Cape Town - Allegations of fraud amounting to R15 million are dogging two low-cost city council housing projects in Khayelitsha and Mitchells Plain.
The two projects saw the construction of 2 445 houses at four sites and were built between 2005 and 2012 by Beachmaster Investments.
The company now wants to take legal action against the city council for allegedly charging VAT on a housing subsidy grant from the provincial government.
The VAT charged allegedly led to the contractor, Neal Whyte, running out of money to complete the project, suffering huge financial loss as a result.
Zalisile Mbali, the spokesman for MEC of Human Settlements Bonginkosi Madikizela, confirmed that the subsidy was zero rated in this regard, and therefore VAT would not apply.
Part C (2.4) of the government’s National Housing Policy and Subsidy Programmes indicates that such grants be zero rated.
This was also specified in the contracts signed by the company and the city.
According to a financial audit on Beachmaster, the total amount paid out to the city council for the two projects was R133m excluding VAT.
Whyte, who is Beachmaster’s chief executive, was allegedly forced to sell his Plattekloof home to cover the shortfall and now rents a room on the Cape Flats which he shares with his ill wife.
He received the Govan Mbeki Award as a finalist for his work on the two projects in 2008.
In 2013, as part of the South African Revenue Services (Sars) process against Whyte, Beachmaster was audited by Danmar Accounting Services.
The team of chartered accountants, led by Danie Steyn, conducted a 14-month audit which led Sars to withdraw the case against Whyte.
“The investigation related to fraud. Sars alleged that he did not declare the VAT that he was receiving.
“They believed he received R124m instead of the R109m he received. As a result of the criminal investigation, he was not considered for future contracts,” Steyn said.
The audit found that R15m in VAT was claimed by the city council.
“Beachmaster received R109m to complete contracts that attracted a cost element of R133m.
“In this cost element, the contractor budgeted for a profit of 4.5 percent (R5m) but with the enforcement of VAT invoices by the city from the contractor and the non-payment by the city of R9m of the quantum, the contractor not only had no profit but ended up paying R18m out of his own funds to complete the projects,” said Steyn.
He said the alleged illegal VAT imposed on Whyte was only discovered during the audit.
In documents that the Cape Argus has seen, the city council paid R124m including VAT for the completion of the projects.
The city council is alleged to have claimed VAT on the base amount of R124m, resulting in a R15m shortfall.
The Cape Argus was informed by the city council that the matter was “subject to legal proceedings” before mayoral committee member for human settlements, Benedicta van Minnen.
Van Minnen denied that the city council “improperly or fraudulently charged VAT whereby the city benefited and caused Whyte a loss”.
“All payments were done in accordance with the relevant tender conditions existing between the parties, legislation and best practice in the industry,” she said.
The city council avoided specific questions that inquired about the alleged fraud, the supposed “illegal” claiming of VAT, discrepancies in the contracts signed by all parties and as to why the city council’s external auditors had not picked up on those.
Van Minnen said a number of meetings were held last year between a representative of Beachmaster and his accountant, Steyn, with officials from directorates in human settlements and finance to resolve the issue.
“The claimant has, nonetheless, proceeded to threaten with legal action and has gone so far as to defame the dignity and integrity of the officials involved in the process,” she said.
She confirmed that the city council had received a letter of demand from Steyn and Whyte, coupled with a request for another meeting.
At his Langebaan home, Steyn told the Cape Argus: “It would have been fair if they had added VAT onto the R133m and requested VAT invoices from Beachmaster for the amount totalling R133m plus VAT.
“Then they are avoiding the issue of raising capital.”
Van Minnen insisted that the city council was not liable for any amounts claimed, saying it had complied with the agreements between the parties and the VAT Act.
She also questioned why the claims had only surfaced recently when the project was concluded in 2012.
Cape Argus