The accountant is obliged to ensure that the financial statements fairly show the state of the municipality at the end of the financial year and the results of its operations and cash flows for the period ended at that time. The accountant recognizes that he is ultimately responsible for the system of internal financial control established by the municipality and attaches great importance to maintaining a strong control environment. These controls are monitored across the municipality and all employees must maintain the highest ethical standards in ensuring that the business of the municipality is conducted in a manner that is, in all reasonable circumstances, beyond reproach.
The focus of risk management in the municipality is to identify, assess, manage and monitor all known forms of risk across the municipality. Although operational risk cannot be fully eliminated, the municipality strives to minimize it by ensuring that appropriate infrastructure, controls, systems and ethical behavior are used and managed within predetermined procedures and constraints. The accountant has reviewed the municipality's cash flow forecast for the year up to 30 June 2017 and, based on this review and the current financial position, is convinced that the municipality has or has access to sufficient resources to continue operations for the foreseeable future.
External auditors are responsible for the independent review and reporting of the municipality's financial statements. The financial statements were reviewed by the municipality's external auditors and their report is presented on page 4.
Statement of Comparison of Budget and Actual Amounts
Appropriation Statement
Presentation of Financial Statements
- Investment property
The financial statements have been prepared in accordance with the Standards of Generally Accepted Accounting Practice (GAAP), issued by the Accounting Standards Board in accordance with Section 122(3) of the Municipal Financial Management Act (Act 56 of 2003). A summary of the significant accounting policies consistently applied in the preparation of these financial statements is disclosed below. Owner-occupied property is property held for use in the production or supply of goods or services or for administrative purposes.
Investment properties are recognized as an asset when it is probable that the future economic benefits or service potential associated with the investment property will flow to the municipality, and the cost price or fair value of the investment property can be measured reliably. Where investment property is acquired through a non-exchange transaction, the cost price is its fair value at the date of acquisition. Investment properties are derecognised on disposal or when the investment property is permanently taken out of use and no future financial benefits or service potential are expected from the disposal.
Gains or losses arising from the disposal or disposal of investment properties are the difference between the net profit from the disposal and the book value of the asset and are recognized in the surplus or deficit in the period of disposal or disposal. Third-party compensation for investment properties that have been impaired, lost or abandoned are recognized in surplus or deficit when the compensation becomes a receivable.
Accounting Policies
- Property, plant and equipment
- Property, plant and equipment (continued)
- Intangible assets
- Intangible assets (continued)
- Heritage assets
- Financial instruments
- Financial instruments (continued)
- Financial instruments (continued) Derecognition
- Leases
- Leases (continued) Operating leases - lessor
- Inventories
- Impairment of cash-generating assets
- Impairment of cash-generating assets (continued) Value in use
- Impairment of non-cash-generating assets
- Employee benefits
- Employee benefits (continued) Short-term employee benefits
- Employee benefits (continued) Actuarial assumptions
- Provisions and contingencies Provisions are recognised when
- Provisions and contingencies (continued)
- Revenue from exchange transactions
- Revenue from exchange transactions (continued) Rendering of services
- Revenue from non-exchange transactions
- Revenue from non-exchange transactions (continued) Recognition
- Borrowing costs
- Comparative figures
- Unauthorised expenditure Unauthorised expenditure means
- Fruitless and wasteful expenditure
- Fruitless and wasteful expenditure (continued)
- Irregular expenditure
- Budget information
A municipality recognizes a heritage asset as an asset if it is probable that the future economic benefits or service potential associated with the asset will flow to the municipality and the cost or fair value of the asset can be measured reliably. If there is any such indicator, the municipality estimates the recoverable amount or the recoverable service amount of the heritage asset. The gain or loss arising from the derecognition of a heritage asset is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the heritage asset.
An entity recognizes a financial asset or a financial liability in its statement of financial position when the entity becomes a party to the contractual terms of the instrument. The asset's book value is reduced directly OR using an impairment account. Any difference between the consideration received and the recognitions and derecognitions is recognized in surplus or deficit in the period of the transfer.
When a financial asset is derecognised in its entirety, the difference between its carrying amount and the sum of consideration received is included in a surplus or deficit. If the recoverable amount of a cash-generating asset is less than its carrying amount, the asset's carrying amount is reduced to its recoverable amount. If any such indication exists, the municipality estimates the recoverable service value of the asset.
When the amount estimated for an impairment loss is greater than the book value of the non-cash-generating asset to which it is related, the municipality recognizes a liability only to the extent that it is a requirement in the GRAP Standards. The amount of a provision is the best estimate of the expenditure expected to be required to settle the current liability at the reporting date. Revenue is measured at the fair value of the amount received or receivable, net of trade discounts and volume discounts.
An inflow of funds from a non-exchange transaction recognized as an asset is recognized as revenue, except to the extent that a liability is also recognized in respect of the same inflow. Income from a non-exchange transaction is valued at the amount of the increase in net assets recognized by the municipality. When the municipality recognizes an asset as a result of a non-exchange transaction, it also recognizes revenue equal to the amount of the asset measured at fair value at the date of acquisition, unless it is also required to recognize a liability.
When a liability is subsequently reduced, because the taxable event occurs or a condition is satisfied, the amount of the reduction in the liability is recognized as income. Assets derived from fines are measured according to the best estimate of the input of resources to the municipality.
Notes to the Financial Statements
New standards and interpretations
- Standards and interpretations effective and adopted in the current year
New standards and interpretations (continued)
- Standards and interpretations issued, but not yet effective
- Standards and interpretations not yet effective or relevant
Investment property
Property, plant and equipment
Property, plant and equipment (continued) Reconciliation of property, plant and equipment - 2016
Intangible assets
Heritage assets
Employee benefit obligations Defined benefit plan
Employee benefit obligations (continued) Other assumptions
Inventories
Consumer debtors Gross balances
Consumer debtors (continued) Sewerage
Cash and cash equivalents (continued) The municipality had the following bank accounts
Unspent conditional grants and receipts
Other financial liabilities At amortised cost
Other financial liabilities (continued)
Provisions
Consumer deposits
Revenue
Rental of facilities and equipment (continued) Facilities and equipment
Government grants and subsidies Operating grants
Government grants and subsidies (continued)
Public contributions and donations
Employee related costs
Employee related costs (continued)
Depreciation and amortisation
Finance costs
General expenses
Taxation
Operating surplus
Operating surplus (continued)
Cash generated from operations
Company Secretary’s Certification
- Financial instruments disclosure Categories of financial instruments
- Commitments
- Commitments (continued) Operating leases - as lessee (expense)
- Contingencies
- Related parties
- Prior period errors
- Prior period errors (continued) Statement of financial position
- Comparative figures
- Risk management Liquidity risk
- Risk management (continued) Market risk
- Going concern
- Unauthorised expenditure
- Fruitless and wasteful expenditure
- Irregular expenditure
- Additional disclosure in terms of Municipal Finance Management Act Audit fees
- Deviation from supply chain management regulations
- Reconciliations of traffic fines
- Budget differences
- Budget differences (continued)
An employment case is pending against the municipality regarding a dispute with an employee who was suspended and is seeking reinstatement. There is a labor court case pending against the municipality regarding a former employee who requires unpaid sick leave. There is a lawsuit against the municipality regarding a dispute regarding the implementation of new water and electricity tariffs.
A lawsuit is pending against the municipality regarding a service provider seeking reinstatement of the terminated contract. Property, plant and equipment also had to be resubmitted due to assets found during the verification process that were not in the asset register. Payables from exchange transactions had to be resubmitted due to duplicates in raising the debtor for debt collection.
Payables from non-exchange transactions had to be restated due to the write-down of outstanding traffic fines. Interest Earned - Interest earned decreased as a result of less money invested in call accounts after Cogta stopped some MIG transfers to municipalities due to lack of spending. Repairs and maintenance - The change is due to reduced maintenance occurring as a result of cash constraints and resources for goods and services at reduced rates.
Bulk purchases - The variance is due to Eskom's winter tariff increase and higher than expected electricity consumption. Receivables from exchange transactions - The variance is due to the reduction of the debt disclosed as debt by debt collectors after equalizing the amount paid as commission with the amount currently collected for the year 2014/15. Receivables from non-exchange transactions - The variance is due to the timely transfer of funds from Sedibeng for health services.
Consumer Debtors - The variance is due to increased fees and lower than expected collections from debtors. Cash and cash equivalents - The difference is due to grant funds ring-fenced in call accounts for projects which were completed in June and paid out in July and some unspent grant funds which were requested to be brought back for use in 2016/17. Payables from exchange transactions - The variance is because creditors at the end of the year were higher than anticipated as the municipality had cash constraints.
Schedule of external loans as at 30 June 2016
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