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VBS-linked Limpopo municipalities face provincial probe

The Limpopo provincial treasury will be launching forensic audits into municipalities in the province that placed money with the embattled VBS Mutual Bank.

Out of the 15 municipalities that have deposits with VBS, eight are in Limpopo, with a combined exposure of almost R1.2-billion.

“A forensic audit will be implemented in all municipalities that invested in the mutual bank,” the province’s MEC for finance Rob Tooley said in response to questions.

But how much money these municipalities will be able to recover from the bank, which was placed under curatorship in March, is doubtful.

According to a recent report presented to parliament by the national treasury, municipalities may only be able to recover between 10c and 40c on the rand on their deposits. The payout to municipalities “is currently highly uncertain,” it said.

The Vhembe district municipality had placed the most money with VBS at over R311-million, representing almost 35% of its annual operating revenue, the report revealed. It was followed by the Fetakgomo-Greater Tubatse local municipality, which placed over R210-million with VBS, or just over 38% of its annual revenue. Meanwhile the Greater Giyani municipality deposited over R158-million with the bank — amounting to over 52% of its annual revenue.

The total amount of municipal exposures to VBS amounts to R1.53-billion and also includes deposits from municipalities in other provinces namely the North West, Mpumalanga and Gauteng.

In recent years, VBS had successfully sought out business from a number of local governments. But a national treasury circular late last year advised municipalities that it was against the municipal finance management Act, as well as investment regulations issued in 2005, to invest with a mutual bank.

Tooley said the province was also aware of other municipalities that invested with VBS but withdrew their investment before they could incur any losses. The province would be writing to all 27 municipalities to ascertain which of them initially invested money at VBS, and why they did so, considering the circular issued by treasury, he said.

The investigations would assess and analyse the situation in each of the municipalities before a decision was taken regarding what interventions would be appropriate, Tooley said.

The South African Reserve Bank (SARB) placed VBS under curatorship after it suffered a severe liquidity crisis and could not meet its commitments to the national payment system.

Evidence of mismanagement and possible corruption has since emerged, prompting the SARB to order an investigation into its affairs.

The bank’s curator Anoosh Rooplal, said recently in court papers that R900-million could not be accounted for and there was evidence of large loans made to directors and related parties that may not be recoverable.

The bank’s restructuring will be prioritising the over 13 000 ordinary depositors at the bank including “rural retail depositors, funeral insurance stokvels, and other vulnerable groups” the treasury report noted.

It will be up to the local councils to cope with the financial repercussions.

“It is the responsibility of municipal councils to take the necessary corrective action, including ensuring that appropriate consequence management is instituted if any maladministration is identified and also to reprioritise their budgets accordingly,” the treasury said in response to questions from the Mail & Guardian.

But given the seriousness of the provincial treasuries and national treasury will assist the them to develop financial recovery plans targeted at protecting continued service delivery, it added.

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Lynley Donnelly
Lynley Donnelly
Lynley is a senior business reporter at the Mail & Guardian. But she has covered everything from social justice to general news to parliament - with the occasional segue into fashion and arts. She keeps coming to work because she loves stories, especially the kind that help people make sense of their world.

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