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Municipalities to feel the heat over VBS investments

Cooperative Governance and Traditional Affairs (Cogta) Minister Zweli Mkhize says forensic investigations that are currently underway in municipalities that had invested in beleaguered VBS Mutual Bank will pave the way for government to proceed with a lawsuit in attempt to recover the monies.

Mkhize was briefing Parliament’s portfolio committee on municipalities on the state of service delivery and the finances of municipalities in the wake of the VBS saga.

A total of 14 municipalities invested funds to the tune of R1.57-billion with VBS and while seven removed their funds when they matured, the other seven still have money in the bank.

In Limpopo, eight municipalities — Makhado, Greater Giyani, Collins Chabane, Vhembe, Lepelle Nkumpi, Elias Motsoaledi, Ephraim Mogale and Fetakgomo Tubatse — invested with the bank. Merafong and West Rand — two municipalities in Gauteng — also conducted business with VBS; as did four municipalities in North West province. These are Moretele, Madibeng, Mafikeng and Dr Ruth Mompati.

Mkhize told the committee that the biggest challenges these municipalities are faced with are an inability to pay creditors, and most importantly, fulfilling their service delivery mandates.

The hardest hit by service delivery challenges are Mahikeng, Madibeng, Dr Ruth Mompati, West Rand, Fetakgomo Tubatse ang Giyani, with projects being suspended and debt into the millions for water and electricity.

The municipalities will not be receiving bailouts but Cogta will provide the necessary support to get them up and running effectively again, Mkhize said.

Mkhize also pointed out that the municipalities invested their funds in VBS in contravention of the treasury’s Municipal Finance Management Act but Mkhize says the West Rand municipality asserts that it got a legal opinion saying it was allowed to invest which he says he doubts.

The Mahikeng municipality has suspended its municipal manager for the investment in VBS and for an overpayment by Cogta of R60-million which the manager then refused to return to the department.

The Giyani municipality has also fired its chief financial officer for his alleged involvement in the saga.

READ MORE: Giyani municipal CFO fired over suspected involvement in VBS saga

“The report from the Reserve Bank has indicated the very crude abuse of finances which were destined for poor communities. It creates an impression we are not only dealing with the situation where investments were taken to the Mutual Bank which was illegal and unprocedural, but also, inside the institution was a systematic, structured, fraudulent process siphoning money out of municipalities, out of the bank,” Mkhize said. 

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