The West Rand District Municipality (WRDM) 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 WRDM officially had only R81-million invested in the bank at the time of its collapse in mid-2018, Deloitte’s analysis of WRDM deposits and withdrawals suggests the loss could be much larger.
The Deloitte report states that WRDM in total invested R389.1-million with VBS from 24 February 2015 to 28 February 2018. During the same period, the municipality withdrew R164.6-million.
A parallel Deloitte investigation at neighbouring Merafong City Local Municipality shows that it invested R50-million, which is unlikely to be recovered.
WRDM and Merafong were the only two Gauteng municipalities to invest with VBS.
The largest share of the bank’s deposits came from poor municipalities in Limpopo and North West, but the two Gauteng reports provide insight as to how VBS cosied up to municipal officials who made the investment decisions.
At the centre of both probes is former WRDM 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 WRDM he authorised total investments with VBS of R285-million, but he was not the only responsible official, Deloitte said.
His co-signatory at WRDM was often Mzwandile Mkhize, who was 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.
Deloitte said a national 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 that these did not permit investment 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.
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 WRDM 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 WRDM since the VBS debacle.
Mohaudi and Mokoena declined to comment on specific allegations in the Deloitte report and said they had made a written representations to the council relating to the investigation.
WRDM did not respond to amaBhungane’s repeated requests for comment.
Mkhize, now the chief financial officer at Moses Kotane municipality in North West Province, 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 National Assembly committee for cooperative governance and traditional affairs in December last year that 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 the relationship between each official and VBS.
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.
Mukhodobwane stated that all investments made by municipalities were based on “commissions” or “facilitation payments” to municipal officials.
According to Mukhodobwane, these payments were made from an account named Robvet, but Deloitte was unable to link any to the officials at WRDM.
Deloitte however noted that Mukhodobwane alleged a person named “Romeo” 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.
Deloitte 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 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,” the report stated.
Mohaudi’s home loan
Deloitte reported that Mohaudi owned two homes in Noordwyk, north of Midrand, with bonds of R1.9–million and R580 000, both from VBS.
According to the report Mohaudi 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 that Mohaudi financed the purchase with a R1.9–million loan from VBS, obtained during his tenure as chief financial officer at WRDM.
“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.
Deloitte 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 Mohaudi made.
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 that the then acting chief financial officer, Thys Wienekus, told them Mohaudi instructed him to invest R50-million with VBS, despite Wienekus pointing out that VBS did not qualify.
According to Wienekus, 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 National Assembly committee for cooperative governance and traditional affairs last year.
City Press reported previously that 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 that on 20 June 2017, VBS 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 WRDM, 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 WRDM until his contract ran out in October last year.
Mokoena’s Audi Q7 deal
Deloitte established that in September 2016 Mokoena transferred his car loan from Absa to VBS.
The timeline shows that in July 2014, Absa granted Mokoena 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 WRDM, 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, VBS provided Mokoena with a settlement quotation of R219 007. Three days later, VBS provided Mokoena with a letter confirming that the vehicle had been paid off in full.
Deloitte said 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” 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 that he was neither a VBS board member nor a shareholder or staff member?
Mokoena 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”.
He said he paid the settlement amount of R219 007 on 27 June 2018.
Despite Deloitte’s recommendation that Mokoena face a disciplinary hearing over his handling of the VBS investments, he remained unscathed until he was suspended by the WRDM on 31 October 2019.
Ironically, the WRDM 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 WRDM finally terminated early this year.