A forensic investigation has suggested that former North West premier Supra Mahumapelo was behind the province’s municipalities illegally investing R314-million with the collapsed VBS Mutual Bank.
Two highly placed sources, one in the treasury and one in the provincial government, confirmed this, saying it was Mahumapelo who had invited VBS officials to a conference in North West.
The bank collapsed and is on the verge of being liquidated after almost R2-billion was looted through fraud and corruption. The biggest losers so far have been municipalities, which are unlikely to recover their money and have so far been refused bail-outs from the government. Four of these are from North West.
Mahumapelo, who resigned as premier earlier this year after violent service delivery protests and political pressure, is said to have “vigorously encouraged” municipalities to invest in VBS after inviting the bank’s representatives to make a presentation at his Bokone Bophirima premier’s co-ordinating council conference in March last year.
The conference was organised at Mahumapelo’s behest and was attended by MECs, mayors, municipal managers and other key government officials to discuss expenditure reports, key provincial projects and service delivery matters.
This information is contained in a forensic investigation report conducted by audit firm SekelaXabiso on behalf of that province’s department of local government and human settlements into the four municipalities that invested with VBS.
In a section of the report, titled Common Trends Noted during Our Investigation, it states: “We were informed during our interviews that VBS were given an opportunity to present their services and that the former North West premier vigorously encouraged the municipalities to invest with VBS, as VBS was a black-owned bank, which offered better interest rates.”
The report, which the Mail & Guardian has seen, was presented on Monday in Tlokwe, where the ANC’s provincial task team (PTT) met and discussed the VBS scandal.
Vuyisile Ngesi, spokesperson for North West Premier Job Mokgoro, confirmed that VBS representatives had been invited to the conference last year. “According to records at our disposal, the VBS Mutual Bank made a presentation to the provincial executive council at the Bokone Bophirima premier’s co-ordinating council meeting held on March 15 2017. However, no resolutions were ever taken in that regard and subsequently no permission or approval was given by exco [the executive committee] to any municipality in the North West to invest sums of money into the bank.”
Ngesi said that, after receiving the forensic report, the provincial executive council last month resolved that the local government department should act against the implicated officials.
But Mahumapelo denied personally inviting banks or any other institution. He also stated that he was not aware of the report that was tabled before the PTT and the province.
“In an interview with the SABC on Wednesday, I placed on record that, through our Setsokotsane programme, Absa, Standard Bank, VBS and FNB were always welcome to market themselves to the communities,” he said.
“The government exco, as people-centred, accessible and responsive to both the private and public sector, always welcomed individuals and companies to make presentations to the exco cluster committees and premiers co-ordinating council.
“As premier, I had no power to instruct any municipality to enter into any transaction, including banks. Municipalities are responsible on their own to follow their own internal processes to deal with matters of such a nature.”
The report details how municipal officials of the Madibeng, Mahikeng, Moretele and Dr Ruth Segomotsi Mompati municipalities irregularly invested millions with VBS, contravening the Municipal Finance Management Act (MFMA) and other regulations.
“All municipalities had been introduced to VBS prior to them investing with the bank, which suggest that there may have been some form of political encouragement for the officials to use the VBS services,” SekelaXabiso said in the report.
A senior provincial ANC official in the province told the M&G that, at the Monday meeting, China Dodovu, who is tasked with governance and legislation in the PTT, recommended that the mayors of the four municipalities should also be held accountable.
“After his observations of the damning forensic report, he proposed that the mayors must be fired because the buck stops with them. These mayors should have picked up these financial irregularities because they are supposed to get monthly financial reports from CFOs [chief financial officers] and MMs [municipal managers],” the official said.
“They completely failed to remedy the situation by keeping quiet and can’t now claim ignorance. It is clear that there was political influence to invest in VBS from that co-ordinating council meeting.”
Dodovu would not comment and referred questions to the PTT.
PTT spokesperson Kabelo Mataboge, despite saying he would comment, had not responded at the time of going to print.
Mahikeng mayor Betty Diakanyo declined to comment, saying that the municipality was conducting its own investigation. Madibeng mayor Jostine Mothibe promised she would respond but never did. Dr Ruth Segomotsi Mompati mayor Boitumelo Mahlangu declined to comment and Moretele mayor Andries Monaheng did not return phone calls or respond to text messages.
The forensic investigation further found that “none of the municipalities received investment certificates from VBS Mutual Bank during or immediately after the investments”.
The officials who invested the money include chief financial officers and municipal managers. According to the municipalities’ investment policies, three quotations are needed before an investment is made, and investments must be spread between banks to minimise risk.
“VBS Mutual Bank was always the last bank to send their interest rates quotations, which suggests that a quotation system may have been rigged through collusion between officials and VBS,” according to the SekelaXabiso report.
It emerged during the investigation that the Madibeng municipality had invested R31-million of its conditional grant with VBS and that it was not clear who authorised the investment as instruction forms were signed by junior officials. Madibeng is conducting its own investigation.
Their counterparts in the Mahikeng municipality invested R83-million from the municipal infrastructure grant and municipal equitable share (overpayment from the department of co-operative governance and traditional affairs) and only received R7-million in returns from VBS.
The Moretele municipality took R50-million meant for water services, even though its residents struggled with water supply, and put it into VBS.
The Dr Ruth Segomotsi Mompati municipality took R150-million from its regional bulk infrastructure grant, building fund and money meant for free basic services to invest in VBS.
The forensic investigation also established that municipal officials made a frantic attempt to withdraw their investment on March 12, the day on which the curator sent out a notice that VBS was being placed under administration.
In August last year, the treasury issued a circular informing municipalities not to make deposits into the mutual bank as this was prohibited by the MFMA.
How the bank was robbed
- The bank created fake deposit in the name of a related party.
- The bank solicited deposits from municipalities. These deposits are then withdrawn against the fake deposits or are used to grant “loans” to related parties.
- Related party loans are extinguished with fake payments and accounting entries.
- The chief financial officer falsified the accounts and monthly data returns to the Reserve Bank.
- These financial statements and monthly returns were signed off by the external auditors.
- The bank was in effective a Ponzi scheme to the benefit of certain related parties.
- Others were paid to keep quiet or to look away.