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How VBS looted municipalities

And who was involved. Forensic investigation lifts the lid.

Tebogo Tshwane  /  26 August 2019 00:23     14 comments

The plot thickens – and the noose tightens – in the VBS Bank Heist. Picture: Supplied

In October it will be a year since the South African Reserve Bank (Sarb) released itsVBS: Great Bank Heist report by advocate Terry Motau detailing how a network of the bank’s executives colluded with directors, auditors, politicians and those close to them to steal R1.9 billion of depositors’ money.

The lion’s share came from illegal deposits made by some of the country’s poorest municipalities, 14 of which lost R1.6 billion in the looting spree.

A year later details about the go-betweens and facilitators of this  structured fraud continue to emerge, the latest coming from forensic reports by Deloitte into VBS deposits made by two Gauteng municipalities.

‘Heads must roll’

On Thursday, Lebogang Maile, Gauteng MEC of human settlements and cooperative governance and traditional affairs (Cogta), said “heads must roll” at West Rand District and Merafong City municipalities, which made deposits of R661 million and R50 million respectively.

Deloitte’s investigation shows the investments were made between 2015 and 2018, and identifies senior municipal officials involved in approving the deposits in contravention of Treasury regulations under the Municipal Financial Management Act (MFMA).  

Deloitte affirms the earlier findings of Motau’s report: the regulations do not allow municipalities to make deposits with institutions that are not registered as banks, which includes mutual banks such as VBS.

Maile asked West Rand mayor Diteko Moroetsenye and Merafong mayor Maphefo Mogale-Letsie to take action against those involved and to provide feedback with seven days.

He invited the public to view the reports in the office of the head of department (HoD) in the “spirit of transparency and clean governance”.

Invitation accepted …

On Friday morning, I arrived at the temporary offices of the department of human settlements and Cogta in Midrand (its building in Johannesburg was affected by a fire last year).

“Follow me,” said one of the officials. “You are not allowed to take pictures. The documents are confidential.”

There were two tables in the deputy director’s corner office. The second was brought in specifically for the confidential viewing of the two reports.

A man in police uniform sat and watched silently.

West Rand District

Three senior individuals at this municipality were identified for overseeing large parts of the R612 million paid into VBS:

  • Municipal chief financial officer (CFO) Romeo Mohaudi approved at least R285 million
  • Municipal manager David Mokoena was aware of the deposit of at least R116 million
  • Manager for income and expenditure capacity Mazandile Mkhize, authorised R211 million worth of the deposits (at one point while acting CFO). 

    Deposits of between R10 million and R60 million were made over several months, and each one went through at least two of the three officials.

    Deloitte identified a further R73.1 million but was unable to determine who was involved as the municipality did not provide documents outlining the process followed. 

    Some of the damning findings against the three named officials include failure to comply with their fiduciary duties and act in “good faith, diligently, honestly and in a transparent manner” as required. They were also were found to have “made, permitted or instructed another official of a municipality to make unauthorised, irregular, or fruitless expenditure”. 

    The man in the middle

    The report found that Mohaudi, during his tenure as CFO of West Rand District, failed in his fiduciary duties because he did not “provide good oversight and address operational matters that constitute sound financial management as per the CFO handbook”.

    Mohaudi was also central to a R50 million investment made by Merafong on June 23, 2015, when he had been seconded to that municipality as acting municipal manager. He instructed acting CFO Thys Wienekus to make the deposit. Wienekus, although aware that the investment went against municipal investment regulations, complied with the request.

    The dereliction of duty did not stop there. Wienekus reported the incident to CFO Antoinette Ngwenya on her return from sick leave, but she failed to report it. Her successor, Martha Chauke, who was appointed in November 2017, also failed to sound the alarm about the irregular investment. 

    The report notes that the MFMA places a fiduciary duty on the accounting officer to act in the best interest of the municipality by “disclosing any material facts available to [them] to the mayor or council”. 

    ‘Preferential treatment’

    Deloitte went through affidavits filed in the sequestration application brought by the curator of VBS, Anoosh Rooplal, including those of various VBS employees, as well as bank statements showing the flow of money to various entities and individuals.

    VBS’s general head of treasury and capital management turned whistleblower Phophi Mukhodobwane stated in his affidavit that the investments were made after “commissions” were paid to municipal officials.

    The 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 bank 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,” states the report.

    Mohaudi’s home loan juggling trick

    Mohaudi owns two homes in Noordwyk, with bonds of R1.9 million and R580 000.

    He bought the first in January 2015 for R1.5 million with a second party called Mmuthabelo Mabula, registering the house in Mabula’s name. Eight months later, in September 2015, Mabula sold half (50%) of the property to Mohaudi – for R1.9 million.

    The purchase agreement shows that Mohaudi bought this half of the house with a R1.9 million loan from VBS during his tenure as CFO at West Rand District Municipality.

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

    Deloitte did not have access to Mohaudi’s private financial information or bank accounts and could not determine the substance of the transaction or whether it was financed in accordance with normal banking practices. 

    Mokoena’s creatively financed Audi Q7

    Mokoena denied receiving any “benefit” when applying for vehicle finance for his Audi Q7. 

    He received finance through a closed motor vehicle scheme, which he says he received after applying for a bundle of personal banking services open to all qualifying people. The preamble of the agreement reads: “VBS regulations make provision for a closed motor vehicle finance scheme in terms of which approved members (of) VBS board, staff and shareholders may receive assistance to obtain a motor vehicle subject to certain conditions”.

    How did Mokoena qualify for the scheme, Deloitte wanted to know, given that he was neither a VBS board member nor a shareholder or staff member. Mokoena responded that Deloitte was not only incorrect but had changed the provisions of the contract by adding the preposition “of” into the preamble. 

    “The agreement designates me as a ‘member’ not a staff member,” said Mokoena. He added that the interest rate was higher than the one offered by Absa, which he claimed shows that it was a commercial rate comparable to other institutions. 

    The timeline goes that in July 2014 Absa granted Mokoena vehicle finance for a capital amount of R1.02 million at an interest rate of 7.85%. A year after West Rand municipality started making deposits into VBS, Mokoena received a settlement quotation from Absa of around R555 000 which was funded through a loan from VBS at an interest rate of 10%. 

    Some two years later, on June 23, 2018, VBS provided Mokoena with a settlement agreement of just under R220 000. Three days later it sent him a letter saying the car was paid off in full. 

    Mokoena maintained that the whole transaction was at “an arms-length”. 

    Deloitte says it did not have access to Mokeona’s VBS bank statements and that 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” after the finance was moved to VBS. 

    What now?

    Deloitte has recommended that appropriate disciplinary and criminal action be taken against the officials, and for the money to be recovered. 

    This has been echoed by Maile, who expressed concern that nothing has yet been done and says “stern action [must] be taken against all implicated officials without any fear or favour”.

    Deloitte states that if the loans were not given to the three on commercial terms, the incentives could be seen as bribes in terms of the Prevention and Combating of Corrupt Activities Act.

    Romeo, Romeo …

    Whistleblower Mukhodobwane also made mention of a “Romeo Mohaudi” who allegedly received R80 000 to create fake companies that would transact with VBS. Deloitte has recommended that the South African Police Service investigate whether this is the same man as the West Rand municipal CFO.

    Shortly after the Sarb placed VBS under curatorship and Motau began his investigations, the West Rand still had R77 million in VBS while Merafong had R51 million, money that is unlikely to be recovered.

    Provincial Treasury’s role

    Deloitte found that the Gauteng Provincial Treasury (GPT) may have been aware of illegal deposits made into VBS as early as August 2017. It established that the deposits formed part of a discussion with Mohaudi and others during a meeting attended by deputy director-general of municipal finance Owen Witbooi and chief director of local government finances Frans Sabbat. 

    Sabbat admitted that the GPT was in possession of documents that captured VBS as an institution in the “investment monitoring returns” category, but said there was limited information on the type of entity the mutual bank was. Sabbat said the GPT’s municipal finance governance unit “did not go into details involving monitoring but focused on the submission of the required reports”.

    Deloitte has recommended that the GPT consider taking action to deal with its failure to monitor the legality of investments and to capacitate the unit with resources and training so that it can enforce the MFMA.

    The GPT is empowered to intervene when a municipality or designated official fails to investigate issues of financial misconduct. Had it picked up the irregular payments, said Deloitte, it would have been able to initiate an investigation “prior to the demise of VBS”.