Audit reports show how VBS got its claws into municipalities

Seven of eight VBS suspects appeared in the Palm Ridge Magistrate's Court on counts of corruption, racketeering, fraud and money laundering.
Seven of eight VBS suspects appeared in the Palm Ridge Magistrate's Court on counts of corruption, racketeering, fraud and money laundering.
OJ Koloti, Gallo Images
  • Millions down the drain for two municipalities in the West Rand who defied National Treasury and invested with VBS.
  • Deloitte forensic probe reveals West Rand District Municipality and Merafong officials at the centre of the illegal VBS investment had home loans and car finance with the bank.
  • No real consequences yet for officials fingered in the Deloitte investigation despite recommendations to consider disciplinary measures and criminal prosecutions. 

The West Rand District Municipality may have lost as much as R224.5 million after illegally investing in the now-defunct VBS Mutual Bank, according to a 2019 forensic report by audit firm Deloitte.

Although the municipality officially only had R81 million invested in the bank at the time of its collapse in mid-2018, Deloitte's analysis of its deposits and withdrawals suggests the loss could be much larger.

The Deloitte report states the municipality in total invested R389.1 million with VBS from 24 February 2015 to 28 February 2018. During the same period, it withdrew R164.6 million. 

A parallel Deloitte investigation at neighbouring Merafong City Local Municipality shows it invested R50 million, which is unlikely to be recovered.

West Rand and Merafong were the only two Gauteng municipalities to invest with VBS (See West Rand feels the VBS pinch below.)

The largest share of the bank's deposits came from poor municipalities in Limpopo and the North West, but the two Gauteng reports provide insight as to how VBS cosied up to municipal officials who made the investment decisions.

READ | Auditing body issues investigation letter to KPMG’s lead auditor for VBS case

At the centre of both probes is former West Rand chief financial officer Romeo Mohaudi who was acting municipal manager at Merafong at the time of the R50 million investment and was allegedly directly responsible for forcing it through.

At West Rand, he authorised total investments with VBS of R285 million, but he was not the only responsible official, Deloitte said.

His co-signatory at West Rand was often Mzwandile Mkhize who was the manager for income and expenditure.

Their sign-off included two investments totalling R100 million that occurred even after National Treasury had warned that such investments were contrary to municipal legislation.

READ HERE | VBS bank heist: More arrests are expected as Hawks eye directors, municipalities

Deloitte said a Treasury email dated 15 August 2017, copied to Mohaudi and Mkhize, expressed concern that municipalities had made short-term investments with VBS in contravention of the Municipal Finance Management Act and municipal investment regulations. 

Treasury noted these did not permit investments with mutual banks like VBS, but only with larger commercial banks.

AmaBhungane has established from court documents that Mohaudi immediately forwarded the Treasury email from his personal email account to the personal account of VBS chief executive Andile Ramavhunga.

READ MORE | VBS heist: Bail set at R100 000 each for 7 accused

Deloitte's investigation found the municipality nevertheless made two deposits with VBS after the Treasury instruction: R60 million on 20 September 2017 and R40 million on 27 February 2018.  

Deloitte also implicated West Rand municipal manager David Mokoena who approved investments in VBS totalling R116 million between February 2015 and March 2016.

All three senior officials have protested their innocence - but they have all left West Rand since the VBS debacle. 

Mohaudi and Mokoena declined to comment on specific allegations in the Deloitte report and said they had made written representations to the council relating to the investigation. 

West Rand did not respond to amaBhungane's repeated requests for comment.

Mkhize, now the chief financial officer at Moses Kotane Municipality in the North West, said through a spokesperson he was not aware of the Deloitte report and had never received any communiqué from the "alleged forensic investigators" for any response on his part. 

Looming criminal investigations may also be a reason for their reticence. Deloitte recommended the consideration of criminal charges against all three.

A Merafong official told the Cooperative Governance and Traditional Affairs Committee in December last year the Hawks were investigating Mohaudi and the case was at an advanced stage.

Of particular interest will be what police investigations may have revealed about the circumstances of the investments and relationship between each official and VBS.

Suspicious

Deloitte found much that was suspicious, though not conclusive.

The firm took note of the affidavit made by VBS treasurer Phophi Mukhodobwane when he was summoned to the 2018 Reserve Bank inquiry headed by advocate Terry Motau.

Mukhodobwane was among the VBS officials arrested last week.

He said all investments made by municipalities were based on "commissions" or "facilitation payments" to municipal officials.

According to him, these payments  were made from an account named Robvet, but Deloitte was unable to link any to the officials at West Rand.

Deloitte, however, noted Mukhodobwane alleged a person named "Romeo" had received R80 000 for the creation of companies for fictitious transactions within VBS. 

"The SAPS should attempt to determine the identity of Romeo to establish whether he is Mr Romeo Mohaudi," Deloitte recommended.

It did establish that all three named officials had links to VBS through home and vehicle loans.

Mohaudi had home loans for two houses, Mkhize had an unspecified property mortgage, and Mokoena had moved the financing of his Audi Q7 from Absa to VBS.

"Given the central role that [they] played in the investments with VBS, any financial transactions between them and VBS in their personal capacity might be indicative of them receiving preferential treatment," the report stated.

Mohaudi's home loan

Deloitte reported that Mohaudi owned two homes in Noordwyk, Midrand, with bonds of R1.9 million and R580 000, both from VBS.

According to the report, he bought the first in January 2015 for R1.5 million with his then-girlfriend, registering the house in her name.

The house was initially bonded to Nedbank via a R1 425 000 loan.

According to Deloitte, eight months after the purchase, in September 2015, the girlfriend sold 50% of the property to Mohaudi for R1.9 million.

The purchase agreement shows he financed the purchase with a R1.9 million loan from VBS, obtained during his tenure as chief financial officer at West Rand.

"It is currently unclear why Mohaudi agreed to buy one half of the property at what appears to be an inflated price," the Deloitte report states.

It did not have access to Mohaudi's private financial information or bank accounts and could not determine whether VBS furnished the bond on normal commercial terms and what repayments he made.

Merafong

Mohaudi was allegedly also central to the R50 million investment made by Merafong in June 2017, when he had been seconded to that municipality as acting municipal manager. 

The Deloitte report on Merafong records the then-acting chief financial officer, Thys Wienekus, told it Mohaudi instructed him to invest R50 million with VBS, despite Wienekus pointing out VBS did not qualify.

According to him, Mohaudi insisted he obtain an interest rate quote from VBS and then, two days later, on 23 June 2017, pulled him out of a meeting to ensure he made the R50 million payment before noon the same day.

Wienekus told Deloitte Mohaudi informed him he "would deal with any concerns directly with the executive mayor and municipal council". 

For his role in the saga, Wienekus was found guilty in a disciplinary hearing and sentenced to a warning valid for 12 months, according to the Merafong official who briefed the Cooperative Governance and Traditional Affairs Committee last year.

City Press reported previously the undue haste around the investment might have been due to cash shortfalls VBS was experiencing at the time.

Records disclosed by the VBS curator showed on 20 June 2017, it came up R295 million short when required to make on-payments to other banks.

The Deloitte report details the almost comical efforts by the firm to obtain an explanation from Mohaudi for this series of events, but the official, by then back at West Rand, provided a series of excuses and deflections. 

Mohaudi did not answer questions from amaBhungane on the allegations in the Deloitte report on Merafong either. He remained at West Rand until his contract ran out in October last year.

Mokoena's Audi Q7 deal 

Deloitte established in September 2016, Mokoena transferred his car loan from Absa to VBS.

The timeline shows in July 2014, Absa granted him finance for an Audi Q7 - a capital amount of R1.02 million at an interest rate of 7.85%.

On 3 August 2016, a few months after he stopped being responsible for short-term investments at West Rand, Mokoena obtained a settlement quotation from Absa of R554 555.

On 16 September 2016, VBS financed the same vehicle for the same amount at an interest rate of 10%.

On 25 June 2018, it provided Mokoena with a settlement quotation of R219 007. Three days later, VBS provided him with a letter confirming the vehicle had been paid off in full. 

Deloitte said it did not have access to Mokeona's VBS bank statements and questions remain as to why he would move his finance from Absa to VBS at a higher rate, and how he managed to reduce the capital amount "so drastically" between 2014 and 2016 and also to zero in 2018.

VBS also loaned Mokoena R1.1 million for a Randfontein property through his family trust called the Ngwato WaBauba Family Trust. 

Mokoena told Deloitte the transactions were at "an arms-length" and denied receiving any "benefit". 

He obtained the car finance through a "closed motor vehicle scheme", which Deloitte suggested was only open to "approved members, VBS board, staff, and shareholders".

How did Mokoena qualify for the scheme, Deloitte wanted to know, given he was neither a VBS board member nor a shareholder or staff member? 

He told Deloitte vehicle finance was advertised on the VBS website and was open to anyone who qualified. He received the loan after applying for a bundle of personal banking services open to all qualifying people, he said. 

"The agreement designates me as a 'member', not a staff member," Mokoena argued. 

He said he maintained monthly payments on the facility and shared with Deloitte "evidence of such in the form of bank records that I could get a hold of".

Mokoena added he paid the settlement amount of R219 007 on 27 June 2018.

Despite Deloitte's recommendation he face a disciplinary hearing over his handling of the VBS investments, he remained unscathed until he was suspended by West Rand on 31 October 2019.

Ironically, the municipality insisted his precautionary suspension had nothing to do with VBS, but instead was necessary pending investigation on how he managed the original recruitment of Mohaudi as chief financial officer.

Mokoena challenged his suspension in court, but his urgent application was dismissed.

His employment at West Rand was finally terminated early this year.

West Rand feels the VBS pinch

By Tabelo Timse

Meshack Tau, 58, fondly remembers growing up in the West Rand and describes Randfontein business centre back then as “hectic”. “This was the place to be,” Tau said, referring to the mining town and nearby Krugerspdorp and Carletonville. “It was buzzing, I am telling you, there were mines and all those factory shops – there was life.”

But now Tau, a street vendor selling fruit and snacks, keeps pointing in the direction of the West Rand District Municipality (WRDM) building: “Politicians and some corrupt officials tasked with uplifting people’s lives have dismally failed,” he said. “There are no jobs. Yes, many of the mines and factories have closed but the government should step in; look around here, everything is old… Buildings and roads are old, there is no development.”

Asked about his thoughts regarding WRDM’s disastrous investment with VBS Mutual Bank, Tau said he was not aware of this and thought it was only Merafong council that lost money – R50-million – which he had heard about in the news. He gasped in shock when he learned that WRDM lost at least R80-million.

“Does this look like the kind of place that has that kind of money? Tau’s sentiments were echoed by several other people amaBhungane interviewed at the Randfontein taxi rank, Mohlakeng township and Carletonville.

“I didn’t know our municipality invested in VBS and I don’t understand why they would do that while our streets are dirty as a result of burst sewerage pipes,” said a commuter.

In Mohlakeng township near Randfontein, amaBhungane noticed about 20 youths outside the multipurpose centre on their phones. Some of them said that they came to the spot for free wifi so that they could check their emails and apply for jobs. The wifi is provided by Gauteng Province.

“Were were promised free wifi by our municipality; we have been waiting for years. So most of us come and hang outside the multipurpose centre, on the street to connect. The center’s gate is locked and you can only get inside if you want to do something,” said one.

According to a municipal source who asked not to be named, the free wifi was supposed to be provided by WRDM but because there was no money for the project, the province had to step in. WRDM comprises three local municipalities: Mogale City, Merafong and Randfontein – old gold mining towns.

With the local economy built on mining and manufacturing and both industries steadily declining, these towns are slowly turning into ghost towns, which puts further strain on municipal finances. Two further WRDM municipal sources said the money invested with VBS was taken from the Revitalisation of Distressed Mining Towns Fund and other governmental grants.

The main purpose of the fund is to create job opportunities, and support community projects and housing programmes. WRDM is the same municipality that did not spend a single cent of its capital budget in 2018 – the year that the VBS financial chickens came home to roost – meaning basic infrastructure like new water pipes, road improvements and fire protection were severely compromised.

Merafong municipality was similarly affected, though the R50-million lost mostly came from ringfenced projects. But at the end of 2019 Merafong owed Eskom R392-million, making it the fourth-highest municipal debtor to Eskom.

WRDM and Merafong are the only two Gauteng municipalities to invest with VBS. After VBS collapsed, WRDM struggled to meet its basic obligation to pay its employees, leading to workers holding some councillors hostage.

The municipality was placed under administration by the provincial government in November 2018.

The amaBhungane Centre for Investigative Journalism, an independent non-profit, produced this story. Like it?  Be an amaB Supporter to help us do more. Sign up for our newsletter to get more.
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