Is Accountability in the Management of Public Finances a Myth? The Case of the West Rand District Municipality

Abstract

Several South African municipalities, including West Rand District Municipality (WRDM) had deposited funds into VBS Mutual Bank, which they subsequently lost because of the severe illiquidity that the bank experienced. On 11 March 2018, the then Minister of Finance, Mr Nhlanhla Nene placed the VBS mutual Bank under curatorship due the liquidity crisis, as explained above. This liquidity crisis was caused by amongst others what has been reported as grand theft of the bank's funds and fraud by allegedly amongst others, the bank's directors. The VBS theft and fraud case is currently being heard in court, and some of those who are alleged to have benefitted have been charged. Section 7(3)(b) of the Local Government: Municipal Finance Management Act (MFMA) 56 of 2003 requires municipalities to only open bank accounts such as investment accounts with banks registered in terms of the Banks Act 94 of 1990. Investments in mutual banks such as VBS are as such prohibited by the MFMA. As described above, the WRDM is one of the 14 municipalities, which were found to have illegally deposited money into VBS, whereby municipal officials and political office bearers are alleged to have personally benefitted for making such deposits. A forensic report by audit firm Deloitte, published in 2019 indicates that the WRDM may have lost as much as R224.5 million after illegally investing in the now-defunct VBS bank. The paper used the qualitative methodology wherein the materials used consisted of documents in the public domain. Through a careful analysis of both primary and secondary sources of information and statutes on local government finance, the researcher provides an in-depth and objective description of the case. The paper considered the necessary prerequisites that need to be in place to ensure accountability in the management of public finances at the WRDM, and come up with a framework that will highlight these prerequisites. The paper highlights three broad prerequisites in this regard, that is, following an accountability ladder, instituting internal controls and implementing a combined assurance model. The presence of these prerequisites could go a long way in ensuring that there is accountability in the management of public finances