nokeng afs 30 june 2011 - tshwane.gov.za · nokeng tsa taemane local municipality annual financial...

ANNUAL FINANCIAL STATEMENTS For

Nokeng Tsa Taemane Local Municipality

For the year ended 30 June 2011

NOKENG TSA TAEMANE LOCAL MUNICIPALITY Annual Financial Statements for the year ended 30 June 2011

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General Information

Mayoral committee

Executive Mayor Clr. Anna Digoro

Clr. Faith Kgaditse

Clr. Johannes Kekana

Clr. Cindy Masango

Councillors Clr. Patrick Nkoto

Clr. Rachel Seoketsa (Speaker)

Clr. Martin Chaba

Clr. Petrus Prinsloo

Clr. Hendrik Boshoff

Clr. Veronica Botha

Clr. Piet van der Watt

Clr. Johannes van Zyl

Grading of local authority Grade 3

Accounting Officer (Acting) Mr. Kenneth Rosenberg

Chief Financial Officer (CFO) Linda Africa

Registered office Cnr Oakley & Montrose Str

RAYTON

1001

Postal address P O Box 204

RAYTON

1001

Bankers ABSA

Public Sector Division

Auditor Auditor General


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The reports and statements set-out below comprise the annual financial statements presented to Council

Index Page

Accounting Officer's Responsibilities and Approval

Report of the Auditor-General

3

4 – 11

Statement of Financial Position 12

Statement of Financial Performance 13

Cash Flow Statement 14

Statement of Changes in Net Assets 15

Accounting Policies 16 – 37

Notes to the Annual Financial Statements 38 – 74

Appendices:

Appendix A: Schedule of External loans 75

Appendix B: Analysis of Property, Plant and Equipment 76

Appendix C: Segmental Analysis of Property, Plant and Equipment

Appendix D: Segmental Statement of Financial Performance

Appendix E(1): Actual versus Budget (Revenue and Expenditure)

77

78 - 79

80

Appendix E(2): Actual versus Budget (Acquisition of Property, Plant and Equipment)

Appendix F: Disclosures of Grants and Subsidies in terms of Section 123 of the MFMA

81

82

Abbreviations

NTTLM Nokeng Tsa Taemane Local Municipality

COID Compensation for Occupational Injuries and Diseases

CRR Capital Replacement Reserve

DBSA Development Bank of South Africa

SA GAAP South African Statements of Generally Accepted Accounting Practice

GAMAP Generally Accepted Municipal Accounting Practice

GRAP Generally Recognized Practice

IAS International Accounting Standards

IMFO Institute of Municipal Finance Officers

IPAS International Public Sector Accounting Standards

MEC Member of the Executive Council

MFMA Municipal Finance Management Act


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Accounting Officer's Responsibilities and Approval

The accounting officer is required by the Municipal Finance Management Act (Act 56 of 2003), to maintain adequate accounting records and is responsible for the content and integrity of the annual financial statements and related financial information included in this report. It is the responsibility of the accounting officer to ensure that the annual financial statements fairly present the state of affairs of the municipality as at the end of the financial year and the results of its operations and cash flows for the period then ended. The external auditors are engaged to express an independent opinion on the annual financial statements and were given unrestricted access to all financial records and related data.

The annual financial statements have been prepared in accordance with the Standards of Generally Recognized Accounting Practices (GRAP).

The annual financial statements are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgments and estimates.

The Minister of Finance has, in terms of General notice 552 of 2007 exempted compliance with certain of the above mentioned standards and aspects or parts of these standards. Details of the exemptions applicable to the municipality have been provided in the notes to the annual financial statements. The accounting officer acknowledges that she is ultimately responsible for the system of internal financial control established by the municipality and places considerable importance on maintaining a strong control environment. To enable the accounting officer to meet these responsibilities, the accounting officer sets standards for internal control aimed at reducing the risk of error or deficit in a cost effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the municipality and all employees are required to maintain the highest ethical standards in ensuring the municipality’s business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the municipality is on identifying, assessing, managing and monitoring all known forms of risk across the municipality. While operating risk cannot be fully eliminated, the municipality endeavors to minimize it by ensuring that appropriate infrastructure, controls, systems and ethical behavior are applied and managed within predetermined procedures and constraints. The accounting officer is of the opinion, based on the information and explanations given by management that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the annual financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or deficit.

The MEC responsible for Local Government and Housing in the province issued a section 12 notice after the Municipal Demarcation Board had re-determined the municipal borders. The section 12 notice effectively dis-establishes the municipality and incorporates the municipality under a newly established City of Tshwane Metropolitan Council effective from the next local government election. The municipality in its current form therefore ceases to exist on the 30th June 2011.

I am responsible for the preparation of these annual financial statements, which are set out on the following pages, in terms of Section 126(1) of the Municipal Finance Management Act and which I have signed on behalf of the Municipality.

I certify that the salaries, allowances and benefits of Councilors, as disclosed in note 17 of these annual financial statements are within the upper limits of the framework envisaged in Section 219 of the Constitution, read with the Remuneration of Public Officer Bearers Act and the Minister of Provincial and Local Government’s determination in accordance with this Act.

The annual financial statements set out on the following pages, which have been prepared on the going concern basis, were approved by the accounting officer on the 31st August 2011 and were signed on the municipality’s behalf by:

Accounting Officer


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REPORT OF THE AUDITOR-GENERAL TO THE GAUTENG PROVINCIAL LEGISLATURE AND

THE COUNCIL ON THE FINANCIAL STATEMENTS AND PERFORMANCE INFORMATION OF NOKENG TSA TAEMANE LOCAL MUNICIPALITY FOR THE YEAR ENDED 30 JUNE 2011


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STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2011 Restated Note 2011 2010 R R ASSETS Non-current assets 380 197 440 392 804 958 Property, plant and equipment 10 379 462 061 392 034 049 Intangible Assets 10 286 392 321 922 Loans and receivables 11 448 987 448 987 Current assets 23 828 510 38 256 918 Consumer debtors 12 15 161 015 20 476 565 Receivables from Exchange Transactions 13 4 938 312 13 630 251 Inventory 24 52 233 0 Call Investment deposits 14 3 669 339 4 142 233 Bank balance and cash 27 7610 7 870 TOTAL ASSETS 404 025 950 431 061 876

Non-current liabilities 14 914 153 13 647 873

Long-term Liabilities 3 1 981 773 2 815 992

Lease Liabilities 4 102 942 474 322 Post-employment benefit liability 5 12 829 438 10 357 559

Current liabilities 95 026 383 89 997 411

Provisions 6 7 021 286 7 431 542 Consumer deposits 7 2 525 842 2 478 539 Trade and other payables 8 62 939 326 44 142 674 Bank Overdraft 28 912 772 3 782 936 Unspent conditional grants and receipts 9 28 616 727 28 383 894 Current Portion of Long-term Liabilities 3 887 744 1 070 309 Current portion of Lease Liabilities 4 371 380 323 717 TOTAL LIABILITIES 118 189 229 101 261 484

NET ASSETS 285 836 721 329 800 392

Net assets represented by: 285 836 721 329 800 392

Accumulated surplus 285 836 721 329 800 392


STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2011

Note 2011 2010 R R REVENUE Property rates 17 28 093 073 24 536 077

Property rates - penalties imposed and collection charges 4 295 295 5 556 584

Service charges 18 46 249 460 39 691 384 Rental of facilities and equipment 70 086 25 683 Interest earned - external investments 737 455 226 776 Interest earned - outstanding debtors 4 294 995 7 266 404 Fines 5 705 434 7 064 123 Licenses and permits 5 817 219 7 506 210 Government grants and subsidies 19 49 381 345 59 056 872 Other income 1 964 080 2 934 039 Total Revenue 146 608 442 153 864 142 EXPENDITURE Employee related costs 20 56 310 594 53 753 364 Remuneration of councilors 21 1 002 574 3 524 213 Bad Debts Provision 34 714 585 34 881 429 Depreciation 27 322 871 6 081 457 Repairs & Maintenance 466 526 276 218 Finance costs 22 347 890 427 443 Bulk purchases 23 31 516 779 25 230 316

Contracted Services 19 280 995 22 345 565 General expenses 25 19 592 093 16 793 619 Total Expenditure 190 554 907 163 363 681 SURPLUS / (DEFICIT) FOR THE YEAR (43 946 465) (9 499 538) ADD: Surplus on Disposal of assets (17 207)

NET SURPLUS / (DEFICIT) FOR THE YEAR

(43 963 672) (9 499 538)

Refer to Reconciliation of Budget Summary Statement and Appendix E(1) for the comparison with the approved budget


CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2011 Note 2011 2010 R R CASH FLOW FROM OPERATING ACTIVITIES

Receipts

Cash receipts from ratepayers, government and other 154 175 343 256 341 171

Interest Income 737 455 226 776 154 912 798 256 567 947

Payments Cash paid to suppliers and employees (135 830 114) (214 991 719) Finance Cost (Interest paid) (347 890) ( 427 443)

(136 178 004) (215 419 161)

Total Receipts 154 912 798 256 567 947 Total Payments (136 178 004) (215 419 161)

Net cash flow from operating activities 27 18 734 794 41 148 786 CASH FLOW FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (14 926 736) (23 590 316)

Proceeds on disposal of property plant and equipment 68 500 - Investments Redeemed / (Made) - (4 141 233)

NET CASH FROM INVESTING ACTIVITIES (14 858 236) (27 731 548) CASH FLOW FROM FINANCING ACTIVITIES New loans raised/(repaid) ( 1 479 548) ( 1 469 803) NET CASH FROM FINANCING ACTIVITIES ( 1 479 548) ( 1 469 803)

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 2 397 010 11 947 434

Cash and cash equivalents at beginning of the year 367 167 (11 580 267)

28 2 764 178 367 167


STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED 30 JUNE 2011

Total Total Accumulated Reserves Note Surplus R R

2010 Restated

Opening balance as previously reported 98 529 847 98 529 847Net surplus for the year (9 499 538) (9 499 538)Prior-year Adjustments 29 240 770 084 240 770 084

Balance at 30 June 2010 329 800 392 329 800 392

2011 Balance as at 01 July 2010 329 800 392 329 800 392 Net deficit for the year (43 963 672) (43 963 672)

-

Balance at 30 June 2011 285 836 721 285 836 721


Accounting Policies

1. Basis of Presentation The annual financial statements are prepared on an accrual basis of accounting and are in accordance with the historical cost convention. These annual financial statements have been prepared in accordance with Generally Recognized Accounting Practice (GRAP), issued by the Accounting Standards Board in accordance with Section 122(3) of the Municipal Finance Management Act, (Act No 56 of 2003). The principal accounting policies adopted in the preparation of these annual financial statements are set out below. Assets, liabilities, revenues and expenses have not been offset except when offsetting is required or permitted by a Standard of GRAP. The accounting policies applied are consistent with those used to present the previous year's financial statements, unless explicitly stated. The details of any changes in accounting policies are explained in the relevant policy.

1.2 Presentation Currency

The annual financial statements are presented in South African Rand, which is the functional currency of the Municipality and amounts have been rounded to the nearest Rand.

1.3 Going concern assumption

These annual financial statements have been prepared on a going concern basis, i.e. the assumption that the Municipality will continue to operate as a going concern for at least the next 12 months as part of the City of Tshwane.

The MEC responsible for Local Government and Housing in the province issued a section 12 notice after the Municipal Demarcation Board had re-determined the municipal borders. The section 12 notice effectively disestablishes the municipality and incorporates the municipality under a newly established City of Tshwane Metropolitan Council effective from the next local government election. The municipality in its current form therefore ceases to exist on the 30th June 2011.

1.4 Property, plant and equipment

Property, plant and equipment (PPE) are tangible non-current assets (including infrastructure assets) that are held for use in the production or supply of goods or services, rental to others, or for administrative purposes, and are expected to be used during more than one period.

Property, plant and equipment, is stated at cost less accumulated depreciation and accumulated impairment. Heritage assets, which are culturally significant resources and which are shown at cost, are not depreciated owing to the uncertainty regarding their estimated useful lives. Similarly, land is not depreciated as it is deemed to have an infinite life.

Where an asset is acquired at no cost, or for a nominal cost, its cost is its fair value as at the date of acquisition.

The cost of an item of property, plant and equipment acquired in exchange for a non-monetary asset or monetary assets, or a combination of monetary and non-monetary assets was measured at its fair value. If the acquired item could not be measured at its fair value, its cost was measured at the carrying amount of the asset given up.


Accounting Policies (Continued)

Subsequent expenditure is capitalized when the recognition and measurement criteria of an asset are met.

The municipality maintains and acquires assets to provide a social service to the community. The useful lives and economic lives of these assets are equal and consequently no residual values are determined.

Depreciation is calculated on cost, using the straight-line method, over the estimated useful lives of the assets. The estimated useful lives are as follows: Item Average useful life Buildings 30 years

Plant and machinery Specialized plant and equipment 10 years Other plant and machinery 5 years

Furniture and fixtures 5 years

Motor vehicles Specialized vehicles 5 years Other vehicles 5 years

Office equipment 3 years

Infrastructure MV Sub-station Equipment 50 years Perimeter 15 years Lighting Systems 25 years LV Conductors 25 years High Mass Lighting 10 years Streetlights 25 years Lines Underground 25 years Lines Overhead 20 years Buildings 50 years Site 15 years MV Transformer 25 years MV Switch Station 20 years MV Sub-station Equipment 30 years Meters Prepaid 10 years Electrical Meter 20 years Storage Civil Works 50 years Water Sources Civil Works 30 years Pump stations Civil Works 50 years Water Treatment Civil Works 50 years Buildings 50 years Electrical Works 15 years


Mechanical Works 15 years Pipe works 120 years Perimeter Protection 15 years Roads Municipal Asphalt Surface 20 years Roads Municipal Asphalt Layer 30 years Storm water Culvert 30 years Storm water Pipes 25 years Roads Kerbing And Channels 40 years Road Traffic Signs 15 years Roads Municipal Concrete Surface 10 years Roads Municipal Concrete Layer 30 years Roads Municipal Paved Surface 20 years Roads Municipal Paved Layer 20 years Roads Municipal Gravel Surface 20 years Bridge - Vehicle Concrete 60 years Roads Municipal Gravel Layer 20 years Roads Municipal Gravel Surface 20 years Roads Municipal Paving Layer 20 years Roads Municipal Paving Surface 20 years Storm water Pipes 25 years Channel 40 years

Community Buildings 30 years Recreational Facilities 30 years Security 5 years

The asset management policy contains the details of the components and their specific useful life estimates.

Items of Property, plant and equipment are derecognized when the asset is disposed of or when there are no further economic benefits or service potential expected from the use of the asset. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying value and is recognized in the Statement of Financial Performance.

The residual value, the useful life and the depreciation method of PPE are reviewed at least at every reporting date.

At each reporting date all items of PPE are reviewed for any indication that it may be impaired. An impairment exists when an assets carrying amount is greater than its recoverable amount. The recoverable amount of an asset or cash generating unit is the higher of its fair value less costs to sell and its value in use. If there is an indication of impairment, the assets’ recoverable amount is calculated. An impairment loss is recognized in the Statement of Financial Performance and the depreciation charge relating to the asset is adjusted for future periods.

The municipality depreciates separately each part of an item of property, plant and equipment that has a cost that is significant in relation to the total cost of the item. Costs of replacing parts are capitalized and the existing parts being replaced are derecognized.



1.5 Intangible Assets An intangible asset is an identifiable, non-monetary asset without physical substance. Intangible assets are identifiable resources controlled by the municipality from which the municipality expects to derive future economic benefits or service potential. Intangible assets are identifiable when they can be separated from the municipality, i.e. is capable of being separated or divided from the municipality and sold, exchanged, licensed or, when they arise as a result of a contractual or other legal right, excluding those legal rights that arise from statute. The municipality recognizes an intangible asset in its statement of financial position only when it is probable that the expected future economic benefits or service potential that are attributable to the asset will flow to the municipality and the municipality can measure the cost or fair value of the asset reliably. An intangible asset is measured initially at cost. Where an intangible asset is acquired at no cost, or for a nominal cost, its cost is its fair value as at the date of acquisition. Where the municipality acquires intangible assets, the municipality recognizes them as assets in the statement of financial position at cost.

Where the municipality generates its own intangible assets through research and development or the acquisition of another entity, recognition is based on whether or not it is probable that the intangible assets will generate future economic benefits or service potential. Expenditure on research is not recognized as an asset.

An intangible asset arising from development (or from the development phase of an internal project) is recognized if, and only if, the municipality can demonstrate all of the following:

• the technical feasibility of completing the intangible asset so that it will be available for use or sale.

• its intention to complete the intangible asset and use or sell it.

• its ability to use or sell the intangible asset.

• how the intangible asset will generate probable future economic benefits or service potential. Among other things, the municipality can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.

• the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.

• its ability to measure reliably the expenditure attributable to the intangible asset during its development.

The municipality does not recognize internally generated goodwill as an intangible asset. It also does not recognize internally generated brands, mastheads, publishing titles, customer lists and items similar in substance, as intangible assets.

The cost of an internally generated intangible asset is the sum of expenditure incurred from the date when the intangible asset first meets the recognition criteria.



Intangible assets are subsequently carried at cost less accumulated amortization and accumulated impairment losses.

The municipality assesses whether the useful life or service potential of an intangible asset is finite or indefinite. The municipality regards an intangible asset as having an indefinite useful life when there is no foreseeable limit to the period over which the entity expects the asset to generate net cash inflows or service potential for the entity. Intangible assets with indefinite useful lives are not amortized.

The municipality tests intangible assets with finite useful lives for impairment where there is an indication that an asset may be impaired. An assessment of whether there is an indication of possible impairment is done at each reporting date. Where the carrying amount of an item of an intangible asset is greater than the estimated recoverable amount (or recoverable service amount), it is written down immediately to its recoverable amount (or recoverable service amount) and an impairment loss is charged to the Statement of Financial Performance.

The useful life of an intangible asset that arises from contractual or legal rights does not exceed the period of the contractual or legal rights, but may be shorter depending on the period over which the municipality expects to use the asset.

The municipality reviews the amortization method, useful lives and residual values of intangible assets annually.

The estimated useful lives are as follows:

Item Useful life Computer software, other 3 years Other intangible assets 3 years

Intangible assets are derecognized when the asset is disposed of or when there are no further economic benefits or service potential expected from the use of the asset. The gain or loss arising on the disposal or retirement of an intangible asset is determined as the difference between the sales proceeds and the carrying value and is recognized in the Statement of Financial Performance.

1.6 Impairment of assets

The municipality assesses at each statement of financial position date whether there is any indication that an asset may be impaired. If any such indication exists, the municipality estimates the recoverable amount of the asset.

Irrespective of whether there is any indication of impairment, the municipality also:

• tests intangible assets with an indefinite useful life or intangible assets not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount. This impairment test is performed during the annual period and at the same time every period.

• tests goodwill acquired in a business combination for impairment annually.



If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash generating unit to which the asset belongs is determined.

The recoverable amount of an asset or a cash generating unit is the higher of its fair value less costs to sell and its value in use.

If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss.

An impairment loss of assets carried at cost less any accumulated depreciation or amortization is recognized immediately in surplus or deficit. Any impairment loss of a revalued asset is treated as a revaluation decrease.

Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the cash generating units, or groups of cash generating units, that are expected to benefit from the synergies of the combination.

An impairment loss is recognized for cash generating units if the recoverable amount of the unit is less than the carrying amount of the units. The impairment loss is allocated to reduce the carrying amount of the assets of the unit in the following order:

• first, to reduce the carrying amount of any goodwill allocated to the cash generating unit;

• then to the other assets of the unit, pro rata on the basis of the carrying amount of each asset in the unit.

The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior periods.

A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortization other than goodwill is recognized immediately in surplus or deficit. Any reversal of an impairment loss of a revalued asset is treated as a revaluation increase.

1.7 Inventories

Inventory is valued at the lower of cost and net realizable value.

Subsequently inventories are measured at the lower of cost and net realizable value.

Inventories are measured at the lower of cost and current replacement cost where they are held for;

• distribution at no charge or for a nominal charge; or

• consumption in the production process of goods to be distributed at no charge or for a nominal charge.

Net realizable value is the estimated selling price in the ordinary course of operations less the estimated costs of completion and the estimated costs necessary to make the sale, exchange or distribution.



The cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

1.8 Reserves

Capital replacement reserve (CRR) In order to finance the provision of infrastructure and other items of property, plant and equipment from internal sources, amounts are transferred from the accumulated surplus/(deficit) to the CRR. A corresponding amount is transferred to a designated CRR bank or investment account. The cash in the designated CRR bank account can only be utilized to finance items of property, plant and equipment. The CRR is reduced and the accumulated surplus/(deficit) are credited by a corresponding amount when the amounts in the CRR are utilized.

Government grant reserve When items of property, plant and equipment are financed from government grants, a transfer is made from the accumulated surplus/deficit to the Government Grants Reserve equal to the Government Grant recorded as revenue in the Statement of Financial Performance in accordance with a directive issued by National Treasury. When such items of property, plant and equipment are depreciated, a transfer is made from the Government Grant Reserve to the accumulated surplus/deficit. The purpose of this policy is to promote community equity by ensuring that the future depreciation expenses that will be incurred over the useful lives of government grant funded items of property, plant and equipment are offset by transfers from this reserve to the accumulated surplus/deficit.

The purpose of this policy is to promote community equity by ensuring that the future depreciation expenses that will be incurred over the useful lives of government grant funded items of property, plant and equipment are offset by transfers from this reserve to the accumulated surplus.

When an item of property, plant and equipment financed from government grants is disposed, the balance in the Government Grant Reserve relating to such item is transferred to the accumulated surplus/deficit.

Donations and public contributions reserve When items of property, plant and equipment are financed from public contributions and donations, a transfer is made from the accumulated surplus/deficit to the Donations and Public Contributions Reserve equal to the donations and public contributions recorded as revenue in the Statement of Financial Performance in accordance with a directive issued by National Treasury.

When such items of property, plant and equipment are depreciated, a transfer is made from of this policy is to promote community equity and facilitate budgetary control by ensuring that sufficient funds are set aside to offset the future depreciation charges that will be incurred over the estimated useful life of the item of property, plant and equipment financed from donations and public contributions.

When an item of property, plant and equipment financed from government grants is disposed, the balance in the Donations and Public Contributions Reserve relating to such item is transferred to the accumulated surplus/deficit.



1.9 Provisions and contingencies

A provision is recognized when the municipality has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The municipality does not recognize a contingent liability or contingent asset. A contingent liability is disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.

A contingent asset is disclosed where an inflow of economic benefits is probable.

Provisions are reviewed annually and those estimated to be settled within the next twelve months are treated as current liabilities. All other provisions are treated as long term liabilities.

1.10 Employee Benefits

Retirement Funds The municipality provides retirement benefits for its employees and councilors. The contributions to fund obligations for the payment of retirement benefits are expensed in the year in which they become payable.

The municipality contributes to defined contribution and defined benefit funds. These funds are multi employer funds.

Defined Contribution Funds Where an employee has rendered services to the municipality during the year, the municipality recognizes the contribution payable to a defined contribution plan in exchange for that service immediately as an expense.

Defined Benefit Plans The municipality does not apply “defined benefit accounting” to the defined benefit funds to which it is a member where these funds as classified in terms of IAS 19 as multi-employer plans, as sufficient information is not available to apply the principles involved. As a result, paragraph 30 of IAS 19 is applied and such funds are accounted for as defined contribution funds.

To the extent that a surplus or deficit in the place, based on available information, may affect the amount of future contributions, these are assessed. In the case of surpluses, no change is made in the rate of contributions. In the case of deficits, the municipality will increase contributions on a phased basis. To the extent that the full discounted value of obligations to the funds is not fully accounted for at year end, a contingent liability arises and is reported on accordingly.

Medical Aid: Continued Members The municipality provides post-retirement benefits by subsidizing the medical aid contributions of certain retired staff. According to the rules of the medical aid funds, with which the municipality is associated, a member (subject to the applicable conditions of service), on retirement, is entitled to remain a continued member of such medical aid fund, in which case the member is liable for the portion as determined by Council from time to time, of the medical aid membership fee, and the municipality for the remaining portion.



Defined contribution plans Payments to defined contribution retirement benefit plans are charged as an expense as they fall due.

Payments made to industry-managed (or state plans) retirement benefit schemes are dealt with as defined contribution plans where the municipality’s obligation under the schemes is equivalent to those arising in a defined contribution retirement benefit plan.

Defined benefit plans For defined benefit plans the cost of providing the benefits is determined using the projected credit method.

Actuarial valuations are conducted on an annual basis by independent actuaries separately for each plan.

Past service costs are recognized immediately to the extent that the benefits are already vested, and are otherwise amortized on a straight line basis over the average period until the amended benefits become vested.

To the extent that, at the beginning of the financial period, any cumulative unrecognized actuarial gain or loss exceeds ten percent of the greater of the present value of the projected benefit obligation and the fair value of the plan assets (the corridor), that portion is recognized in surplus or deficit over the expected average remaining service lives of participating employees. Actuarial gains or losses within the corridor are not recognized.

Gains or losses on the curtailment or settlement of a defined benefit plan are recognized when the municipality is demonstrably committed to curtailment or settlement.

When it is virtually certain that another party will reimburse some or all of the expenditure required to settle a defined benefit obligation, the right to reimbursement is recognized as a separate asset. The asset is measured at fair value. In all other respects, the asset is treated in the same way as plan assets. In surplus or deficit, the expense relating to a defined benefit plan is presented as the net of the amount recognized for a reimbursement.

The amount recognized in the statement of financial position represents the present value of the defined benefit obligation as adjusted for unrecognized actuarial gains and losses and unrecognized past service costs, and reduces by the fair value of plan assets.

Any asset is limited to unrecognized actuarial losses and past service costs, plus the present value of available refunds and reduction in future contributions to the plan.

1.11 Leases

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

Finance leases - lessee The municipality leases certain property, plant and equipment. Leases of property, plant and equipment where the municipality assumes substantially all the risks and rewards of ownership are classified as finance leases. Finance lease assets and liabilities are recognized at the inception of the lease at the lower of the fair value of the leased asset and the present value of the future minimum lease payments.



Each lease payment is allocated between the liability and finance charges as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the Statement of Financial Performance over the lease period so as to produce a constant periodic rate of interest on the remaining balances of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term. The Municipality will not incur a foreign currently lease liability other than that allowed by the Municipal Finance Management Act, 2003 (Act 56 of 2003).

1.12 Financial Instruments

Classification The municipality classifies financial assets and financial liabilities into the following categories:

• Held-to-maturity investment financial assets

• Loans and receivables financial assets

• Available-for-sale financial assets

• Financial liabilities measured at amortized cost

Classification depends on the purpose for which the financial instruments were obtained / incurred and takes place at initial recognition. Classification is re-assessed on an annual basis.

Recognition Financial assets and financial liabilities are initially recognized on the statement of financial position when the municipality becomes party to the contractual provisions of the instrument.

Measurement When a financial asset or financial liability is recognized initially, the municipality measures it at its fair value plus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. The best evidence of fair value is quoted prices in an active market. If the market for a financial instrument is not active, the municipality establishes fair value by using a valuation technique. The objective of using a valuation technique is to establish what the transaction price would have been on the measurement date in an arm’s length exchange motivated by normal business considerations. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. If there is a valuation technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market transactions, the municipality uses that technique. The chosen valuation technique makes maximum use of market inputs and relies as little as possible on entity specific inputs. It incorporates all factors that market participants would consider in setting a price and is consistent with accepted economic methodologies for pricing financial instruments. Periodically, the municipality calibrates the valuation technique and tests it for validity using prices from any observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on any available observable market data.



The fair value of a financial liability with a demand feature (e.g. a demand deposit) is not less than the amount payable on demand, discounted from the first date that the amount could be required to be paid.

The municipality assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. If any such evidence exists, the municipality applies the following to determine the amount of any impairment loss: Financial assets carried at amortized cost: If there is objective evidence that an impairment loss on loans and receivables or held-to maturity investments carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The amount of the loss is recognized in surplus or deficit. Financial assets carried at cost: If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed. Available-for-sale financial assets: When a decline in the fair value of an available-for-sale financial asset has been recognized in accumulated surplus or deficit and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in accumulated surplus or deficit is reclassified from accumulated surplus or deficit to surplus or deficit as a reclassification adjustment even though the financial asset has not been derecognized. Held‐to‐maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that the municipality has the positive intention and ability to hold to maturity. Held-to-maturity investments are subsequently measured at amortized cost using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability (or group of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the municipality estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. In those rare cases when it is not possible to estimate reliably the cash flows or the expected life of a financial instrument (or group of financial instruments) the municipality uses the contractual cash flows over the full contractual term of the financial instrument (or group of financial instruments).

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

Loans and receivables are subsequently measured at amortized cost using the effective interest method.



The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability (or group of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.

When calculating the effective interest rate, the municipality estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. In those rare cases when it is not possible to estimate reliably the cash flows or the expected life of a financial instrument (or group of financial instruments) the municipality uses the contractual cash flows over the full contractual term of the financial instrument (or group of financial instruments). Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. Available-for-sale financial assets are subsequently measured at fair value with changes in fair value recognized in accumulated surplus.

Impairment losses, interest income and dividend income are reported in surplus or deficit. Other financial liabilities Other financial liabilities are subsequently measured at amortized cost using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability (or group of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the municipality estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. In those rare cases when it is not possible to estimate reliably the cash flows or the expected life of a financial instrument (or group of financial instruments) the municipality uses the contractual cash flows over the full contractual term of the financial instrument (or group of financial instruments).

De-recognition Financial assets A financial asset is de-recognized where the contractual rights to receive cash flow from the asset have expired, or the municipality has transferred the asset and the transfer qualifies for de-recognition. A transfer qualifying for de-recognition occurs when the municipality transfers the contractual rights to receive the cash flows of the financial asset. Where the municipality has transferred its rights to the cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the municipality’s continuing involvement in the asset.



Financial liabilities

A financial liability is derecognized when the obligation specified in the contract is discharged, cancelled or expired. Categorization The municipality has various types of financial instruments and these can be broadly categorized as either financial assets or financial liabilities. A financial asset is any asset that is: • cash; • a contractual right to receive cash or to receive another financial asset from another entity; • a contractual right to exchange financial instruments on potentially favorable terms; • an equity instrument of another entity; • a contract that may or will be settled in the entities own equity instruments (subject to certain conditions). The municipality has the following types of financial assets as reflected on the face of the Statement of Financial Position or in the notes thereto: • Loans and receivables • Consumer debtors • Other receivables • Call investment deposits

In accordance with IAS 39.09 the financial assets of the municipality are classified as follows into one of the four categories allowed by this standard: Type of financial asset Loans and receivables Consumer debtors Other receivables Call investment deposits A financial liability is any liability that is: • a contractual obligation to deliver cash or to deliver another financial asset; • a contractual obligation to exchange financial instruments on potentially unfavorable terms; The municipality has the following types of financial liabilities as reflected on the face of the Statement of Financial Position or in the notes thereto: • Long term liabilities • Trade and other payables • Consumer deposits • Unspent conditional grants • Bank overdraft Accounting Policies (Continued)

There are two main categories of financial liabilities, classified based on how they are measured. Any other financial liabilities are classified as financial liabilities that are not measured at fair value through profit or loss. In accordance with IAS 39.09 the financial liabilities of the municipality are classified only as financial liabilities that are not measured at fair value through profit or loss because none of the following instruments are held for trading.



Type of financial liability Classification in terms of IAS 39.09 Long term liabilities Financial liability that is not measured at fair value through profit or loss Trade and other payables Financial liability that is not measured at fair value through profit or loss Consumer deposits Financial liability that is not measured at fair value through profit or loss Unspent conditional grants Financial liability that is not measured at fair value through profit or loss Bank overdraft Financial liability that is not measured at fair value through profit or loss Impairment of financial assets Consumer debtors, long term receivables and other receivables are stated at cost less a provision for bad debts. The provision is made on an individual basis or group, based on expected cash flows. At each balance sheet date an assessment is made of whether there is any objective evidence of impairment of financial assets. If there is evidence then the recoverable amount is estimated and an impairment loss is recognized in accordance with IAS 39 as an expense in the Statement of Financial Performance. 1.13 Types of Revenue 1.13.1 Revenue form exchange transactions Revenue from exchange transactions refers to revenue that accrued to the municipality directly in return for services rendered / goods sold, the value of which approximates the consideration received or receivable. Revenue is the gross inflows of economic benefits or service potential during the reporting period when those inflows result in increases in net assets, other than increases relating to contributions from owners. Revenue is measured at the fair value of the consideration received or receivable. When the inflow of cash or cash equivalents is deferred and the fair value of the consideration is less than the nominal amount of cash received or receivable, the arrangement effectively constitutes a financing transaction. The fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest. The imputed rate of interest is the more clearly determinable of either: • The prevailing rate for a similar instrument of an issuer with a similar credit rating; or • A rate of interest that discounts the nominal amount of the instrument to the current cash sales price of the

goods or services. The difference between the fair value and the nominal amount of the consideration is recognized as interest revenue. Service charges relating to electricity and water are based on consumption. Meters are read on a periodic basis and revenue is recognized when invoiced. Provisional estimates of consumption are made monthly when meter readings have not been performed and are based on the consumption history. The provisional estimates of consumption are recognized as revenue when invoiced. Adjustments to provisional estimates of consumption are made in the invoicing period when meters have been read. These adjustments are recognized as revenue in the invoicing period. There are areas within the municipality were an un-metered water tariff is applied based on estimated consumption as per promulgated tariffs. Revenue for these is recognized when invoiced. Revenue from the sale of electricity prepaid meter cards is recognized at the point of sale. Service charges relating to refuse removal are recognized on a monthly basis in arrears by applying the approved tariff to each property. Tariffs are determined per category of property size, and are levied monthly.



Service charges from sewerage and sanitation are based on the number of sewerage connections on each developed property using the tariffs approved from Council and are levied monthly. Interest revenue is recognized on a time proportion basis. Revenue from the rental of facilities and equipment is recognized on a straight-line basis over the term of the lease agreement. Revenue arising from the application of the approved tariff of charges is recognized when the relevant service is rendered by applying the relevant gazetted tariff. This includes the issuing of licenses and permits. Income for agency services is recognized on a monthly basis once the income collected on behalf of agents has been quantified. The income recognized is in terms of the agency agreement. Dividends are recognized when the municipality’s right to receive payment is established. Revenue from the sale of goods is recognized when the following conditions have been satisfied: • The municipality has transferred to the buyer the significant risks and rewards of ownership. • The municipality retains neither continuing managerial involvement to the degree usually associated with

ownership nor effective control over the goods sold. • The amount of revenue can be measured reliably. • It is probable that the economic benefits or service potential associated with the transaction will flow to

the municipality. • The costs incurred or to be incurred in respect of the transaction can be measured reliably.

1.13.2 Revenue from non-exchange transactions Revenue from non-exchange transactions refers to transactions where the municipality received revenue from another entity without directly giving approximately equal value in exchange. Revenue from non-exchange transactions is generally recognized to the extent that the related receipt or receivable qualifies for recognition as an asset and there is no liability to repay the amount.

Revenue from property rates is recognized when the legal entitlement to this revenue arises. Collection charges are recognized when such amounts are legally enforceable. Penalty interest on unpaid rates is recognized on a time proportion basis. A rating system charging one tariff is employed. Rebates and remissions are granted to certain categories of ratepayers and are recognized net of revenue. Fines constitute both spot fines and summonses. Revenue from spot fines and summonses is recognized when payment is received. Revenue from public contributions and donations is recognized when all conditions associated with the contribution have been met or where the contribution is to finance property, plant and equipment, when such items of property, plant and equipment qualifies for recognition and first becomes available for use by the municipality. Where public contributions have been received but the municipality has not met the related conditions, a deferred income (liability) is recognized. Contributed property, plant and equipment is recognized when such items of property, plant and equipment qualifies for recognition and become available for use by the municipality. Revenue from the recovery of unauthorized, irregular, fruitless and wasteful expenditure is based on legislated procedures, including those set out in the Municipal Finance Management Act (Act No.56 of 2003) and is recognized when the recovery thereof from the responsible councilors or officials is virtually certain.



1.14 Conditional Grants and Receipts Revenue received from conditional grants, donations and funding are recognized as revenue to the extent that the municipality has complied with any of the criteria, conditions or obligations embodied in the agreement. To the extent that the criteria, conditions or obligations have not been met a liability is recognized. 1.15 Borrowing Costs Borrowing costs are recognized as an expense in the period in which they are incurred. 1.16 Value added tax The Municipality accounts for Value Added Tax on the cash basis. 1.17 Segmental information The principle segments have been identified on a primary basis by service operation and on a secondary basis by the classification of income and expenditure. The primary basis is representative of the internal structure for both budgeting and management purposes. The secondary basis classifies all operations based on the classification of income and expenditure. Segmental information on property, plant and equipment, as well as income and expenditure is set out the appendices consistent with the prior year. 1.18 Unauthorized expenditure Unauthorized expenditure means: • overspending of a vote or a main division within a vote; • expenditure not in accordance with the purpose of a vote or, in the case of a main division, not in

accordance with the purpose of the main division.

All expenditure relating to unauthorized expenditure is recognized as an expense in the statement of financial performance in the year that the expenditure was incurred. The expenditure is classified in accordance with the nature of the expense, and where recovered, it is subsequently accounted for as revenue in the statement of financial performance. 1.19 Fruitless and wasteful expenditure Fruitless expenditure means expenditure which was made in vain and would have been avoided had reasonable care been exercised. All expenditure relating to fruitless and wasteful expenditure is recognized as an expense in the statement of financial performance in the year that the expenditure was incurred. The expenditure is classified in accordance with the nature of the expense, and where recovered, it is subsequently accounted for as revenue in the statement of financial performance.



1.20 Irregular expenditure Irregular expenditure is expenditure that is contrary to the Municipal Finance Management Act, 2003 (Act 56 of 2003), the Municipal Systems Act, 2000 (Act 32 of 2000), the Public Office Bearers Act, 1993 (Act 20 of 1998) or in contravention of the Municipality's Supply Chain Management Policy. Irregular expenditure excludes unauthorized expenditure. Irregular expenditure is accounted for as an expense in the Statement of Financial Performance in the period it occurred and where recovered, it is subsequently accounted for as revenue in the Statement of Financial Performance. 1.21 Comparative figures Prior year comparatives When the presentation or classification of items in the annual financial stamens is amended, prior period comparative amounts are reclassified. The nature and reason for the reclassification is disclosed. Where accounting errors have been identified in the current financial year the correction is made retrospectively as far as it is practical and the prior year comparatives are restated accordingly. Where there has been a change in accounting policy in the current year, the adjustment is made retrospectively as far as it is practical and the prior year comparatives are restated accordingly. The comparative figures (accounting policy and disclosures) may not be consistent with the current year accounting policies and disclosures due to the implementation of the new GRAP standards. 1.22 Tax The Municipality is exempt from tax in terms of section 10(1)cB(i)(ff) of the Income Tax Act. 1.23 Significant judgments and sources of estimation uncertainty In preparing the annual financial statements, management is required to make estimates and assumptions that affect the amounts represented in the annual financial statements and related disclosures. Use of available information and the application of judgment are inherent in the formation of estimates. Actual results in the future could differ from these estimates which may be material to the annual financial statements. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to the accounting estimates are recognized in the period in which the estimates are revised and in any future affected period. Information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have most significant effect on the amounts recognized in the financial statements are included in the following notes: • Provisions • Consumer Debtors • Revenue (Service Charges) • Contingent liabilities Provisions Provisions were raised and management determined an estimate based on the information available. Additional disclosure of these estimates of provisions are included in note 4 ‑ Provisions.



Impairment testing The municipality reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. In addition, goodwill is tested on an annual basis for impairment. Assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. If there are indications that impairment may have occurred, estimates are prepared of expected future cash flows for each group of assets. Post retirement benefits The present value of the post-retirement obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) include the discount rate. Any changes in these assumptions will impact on the carrying amount of post-retirement obligations. Other key assumptions for pension obligations are based on current market conditions. Additional information is disclosed in Note 5. Allowance for doubtful debts On debtors an impairment loss is recognized in surplus and deficit when there is objective evidence that it is impaired. The impairment is measured at the reporting date taking into account the different classes of debtors and the history of payment success of debtors. 1.24 Budget information Municipalities are typically subject to budgetary limits in the form of appropriations or budget authorizations (or equivalent), which is given effect through authorizing legislation, appropriation or similar measures. General purpose financial reporting by municipalities shall provide information on whether resources were obtained and used in accordance with the legally adopted budget. The annual financial statements and the budget are on the same basis of accounting therefore a comparison with the budgeted amounts for the reporting period have been included in the annual financial statements. 2. Standards and interpretations issued, but not yet effective The municipality has not applied the following standards and interpretations, which have been published and are mandatory for the municipality’s accounting periods beginning on or after 01 July 2010 or later periods as approved by the Accounting Standards Board. The municipality has not early adopted the standards as the effective date has not yet been determined by the Minister. The municipality does not envisage the adoption of the standards until such time as it becomes applicable to the municipality's operations. It is unlikely that the standards will have a material impact on the municipality's annual financial statements. GRAP 18: Segment Reporting Segments are identified by the way in which information is reported to management, both for purposes of assessing performance and making decisions about how future resources will be allocated to the various activities undertaken by the municipality. The major classifications of activities identified in budget documentation will usually reflect the segments for which an entity reports information to management.



GRAP 23: Revenue from Non-exchange Transactions Revenue from non-exchange transactions arises when an entity receives value from another entity without directly giving approximately equal value in exchange. An asset acquired through a non-exchange transaction shall initially be measured at its fair value as at the date of acquisition. GRAP 24: Presentation of Budget Information in the Financial Statements Subject to the requirements of paragraph .19, an entity shall present a comparison of the budget amounts for which it is held publicly accountable and actual amounts either as a separate additional financial statement or as additional budget columns in the financial statements currently presented in accordance with Standards of GRAP. The comparison of budget and actual amounts shall present separately for each level of legislative oversight: • the approved and final budget amounts; • the actual amounts on a comparable basis; and • by way of note disclosure, an explanation of material differences between the budget for which the

municipality is held publicly accountable and actual amounts, unless such explanation is included in other public documents issued in conjunction with the financial statements, and a cross reference to those documents is made in the notes.

Where an entity prepares its budget and annual financial statements on a comparable basis, it includes the comparison as an additional column in the primary annual financial statements. Where the budget and annual financial statements are not prepared on a comparable basis, a separate statement is prepared called the ‘Statement of Comparison of Budget and Actual Amounts’. This statement compares the budget amounts with the amounts in the annual financial statements adjusted to be comparable to the budget. A comparable basis means that the budget and annual financial statements: • are prepared using the same basis of accounting i.e. either cash or accrual; • include the same activities and entities; • use the same classification system; and • are prepared for the same period. This Standard has been approved by the Board but its effective date has not yet been determined by the Minister of Finance. The effective date indicated is a provisional date and could change depending on the decision of the Minister of Finance. Currently the municipality is using the Statement of comparative and budget information recommended by National Treasury. The effective date of the standard is for years beginning on or after 01 April 2012. The municipality expects to adopt the standard for the first time in the 2013 annual financial statements. It is unlikely that the standard will have a material impact on the municipality's annual financial statements. GRAP 103: Heritage Assets GRAP 103 defines heritage assets as assets which have a cultural, environmental, historical, natural, scientific, technological or artistic significance and are held indefinitely for the benefit of present and future generations. Certain heritage assets are described as inalienable items thus assets which are retained indefinitely and cannot be disposed of without consent as required by law or otherwise. A heritage asset should be recognized as an asset only if: • it is probable that future economic benefits or service potential associated with the asset will accrue to the

municipality; and • the cost of fair value of the asset can be measured reliably.



GRAP 21: Impairment of non-cash-generating assets

Non-cash-generating assets are assets other than cash-generating assets. When the carrying amount of a non-cash-generating asset exceeds its recoverable service amount, it is impaired. A municipality assesses at each reporting date whether there is any indication that a non-cash-generating asset may be impaired. If any such indication exists, an entity estimates the recoverable service amount of the asset. Currently the municipality is applying IAS36. GRAP 26: Impairment of cash-generating assets Cash-generating assets are those assets held by a municipality with the primary objective of generating a commercial return. When an asset is deployed in a manner consistent with that adopted by a profit-orientated entity, it generates a commercial return.

When the carrying amount of a cash-generating asset exceeds its recoverable amount, it is impaired. An entity assesses at each reporting date whether there is any indication that a cash-generating asset may be impaired. If any such indication exists, a municipality estimates the recoverable amount of the asset. When estimating the value in use of an asset, a municipality estimates the future cash inflows and outflows to be derived from continuing use of the asset and from its ultimate disposal and a municipality applies the appropriate discount rate to those future cash flows. Currently the municipality is applying IAS36. GRAP 25: Employee benefits The objective of GRAP25 is to prescribe the accounting and disclosure for employee benefits. The Standard requires a municipality to recognize: • a liability when an employee has provided service in exchange for employee benefits to be paid in the

future; and • an expense when a municipality consumes the economic benefits or service potential arising from service

provided by an employee in exchange for employee benefits. GRAP25 must be applied by an employer in accounting for all employee benefits, except share based payment transactions. Currently the municipality is applying IAS19. GRAP 104: Financial Instruments The standard prescribes recognition, measurement, presentation and disclosure requirements for financial instruments. Financial instruments are defined as those contracts that results in a financial asset in one municipality and a financial liability or residual interest in another municipality. A key distinguishing factor between financial assets and financial liabilities and other assets and liabilities, is that they are settled in cash or by exchanging financial instruments rather than through the provision of goods or services. One of the key considerations in initially recognizing financial instruments is the distinction, by the issuers of those instruments, between financial assets, financial liabilities and residual interests. Financial assets and financial liabilities are distinguished from residual interests because they involve a contractual right or obligation to receive or pay cash or another financial instrument. Residual interests entitle a municipality to a portion of another municipality’s net assets in the event of liquidation and, to dividends or similar distributions paid at management’s discretion. In determining whether a financial instrument is a financial asset, financial liability or a residual interest, a municipality considers the substance of the contract and not just the legal form. Where a single instrument contains both a liability and a residual interest component, the issuer allocates the instrument into its component parts. The issuer recognizes the liability component at its fair value and recognizes the residual interest as the difference between the carrying amount of the instrument and the fair value of the liability component. No gain or loss is recognized by separating the instrument into its component parts.



Financial assets and financial liabilities are initially recognized at fair value. Where a municipality subsequently measures financial assets and financial liabilities at amortized cost or cost, transactions costs are included in the cost of the asset or liability. The transaction price usually equals the fair value at initial recognition, except in certain circumstances, for example, where interest free credit is granted or where credit is granted at a below market rate of interest. Concessionary loans are loans either received by or granted to another municipality on concessionary terms, e.g. at low interest rates and flexible repayment terms. On initial recognition, the fair value of a concessionary loan is the present value of the agreed contractual cash flows, discounted using a market related rate of interest for a similar transaction. The difference between the proceeds either received or paid and the present value of the contractual cash flows is accounted for as non-exchange revenue by the recipient of a concessionary loan in accordance with Standard of GRAP on Revenue from Non-exchange Revenue Transactions (Taxes and Transfers), and using the Framework for the Preparation and Presentation of Financial Statements (usually as an expense) by the grantor of the loan. Financial assets and financial liabilities are subsequently measured either at fair value or, amortized cost or cost. An municipality measures a financial instrument at fair value if it is: • a derivative; • a combined instrument designated at fair value, i.e. an instrument that includes a derivative and a non-

derivative host contract; • held-for-trading; • a non-derivative instrument with fixed or determinable payments that is designated at initial recognition

to be measured at fair value; • an investment in a residual interest for which fair value can be measured reliably; and • other instruments that do not meet the definition of financial instruments at amortized cost or cost. Derivatives are measured at fair value. Combined instruments that include a derivative and non-derivative host contract are accounted for as follows: • Where an embedded derivative is included in a host contract which is a financial instrument within the

scope of this Standard, an entity can designate the entire contract to be measured at fair value or, it can account for the host contract and embedded derivative separately using GRAP 104. A municipality is however required to measure the entire instrument at fair value if the fair value of the derivative cannot be measured reliably.

• Where the host contract is not a financial instrument within the scope of this Standard, the host contract and embedded derivative are accounted for separately using GRAP 104 and the relevant Standard of GRAP.

Financial assets and financial liabilities that are non-derivative instruments with fixed or determinable payments, for example deposits with banks, receivables and payables, are measured at amortized cost. At initial recognition, a municipality can however designate such an instrument to be measured at fair value. A municipality can only measure investments in residual interests at cost where the fair value of the interest cannot be determined reliably. Once a municipality has classified a financial asset or a financial liability either at fair value or amortized cost or cost, it is only allowed to reclassify such instruments in limited instances. An entity derecognizes a financial asset, or the specifically identified cash flows of an asset, when: • the cash flows from the asset expire, are settled or waived; • significant risks and rewards are transferred to another party; or • despite having retained significant risks and rewards, a municipality has transferred control of the asset

to another municipality.



A municipality derecognizes a financial liability when the obligation is extinguished. Exchanges of debt instruments between a borrower and a lender are treated as the extinguishment of an existing liability and the recognition of a new financial liability. Where a municipality modifies the term of an existing financial liability, it is also treated as the extinguishment of an existing liability and the recognition of a new liability. A municipality cannot offset financial assets and financial liabilities in the statement of financial position unless a legal right of set-off exists, and the parties intend to settle on a net basis. GRAP 104 requires extensive disclosures on the significance of financial instruments for a municipality’s statement of financial position and statement of financial performance, as well as the nature and extent of the risks that a municipality is exposed to as a result of its annual financial statements. Some disclosures, for example the disclosure of fair values for instruments measured at amortized cost or cost and the preparation of a sensitivity analysis, are encouraged rather than required. GRAP 104 does not prescribe principles for hedge accounting. A municipality is permitted to apply hedge accounting, as long as the principles in IAS 39 are applied. This Standard has been approved by the Board but its effective date has not yet been determined by the Minister of Finance. The effective date indicated is a provisional date and could change depending on the decision of the Minister of Finance. The effective date of the standard is for years beginning on or after 01 April 2012. The municipality expects to adopt the standard for the first time in the 2013 annual financial statements. It is unlikely that the amendment will have a material impact on the municipality's annual financial statements.


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 Restated

2011 2010 R R

3 LONG-TERM LIABILITIES

Held at amortized cost: Annuity Loans: Development Bank of South Africa (12659) - 9 189 Unsecured fixed interest 22 year loan repayable semi-annually in installments of interest and capital with interest payable on reducing balance until capital is paid off on 31 December 2010

Development Bank of South Africa (12660) 17 425 48 392 Unsecured fixed interest 23 year loan repayable semi-annually in installments of interest and capital with interest payable on reducing balance until capital is paid off on 31 December 2011

Development Bank of South Africa (12662) - 4 704 Unsecured fixed interest 22 year loan repayable semi-annually in installments of interest and capital with interest payable on reducing balance until capital is paid off on 31 December 2010

Development Bank of South Africa (102103/1) 1 040 568 1 212 820 Unsecured fixed interest 10 year loan repayable monthly in installments of interest and capital with interest payable on reducing balance until capital is paid off on 31 August 2016.

Development Bank of South Africa (102103/2) 705 985 1 082 611 Unsecured fixed interest 10 year loan repayable monthly in installments of interest and capital with interest payable on reducing balance until capital is paid off on 31 March 2013.

Magalies Water 1 105 539 1 295 371 Unsecured fixed interest 20 year loan repayable semi-annually in installments of interest and capital with interest payable on reducing balance until capital is paid off on 30 September 2014.


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 (Contnd.)

Restated 2011 2010

R R Installment Credit: ABSA Bank Ltd (72622478) - 41 198 Unsecured variable interest 5 year installment sale agreement repayable monthly in installments of interest and capital with interest payable on reducing balance until capital is paid off on 31 May 2011.

ABSA Bank Ltd (72622486) - 41 198 Unsecured variable interest 5 year installment sale agreement repayable monthly in installments of interest and capital with interest payable on reducing balance until capital is paid off on 31 May 2011.





2 869 518 3 886 301



Restated 2011 2010

R R Non-current liabilities At amortized cost 1 981 773 2 815 992

Current Liabilities At amortized cost 887 744 1 070 309

Refer to Appendix A for more detail on long-term liabilities

4 LEASE LIABILITIES

Minimum Lease payments due - within one year 371 380 323 717 - in second to fifth year inclusive 102 942 474 322

474 322 798 039

Present value of minimum lease payments due - within one year 371 380 323 717 - in second to fifth year inclusive 102 942 474 322

474 322 798 039

Non-current liabilities 102 942 474 322 Current liabilities 371 380 323 717

474 322 798 039

Collateral held in terms of the above leases (Net book amount of leased assets) 637 264 982 564 Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default

5 RETIREMENT BENEFIT INFORMATION

5.1 PENSION FUNDS Most employees of the Municipality are members of one of the following funds. The Municipality's contributions to these funds are reflected as a charge against income in the financial statements.



Restated 2011 2010

R R

5.1.2 MULTI-EMPLOYER FUNDS

The municipality contributes to the following defined benefit plans, which are governed by the Pension Fund Act of 1956. The total contributions are included under Employee Remuneration, Note. Due to the nature of these funds, the lack of information and the fact that assets are not specifically associated to meet the obligations in respect of individual employers, these funds are accounted for as defined contribution funds in terms of paragraph 30 of IAS19. The total contributions are included in Employee related costs, Note 20.

SALA Pension Fund. The actuarial valuation is carried annually since 1 July 1998. The actuarial valuation performed on 1 July 2004 showed and unfunded liability of R516,62 million (81.9% funding level). 14 (4.59%) of the Municipality's employees are members of this fund. 519 047

Joint Municipal Pension Fund. Actuarial valuations are performed every 3 years. The actuarial valuation performed on 31 December 2005 reported a funding level of 97.7% resulting in a shortfall of R44,237 million. 4 (1.31%) of the Municipality's employees are members of this fund. 243 493

Municipal Employees Pension Fund. The actuarial valuation performed on 28 February 2005 reported the fund to be in a sound financial position with a funding level of 106.9%. 169 (55.41%) of the Municipality's employees are members of this fund. 5 627 777

5.2 MEDICAL AID FUNDS

Included in general expenses are: - Current service costs 771 057 792 784 Interest cost 754 905 708 878 Benefits vesting (50 832) (46 968) Actuarial Loss/(Gain) 647 800 1 201 462 Defined benefit expense 2 122 930 2 656 156

Post-employment benefit liability (funded status) Unfunded Accrued Liability (8 300 857) (8 047 625) Recognized Actuarial Gains/(Losses) (2 122 930) (253 232) Liability recognized in statement of financial position (10 423 787) (8 300 857)



Restated 2011 2010

R R

Reconciliation of defined benefit obligation: Present value of unfunded obligation at beginning of year 8 300 857 8 047 625 Current-service Cost 771 057 792 784 Interest cost 754 905 708 878 Actuarial Loss/(Gain) 647 800 (1 201 462) Employer Contributions (50 832) (46 968)

10 423 787 8 300 857

Actuarial (gains)/losses recognized in other comprehensive income: Medical Aid funds 647 800 (1 201 462) Total amount of actuarial (gains)/losses recognized 647 800 (1 201 462)

Estimated employer benefit payments to be paid to iro Medical aid funds in the next financial period: 55 656 50 832

Sensitivity Results The effect of an increase and decrease of one percentage point in the assumed medical cost trend rates on is the following: Subsidy Increase rate:

Salary increase rate: Accrued liability 30 June 10 423 787 8 300 857 Decrease of 1% 8 595 000 % Change -18% Increase of 1% 12 755 000 % change 22% 5.3 LONG SERVICE AWARDS

Included in general expenses are: - Current service costs 297 428 235 116 Interest cost 156 208 130 582 Benefits vesting (144 050) (64 897) Actuarial Loss/(Gain) 39 363 21 127 Defined benefit expense 348 949 321 928

Post-employment benefit liability (funded status) Unfunded Accrued Liability (2 056 702) (1 734 774) Unrecognized Actuarial Gains/(Losses) (348 949) (3 219 288) Liability recognized in statement of financial position (2 405 651) (4 954 062)


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 (Contnd.) Restated

2011 2010 R R

Reconciliation of defined benefit obligation: Opening Balance 2 056 702 1 734 774 Current-service Cost 297 428 235 116 Interest Cost 156 208 130 582 Actuarial (gain)/loss 39 363 21 127 Expected employer benefit vesting (144 050) (64 897) Present value of obligation at end of year 2 405 651 2 056 702

Actuarial (gains)/losses recognized in other comprehensive income: Long Services Awards 39 363 21 127

Estimated employer benefit payments to be paid iro Long service awards in the next financial period 581 906 144 050

Sensitivity Results The effect of an increase and decrease of one percentage point in the assumed medical aid cost trend rates on is the following: Subsidy Increase Rate:

Salary Increase Rate: Accrued Liability 30 June 2 405 651 2 056 702 Decrease of 1% 2 253 000 % Change -6% Increase of 1% 2 576 000 % change 7%

Post-employment benefit liability: Statement of Financial Position Medical Aid Funds 10 423 787 8 300 857 Long service awards 2 405 651 2 056 702

12 829 438 10 357 559

Actuarial assumptions

A summary of the assumptions used in the valuation, together with a short description on each is given below:

Economic Assumptions Discount Rate 7.84% Inflation Rate 5.28% Salary Increase Rate 6.28% Expected rate of return on assets 10.20% Pension increase allowance 4.75% Health Care Cost Inflation 7.19%



Restated 2011 2010

R R Discount Rate The rate to discount post-employment benefit obligations should be determined by reference to market expectations at the valuation date for the period over which the liability obligations are to be settled. If the market is not liquid then government bond yields at the estimated term of the defined benefit obligation should be used. Consequently a discount rate of 7.84% per annum has been used.

Inflation Rate While not used explicitly in the valuation, we have assumed the underlying future rate of consumer price inflation (CPI) to be 5.28 % per annum. This assumption has been based on the relationship between current conventional bond yields and current index-linked bond yields. This assumption is in line with the SA Government's Monetary Policy target of 3 % to 6 % per annum.

Salary increase Salary increases have historically exceeded CPI inflation by between 1.0% and 1.5% per annum. We have assumed that salaries will exceed the assumed inflation rate by 1 % plus a merit increase based on the age-related table below:

6 PROVISIONS

Staff Bonuses – Performance & Annual 813 926 777 399 Staff Leave 6 207 359 5 608 181 Provision – Rates Overcharge - 1 045 961 Total Provisions 7 021 286 7 431 542

Staff Bonuses – Performance & Annual The movement is reconciled as follows: Balance at beginning of year 777 399 1 192 706Contributions to provision 36 527 1 127 433Utilized during the year - -Reversed/Adjusted during the year - (1 542 740)Balance at year end 813 926 777 399

Staff Leave The movement is reconciled as follows: Balance at beginning of year 5 608 181 5 157 033 Contributions to provision 1 119 459 512 926 Utilized during the year (520 281) (138 263)Reversed/Adjusted during the year - 76 485Balance at year end 6 207 359 5 608 181



Restated 2011 2010

R R Rates Overcharge The movement is reconciled as follows: Balance at beginning of year 1 045 961 -Contributions to provision - 1 045 961Utilized during the year - -Reversed/Adjusted during the year (1 045 961) -Balance at year end - 1 045 961

Performance bonuses are paid one year in arrears and the assessment of eligible employees has not taken place at the reporting date.

The municipality provides employees with annual leave and provision was made for total leave credit due to officials at reporting date.

7 CONSUMER DEPOSITS

Electricity and water 2 525 842 2 478 539

No guarantees are held in respect of consumer deposits

8 TRADE AND OTHER PAYABLES FROM EXCHANGE TRANSACTIONS

Trade payables 24 604 505 17 109 259 Other creditors 33 467 909 27 033 415 VAT 4 866 912 -

62 939 326 44 142 674

VAT is payable on the payment basis. Only once payment is received from debtors, VAT is paid over to SARS.



2011 2010 R R

9 UNSPENT CONDITIONAL GRANTS AND RECEIPTS

Conditional Grants from other spheres of Government

20 PTP Project; (12 363) 1 051 808 BKB Ward 1; 25 000 25 000 BKB Ward 3; 8 600 8 600 BKB Ward 5; 25 000 25 000 BKB Ward 6; 25 000 25 000 Bontle Ke Botho Environmental Project; 16 104 16 104 Boreholes/Water tanks (MIG); - 250 208 Bulk Sewerage Upgrade – Refilwe; - 1 238 266 Bulk Water Rayton Ext.6 – Phumzile; - 1 807 960 Cullinan Supply Upgrade; 2 467 262 5 166 785 Rayton treatment Sewer works; - (6 608 278) Reservoir - Steve Bikoville MIG; 1 304 974 1 399 807 Sewer Care Works – Refilwe (MIG); 9 451 900 4 787 445 Sewer Network - Onverwacht; - 396 974 Roodeplaat Mini Trf Station; - (3 441) Dept of Housing - Land Purchase 5 715 334 5 715 334 SETA Skills Grant 414 564 382 159 Draught Relief 58 625 260 405 Financial Assistance Province 3 860 075 4 653 501 WSDP – Water & Forestry - 19 872 Finance Management Grant 2 019 702 2 615 018 Grant Library/DAC; 2 647 859 3 255 116 Municipal Systems Improvement Grant 589 092 1 567 838 Other Grants; - 357 464 Total conditional grants and receipts 28 616 727 28 383 894

See note 19 for reconciliation of grants from other spheres of government.



10 PROPERTY, PLANT & EQUIPMENT AND INTANGIBLE ASSETS 10.1 PROPERTY. PLANT & EQUIPMENT – June 2011

Reconciliation of Carrying Value as at 30 June 2011

Land and Infrastructure Stock Community Other Total Buildings

R R R R R R Carrying values at 1 July 2010 75 901 938 277 728 629 4 856 000 25 106 427 8 441 055 392 034 049 Cost 75 905 152 301 964 738 4 856 000 25 832 316 16 543 495 425 101 701 Accumulated Depreciation (3 214) (24 236 108) ‐ (725 890) (8 102 439) (33 067 652)

Acquisitions ‐ 24 932 ‐ 492 075 169 135 686 141 Capital under Construction ‐ 11 644 039 2 579 838 14 223 877 Depreciation / Amortization (677) (24 236 109) ‐ (640 295) (2 393 542) (27 270 623)

Correction cost ‐ (92 504) ‐ ‐ ‐ (92 504) Reversal Depreciation on disposal ‐ ‐ ‐ ‐ 35 141 35 141

Impairment ‐ ‐ ‐ ‐ (48 533) (48 533)

Disposals ‐ ‐ ‐ ‐ (105 486) (105 486)

Carrying values at 30 June 2011 75 901 261 265 068 986 4 856 000 27 538 045 6 097 769 379 462 061 Cost 75 905 152 313 541 204 4 856 000 28 904 229 16 558 610 439 765 195 Accumulated Depreciation (3 891) (48 472 217) ‐ (1 366 184) (10 460 841) (60 303 134)


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 (Contnd.) 10.2 INTANGIBLE ASSETS – June 2011

Reconciliation of Carrying Value as at 30 June

2011 Intangibles Total

R R R R R R Carrying values at 1 July 2010 321 922 321 922 Cost 648 746 648 746 Accumulated amortization (326 824) (326 824) Acquisitions 16 718 16 718 Amortization on Write‐up 2 473 2 473 Amortization

(54 721) (54 721) Carrying values at 30 June 2011 286 392 286 392 Cost 665 464 665 464 Accumulated amortization (379 072) (379 072)

Refer to Appendix B for more detail on property, plant and equipment, including those in the process of been constructed. Property, Plant and Equipment with a carrying value of R637 264.09 ( 2010: R982 563.96 ) is encumbered by finance leases as disclosed in Note 4



10.3 PROPERTY, PLANT & EQUIPMENT - June 2010

Reconciliation of Carrying Value as at

30 June 2009

Land and Infrastructure Stock Community Other Total Buildings

R R R R R Carrying values at 1 July 2009 31 740 453 79 711 018 - 15 499 314 8 594 037 135 544 822 Cost 31 742 990 86 803 251 ‐ 15 545 411 15 230 651 149 322 303 Accumulated Depreciation (2 537) (7 092 233) ‐ (46 097) (6 636 614) (13 777 481) Acquisitions ‐ 4 833 201 ‐ 1 339 634 535 924 6 708 759 Capital under Construction ‐ 14 687 739 ‐ 3 110 553 ‐ 17 798 292 Depreciation / Amortization (677) (3 053 750) ‐ (367 684) (2 597 596) (6 019 707)

Valuation Roll 20 629 500 ‐ 4 856 000 ‐ ‐ 25 485 500 Classification Correction 23 532 662 (23 532 662) ‐ ‐ ‐ ‐ Correction cost old assets ‐ (51 670 713) ‐ 5 836 718 (249 490) (46 083 485) Depreciated replacement cost (New Assets) ‐ 270 843 922 ‐ ‐ 1 300 035 272 143 957 Correction of Depreciation ‐ (14 090 125) ‐ (312 109) 279 352 (14 122 882) Reversal depreciation on disposal ‐ ‐ ‐ ‐ 185 879 185 879 Depreciation Write‐up ‐ ‐ ‐ ‐ 666 540 666 540

Disposals ‐ ‐ (273 626) (273 626)

Carrying values at 30 June 2010 75 901 938 277 728 629 4 856 000 25 106 427 8 441 055 392 034 049 Cost 75 905 152 301 964 738 4 856 000 25 832 316 16 543 495 425 101 701 Accumulated Depreciation (3 214) (24 236 108) ‐ (725 890) (8 102 439) (33 067 652)


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 (Contnd.) 10.4 INTANGIBLE ASSETS - June 2010

Reconciliation of Carrying Value as at 30 June

2011 Intangibles Total

R R R R R R Carrying values at 1 July 2010 354 068 354 068 Cost 386 316 386 316 Accumulated amortization (32 248) (32 248) Acquisitions 13 483 13 483 Amortization (61 692) (61 692) Correction cost old assets 347 459 347 459 Correction amortization (279 352) (279 352) Reversal amortization on disposal 46 467 46 467 Disposals (98 512) (98 512) Carrying values at 30 June 2010 321 922 321 922 Cost 648 746 648 746 Accumulated Amortization (326 824) (326 824)

Restated

2011 2010 R R

11 TRADE AND OTHET RECEIVABLES

Deposit - suppliers 448 987 448 987

These are deposits held for rental of property and credit granted by suppliers. Credit quality of loans and receivables The credit quality of loans and receivables that are neither past nor due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rate.



12 CONSUMER DEBTORS

Gross

Balances Provision

for bad debts

Net Balances

As at 30 June 2011 Service debtors 125 143 345 109 982 333 15 161 012 Rates 73 753 033 67 010 889 6 742 144Water 31 327 858 27 264 683 4 063 175Electricity 8 045 288 4 873 902 3 171 386Sewerage 6 057 817 5 342 160 715 657Refuse 5 959 349 5 490 699 468 650

Other - - -Total 125 143 345 109 982 333 15 161 012

As at 30 June 2010 Service debtors 141 848 772 121 441 470 20 407 302 Rates 63 311 679 47 318 714 15 992 965 Water 37 818 159 37 571 483 246 676 Electricity 14 088 089 13 839 910 248 179 Sewerage 12 465 916 10 553 645 1 912 271 Refuse 14 164 930 12 157 718 2 007 211

Other (specify) 17 120 445 17 051 182 69 262 Total 158 969 217 138 492 652 20 476 565

Summary of Debtors by Customer Classification

Consumers / Business / Government Other Households Industrial

Current (0 - 30 days) 6 559 693 2 321 335 255 873 490 58231 - 60 days 3 237 411 1 759 012 210 402 160 04961 - 90 days 2 109 891 1 340 473 114 407 107 65091 - 120 days 66 541 030 33 609 738 3 798 512 2 527 287

Subtotal 78 448 025 39 030 558 4 379 194 3 285 568

Less: Provision for doubtful debts 68 839 638 34 631 777 3 897 796 2 613 122

Total debtors by customer classification 9 608 387 4 398 781 481 398 672 446



Restated

2011 2010 R R

Reconciliation of bad debt provision

Balance at beginning of year 138 492 652 111 982 550Contributions to provision 34 714 586 34 881 430Correction of Opening Balance - (6 276 246)Bad debts written off against provision (63 224 905) (2 095 082)Balance at year end 109 982 333 138 492 652

Ageing of Debtors (Net of provision)

Rates Current (0 - 30 days) 3 061 019 2 453 62931 - 60 days 2 826 526 1 662 37361 - 90 days 854 599 828 86691 - 120 days - 6 276 246121 - 365 days - -

Sub-total: Rates 6 742 144 11 221 114

Electricity Current (0 - 30 days) 2 623 334 1 279 96431 - 60 days 359 290 593 94861 - 90 days 188 762 170 90491 - 120 days - -121 - 365 days - -

Sub-total: Electricity 3 171 386 2 044 816

Water Current (0 - 30 days) 3 081 464 2 167 17931 - 60 days 830 375 987 57961 - 90 days 151 335 927 78091 - 120 days - -121 - 365 days - -

Sub-total: Water 4 063 174 4 082 538 Sewerage Current (0 - 30 days) 558 440 387 223 31 - 60 days 136 346 209 769 61 - 90 days 20 872 125 676 91 - 120 days - - 121 - 365 days - -

Sub-total: Sewerage 715 658 816 155



Restated 2010 2011 R R

Refuse Current (0 - 30 days) 303 226 448 892 31 - 60 days 140 962 229 623 61 - 90 days 24 462 137 640 91 - 120 days - - 121 - 365 days - -

Sub-total: Refuse 468 650 816 155

Other Current (0 - 30 days) - 4 294 31 - 60 days - 4 305 61 - 90 days - 3 235 91 - 120 days - - 121 - 365 days - -

Sub-total: Other - 11852

Debtors that have gone past the due date have been impaired only to the extent of the provision for doubtful debts. No further impairment of debtors has been made.

Credit quality of consumer debtors The credit quality of consumer debtors that are neither past nor due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates.

13 RECEIVABLES FROM EXCHANGE TRANSACTIONS

SARS –VAT 4 912 238 12 595 815Other 26 075 1 034 437

4 938 312 13 630 251

14 CALL INVESTMENT DEPOSITS Short term deposits 3 669 339 4 142 233

No investments were pledged as security for funding granted to the municipality. Credit quality of short term deposits The credit quality of short term deposits that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or historical information about counterparty default rates.



2011 2010 R R

15 BANK BALANCE AND CASH The municipality has the following bank accounts:

Current Account (Primary Bank Account)

ABSA Bank - Bronkhorstspruit branch Account number - 0800000076

Cash book balance at beginning of year (4 395 358) (3 880 984)Cash book balance at end of year (912 772) (4 395 358)

Bank statement balance at beginning of ear 3 161 187 1 890 079Bank statement balance at end of year 2 556 342 3 161 187

ABSA Bank - Bronkhorstspruit branch TMT traffic fines) Account number - 405 5921 8179

Cash book balance at beginning of year 81 648 187 814Cash book balance at end of year 9 641 81 648

Bank statement balance at beginning of ear 81 648 187 814Bank statement balance at end of year 9 641 81 648

Petty cash 7 610 7 870

Total Balance (895 520) (4 305 840)

16 REVENUE

Property rates 28 093 073 24 536 077Property rates - penalties imposed and collection charges 4 295 295 5 556 584Service charges 42 249 460 39 691 375Rental of facilities and equipment 70 086 25 683 Interest earned - external investments 737 455 226 776 Interest earned - outstanding debtors 4 294 995 7 266 404Fines 5 705 434 7 064 123Licences and permits 5 817 219 7 506 210Government grants and subsidies 49 381 345 59 056 872Other income 1 964 080 2 934 039

153 864 142 153 864 142


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 (Contnd.) Restated 2011 2010 R R

The amount included in revenue arising from exchange transactions is as follows: Service charges 46 249 460 39 691 375 Rental of facilities and equipment 70 086 25 683 Interest earned - external investments 737 455 226 776 Interest earned - outstanding debtors 4 294 995 7 266 404 Licences and permits 5 817 219 7 506 210 Other income 1 964 080 2 934 039

59 133 294 57 650 487 The amount included in revenue arising from non-exchange transactions is as follows: Property rates 28 093 073 24 536 077 Property rates - penalties imposed and collection charges 4 295 295 5 556 584 Fines 5 705 434 7 064 123 Government grants and subsidies 49 381 345 59 056 872

87 475 148 96 213 655

17 PROPERTY RATES

Actual Assessment Rates Revenue 32 427 383 27 642 141

LESS: Income Foregone 4 334 309 3 106 065

Total assessment rates 28 093 073 24 536 077

Valuations on land and buildings are performed once every 5 years.

The last general valuation came into effect on 01 July 2008. Interim valuations are processed on an annual basis to take into account changes in individual property values due to alterations, sub-divisions and rezoning.

Income foregone relates to exemptions and rebates granted to property owners in terms of the municipality's property rating policy.



Valuations Residential 4 390 846 043 2 512 092 835 Government 1 262 614 080 1 266 426 980 Public Worship 31 435 360 49 204 760 Municipal 32 303 300 16 105 300 Agricultural 3 725 712 562 5 417 419 524 Business 573 783 000 570 378 000 Industrial & Mining 57 449 000 57 449 000 Multi Purpose 564 120 700 556 384 800 Total property valuations 10 638 264 045 10 445 461 199

18 SERVICE CHARGES

Sale of electricity 22 997 810 18 284 030Sale of water 15 675 478 14,677,134Refuse removal 4 067 079 3,611,738

Sewerage and sanitation charges 3 509 093 3,118,473Total Service Charges 46 249 460 39 691 375

19 GOVERNMENT GRANTS AND SUBSIDIES

Equitable share 19.1 28 495 000 22,891,332Environmental Grant (BKB) 19.2 - -Finance Management Grant 19.3 2 801 102 899 147GPT Intern Grant 19.4 - 109 500DWAF - WSDP grant 19.5 - -DWAF - Draught Relief Support Grant 19.6 221 652 -DWAF - WC/WDM grant 19.7 - -Municipal Systems Improvement Grant 19.8 750 000 145 908Dept of Housing - Land Purchase 19.9 - - Grant Library/DAC; 19.10 3 125 964 1 364 707 Financial Assistance Grant – Province 19.11 793 427 10 346 499Municipal Infrastructure Grant 19.12 9 430 507 14 620 610National Electrification Programme 19.13 2 699 523 5 568 616Early Childhood Development Centre 19.14 1 064 171 3 110 553Other Grants 19.15 - -Total Government Grants and Subsidies 49 381 346 59 056 872



19.1 Equitable share In terms of the Constitution, the grant is used to subsidize the provision of free basic services to indigent community members. A portion of the grant funds Councillors Allowances in terms of the Division of Revenue Act and the balance, if any, is utilized in operations as an unconditional grant.

19.2 Environmental Grant (BKB) Balance unspent at beginning of year 99 704 99 704Current year receipts - -Conditions met - transferred to income - -Conditions still to be met - transferred to liabilities - -

19.3 Finance Management Grant Balance unspent at beginning of year 2 615 018 764 165Current year receipts 3 000 000 2 750 000Re-classification of prior year balance (794 214) -Conditions met - transferred to income (2 801 102) (899 147)Conditions still to be met - transferred to liabilities 2 019 702 2 615 018

The grant was utilized for the appointment of the financial interns and assist with the implementation of the MFMA. The conditions of the grant were met. No funds have been withheld.

19.4 GPT Intern grant Balance unspent at beginning of year (30 049) 79 451Current year receipts - -Re-classification of prior year balance 30 049 -Conditions met - transferred to income - (109 500)Conditions still to be met - transferred to liabilities - (30 049)

19.5 DWAF - WSDP grant Balance unspent at beginning of year 19 872 19 872Current year receipts - -Re-classification of prior year balance (19 872) -Conditions met - transferred to income - -Conditions still to be met - transferred to liabilities - 19 872



19.6 DWAF - Draught Relief Support grant

Balance unspent at beginning of year 260 405 260 405Current year receipts - -Re-classification of prior year balance 19 872 -Conditions met - transferred to income (221 652) -Conditions still to be met - transferred to liabilities

58 625 260 405

19.7 DWAF – WC/WDM Grant Balance unspent at beginning of year - (858 509) Current year receipts - - Re-classification of prior year balance - 858 509 Conditions met - transferred to income - -

Conditions still to be met - transferred to liabilities - -

19.8 Municipal Systems Improvement Grant Balance unspent at beginning of year 1 567 839 978 747 Current year receipts 750 000 735 000 Re-classification of prior year balance (978 747) - Conditions met - transferred to income (750 000) (145 908) Conditions still to be met - transferred to liabilities 589 092 1 567 839

19.9 Housing grants Balance unspent at beginning of year 5 715 334 5 715 334Current year receipts - -Re-classification of prior year balance - -Conditions met - transferred to income - -Conditions still to be met - transferred to liabilities

5 715 334 5 715 334

The grant will be utilized for the purchase of land for housing. The conditions of the grant were met. There was no delay or withholding of the grant

19.10 DAC - Recapitalization of Libraries

Balance unspent at beginning of year 3 225 014 1 279 721Current year receipts 3 400 000 3 340 000Refund to transferring department (881 293) -Conditions met - transferred to income (3 125 964) (1 364 707)Conditions still to be met - transferred to liabilities 2 647 756 3 255 014



2011 2010

19.11 Financial Assistance Grant - Province Balance unspent at beginning of year 4 653 502 -Current year receipts - 15 000 000Conditions met - transferred to income (793 426) (10 346 499)Conditions still to be met - transferred to liabilities

3 860 075 4 653 502

19.12 Municipal Infrastructure grant Balance unspent at beginning of year 3 268 940 2 863 491Current year receipts plus adjustment 16 915 0000 14 000 000Re-classification of prior year balance 95 945 -Conditions met - transferred to income (9 430 507) (13 594 551)Conditions still to be met - transferred to liabilities

10 849 378 3 268 940

19.13 National Electrification Programme

Balance unspent at beginning of year 5 166 785 6 023 401Current year receipts - 4 712 000Conditions met - transferred to income (2 699 523) (5 568 616)Conditions still to be met - transferred to liabilities 2 467 262 5 166 785

19.14 20PTP/Early Childhood Development Centre grant Balance unspent at beginning of year 1 051 807 (837 640)Current year receipts - 5 000 000Re-classification of prior year balance - -Conditions met - transferred to income (1 064 171) (3 110 553)Conditions still to be met - transferred to liabilities (12 363) 1 051 807

19.15 Other Grants Balance unspent at beginning of year 357 464 2 440 758Current year receipts - -Re-classification of prior year balance (357 464) (2 083 294)Conditions met - transferred to income - -Conditions still to be met - transferred to liabilities

- 357 464



Restated 2011 2010

20 EMPLOYEE RELATED COSTS

Employee related costs - Salaries and wages 35 633 952 33 610 805Employee related costs - Contributions for UIF, pensions and medical aids 9 952 356 9 226 485Travel and other allowances 5 376 187 5 506 712Housing benefits and allowances 611 336 206 858Overtime allowances 1 731 909 1 874 049Annual bonus (13th Cheque) 3 004 852 3 229 454Less: Employee costs included in other expenses - -Total Employee Related Costs 56 310 594 53 753 364

There were no advances to employees.

Remuneration of the Municipal Manager Annual Remuneration 556 160 597 557Travel allowance 62 495 210 687Council contributions 48 817 125 386Total 667 472 933 630

Remuneration of the Chief Financial Officer Annual Remuneration 599 187 655 730Travel allowance 125 792 105 760Council contributions 18 674 13 965Total 743 653 775 456

Remuneration of Individual Managers - 30 June 2011

Community Services

Sustainable Human

Settlements Corporate Services

Development Planning

Annual Remuneration 578 485 - - 280 138Travel allowance 125 715 - - 119 826Council contributions 8 335 - - 5 702

Total 712 536 - - 405 666



Remuneration of Individual Managers - 30 June 2010

Community Services

Sustainable Human

Settlements Corporate Services

Development Planning

Annual Remuneration 589 200 270 353 - 634 300Travel allowance 102 613 122 715 - 231 914Council contributions 8 466 4 975 - 9 054

Total 700 279 398 042 - 875 268

Restated 2011 2010

R R 21 REMUNERATION OF COUNCILLORS

Speaker 128 848 437,263Executive Mayor 162 936 404 308Mayoral Committee members - -Councillors 710 790 2 682 642

Total Councillors Remuneration 1 002 574 3 524 213

In kind benefits The Executive Mayor, the Speaker and all Members of the Mayoral Committee are full time councilors. All full time councilors are provided with an office and secretarial support at the cost of the Council. The Executive Mayor has the use of a Council owned vehicle for official duties.

22 FINANCE COST

Long-term liabilities 347 880 427 443Bank overdraft - - Total Interest on External Borrowings 347 890 427 443

23 BULK PURCHASES

Electricity 18 089 990 14 124 542

Water 13 426 789 11 105 774

Total Bulk Purchases 31 516 779 25 230 316



Restated 2011 2010

R R

24 INVENTORIES

Water Inventory 52 233 -Equipment stock - -

52 233 -

25 GENERAL EXPENSES ADVERTISING COSTS 28 476 115 446AUDITFEES 1 961 005 2 516 365BANK CHARGES 280 204 310 835 BOOKS AND PUBLICATIONS - 4 229COMPUTER SERVICES - 159 390CONFERENCE EXPENDITURE (1 351) 71 204CONSULTANCY FEES - 220 483ENTERTAINMENT COST 9 199 33 294FREE BASIC SERVICES 3 620 907 3 399 454LEGAL COSTS 1 352 126 1 280 035MEMBERSHIP FEES - 469 797MUNICIPAL SERVICES ‐ OWN CONSUMPTION 661 969 746 580POSTAGE & STAMPS 373 808 330 397PRINTING & STATIONARY 429 317 363 093

STOCK & MATERIAL (417) 66 245 SUBSISTANCE & TRAVEL ALLOWANCES 316 275 597 652 TRAFFIC FINES RETURNED 500 96 572 TRAINING - 137 162 TRANSPORT DEPARTMENTAL 1 048 311 1 288 861 GRANT FUNDED EXPENDITURE 6 051 312 1 711 581 OTHER EXPENSES 3 460 452 2 941 929

19 592 093 16 793 620



2011 2010 R R

26 Operating surplus Operating surplus for the year is stated after accounting for the following:

Employee related costs 56 310 594 53 753 364Remuneration of councilors 1 002 574 3 524 213Contributions to bad debt provision 34 714 586 34 881 429Contributions to leave provision 1 119 459 512 926Interest revenue 5 032 450 7 493 180Finance costs 347 890 427 443Auditors remuneration 1 961 005 2 516 365Contracted Services 19 280 995 22 395 623Grants and subsidies paid - Free Basic Services 3 620 907 3 399 454Bulk purchases 31 516 779 25 230 316Depreciation charge 27 322 871 6 081 457

27

CASH GENERATED FROM OPERATIONS Net surplus/(deficit) for the year (43 963 672) (9 499 538) Adjustment for: - 56 200 975 14 245 430 Depreciation 27 322 871 6 081 457 Impairment of Assets 48 533 -Surplus on disposal of assets 17 207 -Accrued interest (8 590 290) (12 822 988)Interest paid 216 190 427 443Contributions to provisions - current 34 714 585 15 546 285 Non- cash Adjustments 2 471 879 5 013 224

Operating (deficit)/surplus before working capital changes 12 237 303 4 745 892Decrease/(Increase) in Debtors (20 808 746) 11 880 260(Increase)/Decrease in Other Debtors 8 691 939 (406 700)(Increase)/Decrease in Inventory (52 233) (10 850)(Decrease)/Increase in Unspent Conditional Grants and Receipts 232 832 10 337 773(Decrease)/Increase in Creditors 18 796 651 15 514 674(Decrease)/Increase in Consumer Deposits 47 303 (23 957)(Decrease)/Increase in Provisions (410 256) (2 548 057)

Cash generated by/(utilized in) operations 18 734 794 39 489 035



2011 2010 R R

28 CASH AND CASH EQUIVALENTS Cash and cash equivalents in the cash flow statement comprise the following statements of amounts indicating financial position: Cashbook Balance / Bank balance (912 772) (3 782 936)Short term / Call deposits 3 669 339 4 142 233Cash on Hand 7 610 7 870

2 764 178 367 167

29 PRIOR PERIOD ERRORS

The requirements of GRAP 17 were not properly considered and implemented in the previous year in that the useful lives and residual values of property, plant and equipment were not appropriately considered and some items of property, plant and equipments were expensed instead of capitalized. In the current year all classes of assets were physically verified and fair valued. The fair valuation resulted in an increase in the value of assets than was previously disclosed and amounts were restated retrospectively.

The correction in prior year error(s) resulted in adjustments as follows:

Statement of Financial Position Increase in property plant and equipment - 251 753 640 Increase in accumulated depreciation - (13 735 694) Increase in Post Employee Benefits - (10 357 559) Decrease in Lease Liability - 81 772 Decrease in Provisions - 1 466 254 Increase in Consumer Debtors - 1 577 426 Increase in Receivables from Exchange Transactions - 10 677 539 Increase in Trade and Other Payables from Exchange Transactions - (567 318) Decrease in Inventory - (33 472) Increase in Unspent Conditional Grants - (92 504) Increase in Accumulated Surplus or Deficit - (240 770 084)

30 UTILISATION OF LONG TERM LIABILITIES RECONCILIATION Long term Liabilities (see note 3) 2 869 518 4 766 112 Used to finance property, plant and equipment - at cost (2 869 518) (4 766 112)

Sub total

-

- Cash set aside for the repayment of long term liabilities

-

-

Cash invested for repayment of long-term liabilities (see note 3)

-

-

Long term liabilities have been utilized in accordance with the Municipal Finance Management Act. Sufficient cash has been set aside to ensure long-term liabilities can be repaid on redemption date.



Restated 2011 2010

R R

31 ADDITIONAL DISCLOSURES IN TERMS OF THE MUNICIPAL FINANCE MANAGEMENT ACT

31.1 Contributions to organized local government

Opening Balance - - Council subscriptions - -Amount Paid - current year - -Balance unpaid (included in creditors) - -

31.2 Audit fees Opening balance - - Current year audit fees 1 961 005 2 516 365 Amount paid - current year (1 961 005) (2 516 365)Balance unpaid (included in creditors) - -

31.3 VAT

VAT input receivables and VAT output receivables are shown in note 6. All VAT returns have been submitted by the due date throughout the year.

31.4 PAYE and UIF Opening Balance - - Current year payroll deductions 7 784 311 7 925 691

Amount Paid - Current year (7 743 394) (7 925

691)Balance unpaid (included in creditors) - -

31.5 Pension and Medical Aid deductions Opening Balance - - Current year payroll deductions 15 278 899 8 996 431 Amount Paid - Current year (15 281 602) (8 996 431)Balance unpaid (included in creditors) (2 703) -



Restated 2011 2010

R R

31.6 Commitments Authorised Capital Expenditure

Already contracted and provided for Community

Infrastructure 8 164 010 13 915 000 Other Assets 1 672 139 -

9 836 149 13 915 000

Not yet contracted for and authorised - 6 000 000

Commitments to be funded from the following sources

Own Revenue (Internal) - - Grant Funding (External) 9 836 149 13 915 000

9 836 149 19 915 000 The committed expenditure relates to Property, Plant and Equipment and will be financed by external funding, mainly grants

31.7 Risk Management

Liquidity Risk The municipality's risk to liquidity is a result of the funds available to cover future commitments. The municipality manages liquidity risk through an ongoing review of future commitments and credit facilities, where these exist.

Cash flow forecasts are prepared and adequate utilized borrowing facilities are monitored.

Interest rate risk Deposits attract interest rates that vary with prime, the municipality’s policy is to manage interest rate risk so that fluctuations in variable rates do not have material impact on profit or loss Credit risk Credit risk consists of mainly cash deposits, cash equivalents, derivative financial instruments and trade debtors. The municipality only deposits cash with major banks with high quality credit standing and limits exposure to any one counter-party


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011(Contnd.)

31.8 Going Concern

The MEC responsible for Local Government and Housing in the province issued a section 12 notice after the Municipal Demarcation Board had re-determined the municipal borders. The section 12 notice effectively disestablishes the municipality and incorporates the municipality under a newly established City of Tshwane Metropolitan Council effective from the next local government election. The municipality in its current form therefore ceases to exist on the 30th June 2011.

31.9 Supply Chain Management Supply chain management regulations In terms of section 36(1) of the Municipal Supply Chain Management Regulations, the accounting officer may dispense with the official procurement processes in the following instances:

• In an emergency • if such goods or services are produced or available from a

single provider only • for the acquisition of special works of art or historical objects

where specification are difficult to complete • acquisition of animals for zoo's and/or nature and game

reserves • in any other exceptional case where it is impractical or

impossible to follow the official procurement processes

Deviation from tender and quotation process: • Sole Suppliers • Emergency • Impracticality

In terms of section 36 of the Municipal Supply Chain Management Regulations any deviation from the supply chain management policy needs to be approved/condoned by the accounting officer and noted by Council. Deviations from the official procurement process during the financial year was approved by the accounting officer and noted by the Administrator in terms of the delegations as stipulated in the Supply Chain Management Policy and amount to approximately the following:



Restated 2011 2010

R R

Incidents – Purchase of laptop - Insurance payout 17 553 Purchase new prepaid cards - Sole supplier 90 140 Emergency car repair 13 258 Modules purchased for prepaid machines - sole supplier 12 795 Emergency car repair 14 467 Emergency car repair 8 075 Emergency car repair 16 800 Payment for transport services 5 160 Purchase of laptop - Insurance payout 12 999 Emergency purchase of safe locks 2 250 Payment for catering for community event 2 337 Purchase novelty items for library day - grant funded 17 815 Emergency refuse removal services 5 791 Supply of Library books - designated book suppliers 142 219 Emergency refuse removal services 100 100 Supply of Library books - designated book suppliers 2 399 Supply of Library books - designated book suppliers 90 991 Supply of Library books - designated book suppliers 70 322 Emergency supply of cables - grant funded 148 770 Supply of Library books - designated book suppliers 24 781 Supply of Library books - designated book suppliers 50 408 Payment for catering for community event 18 470 Arch Actuaries - COT service provider 33 060 Emergency travel to Bloemfontein - Appeal Hearing regarding rates case 12 635 Emergency repairs to vehicles 7 296 Emergency repairs to vehicles 2 394 Emergency repairs to vehicles 2 689 Booking of venue with other government organization 9 275 Booking of accommodation for interns at training venue 3 250 Emergency repairs to machinery 26 610 Purchase of face value documents from sole supplier 10 525 Purchase of grader blades from sole supplier 14 202 Booking of accommodation for interns at training venue 16 536 Emergency repairs to vehicles 16 932 Emergency repairs to vehicles 13 678 Booking of accommodation for interns at training venue 35 000 Purchase of Mayoral vehicle - Grant funded - 346 500Asset Identification Bar-codes - Appointed service provider - 12 750Material for potholes - emergency repairs - 98 300Fire Services Training - Accredited service provider - 66 368Electricity Tariffs Determination - appointed service provider - 48 975Supply of Library books - designated book suppliers - 185 466Emergency Repairs to vehicles - Water Tanker and Rescue vehicle - 20 729FMS On-site Support - Sole Provider - 384 000

1 059 349 1 163 088



Restated

2011 2010

R R

Deviation from tender process: Replacement of roof at Refilwe Hostel by means of quotation 721 073 Price Water House Coopers - COT service provider 2 922 046

3 643 119

31.10 Distribution Losses

Water 5 314 143 3 102 825 Electricity 2 494 607 2 389 637

Total Distribution Losses 7 808 750 5 492 463

Water distribution losses represent 38% of total units purchased (2010: 33%). The water losses have improved although they are still higher than the 15% benchmark determined by management for technical losses. Electricity distribution losses represent 13% of total units purchased (2010: 18%).

31.11 Financial Assets By Category

The accounting policies for financial instruments have been applied to the line items below:

2011 Loans and receivables

Available-for-sale Total

Loans and receivables 448,987 448,987 Consumer debtors 15 161 015 15 161 015Receivables from exchange transactions 4 938 312 4 938 312Call investment deposits 3 669 339 3 669 339

20 548 315 3 669 339 24 217 6542010

Loans and receivables

Available-for-sale Total

Loans and receivables 448 987 448 987Consumer debtors 20 476 565 20 476 565Receivables from exchange transactions 3 565 135 3 565 135Call investment deposits 4 142 233 4 142 233

24 490 687 4 142 233 28 632 919



31.12 Financial Liabilities By Category

The accounting policies for financial instruments have been applied to the line items below:

2011 Financial

liabilities at amortised

cost Total

Long term liabilities 2 084 715 2 084 715Consumer deposits 2 525 842 2 525 842Trade and other payables 62 939 326 62 939 326Bank overdraft 912 772 912 772Unspent conditional grants and receipts 28 616 727 28 616 727

97 079 381 97 079 381

2010 Financial

liabilities at amortised

cost Total

Long term liabilities 3 290 314 3 290 314Consumer deposits 2 478 539 2 478 539Trade and other payables 44 142 674 44 142 674Bank overdraft 3 782 936 3 782 936Unspent conditional grants and receipts 28 383 894 28 383 894

82 078 357 82 078 357

32 CONTINGENT LIABILITIES 32.1 Serfontein Attorney vs. Nokeng Tsa Taemane Local Municipality

The rural land owners association is disputing the validity of the property rates that the municipality has been charging from 2003 to date. The majority of the ratepayers have thus not been honoring their monthly accounts due to this court case. The matter was heard in Court on the 13 - 15 February 2008 and judgment against the municipality was delivered in March 2009. The municipality has appealed against the judgment and the matter is yet to be heard in the appeal court. In the event that the municipality fails to defend the claim, it is expected to cost the municipality millions of rands. The amount in dispute is estimated to be around R106 million but the reasonability of this amount is still under question therefore no provision has been made in the financial statement.



32.2 Mothupi vs. Nokeng Tsa Taemane Local Municipality

The plaintiff is demanding R5 million from the municipality arising from the suspension of a refuse removal contract by the municipality. The municipality has filed a notice to defend the action. No provision has been made in the financial statements.

32.3 Rocher vs. Nokeng Tsa Taemane Local MunicipalityA motorist, who was involved in an accident on the Kameelfontein road when the car drove through a body of water that had collected on the Pienaarsrivier bridge, is claiming the accident was due to negligence on the part of the municipality. The plaintiff is claiming that the failure of the municipality to rectify the drainage problem and also to adequately warn motorists of the existence of water on the tarred surface during the rainy season constitutes a breach of care by the municipality towards the general motoring public and the plaintiff in particular. The plaintiff is claiming R690 000 in damages suffered. The municipality is defending the claim as the road in question is a provincial road, not a municipal road. No provision has therefore been made in the financial statements.

32.4 Kgomotso Johannes Ramutla vs. Nokeng Tsa Taemane Local Municipality

Mr. Rammutla alleges that on the 18th February 2009 the municipality removed a number of items from his property that was allocated to him by Chief Kekana. Allegedly a number of building materials and tools to the value of R299 000.00 were removed by the municipality. The claim is disputed and is being defended and therefore no provision has been made in the financial statements.

32.5 Culli-Supercare (Mothupi) vs. Nokeng Tsa Taemane Local Municipality

Culli-Supercare Trading CC is suing the municipality R96 865.80 for unpaid invoice that has been outstanding for a very long time for services allegedly rendered. The claim is being disputed and currently the matter is before the Cullinan Magistrate Court. The applicant filed papers at the wrong correspondent (i.e. at Serfontein Swart & Viljoen Attorneys instead of at Arno Jacobus Attorneys our appointed correspondent of record. Subsequently, the applicant secured a default judgment. The NTTLM is filing papers for rescission of judgment on the 12 April 2010 on the basis of non-service. No provision has been made in the financial statements.

32.6 Reticulation Design and Project Services Limited (RDPSL) v Nokeng Tsa Taemane Local

Municipality It is alleged that the Municipality appointed Reticulation Design as project manage the construction of low cost housing in Refilwe Township Extension 2, 3 & 5 for 690 houses at a cost of 1650.00 per houses and therefore the contract price was R1 105 500.00. However, the contract was later repudiated (terminated) by the municipality apparently, the municipality paid R93 500.00 to Reticulation design and the amount owing on 10 January 2007 was R 1 012 000.00. The service provider is suing to this amount plus 15.5% interest.

The case is before the High Court, North Gauteng High Court. Two consultations were held on this matter. In the applications of RDPLS reference is made to a contract pertaining to the project and certain payments made and approved by Mr. Anton Pieterse. The Project Unit cannot or is unwilling to provide the Attorneys with the copy of the contract. So the Project Unit must be requested by the Acting MM to provide the legal Unit with the contract and with all relevant information pertaining to the appointment of the service provider and the subsequent termination of the contract. No legal account submitted as yet. No provision has been made in the financial statements.



32.7 Anne-Marie Retief N.O. v Nokeng Tsa Taemane Local Municipality & Transnet Apparently, on 19 December 2006 around 19h45 at the level crossing at Forfar road and Herold

Streets, Rayton collided with a train. Ms Retief sues the municipality on the basis that the accident was caused by the municipality or Transnet since the municipality or Transnet or both failed to construct warning signs or road signs at the level crossing where the accident occurred to warn motorist of the existence of a level crossing. Ms Retief is suing the municipality and Transnet jointly and severally, for damages amounting to R4 000 000.00 (R4 million) plus interest at a rate of 15.5% per annum running from the date the summons were issued. The case is currently before the High Court, North Gauteng

An inspection in loco (inspection of the scene of the accident) was conducted with Mr. Pieter

Pienaar (Traffic Department) in early February 2010 and it was established that the road or street where the accident occurred is not a municipal road/street and all the road markings and street signs were there at the time when the accident occurs. The road where the accident occurred is a provincial road and confirmation was received from Gauteng Department of Transport (Gautrans, Bronkhortspruit) to that effect. (In a form of Provincial Road Inventory and A Map) and this means that Ms Retief is suing a wrong institution.

Apparently, Retief’s claim to the RAF has been rejected by the Road Accident Fund on the basis that the driver was drunk on the day in question or on the basis that he should claim from Transnet. The municipality will be raising these matters as points in limine in its defense (Preliminary points)

32.8 South African Local Authorities Pension Fund v Nokeng Tsa Taemane Local Municipality The application was launched on 30 July 2008 and the papers were served on Ms Salome

Mamabolo. It appears that before the papers were served there were numerous correspondences with the municipality pertaining to the increase in the employer contribution. However, the municipality did not respond to the letters and did not increase its contribution as requested. Eventually, SALA launched an application at the Pretoria Magistrate Court to force the municipality to pay a higher employer contribution as per Section 13A of the Pensions Funds Act, 1956 (Act No. 24 of 1956) and as per the Rules of the Fund since the Fund was/is under-funded (deficits). A default order was issued against the municipality on the 30 July 2008. A warrant of execution was subsequently issued against the municipality on the 10th of February 2010.

The case has been resolved since an Order in favor of the Fund was granted on the 30 July

2008. A request for the Rules of the Fund has been requested from the Attorneys of SALA and from SALA itself since the rules are not available from their websites. A request for the Rules of the Fund has been requested from the Attorneys of SALA and from SALA itself since the rules are not available from their websites. A memorandum has been drafted motivating for the payment of the default amount (i.e. compliance with the judgment. The memorandum will be submitted to the Acting MM as soon as the Rules of the Fund are made available.

32.9 Performance bonuses S57 Employees

Despite the fact that a 5% was deducted from the Section 57 employees salaries over a 12 month period from the 2007/8 financial year. These affected individuals were however not subjected to a performance review by the Council and were therefore never paid back the portion deducted.


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 (Contnd.) 32.10 Ettiene Prinsloo v Nokeng Tsa Taemane Local Municipality

The municipality bought Portion 174 Kameeldrift 298 JR, Gauteng from one Adv Ettiene Prinsloo. Adv Prinsloo appointed Stats Properties as his agent to attend to the sale of the plot. Unfortunately, the Deed of Sale contained a suspensive clause, Clause 1 (a) An approval in principle obtained from funder by 20th of March 2007 (b) R2 500 000.00 (Two million and five hundred thousand rands) payable by the 31 March 2007 as a suspensive conditions. The money was paid into the account of Stats Properties as the agent of Adv Prinsloo. However, Adv Prinsloo requested Stats Properties to transfer the money into his bank account. The then Municipal Manager instructed Stats Properties to hold the money in a trust account and to be paid over only after transfer into the account of Adv Prinsloo. Adv Prinsloo became furios and launched an application in term of clause 12 of the Deed of Sale which states that: Should there be any delay in effecting transfer by reason of default attributable to one of the parties; the party responsible for such delay shall pay to the other interest on the outstanding balance of the purchase price at the rate of 12.5% per annum for the period of the delay. Adv Prinsloo contends that the purchase price should have been paid directly into his account in terms of the Deed of Sale and the instruction by the Municipal Manager that the purchase price be paid only after transfer was contrary to the terms of the Deed of Sale. He viewed as a delay which entitled him to claim 12% interest from 1st April 2007. He further claims that there was a delay on the part of the municipality in issuing the clearance certificate and also there was a delay on the part of the municipality’s appointed convenyancers in effecting transfer. It should be noted that the Deed of Sale was drafted by Stats Properties (agents of Adv Prinsloo) in the process of negotiation between the Municipal Manager and Adv Prinsloo. Adv Prinsloo secured a default judgment in 2009 and subsequently a warrant of execution was issued. A 1400 Bakkie and a Nissan E20. The 1400 was sold in execution and it was found that the E20 does not belong to the municipality. The E20 is still with the Sherriff, Cullinan. The NTTLM launched an application for rescission of judgment on the 09 March 2010 and the application failed. The Magistrate noted the normal conveyancing practice, viz that the purchase price is held in a trust account of the agent or conveyancer and only paid over in the account of the seller on registration of the property in the name of the purchaser. However, in this instance the municipality has elected to contract outside the normal conveyancing practice in the sense that contract indicated that the purchase price was payable on the 31st of March 2007 and from her reading of the deed of sale it was payable directly to Adv. Prinsloo and not to Stats Properties as the municipality did. The issue for the magistrate was what holds sway, what governs: practice or contract. The magistrate held that practice is not law and contract is law and therefore the purchase price should have been paid directly into the Account of Adv Prinsloo as per the deed of sale.



33 IN-KIND DONATIONS AND ASSISTANCE The municipality has received the following in-kind donations and assistance: Description: Funding of professional personnel by DBSA Siyenza Manje Project in the field of accounting/finance and engineering

34 COMPARISON WITH BUDGET The comparison of the Municipality's actual performance with that budgeted is set out in Annexure E (1) and E (2). A schedule detailing the reconciliation of the budget summary is included in the financial statements

Restated

2011 2010 R R

35 UNAUTHORISED, IRREGULAR, FRUITLESS AND WASTEFUL EXPENDITURE DISALLOWED

35.1 Fruitless and wasteful expenditure Reconciliation of fruitless and wasteful expenditure Opening balance 34 509 683 406Fruitless and wasteful expenditure current year 415 491 -Approved by Council or condoned (648 897)

Fruitless and wasteful expenditure awaiting condonement 450 000

34 509

The figure disclosed as fruitless and wasteful expenditure relates to interest charged by suppliers of goods and services for late payment.

35.1 Irregular expenditure

Reconciliation of irregular expenditure Opening balance - -Irregular expenditure current year 595 684 -

Irregular expenditure awaiting condonement 595 684 - Details of irregular expenditure - current year

Unsolicited bid not opened in public - Non Compliance 583 229 - Travel expenses not supported by three written quotations - Non Compliance 12 635 -

1

REPORT OF THE AUDITOR-GENERAL TO THE GAUTENG PROVINCIAL LEGISLATURE AND THE COUNCIL OF NOKENG TSA TAEMANE LOCAL MUNICIPALITY REPORT ON THE FINANCIAL STATEMENTS Introduction

1. I have audited the accompanying financial statements of Nokeng Tsa Taemane Local

Municipality, which comprise the statement of financial position as at 30 June 2011, and the statement of financial performance, statement of changes in net assets and cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory information, as set out on pages xx to xx.

Accounting officer’s responsibility for the financial statements

2. The accounting officer is responsible for the preparation and fair presentation of these

financial statements in accordance with South African Standards of Generally Recognised Accounting Practice (SA Standards of GRAP) and the requirements of the Municipal Finance Management Act of South Africa, 2003 (Act No.56 of 2003) (MFMA) and for such internal control as management determines necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor-General’s responsibility

3. As required by section 188 of the Constitution of the Republic of South Africa, 1996 (Act No.

108 of 1996), section 4 of the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA) and section 126(3) of the MFMA my responsibility is to express an opinion on these financial statements based on my audit.

4. I conducted my audit in accordance with International Standards on Auditing and General

Notice 1111 of 2010 issued in Government Gazette 33872 of 15 December 2010. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

5. An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

6. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a

basis for my qualified audit opinion.

2

Basis for qualified opinion Cash and cash equivalents 7. The entity could not provide sufficient appropriate audit evidence to support reconciling items

totalling R3 301 823 between the overdrawn cash and cash equivalents balance stated in the cash book at R379 300 and the cash at banks amount stated in the general ledger at R2 922 393. Furthermore, the cash and cash equivalents balance stated in the cash book does not agree to the amount confirmed by the financial institutions. The entity’s records did not permit the application of alternative audit procedures regarding cash and cash equivalents. Consequently, I did not obtain sufficient appropriate audit evidence to satisfy myself as to the completeness, valuation and allocation of and rights pertaining to cash and cash equivalents.

Qualified opinion 8. In my opinion, except for the effects of the matter described in the Basis for qualified opinion

paragraph, the financial statements present fairly, in all material respects, the financial position of Nokeng Tsa Taemane Local Municipality as at 30 June 2011, and its financial performance and cash flows for the year then ended, in accordance with SA Standards of GRAP and the requirements of the MFMA.

Emphasis of matters

9. I draw attention to the matters below. My opinion is not modified in respect of these matters:

Significant uncertainties

10. With reference to note 32 to the financial statements, the municipality is involved as a

defendant in various claims and litigations with service providers and other parties. The outcome of these lawsuits cannot be determined at present and no provision for any liability that may result has been made in the financial statements.

Restatement of corresponding figures

11. With reference to note 29 to the financial statements, the corresponding figures for 30 June 2010 have been restated as a result of an error discovered during the 2010-11 financial year in the financial statements of Nokeng Tsa Taemane Local Municipality at, and for the year ended 30 June 2010.

Material losses 12. With reference to note 31.10 to the financial statements, material losses to the amount of

R5 314 143 and R2 494 601 were incurred as a result of water and electricity losses respectively.

Material impairments

13. With reference to note 12 to the financial statements, material losses to the amount of R63 244 905 were incurred as a result of a write-off of irrecoverable trade debtors.

3

Going concern

14. With reference to note 31.8 to the financial statements, The Member of Executive Committee responsible for Local Government and Housing in the province issued a section 12 notice after the Municipal Demarcation Board had re-determined the municipal borders. The section 12 notice effectively disestablishes the municipality and incorporates the municipality under a newly established City of Tshwane Metropolitan Council effective from the local government election held 18 May 2011. In terms of notice 1205 of 2010 the financial, operational and administrative affairs of the municipality will remain in force from the date of disestablishment until the 30 June 2011. The municipality in its current form therefore ceases to exist from 30 June 2011.

Additional matters

15. I draw attention to the matter below. My opinion is not modified in respect of this matter: Unaudited supplementary schedules

16. The supplementary information set out on pages xx to xx does not form part of the financial statements and is presented as additional information. I have not audited these schedules and, accordingly, I do not express an opinion thereon.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

17. In accordance with the PAA and in terms of General Notice 1111 of 2010, issued in

Government Gazette 33872 of 15 December 2010, I include below my findings on the annual performance report as set out on pages xx to xx and material non-compliance with laws and regulations applicable to the municipality.

Predetermined objectives Usefulness of information

18. The reported performance information was deficient in respect of the following criteria:

Consistency: The reported objectives, indicators and targets are not consistent with the approved integrated development plan.

Measurability: The indicators are not well defined or verifiable, and targets are not specific, or measurable, or time bound.

19. The following audit findings relate to the above criteria:

Reported indicators and targets are not consistent when compared with the planned indicators and targets Reported performance against predetermined indicators and targets is not consistent with the approved strategic and integrated development plan.

4

Planned and reported targets are not specific For the selected objectives, 37% of the planned and reported targets were not specific in clearly identifying the nature and the required level of performance.

Planned and reported indicators are not well defined For the selected objectives, 37% of the planned and reported indicators were not clear, as unambiguous data definitions were not available to allow for data to be collected consistently.

Planned and reported indicators are not verifiable For the selected objectives valid performance management processes and systems that produce actual performance against the planned indicators do not exist for 37% of the indicators.

Reliability of information

20. The reported performance information was deficient in respect of the following criteria:

Validity: The reported performance did not occur and does not pertain to the entity.

Accuracy: The amounts, numbers and other data relating to reported actual performance have not been recorded and reported appropriately.

Completeness: All actual results and events that should have been recorded have not been included in the reported performance information.

21. The following audit findings relate to the above criteria:

The validity, accuracy and completeness of reported performance against targets could not be confirmed as no supporting source information was provided For selected objectives, the validity, accuracy and completeness of 37% of the reported targets could not be established as sufficient appropriate evidence could not be provided.

Compliance with laws and regulations

Strategic planning and performance management

22. The municipality did not implement a framework that describes and represents how the

municipality’s cycle and processes of performance planning, monitoring, measurement, review, reporting and improvement will be conducted, organised and managed, including determining the roles of the different role players as required by section 38, 39, 40 and 41 of the MSA read with regulations 7 and 8 of the Municipal Planning and Performance Management Regulations, 2001.

5

Annual financial statements, performance and annual reports

23. The financial statements submitted for auditing were not prepared in all material respects in accordance with the requirements of section 122 (1) of the MFMA. Material misstatements of current assets, current liabilities, employee cost and disclosure of commitments identified by the auditors were subsequently corrected, but the uncorrected material misstatements resulted in the financial statements receiving a qualified audit opinion.

Audit committee

24. The audit committee did not function as required by section 166 of the MFMA, in that:

the audit committee did not meet at least four times a year; the audit committee did not consist of at least three persons with appropriate

experience;

the audit committee did not fulfil its advisory role to the municipal council, accounting officer, municipality's staff and management for the current financial year;

the audit committee did not review the internal audit reports including finding and recommendations;

the audit committee did not advise the municipality or follow up on the internal control deficiencies raised in the prior year management report;

the audit committee did not review the effectiveness of the internal audit unit;

the audit committee did not advise the municipality on issues of compliance with applicable legislation;

the audit committee did not advise the municipality on risk management ;

the audit committee did not review the quarterly reports of the internal auditors on their audits of the performance measurements of the municipality;

the audit committee did not review the municipality’s performance management system and make recommendations in this regard to the council of the municipality;

The audit committee did not submit an auditor’s report to the council regarding the performance management system at least twice during the financial year.

Internal audit

25. The internal audit unit did not function as required by section 165(2) of the MFMA, in that

internal audit did not report to the audit committee on matters relating to internal audit, risk and risk management.

26. The internal auditors of the municipality did not audit the performance measurements on a continuous basis and did not submit quarterly reports on their audits to the municipal manager and the performance audit committee as required by Municipal Planning and Performance Management Regulation 14.

6

Expenditure management

27. Money owing by the municipality was not always paid within 30 days of receiving an invoice or

statement, as required by section 65(2)(e) of the MFMA.

28. The accounting officer did not take reasonable steps to prevent irregular, fruitless and wasteful expenditure, as required by section 62(1) (d) of the MFMA.

Revenue management

29. A credit control and debt collection policy was not implemented as required by section 96(b) of

the Municipal Systems Act of South Africa, 2000 (Act No. 32 of 2000) (MSA) which resulted in a substantial amount of money being long outstanding as at 30 June 2011.

INTERNAL CONTROL

30. In accordance with the PAA and in terms of General Notice 1111 of 2010, issued in

Government Gazette 33872 of 15 December 2010, I considered internal control relevant to my audit, but not for the purpose of expressing an opinion on the effectiveness of internal control. The matters reported below are limited to the significant deficiencies that resulted in the basis for qualified opinion, the findings on the annual performance report and the findings on compliance with laws and regulations included in this report.

Leadership

31. The accounting officer did not exercise oversight responsibility over financial and

performance reporting as financial statements and the annual performance report were subject to material amendments and the controls over the overall process of planning and reporting on performance against predetermined objectives were inadequate.

Financial and performance management

32. The accounting officer did not implement proper record keeping and key reconciliations were

not prepared and reviewed at least on a monthly basis, which also lead to suspense accounts being uncleared and the annual performance report was not in all cases supported by evidence.

33. The financial and performance reports were not accurate and complete and were subject to material amendments. This was due to misstatements that were identified and were not prevented or detected by the municipality’s system of internal control due to inadequate review of reports by senior management prior to submission for auditing.

34. The accounting officer did not review and monitor compliance with all applicable laws and

regulations, and non - compliance with laws and regulations could have been prevented had compliance been properly reviewed and monitored.

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Governance

35. The accounting officer did not ensure that there is an adequately resourced and functioning internal audit unit that identifies internal control deficiencies and recommends corrective actions effectively and timeously.

36. The accounting officer did not ensure that the audit committee promotes accountability and service delivery through evaluating and monitoring responses to risks and providing oversight over the effectiveness of the internal control environment including financial and performance reporting and compliance with laws and regulations.

Johannesburg 30 November 2011

nokeng afs 30 june 2011 - tshwane.gov.za · nokeng tsa taemane local municipality annual financial...

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