Auditor-General Kimi Makwetu yesterday said more than R1.6bn of the R2bn invested by municipalities into VBS Mutual Bank cannot be recovered. Makwetu, reporting on the audit outcomes of municipalities for the 2017/2018 financial year, described the non-recovery of public funds invested in VBS as a classic example of the 'impact of deteriorating accountability' in municipalities.

TimesLIVE says 16 municipalities from Gauteng, the North West and Limpopo invested between 2016 and 2018 in the controversial mutual bank, which has since gone bust.

Fourteen of the municipalities are now unable to pay creditors, maintain infrastructure or deliver services to their residents.

'In spite of such investments not being permitted, 16 municipalities invested money with VBS mutual bank in the 2016-17 and 2017-18 financial years. Two of the municipalities managed to withdraw their funds in time, but the remaining 14 municipalities lost their investments and have disclosed impairments, meaning that they wrote off these investments, totalling R1.6bn, in their financial statements for the current year,' said Makwetu.

Of the lost amount that could not be recovered, 32% was from municipal grants related to infrastructure development.

Makwetu noted that Limpopo municipalities were also the biggest culprits in over-reliance on consultants, spending a staggering R177m on consultancy fees in the 2017/18 financial year.

Full TimesLIVE report

Makwetu called on leadership at municipalities, and those in the provincial legislatures, to start holding errant employees to account.

‘The leadership sets the tone at the top of any organisation,’ he said, according to a Mail & Guardian report.

‘If an organisation’s leaders are unethical, have a disregard for governance, compliance and control, and are not committed to transparency and accountability, it will filter through to the lower levels of the organisation. Inevitably, a culture of poor discipline, impunity and non-delivery will develop, leading to the collapse of the organisation.’

He said: ‘The leaders in local government should therefore steer their municipalities to success. They should take responsibility for the deteriorating accountability in municipalities and it is their duty to turn the situation around.’

In terms of the new legislation, the Auditor-General will be empowered to make recommendations for binding remedial action when municipalities act irregularly. But only after municipalities and their accounting officers ignore recommendations from the Auditor-General. Then, the AG will be empowered to issue a debt certificate against the accounting officer at the municipality. They will then be held personally liable for whatever municipal funds are lost as a result of that irregularity.

Makwetu said there was a six percentage point increase in the number of municipalities that implemented consequence management on the part of oversight structures in municipalities and provinces, as well as a failure to investigate findings.

This was evidenced in the fact that 74% of the 257 municipalities audited did not adequately follow up on allegations of financial and supply chain misconduct and fraud.

Nearly half of municipalities – 45% – did not even have all the required mechanisms for reporting and investigating transgressions, or possible fraud.

Full Mail & Guardian report