The Sekhukhune District Municipality, which is still in the process to recover part of the R5.4m fraudulently paid to a wrong bank account last year, has this week lost R12m meant for the department of labour's Compensation Fund.

Mayor Stan Ramaila was expected to announce the fraudulent activity at a press briefing on Thursday morning.

According to two independent sources close to the situation, the money was siphoned off by fraudsters who presented fake letters purporting to be from National Treasury and department of labour seeking payment for the workers' fund.

"The municipality is owing millions to the Compensation Fund and they were tricked to believe the letters were authentic because they had letterheads from both departments. It looks like the municipality has turned to be a play ground for fraudsters as the investigations into the R5.4m is still underway and no one has been arrested," said a source.

Municipality spokesperson Moloko Moloto said he cannot comment on the matter before the press briefing. Another source said the council is meeting on Thursday morning to deliberate on the matter.

"We applauded the mayor for quick action in making sure that over R4.7 m of the R5.4m was recovered but no one has been arrested.

The municipality is paying legal firms a lot of money for forensic investigations and that money could have been channelled to provide water to the poor villages," said the source.

The source said the case was opened with the Hawks on Wednesday. However, Hawks spokesperson Brig Hangwani Mulaudzi said they have not received the docket from the police yet.