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Scopa to investigate claims of mismanagement at DBSA

The standing committee on public accounts (Scopa) said on Tuesday that it would institute an inquiry into the Development Bank of Southern Africa (DBSA) despite the finance minister and the bank’s chief executive appearing before it earlier in the day to dispute allegations of mismanagement and corruption. 

Minister Tito Mboweni and DBSA chief executive Patrick Dlamini told Scopa that the allegations made by United Democratic Movement (UDM) leader Bantu Holomisa last year were unfounded. 

In his open letter of October 23, Holomisa had alleged that there was maladministration and possible corruption at the bank, and that some board members were being victimised for trying to point this out. He urged Scopa to probe the state-owned DBSA. 

But Mboweni told committee members that the allegations were unfounded and appeared to have emanated from a “bitter” former board member. 

Central to Holomisa’s complaint was the alleged mismanagement of three loans that totalled hundreds of millions of rands, and the suitability of former deputy minister of public enterprises Enoch Godongwana to sit as the DBSA non-executive chairperson, because he was a “politically exposed person”. Holomisa accused Godongwana of turning the entity into his “personal spaza shop”.   

But Mboweni told Scopa: “When certain members of the board are not re-elected into the board, they would now come back and make unfounded allegations against the board and the DBSA. I hope today we address these issues for good. Employment into the board is not a permanent lifetime employment. Anyone can fall off the board at any time.”

Dlamini told Scopa that the bank does not tolerate or need frivolous distractions. “These allegations have serious potential reputational repercussions. No evidence of conflict of interest, collusion or fraud has been found on transactions. The DBSA’s standalone rating, performance and audit outcomes place it as one of the best governed SOEs [state-owned entities] around.” 

Regarding the three loan transactions made between 2007 and 2009 to Blue Horizon Investments 11, Moeparutsi Properties and Proline Trading 60, which are part of the Cranbrook Property group, Dlamini said about R426-million had been written off. The DBSA also approved the write-back of hundreds of millions of rands in interest. 

Holomisa said in his open letter that the DBSA “allegedly approved the write-back of hundreds of millions of rands in interest according to the in duplum rule, [and] also wrote off a whopping R259-million”. 

The rule “provides that interest on a debt will cease to run when the total amount of arrear interest has accrued to an amount equal to the outstanding principal debt”, according to KPMG.

In a statement issued at the time in response to Holomisa’s allegations, the DBSA said the loans were made “in accordance and in full compliance with the credit processes applicable at the time. In 2020, DBSA management made a submission to the board seeking approval for the write-off of arrears interest that had accrued on the loans to an amount exceeding the outstanding capital balance, and hence in breach of the in duplum rule.

“The allegations inferring that writing-off in duplum interest is irregular are false and reflect a basic lack of understanding of this common law rule. It is grossly misleading to suggest that the accounting write-off of in duplum interest amounts to a waiver of rights of recovery against a client.” 

The matter was subjected to internal and external audits in 2020, according to the bank.  

Dlamini told Scopa: “This investigation has recently concluded and the outcomes are currently being considered by both the DBSA and the auditor general. While the matter remains under consideration, it is important to draw Scopa’s attention to the fact that no fraud, corruption or non-compliance with applicable laws and regulations was identified by the external investigators in the Cranbrook transactions.”

Dlamini also denied that there was victimisation of DBSA board members. “The appointment of board members is done in a fair and transparent manner … The human resources, remunerations and nominations committee considered the nominations and made recommendations to the board. In line with the DBSA act, the minister appoints board members.”.

In its statement after the sitting, Scopa said it had “noted” the remarks made by Mboweni and the bank, but  “the responses and explanations from the DBSA did not assist the committee with the information it required”. 

Scopa said it would consult parliament’s legal services, the Special Investigating Unit and the auditor general on which processes should be followed for an investigation. The submissions made by Holomisa and the DBSA  would be considered, it said. 

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Chris Gilili
Chris Gilili is a climate and environmental journalist at the Mail & Guardian’s environmental unit, covering socioeconomic issues and general news. Previously, he was a fellow at amaBhungane, the centre for investigative journalism.

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