Some municipalities struggling to deliver services after VBS losses, AG warns

Fourteen municipalities that deposited R1.6bn in the ill-fated VBS Mutual Bank were unlikely to ever recover their money, Auditor General Kimi Makwetu warned in his general report into local government audit outcomes. The losses are impacting the ability of some of these municipalities to deliver services.

Sixteen municipalities deposited money into VBS in contravention of municipal investment regulations. Two - Dr Kenneth Kaunda District Municipality in the North West and JS Moroka Local Municipality in Mpumalanga - managed to withdraw their funds in time.

VBS was placed under curatorship by the South African Reserve Bank in March last year and the North Gauteng High Court in Pretoria ordered that the mutual bank could be liquidated in November last year.

In his report, Makwetu said the potential R1.6bn loss in investments made with VBS Mutual Bank exposed a weakened financial position of the affected municipalities and could have varying levels of impact on service delivery where it relates to infrastructure and maintenance projects.

Makwetu said eight Limpopo municipalities deposited R1.2bn with VBS, affecting these municipalities' ability to deliver on infrastructure and maintenance projects in the 2017-18 year and potentially the following year.

"This also further contributed to the poor financial state of municipalities within the province, with more than half of them reporting a deficit, as their expenses exceeded their income," wrote Makwetu.

"The financial losses arising from the investments gave rise to difficulties in paying for operational expenses and affected municipalities’ ability to start or complete projects, thus affecting service delivery," he wrote.

In October the VBS liquidators announced that they would meet creditors of the ill-fated bank on Friday in Polokwane.

While liquidators said recover of funds was unlikely for municipalities, claims were accepted from Mahikeng Local Municipality, Madibeng Local Municipality and West Rand District Municipality.