance of this reality is a precondition to any reform stratagems.

It is not surprising therefore that the Satchwell Commission adverts to this by insisting that under the present system legal representation is an imperative.

Management conducted no meaningful consultation of the legal profession. It was no surprise that the Law Society of South Africa "walked out" of the much vaunted Vereeniging symposium.

As said the perceived utility of the legislative amendments is the ad hoc rescuing of the Fund from cash flow embarrassment. Cabinet is therefore being invited to adopt an expedient mechanism that has been neither properly planned nor properly consulted on.

As such the mechanism could work provided legislative retrospectivity could be achieved. Since, in my respectful view, the legislation cannot be made retrospectively enforceable the 350 000 odd claims already in the system will emasculate the intended utility. The embarrassment as regards cash flow will subsist.

It has already been pointed out that, on an objective test, management continues to fail on its mandate and that the backlog has escalated to over 350 000. Three central issues are referenced as being symptomatic of the inherent problem of incapacity –

1. Claim Life Cycle

Here again a "service provider" was engaged in order to devise a "new way" and supposedly better way of processing claims vaunted as "the claims life cycle". Internal expertise was disregarded.

The cost was +- R39 million. The thing does not work despite several "stop/start" attempts to make it work.

2. The Offer System

This was another "new way" of doing things devised with insufficient input from in house experience. The cost, though unknown, was undoubtedly significant. It does not work.

3. Finalizations

Disregarding in-house advice a "Finalizations" department was set up at considerable cost and employment of resources.

The model was so badly flawed as to render its operational objectives unlawful. In simple terms the mode was to hold up payments after claims have actually been settled in order to "further investigate validity".

It is difficult to conceive anything more objectionable. Claims already take too long to reach settlement. Now victims’ rights were being further prejudiced by even further delay.

All that happened was that the superior courts were approached successfully to great financial and other embarrassment to the Fund and the Fund forced to pay on the settled claims.

To hand is an internal audit report.

It is unnecessary to burden this submission by traversing the contents in detail. It stands on its own. Despite its conservative and temperate format it constitutes a damning indictment in tabulating a litany of weaknesses, failures and wasteful expenditure.

1. Typically (at pages 15 –16) it alleges some R93 million as probable "fruitless and wasteful expenditure".
2. The Executive Summary comprises some 34 pages listing 35 aspects of weaknesses. The document lists numerous operational issues that simply lacked functional integrity.
3. The implication must be that the loss quantification of over R93 million is probably the "tip of the ice burg" in relation to the true losses actual and potential.

As said the legislative amendments will require a new type of fund incredibly more resource intensive, sophisticated, administratively expensive …. etc.

Central to any such model will be IT. What is the record of present management on this issue?

From expenditure of approx R12 million per annum the IT budget was permitted to boomerang to over R100 million with the following unacceptable features –

1. the creation of a huge IT Department, separately housed, without a transparent preceding plan and without input from the whole of executive management;
2. the appointment of personnel numbering 78 to this department without any transparency (knowledge/input of other execs) and normal/conventional recruitment procedures;
3. dozens of service contracts sounding in Rand millions being awarded clandestinely, i.e., without the knowledge of other executives and without the transparency of conventional tender procedures;
4. entering into an oppressive lease to house this bloated department and incurring huge expenditure in building a private gym on the premises.

Quite obviously the Fund required communications capacity. However a department of +- 50 personnel is self evidently objectionable.

I stand t be corrected; however my assessment was that the idea/agenda is to use this department to educate/sensitise victims so as to approach the Fund directly for assistance and cut out lawyers.

Under the present fault based system such operational culture and mode is fundamentally objectionable. On matters of human rights people are entitled to be legally represented. Internationally this is now regarded as a sacred right.

It is for this reason that the Satchwell Commission says as much.

This item appears on the table at page 15 of the Audit Report. Quite simply a +- R20.5 million contract was awarded to an entity, which the Board found so objectionable in terms of a cost/benefit test that it ordered summary termination.

Despite the Board’s stance that the legal action by CHRIMS be resisted and the "good case" the Fund had in such resistance I am informed that the Fund’s legal department was countermanded and the matter settled in favour of CHRIMS to the tune of +- R5.5 million.

The matter requires full investigation.

1. Anderson was properly suspended for, in part, having provided some R56 million of public funds in "bridging finance" to a private entity.
2. The entity was styled Alexander Forbes Compensation Technologies (AFCT). This is a reconstituted version of an entity styled "t RAF fic" which had repeatedly failed to secure endorsement from the RAF until the arrival of Anderson. Note the misleading use of the letters "RAF" so as to dupe the public, at the time, into a belief of a mandate from the RAF
3. Despite the suspension, advice from myself confirmed by Van der Linde SC, Kgomongwe made no attempts to recover R47 million of the money outstanding, let alone the lost interest. In fact my stance was held against me in a complaint of incompatibility.
4. Emboldened, AFCT went on to demand that the Fund guarantee an income stream of no less than R12 million per month to AFCT.
5. Attached as Annexure "A" are the charges that were brought against Anderson. By any test these charges were extremely serious.
6. However after being on full pay suspension for nearly a year (25/10/2002 – 19/08/2003) he was reinstated after an unprecedented form of proceedings.

In a disciplinary hearing involving the Senior Manager Forensics, Dennis Beea the issue stood to be resolved in terms of a straight finding of credibility/reliability between Kgomongwe and Beea.

The independent presiding officer acquitted Beea.

Despite this acquittal Kgomongwe refused to accept the result and placed Beea on full pay "special leave". He is still on full paid leave!!!!!!!!!

Is this acceptable? Can this be reconciled to the benevolence accorded Anderson.?

It is pertinent to look at Kgomongwe’s situation as at February 2003.

1. Both the Financial and IT executives were on suspension.
2. Kgomongwe then commenced proceedings to rid himself of two other executives being the legal and human resources executives.
3. No core business (Claims) executive had been appointed since his assumption of office.
4. This left him with only the newly appointed medical executive.