From a lack of good governance to corruption but a small step

Several serious and ongoing lapses in sound corporate governance, which a reasonable person would expect to see in operation at a registered bank at all times, occurred at VBS Mutual Bank.

What makes this particularly despicable is the fact that these transactions furthered the personal interests of certain key individuals and companies related to the bank.

Related parties in this case could refer to shareholders, board members and members of senior management of VBS.  In other words, VBS Mutual Bank may have committed fraud by lending money to its own directors, shareholders and management which it could not recover.  It may even transpire that the borrowers had no intention of ever repaying it.

It appears as if the accounting records were altered to hide it.

These fraudulent activities occurred over a period of time, inevitably drawing the external auditors (KPMG) and internal auditors (PwC) into the  investigation for their apparent inability to identify and highlight it.

VBS Mutual Bank was “severely mismanaged” and there is reason to believe there has been fraudulent reporting and manipulation of financial information, according to the initial findings of an assessment presented to the South African Reserve Bank by its curator auditing firm SizweNtsalubaGobodo.

They have been unable to confirm corporate deposits of R900m out of the total deposit book of R2.9bn.

What also transpired is that VBS was paying “brokerage commissions” to attract deposits from municipalities.  Individuals, presumably agents and perhaps even municipal officials, were being paid to get municipalities to shift their short term deposits to VBS, despite municipalities being forbidden by the Public Finance Management Act to deposit money in mutual banks.

Kuben Naidoo, the deputy governor of the SA Reserve Bank said “the integrity of the financial information of VBS Mutual Bank is highly compromised.”  He explained there are “significant deficiencies” in the administration and management of the bank.

All these activities badly reflect on the integrity and honesty of respected senior executives and business people.   It may take years to finalise the investigations but the SARB must prosecute the perpetrators.

Read the full articles here and here.