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Johannesburg Water (SOC) Limited

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The management of the above functions is governed by an agency agreement between the City of Johannesburg Metropolitan Municipality and the company. The processes and practices implemented are under the sole control and management of the City of Johannesburg Metropolitan Municipality. The directors rely entirely on the internal controls established by the City of Johannesburg Metropolitan Municipality in the performance of the Customer Billing and Revenue Collection and Customer Relations Management functions.

The results of operations and the state of the company can be seen in full from the attached annual financial statements and, in our opinion, do not require additional comments. The directors of the company had no personal financial interests in the contracts concluded by the company. During the year, there were no changes in the authorized or issued share capital of the company.

There were no major changes in the nature of the company's long-term assets during the year. In terms of section 166 of the Local Government: Municipal Finance Management Act, Act 56 of 2003, the Metropolitan Municipality of the City of Johannesburg, as a shareholder, must appoint the members of the audit committee.

Certificate by Company Secretary for the year ended 30 June 2016

Johannesburg Water (SOC) Limited

Report of the Audit Committee

After examining the matters referred to in Article 94(8) of the Companies Act, the commission is satisfied with the independence and objectivity of the external auditors. The Audit Committee continues to monitor progress in the implementation of action plans to address the findings of the Auditor General of South Africa. The Audit Committee has reviewed the annual accounts for the year ended 30 June 2016 and agrees and accepts the conclusion of the Auditor General of South Africa on the accounts and is of the opinion that the audited accounts should be accepted and read together with the report of the Auditor General of South Africa.

The Committee undertakes to review the plans relating to income and receivables in order to improve the audit results. The Audit Committee expresses its appreciation to the Board of Directors, the Accounting Officer, Senior Management and the Auditor General South Africa for their contribution during the financial year.

Report of the auditor general to the Gauteng

Provincial Legislature and the council of the City of Johannesburg Metropolitan Municipality on

Johannesburg Water SOC Limited

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. In my opinion, the financial statements present fairly, in all material respects, the financial position of Johannesburg Water SOC Limited as at 30 June 2016 and its financial performance and cash flows for the year then ended in accordance with the SA GRAP standards and the requirements of the MFMA and the Companies Act. As disclosed in note 37 to the financial statements, the relevant figures for June 2015 have been restated due to errors discovered in Johannesburg Water's financial statements for the year ended June 2016.

Pursuant to section 125(2)(e) of the MFMA, the municipal unit is required to disclose information about non-compliance with the MFMA. This disclosure requirement has not been part of the audit of the financial statements, and I therefore express no conclusion on this. As part of our audit of the financial statements for the year ended June 30, 2016, I UHDGWKH'LUHFWRU¶V5HSRUWWKH$XGLW&RPPLWWHH¶V5HSRUWDQGWKH&RPSDQ\6HFUHWDU\¶V.

Report of the Auditor-General

Because management subsequently corrected the misstatements, I have not made any material findings about the usefulness and reliability of the reported performance information. See the annual performance report on pages x to x for information on meeting the planned targets for the year. No reasonable steps have been taken to prevent irregular expenditure as required by section 95(d) of the MFMA.

An adequate management, accounting and information system was not in place to recognize revenue when earned, as required by Article 97(1)(h) ZFMA. I found internal controls relevant to my audit of financial statements, reports on operations and compliance with legislation. The matters listed below are limited to the significant internal control deficiencies that led to the regulatory compliance findings included in this report.

Leadership exercised insufficient oversight responsibility over financial reporting and compliance, resulting in material non-compliance with MFMA and SCM laws. Management did not implement sufficient regulatory compliance monitoring controls to ensure that effective revenue management controls and processes were in place throughout the year that recognized revenue as it was earned.

Statement of Financial Position as at 30 June 2016

Statement of Financial Performance

Statement of Changes in Net Assets

Cash Flow Statement

Statement of Comparison of Budget and Actual Amounts

Notes to the Financial Statements

Loans to shareholders are 49.9% below budget due to the investment withdrawal for loan financing and grant financing being less than expected at the end of the period. Debt from other sundry debtors was more than expected by 6.3% at the end of June 2016. The variance of 101.3% for Consumer debtors: Foreign exchange transactions is a result of write-offs of R1.5bn which occurred at the end of the year and were not budgeted for.

The value of personal protective equipment as of 30 June 2016 is above budget at R409 million (4.5%) mainly due to accelerated capitalization of assets, developer funded assets and recognition of reserve capital. Payments for activities of group companies were made during the year, as a result of which the amount due at year-end is 95.2% lower than budgeted. The unfavorable variance of 57.8% for shareholder loans is due to the increased value of the city.

Payments to the City of Johannesburg for the Revenue Management Fee and Rates and Services are withheld until payment levels improve. The negative bookings variance of 81.1% is attributable to performance bonus and service bonus accounts that were adjusted to reflect actual claims. The unfavorable variance of 5.7% of the accumulated surplus can be attributed to the net profit being R6 million below the adjusted budget net profit.

Actual cash receipts from customers are 3.5% below the original budget due to customers not paying their bills. The underspending for financing costs is 2.7% due to the timing difference between drawing capital costs between the fiscal year and the implementation of capital projects. The actual amount spent on tangible fixed assets is 16% less than planned due to delays in the implementation of capital projects.

The approved adjusted budget as approved by Council is available for inspection at the headquarters of the Metropolitan Municipality of the City of Johannesburg, Metropolitan Centre, 23 Loveday Street, Braamfontein, 2001. Although the annual financial statements and the budget are prepared on the same basis, the presentation of the two reports differs. The total financial impact of the different presentation methods in the comparison of the two reports is zero.

Summary of Accounting Policies

Basis of preparation

  • Significant judgements and sources of estimation uncertainty
  • Significant judgements and sources of estimation uncertainty (continued) Effective interest rate
  • Property, plant and equipment
  • Property, plant and equipment (continued)
  • Intangible assets
  • Intangible assets (continued) Cost model
  • Financial instruments Initial recognition
  • Financial instruments (continued) Cash and Cash equivalents
  • Financial instruments (continued) Gains and losses for Financial Assets
  • Income Tax
  • Leases
  • Inventories
  • Inventories (continued)
  • Impairment of non-financial assets
  • Employee benefits
  • Employee benefits (continued)
  • Provisions and contingencies Provisions are recognised when
  • Bulk service contributions
  • Government Grants
  • Revenue
  • Interest Revenue
  • Borrowing costs
  • Presentation currency and rounding
  • Budget information

If a replacement part is included in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is no longer recognised. The costs of major renovations are included in the carrying amount of the asset when it is probable that future economic benefits or service potential will flow to the company and the cost of the items can be measured reliably. Any part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the asset is depreciated separately.

The gain or loss on derecognition of a tangible fixed asset is calculated as the difference between the net sales proceeds, if any, and the accounting value of the asset. Profits or losses that arise when an intangible asset ceases to be recognized is calculated as the difference between the net sales proceeds, if any, and the accounting value of the item. Financial assets and financial liabilities are recognized in the company's statement of financial position when the company becomes a party to the instrument's contractual provisions.

The carrying amount of the asset is reduced using an impairment account, and the amount of the loss is recognized in surplus or deficit. Due to the exemption, no profit tax is expected in the current financial year. Finance leases are recognized as assets in the statement of financial position in amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payments.

The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease agreement. Payments made under operational leasing contracts are expensed in the income statement on a straight-line basis over the leasing period. An impairment loss is recognized in the income statement with the amount by which the accounting value of the asset exceeds its recovery value, i.e. the highest of the asset's fair value less selling costs and value in use.

The amount of a provision is the present value of the expenditure expected to be required to settle the obligation. Government grants received are recognized as revenue, except to the extent that a liability is recognized in respect of circumstances that give rise to a present obligation on initial recognition of the asset. In the event that a liability is recognised, the carrying amount of the liability is reduced and the amount is recognized as revenue to the extent that the company satisfies its established current obligations.

Statements and interpretations not yet effective

Property, plant and equipment

Property, plant and equipment (continued)

Property, plant and equipment (continued) Land and buildings

Property, plant and equipment (continued) Capital work in progress

Intangible assets

Inventories

Trade receivables and (payables) with group companies Fellow subsidiaries

Loans to/(from) shareholder

  • City of Johannesburg Metropolitan Municipality - Conduit mirror loans

Loans to/(from) shareholder (continued)

  • City of Johannesburg Metropolitan Municipality - Shareholder loans
  • City of Johannesburg Metropolitan Municipality - Sweeping account

Finance lease obligation: Shareholder Minimum lease payments due

Finance lease obligation: Other Minimum lease payments due

Other receivables

Other receivables (continued) Other receivables impaired

Consumer debtors: Exchange transactions

Consumer debtors: Exchange transactions (continued)

Consumer debtors: Exchange transactions (continued) Total consumer debtors

Financial assets by category

Cash and cash equivalents

Contribution from shareholder Authorised

Retirement benefit obligations

  • Post retirement medical aid plan

Retirement benefit obligations (continued) Other assumptions

  • Post retirement housing subsidy plan

Retirement benefit obligations (continued) 3 Post retirement gratuity plan

  • Net expense recognised in the statement of financial performance
  • Defined contribution plan

Deferred income

Trade and other payables from exchange transactions

Provisions

Financial liabilities by category

Water Losses: Physical and Commercial

Operating expenses

Allowance for receivable impairment (Bad debts)

Employee costs

Interest revenue

Taxation

Cash generated from operations

Commitments

Related parties

Related parties (continued) Related party transactions

Directors' emoluments and other Key Management Personnel Remuneration

Directors' emoluments and other Key Management Personnel Remuneration (continued) Senior Management

Comparatives restated

Prior year adjustments (errors)

  • Revenue from exchange transactions
  • Bad Debt Write off reversals
  • Cumulative Impact on Statement of Changes in Net Assets

Risk management

Risk management (continued) Credit risk

Unauthorised, fruitless and wasteful expenditure

Deviations from formal procurement processes

Irregular expenditure

Irregular expenditure (continued)

Actual capital expenditure versus budgeted capital expenditure

Additional disclosure in terms of Municipal Finance Management Act Audit fees

Change in accounting estimates

References

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