No bailout for municipalities who ploughed cash into VBS Mutual Bank

The government has resolved not to bail out poor and rural municipalities that illegally invested more than R1.57-billion with the now cash-strapped VBS Mutual Bank.

This was disclosed by cooperative governance minister Zweli Mkhize during a meeting with the national assembly's oversight committee on his department on Tuesday.

Mkhize said the government would instead recoup the money looted by the bank by its current and former executives once ongoing forensic audits and the bank's liquidation process were concluded.

He said the municipalities would also be assisted with strengthening and tightening their internal financial controls.

Mkhize also said his department had instructed a senior legal counsel to launch lawsuits against those who had invested about R1.57-billion of taxpayers' money in VBS and recover the money from individuals who had benefited from the looting.

He said the forensic audit‚ instituted in terms of the Municipal Systems Act‚ would seek to track where the decision to invest the money was taken‚ by whom and for what reasons.

Several municipalities in Gauteng‚ Limpopo and North West invested money with VBS in contravention of the Municipal Finance Management Act.

The bank has since been placed under curatorship by the SA Reserve Bank after it become bankrupt and it emerged this month that it was looted by its executive and political figures to the tune of R1.9-billion.

“We are at a point where we want to get the reports from the forensic auditing [firms]; those reports will help us to be able to pinpoint individuals on whom we can lay a degree of culpability for purposes of both disciplinary proceedings as well as criminal charges beyond what the municipalities have already done‚” he told the meeting.

Mkhize said they wanted the senior legal counsel to mount a combined lawsuit on behalf of all implicated provincial governments and their municipalities.

“We realise that the report from the SA Reserve Bank on its own is not helpful for us to deal with the issues from the side of the municipalities and hence we believe it was correct for us to institute a forensic audit process because it will help us to uncover the genesis of the decision that led to the money being taken to VBS‚” he said.

Mkhize was also adamant that those who were involved were highly and adequately qualified officials who knew what they were doing and that incompetence or inability to understand the systems were not factors. “This is what we are dealing with here. People knew what they were doing and it's always the clever ones who are most understanding of the system that will tend to crook it. You don't get a sweeper to go and manipulate the financial management system.

“So‚ when we checked we realised that all of them had proper‚ decent qualifications and you can't question them and because of that‚ we then put aside the question of inability to manage the system and we put aside the issue of ignorance of what they were doing. They know what they were doing‚ full stop‚” said Mkhize.

He also revealed that he had had talks with the governor of the Reserve Bank‚ Lesetja Kganyago‚ where it had been agreed that there should be cooperation in the investigations to ensure the state puts together a water-tight case of fraud and collusion.