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21 May Dear Road Accident Fund Stakeholder RAF FINANCIAL STATUS UPDATE

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21 May 2015 Dear Road Accident Fund Stakeholder

RAF FINANCIAL STATUS UPDATE

It has been two months since the previous communication. A financial year-end came and went and it is time again to not only bring you up to date with our latest cash management status, but also to share some interesting statistics of the past financial year with you and to draw your attention to a number of practical measures that will assist our engagement with each other.

Current Cash Management Status At the time of writing:

- Around 5 300 Service Providers are owed R7bn;

- The oldest amounts due according to the financial system were requested for payment in October 2014; - 42% is > 30 days;

- 7%/1,909 of claims are >R1m; - 93%/27,422 of claims are <R1m

- 1,209 writs to the value of R175m have been recorded and are due. On average:

- Around 2 800+ e-mails are received per month by the dedicated e-mail addresses, the Treasury Department, the CEO, CFO and COO;

- Although we are still getting monitoring systems up and running, indications are that around 60% of these e-mails are responded to within 48 hours;

- Between R300m and R400m per month is paid to the Sheriff; - 31 500 payments are made per month; and

- Based on the average cost of the claims (at the time of writing this report) that is owed, for every claim prioritised over R1m, 18 claims below R1m would have to wait.

We are awaiting the additional funding allocated to the Road Accident Fund (RAF) by the Minister of Finance, and currently the view is that this will be solely dedicated to addressing the oldest outstanding amounts for at least the first four months following receipt in no order other than from the oldest outstanding amount. It is further important to note that the additional funding is not sufficient to address both the backlog and close the gap between productivity and available funding going forward. The situation we find ourselves in is here to stay for the

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2 foreseeable future as indications are that the Accounts Payable book will only reduce to a comfortable level in the next 24+ months.

Despite (or partly because of) the situation, we have succeeded in building a number of relationships, whether personally or via electronic media. These have mostly proved to be encouraging and constructive relationships characterised by cooperation, patience and understanding.

Apart from a few negative, uncooperative experiences, we are grateful for your willingness to work with the RAF. A host of reporting mechanisms have been implemented – albeit still manual – but it affords us visibility and the ability to monitor various indicators in support of a flexible and responsive Cash Management Strategy.

The initiative to improve process flows in the Treasury Department, in engagements between our regional offices and in the system, is slowly gaining momentum. Tangible results are expected in four to six months.

One prevailing challenge remains the continued inability to forecast with certainty, which regularly still results in disruptions to commitments and plans to catch up on the longest overdue amounts. The daily engagement with the Sheriff is the predominant cause of this. This non-value added engagement and constant threat further continues to disrupt operations, including the ability to process and effect claims payments in general.

To perhaps reflect on the impact of the writs for a moment – it is in fact so significant that, in the 2nd half of the month, payment plans can be completely disrupted given that we are then restricted to a very limited allocation per day to ensure the funding lasts till the next Fuel Levy income. As a result we are often forced to suspend all plans for a day and ONLY settle Sheriff demands. So not only can we not effect payment as was planned, but we can also not attend to queries and prepare for the next payment runs. Four days before the receipt of the April Levy our funding was depleted as a result.Regrettably, a handful of firms appear to regularly pursue this course of action at the expense of thousands of other equally worthy Service Providers and their claimants.

With regard to the efforts to consistently achieve the average payment periods previously communicated, we have experienced mixed success. The single largest inhibitor to achieving those days are the issuance of writs and the consequences thereof.

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3 Interesting statistics from FY15

The below will soon also be published in our Annual Report. The information is unaudited at this time.

Claims Claims registered 173 743

Outstanding claims as at 31 March 2015 217 710

Finalised Claims 183 933

Claims less than 1 year old 53 981

Average value per claim R114,969

Payments Total number of payments made 225 501

Total value of payments made R21.5 billion

Value of >R1m payments R6.03 billion

Value of <R100k payments R5.04 billion

Direct claimants (Value & No) R2.00 billion(103 844)

Represented claimants (Value & No) R19.5 billion(121 657)

Financial Results

Fuel Levy received R22.5 billion

Claims expenditure R27.8 billion

Claims expenditure as a % of total expenditure 94.49%

Legal fees R5.04 billion

Claims requested but not yet paid R6.84 billion

Total net deficit R110.245 billion

Provision for outstanding claims R109.433 billion

Cash on hand (Fuel Levy received 24 March) R1.048 billion

Writs No 10,080

Value R 13.6 million (Sheriff Cost)

% change from FY14 Increase of 69%

Fruitless and wasteful expenditure as a result of the issuance of writs (Including the cost incurred as a result of the cash flow constraints)

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4 Practical engagement notes

Below follows a number of useful notes when engaging with our Finance Department. Though a number of you would no doubt have seen it already, I wish to use the opportunity to remind all.

- With respect to any differences between what is outstanding according to your records and reports from the financial system, please note that the Finance Department focuses on what is visible on the financial system and respectfully request that you engage with the relevant Region with regard to invoices lodged/claims settled, but that do not appear on the financial system.

- No doubt your ageing is likely to be different to what is reflected on the financial system, but it is necessary that all Service Providers be treated equally and thus the Finance Department work according to the ageing visible on the financial system.

- We often experience administrative hurdles when we find that all the necessary paperwork for payments is not at the Treasury Office or there are other problems with a payment. This could result in payment NOT taking place as planned UNTIL the problem has been resolved.

- Please make use of the dedicated e-mail addresses communicated before, but do allow 48 hours minimum for a response. Please ensure that you include the dedicated e-mail address in ALL financial system payment query- related correspondence.

- Please be reminded to negotiate the longest possible payment terms with your clients – preferably 90 – 120 days, as that will reduce pressure on you and the RAF.

- We would appreciate it if writs and interest can be managed, though we do respect the fact that claimants are entitled to payment.

- Please include the name of your firm in the subject line of any correspondence as this assists with the referencing, allocation of responsibilities and records management.

In conclusion

We are aware of the fact that the current situation causes hardship and frustration, but we remain hopeful that the on-going communication, transparency and information will at least address some uncertainties.

We further trust that the correspondence will empower you in engagements with your clients. Also note that the communication is distributed to all stakeholders of the RAF, including Law Societies, the Sheriff, the Departments of Health and Transport, Medical Experts, Advocates, etc.

As previously stated, I again wish to reiterate that the RAF can only succeed at improving the management of this situation with your support and cooperation and we remain dedicated to honouring our commitments.

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