VBS blindsided us, admits local government body

The South African Local Government Association admitted to Parliament on Friday morning that it was caught by surprise by the crisis gripping municipalities that invested their funds with VBS Mutual Bank.

Instead, Salga said, it found out with the rest of the country: on the news.

The fallout from the curatorship of the mutual bank plunged municipalities in provinces like the North West and Limpopo into financial crisis after they deposited their allocated funds with the bank, against the advice of the South African Reserve Bank.

Earlier this week, the North Gauteng High Court in Pretoria ordered that VBS Mutual Bank be liquidated, following a damning report from the central bank. 

The association of local government leadership was briefing Parliament’s select committee on appropriations on the Division of Revenue Amendment Bill mandate negotiations.

'We were all shocked'

Salga national executive committee member Bhekumuzi Stofile told the committee that while the association was consulting the Ministers and Members of Executive Council structures to find a solution to the problem, Salga was not aware of the VBS issue until it was too late.

"On VBS there is no point where I recall having discussions of this nature in the Salga NEC because it was not brought to our attention.

"We were all shocked when we saw it in the newspapers," Stofile added, promising that Salga would in future "look at a way to catch these things before they become a problem". 

Salga's director for audit Mohammed Lorgat told the committee that the association believed amendments to the Municipal Structures Act, currently being developed, were necessary to ensure district municipalities could help local municipalities manage their finances and service delivery.

"The capacity to spend is affected by a number of factors.

"We are conducting research in districts regarding shortfalls and weakness is in the handling of equitable share and we will respond after we have done this research in March," said Lorgat.

Stofile said Salga had to reassess the role of district municipalities in governance, adding that district municipalities were meant to assist in coordination and support of small local municipalities, but had not fared well in financial management and governance themselves.

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