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Setsoto Loca! Municipality 


iDP/PMS Division 


Ficksburg 


South Africa 



Setsoto Local Municipality 


Draft Annual Report 2011/2012 

Published by Department of the Office of the Municipal Manager 

P 0 Box 116 
Ficksburg 
9730 


Free State 
South Africa 
Tel: +27 51 933 9302 
Fax; +27 051 933 9363 


The 2011/2012 Draft Annual Report of the Municipality is also available on 

Editorial, Coordination, Design and Layout: Makhele Molahlehi Silvanus 

IDP/PMS Division 
Printing and binding: 

RP No: 316/2012 
ISBN No: 978-06-621-41328-1 


Draft Annual Report 2011/2012 


Cllr Jakobo T B 
Mayor 


I have the honour of submitting the Annual Report 2011/2012 of the Municipality for the period 1 July 

2011 to 30June 2012. 

To the best of my knowledge, contents of the report are consistent with the disclosure principles 
contained in the guide for the preparation of the Annual Reports issued by National Treasury. 

This report seeks to portray the municipality's activities during the financial year under review and is 
based on sound underlying departmental information and management systems. 

In presenting this report we acknowledge progress made during the 2011/2012 financial year as well 

as the challenges and opportunities that lie ahead. 



Municipal Manager 


'iO’soro j 

r Setsoto Loca! Munidpality 



Department ofthe Office ofthe Municipai Manager 


Table of Contents 


Table of Contents 

List of Tables 

List of Figures 

List of Graphs 

Foreword - Mayor 

Overview- Municipal Manager 

Chapter 1: Introduction and Municipal Overview 

1.1 Municipal Overview 

1.1.1 Vision and Mission 

1.1.2 Demographic Information 

A) Municipal Geographic Information 

B) Population 

C) Fiouseholds 

D) Key Economic Activities 

1.1.3 Socio Economic Information 

A) Socio Economic Growth 

B) Population by Gender 

C) Population by Age 

D) Population by Race 

1.1.4 Municipal Challenges 
Chapter 2; Governance 

2.1 National Key Performance Indicator: Good Governance and Public Participation 

2.2 Performance Flighlights: Good Governance and Public Participation 

2.3 Challenges -Good Governance and Public Participation 

2.4 Governance Structure 

2.4.1 Political Structure 

A) Council 

B) Executive Committee 

2.4.2 Administrative Governance Structure 

2.5 Public Accountability 

2.5.1 Ward Committees 

2.5.2 Functionality of Ward Committees 

2.6 Corporate Governance 

2.6.1 Anti-Corruption and Anti-Fraud 

A) Developed Strategies 

B) Implementation of Strategies 

2.6.2 Audit and Performance Audit Committee 

A) Functions of the Audit and Performance Audit Committee 

B) Members of the Audit and Performance Audit Committee 

2.6.3 Internal Auditing 

2.6.4 AuditorGeneral 

2.6.5 By-iaws and Policies 

2.6.6 Communication 

2.6.7 Website 

Chapter 3: Organisational Development Perfo'rmance 

3.1 National Key Performance Indicators-Municipal Transformation and Organisational Development 

3.2 Performance Flighlights-Municipal Transformation and Organisational Development 

3.3 Challenges-Municipal Transformation and Organisational Development 

3.4 Introduction to Municipal Workforce 

3.4.1 Employment Equity 

A) Employment Equity Targets/Actual by Racial Classification 

B) Employment Equity v/s Population 

C) Occupational Categories-Race 

D) Occupational Levels-Race 

E) Departments-Race 

3.4.2 VacancyRate 

3.4.3 Turnover Rate 

3.5 Managing the Municipal Workforce 

3.5.1 Injuries 

3.5.2 Sick leave 

3.5.3 Fiuman Resources Policies and Plans 



3.5.4 Employee Performance Rewards 

3.6 Capacitatingthe Municipal Workforce 

3.6.1 Skills Development-Training Provided 

3.6.2 Skills Development - Budget Allocation 

3.7 Managing the Municipal Workforce Expenditure 

3.7.1 Personnel Expenditure 
Chapter 4: Strategic Performance 

4.1 National Key Performance Indicator- Basic Service Delivery and Local Economic Development 

4.2 Strategic Service Delivery and Budget Implementation Plan (Top Layer) 

4.2.1 Top Level SDBIP-Good Governance and Public Participation Plan 

4.2.2 Top Level SDBIP-Municipal Transformation and Organisational Development 

4.2.3 Top Level SDBIP-Municipal Financial Viability and Management 

4.2.4 Top Level SDBIP-Local Economic Development 

4.2.5 Top Level SDBIP-Basic Service Delivery 

4.3 Development and Service Delivery Priorities for 2011/2012 

4.3.1 To Ensure Financial Viability and Sustainability 

4.3.2 To deepen and Entrench Good Governance practices, including Better Communication and Public Involvement 

4.3.3 To Foster and Strengthen Strategic Partnership and Social Development 

4.3.4 To Growthe Local Economy in orderto Increase Opportunities for Participation and Equity 

4.4 Basic Service Delivery 

4.4.1 Basic Service Delivery Performance Highiights 

4.4.2 Service Delivery Challenges 

4.4.3 Access to Free Basic Services 

4.4.4 Access to Basic Level of Services 

A) Capital Budget Spent on Municipal Services 

B) Percentage Spending on Total Capital Budget 

4.4.5 Water and Sanitation 

A) Water Service Delivery Levels 

B) Sanitation Service Delivery Leveis 

4.6 Electricity 

4.4.7 Refuse Removal 

4.4.8 Roads 

A) Tarred Roads 

B) Gravelled Roads 

4.4.9 Storm Water 

A) Storm Water Infrastructure 

B) Cost of Construction and Maintenance 

4.5 Municipal Grants 

4.6 Additional Performance 

4.7 Local Economic Development 

4.7.1 Local Economic Development-Highlights 

4.7.2 Local Economic Chailenges 
Chapter5: Functional Performance 

5.1 Performance Highlight per Functional Area 

5.2 Overview of Performance 

5.3 Performance per Functional Area (Departmental SDBIP) 

5.3.1 Office of the Municipal Manager 

5.3.2 Corporate Services 

5.3.3 Financial Services 

5.3.4 Economic and Community Services 

5.3.5 Technical Services 
Chapter6: Financial Performance 

6.1 Financial Sustainability 

6.2 Financial Viabiiity Highlights 

6.3 Financial Viability Challenges 

6.4 Financial Sustainability 

6.4.1 Operating Results 

6.4.2 Outstanding Debtors 

A) Gross Outstanding Debtors per Service 

B) Total Debtors Age Analysis 

6.4.3 Viability Indicators 

A) Level of Reliance on Grants and Subsidies 

B) Liquidity Ration 


6.4.4 Audited Outcomes 

6.4.5 Grant Share v/s Total Revenue 

6.4.6 Repairs and Maintenance 

6.4.7 Capital Funded by Source 

List of Abbreviation 

Annexure A: Financial Statements 

Annexure B: Report of the Auditor General 

Annexure C Report of the Audit and Performance Audit Committee 

List of Tables 

Table 1: Municipa! Grants 

Table 2: Financial Position 

Table 3: Strategic Thrusts 

Table 4: Area and Size of the Municipality 

Table 5: Municipal Wards 

Table 6: Fiouseholds and Population 

Table 7: Key Economic Activities 

Table 8: Socio Economic Information 

Table 9: Population by Gender 

Table 10: Population byAge 

Table 11: Population by Race 

Table 12: Municipal Challenges 

Table 13: Key Performance Area and Indicators 

Table 14: Performance Flighlights-Good Governance and Public Participation 

Table 15: Challenges-Good Governance and Public Participation 

Table 16: Councillors 

Table 17: Council Meetings 

Table 18: Executive Committee Members 

Table 19: Management Structure 

Table 20: Developed Strategies 

Table 21: Implementation Strategies 

Table 22: Members of the Audit and Performance Audit Committee 
Table 23: Internal Audit Coverage Plan 
Table 24: By-laws 

Table 25: Communication Checklist 
Table 26: documents on Municipal Website 

Table 27: Performance Flighlights-Municipal transformation and Organisational Development 

Table 28: Challenges-Municipal Transformation and Organisational Development 

Table 29: Employment Equity Targets/Actual by Race Classification 

Table 30: Employment equity v/s Population 

Table 31: Occupational Categories 

Table 32: Occupational Levels 

Table 33: Vacancy Rate 

Table 34: Turnover Rate 

Table 35: Fluman Resource Policies and Plans 

Table 36: Skills Development-Budget Allocation 

Table 37: Personnel Expenditure 

Table 38: Summary of Councillors and Staff Benefits 

Table 39: National Key Performance Indicator-Basic Service Deiivery and Local Economic Development 

Table 40: Top Level SDBIP-Good Governance and Public Participation 

Table 41: Top Level SDBIP-Municipal Financial Viability and Management 

Table 42: Top Level SDBIP-Social Development 

Table 43: Top Level SDBIP-Basic Service Delivery 

Table 44: Capita Expenditure-Water Services 

Table 45: Capital Expenditure-Sanitation Services 

Table 46: Capital Expenditure-Electricity 

Table 47: Capital Expenditure-Waste Management Services 

Table 48: Capital Expenditure-Flousing Services 


Table 49: Capital Expenditure-Roads and Storm Water 
Table 50: Financial viability and Sustainability 

Table 51: Good Governance Practices, including Better Communication and Public Involvement 
Table 52: Strategic Partnership and Social Development 

Table 53: Local economy in order to increase opportunities for Participation and Equity 

Table 54: Basic Service Delivery Highlights 

Table 55: Service delivery Challenges 

Table 56: Access to Free Basic Services 

Table 57: Electricity 

Table 58: Water 

Table 59: Sanitation 

Table 60: Refuse Removal 

Table 61: Capital Budget Spent on Municipal Services 

Table 62: Percentage Spending on Capital Budget 

Table 63: Water Service Levels 

Table 64: Sanitation Service Levels 

Table 65: Electricity Service Levels 

Table 66: Refuse Removal 

Table 67: Tarred Roads 

Table 68: Gravelled Roads 

Table 69: Storm Water Infrastructure 

Table 70: Cost of Construction and Maintenance 

Table 71: Municipal Grants 

Table 72: Local Economic Highlights 

Table 73: Local Economic development Challenges 

Table 74: Functional Areas 

Table 75: National Key Performance Area v/s Municipal Key Performance Area-Municipal Manager 

Table 76: National Key Performance Area v/s Municipal Key Performance Area-Corporate Services 

Table 77: National Key Performance Area v/s Municipal Key Performance Area-Financial Services 

Table 78: National Key Performance Area v/s Municipal Key Performance Area- Economic and Community Services 

Table 79: Natlonal Key Performance Area v/s Municipal Key Performance Area-Technical Services 

Table 80: Flnancial Performance 

Table 81: Flnancial Viability Challenges 

Table 82: Performance against Budget 

Table 83: Gross Outstanding Debtors per Service 

Table 84: Total Debtors Age Analysis 

Table 85: Liquidity Ratio 

Table 86: Audited Outcomes 

Table 87: Action Plan 

Table 88: Grants v/s Total Revenue 

Table 89: Repairs and Maintenance 

Table 90: Capital Funded by Source 

Lists of Graphs 

Graph 1: Revenue 

Graph 2: Operating Expenditure 

Graph 3: Outstanding Debtors 

Graph 4: Total Debtor Age Analysis 

Graph 5: Level of Reliance on Grants and Subsidies 

Graph 6: Grants Share v/s Total Revenue 


Foreword - The Mayor Councillor Jakobo T B 


I am privileged to have the opportunity as the Mayor of Setsoto Local Municipality to introduce 
the Annual Report for the 2011/2012 financial year. 

The 2011/2012 financial year was an eventful year with the first encounter of service delivery 
protests, but it was also a productive year in which a great deal of progress was made. The 
memorandum that was submitted by the community members made the municipality to realise 
that there was a lack of proper control and monitoring with regard to the implementation of the 
service delivery projects. 

During this period, services were improved and a number of demanding challenges were 
overcome. However, this municipality is aware of the fact that challenges still remain and strives 
to continuously improve on service delivery. With the implementation of the reviewed 
Integrated Development Plan, council has made tremendous leaps towards achieving its 
objectives in all four key performance areas, namely: 

1 . Infrastructure and Basic Services 

2. Local Economic Development 

3. Institutional Development 

4. Social Development 

The approved (revised) budget of the municipality is an amount of R 31 4 million which is funded 
out of own income (e.g. services charges) and operating grants and subsidies (excluding 
capital grants. Own income contributed an average of 48% towards the total approved 
operating budget. 

Operating expenditure (revised) is an amount of R 314 million. Total capital budget (revised) is 
an amount of R 106 million which is funded as foilows: 


1 Source of Funding I 

1 Budget I 



EPWP 


Internal qenerated funds 


Roll Over 




1 Total 



Table 1 : Municipal Grants 


For the period under review the municipality has received a total of R234 million from grants 
which represents actual grants received and the amount capitalised during the year under 
review 


The municipality has spent a total of R272 miliion which represent an average expenditure rate 
of 86% against the total approved adjustments budget (operating). The capital expenditure 
that has been overspent for the period under review is nii. 

The municipality has disclosed an amount of R14 million which represent unspent conditional 
grants for the year under review. The operating surplus is an amount of R104 million. 

The municipality disclosed capital assets from the district municipaiity that were implemented in 
the prior years. This figure however does not impact on the current financial position of the 
municipality as it was the capitalisation of assets. 


Page 1 of 62 







The following toble shows the tinondal position of the munidpality for the past year: 


Grants 

Tariffs 

Other 

Total 


Income 

Source Original Budget 

147 070 000 

122 169 000 

38 041 000 

307 280 000 


Vote 


Salaries 

Repairs and Maintenance 
Other 

Total 

Surplus/deficit 


(97 231 000) 

[121 509 000) 
(88 538 000) 

{307 278 00 ) 
2 000 


Table 2: Financial Position 


Adjustments Budget 


Actual Performance 


152 115000 

123 334 000 

39 444 000 

314 893 000 

Expenditure 


(98 278 0001 

(121 615 000) 
(94 969 000) 

(314 862 000 ) 
31 000 


234 546 666 
1 1 1 678 585 
31 042 648 

377 267 899 


(98 460 879) 

(15 230 392) 

(158 735 464) 

(272 426 735 ) 
104 841 164 


Although good progress has been made during the 201 1/2012 finandal year, this does not 
mean that there is not more to be done. Key challenges for the 2012/2013 year ahead, which 
were also experienced during the 2010/201 1, include: 


a) Improving service delivery provision, e.g. 

> provision of water and mitigating water loss 

> refurbishment and completion of sanitation 

b) Addressing prior years audit queries to attain unqualified audit opinion and finally clean 
audit 

c) Improving on housing delivery 

d) Improving organisational efflciency induding filling of critical vacant posts 

e) Improving on Revenue and Flnancial Viability 

f) All other challenges, which are detailed in the MTAS 


The new tinancial year will be equally, if not more, challenglng and I look foiward to working 
with you all to achieve a better lite tor all. 

I would like to thank members of Council, the Executlve Committee Members, Natlonal and 
Provincial Sector Departments, Municipal Manager and Directors, all other municipal offlclals 
and the public for their support during a very challenging year. 


COUNCILLOR JAKOBO T B 
MAYOR 


Page 2 of 62 





The municipality's annual financial statements were prepared and submitted to the Auditor- 
General by the deadline of 31 August 2012. The annual performance report in terms of section 
46 of the Locai Government: Systems Act (No 32 of 2000) has been submitted on the 10 
September 2012 due to the finalisation of the inclusion of financial information into the annual 
performance report, to the Auditor-General, for audit. 

In achieving these things, we have honoured the faith that Setsoto citizenry has placed in the 
municipality. The municipal council adopted the IDP 201 1/2012 and the Budget 201 1/2012 to 
address municipal strategic priorities in a practical and meaningful manner. These strategic 
priorities are aligned to the Locai Government Five Year Strategic Agenda, Municipal 
Turnaround Strategy and Outcome 9’s seven outputs. 

This allowed us to refocus our energies and to further align ourseives with Municipal Service 
Delivery and Budget Implementation Plan 201 1/2012. In undertaking ourwork, and as part of the 
vigorous expenditure reprioritisation, we were able to further give effect to municipal strategic 
priorities. What is important is that in implementing the above measures the municipality was 
able to spend the MIG rollover of R 28 million of the 2010/201 1 financial year. 

The report covers the period 01 July 2011 to 30 June 2012. The period tells a post crisis recovery 
emanating from the community protests, ioss of life which, though still somewhat fragile, is 
beginning to strengthen, paving the way for a sustainable service provision. With the support 
systems from National and Provincial sector departments, our abiiity and capability to provide 
sustainable services to communities is enhanced and gradually improving. 

As part of our work during the reporting period, we continued to respond to issues raised by the 
communities during their protest march in April 201 1 as well as the challenges that were raised 
by the Auditor General in the Audit Report 2010/201 1 , with a particular emphasis on repeat 
queries of the prior years. With government having placed job creation at the heart of policy 
formuiation, we facilitated the creation of many jobs through the EPWP grant and aiming more 
job creation through the CWP initiatives. 

The Supply Chain Management Poiicy of the municipality will be reviewed to deai with issues of 
collusive bidding or bid-rigging and to include functionality as a criterion for evaiuating the 
status of recommended bidders on the database of restricted suppliers and Register for Tender 
Defaulters. 

As an institution, the municipality continued to flourish and evoive with changes internally and 
externally. In the Municipal Turnaround Strategy, CoGTA raised concerns over the non-filling of 
critical posts. The good news is, as we came close to the end of the financial year we had filled 
three of the five critical posts and envisaging to fill the remaining within the first quarter of the 
new financial year. To keep the institution functionai, a realignment of the structure needs to be 
completed in the first quarter of the new financial year. 

The financial position of the institution remains a worrying factor, and the greatest risk remains 
the inability of the institution to collect all monies due to it. Much effort needs to be implored in 
order to recoup all revenue due to the municipality, including arrears. All expenditure on capitai 
and operational is being contained in a strict manner. 

The municipality performance for revenue collection stayed almost the same as 65% for 
2010/201 1 and 60% for 201 1 /2012. Council is aware that the municipality’s financial viability is still 
crucial for sustainable service delivery and fulfilment of our constitutional mandates hence our 
continuous focus on our coilections and vigorous application of credit control policy and 

Page 3 of 62 


indigent subsidy policy. All debt older than ninety days will in future be handed over to our 
recently appointed external service providers for collection. 

Having seconded by CoGTA to the municipality and having assumed my role as the Acting 
Municipal Manager on the 01 November 201 1 and appointed as the Municipal Manager on the 
01 April 2012, 1 wish to thank the previous Municipal Manager, Mthembu Bafana, the Senior 
Managers in the municipality, the Service Delivery Facilitators deployed by National and 
Provinclal Government in the municipality, for the leadership they demonstrated during their 
tenure in the municipality. The achievements during the period under review were with them at 
the tiller of this steady ship. 

Finally, I wish to thank the Speaker, the Mayor and Members of the Executive Committee, 
Council Members, management and the entire municipal staff, for the profoundly warm 
welcome which I have come to enjoy in my new role in the organisation. 


STR RAMAKARANE 
MUNICIPAL MANAGER 


Page 4 of 62 


Page 5 of 62 


Chapter 1 

Introduction and Overview 


The Setsoto Locol Municipality wos established in terms of Section 14 of the Local Government: Municipal 
Structures Act, Act No 1 17 of 1998) and was published in Provincial Gazette No 184dated 28 September 2000. 
The new Local Municipality is a category B Municipality with a coilective executive system combined with a 
ward participatory system as contemplated in Section 3(b) of the Determination of Types of Municipality Act, 
2000 (Act No 1 of 2000. 

1.1.1 Vision and Mission 

Focusing on the identified needs, development issues and priorities, the common aspirations and local 
identity of ail concerned parties which gives a form of a picture of the “preferred future” a statement that 
describes how the future will look if the organisation achieves its ultimate aims and is reflected in the 
following shared vision statement: 

“A unified, viable and progressive municipality’’ 


Mission 

A statement of the overall purpose of the municipality. It describes what municipality, for whom the 
municipality do it and the beneflt and is reflected in the following shared mission statement. 

“To enhance the quality oflife in Setsoto by serving the needs and aspiration of ail people through a 
responsible , economic, efficienf, susfainabie, accounfable and developmental system oflocal 

government’’ 


Strategic Thrusts 

Deriving from the vision statement above the municipality developed the following strategic thrust with the 
accompanying pillars 


Vlslon 


Unification 

Viability 

Progressiveness 

Pillars 

Pillars 

Pillars 

Social Cohesion 

Financial Viability 

Formal and Informal Economy 

Youth and Women 

Empowerment 

Good Governance 

Investment 

Self-Reliance 

Increased Revenue Base 

Customer Care 

Education 

Assets Management 


Moral Regeneration 

Ward Based Payment Incentive 

Income Enhancement Strategy 

Strong Public Participation 

Promotion of CBO's and NGO’s 
to work with relevant 

Departments 


Table 3: Strategic Thrusts 


Core Values 

The municipality is committed to deliver services within the framework of Batho Pele 
principles as outlined below: 

(a) Courtesy and ‘People First’ 

Residents should be treated with courtesy and consideration at all times. 


Page 6 of 62 























(b) Consultatlon 

Residents should be consulted obout service levels and quality, whenever possible. 

(c) Service standards 

Residents must be made aware of what to expect in terms of level of quality service. 

(d) Access 

Residents should have equal access to services to which they are entitled. 

(e) Information 

Residents must receive fuli and accurate information about their services. 

(f) Openness and transparency 

Residents should be informed about government departments, operations, budgets 
and management structures. 

(g) Redress 

Residents are entitled to apology, explanation and remedial action if the promised 
standard of service is not delivered. 

(h) Value for money 

Public services should be provided economically 


Page 7 of 62 


Setsoto is situoted in the eastern Free State within the district boundaries of the Thabo Mofutsanyana District 
Municipality. The local municipality area measures 5 948.35 km^ in extent and comprises four urban areas 
namely Ficksburg/Meqheleng, Senekal/Matwabeng, Marquard/Moemaneng and Clocolan/Hlohlolwane, 
as well as their surrounding rural areas. 

A) Municipal Geographic Information 

Area and Size of fhe Munlcipal Area 



Grand-Total 


Table 4: Area and Size of the Municipalit/ 

Wards 


The municipality is currently structured into the following 18 Wards 



Table 5; Municipal Wards 


B) Populafion 

The size of the population within the area of Setsoto is estimated at approximately 123 194 people, as 
indicated in the table below. The figure is calculated on the basis of census 2001 incorporating annual 
growth based on the average annual growth rate of the Free State province. 

C) Households 







































Grand-Total 


Table 6: Households and Population 

D) Key Economlc Activities 



Table 7: Key Economic Acfivities 


Page 9 of 62 




1.1.3 Socio Economic Information 


A) Socio Economic Growth 


The socio-economic informotion for the municipality is as follows: 


Housing Backlog Unempioyment Rate Househoids with No 

income 




HiV/AiDS Prevaience 


I 


Table 8: Socio Economic Information 


B) Population by Gender 


Males 


Females 

Table 9: Population by Gender 

C) Population by Gender/Age 


Female 0-4 


Males 0-4 


Females 5 14 


Males5-14 


Females 15-34 


Males 1 5-34 


Femaies 35-64 


Males 35-64 


Females 65 and older 


Males 65 and older 

Table 10: Population byAge 

D) Popuiation by Race 


Persons 


African 


Coloured 


Indian 


White 


Total Popuiation 


Urban 

Table 1 1 : Population by Race 

4.1.4 Municipal Challenges 



Urban/Rural 
Househoid Spilt 




Actions to Address 



Municipal capacity 

Table 12: Municipal Challenges 


Review and approval of the organisational structure to address the current 
challenges 


Page 10 of 62 



























Chapter 2: Governance 


Governance is the act of governing. It relates to decisions that define expectations, grant power, or verify 
performance. It consists of either a separate process or part of management or leadership processes. These 
processes and systems are typically administered by a government. in the case of a business or of a non- 
profit organisation, governance relates to consistent management, cohesive policies, guidance, processes 
and decision-rights for a given area of responsibility. For example, managing at a corporate level might 
involve evoiving policies on privacy, on internal investment, and on the use of data. 

To distinguish the term governance from government; "governance" is what a "government" does. It might 
be a geo-political government (nation-state), a corporate government (business entity), a socio-political 
government (tribe, family etc.), or any number of different kinds of government, but governance is the 
physical exercise of management power and policy, while government is the instrument (usually collective) 
that does it. 

As a process, governance may operate in an organization of any size; from a single human being to all of 
humanity; and it may function for any purpose, good or evil, for profit or not. A reasonable or rational 
purpose of governance might aim to assure, (sometimes on behalf of others) that an organization produces 
a worthwhile pattern of good results while avoiding an undesirable pattern of bad circumstances. 

Perhaps the moral and natural purpose of governance consists of assuring, on behalf of those governed, a 
worthy pattern of good while avoiding an undesirable pattern of bad. The ideal purpose, obviously, would 
assure a perfect pattern of good with no bad. A government comprises a set of inter-related positions that 
govern and that use or exercise power, particularly coercive power. 

2.1 National Key Performance Indicators- Good Governance and public Participation 

The following table indicates the municipality’s performance in terms of National Key Performance 
Indicator required in terms of the Local Government: Municipal Planning and Performance Management 
Regulation 71 46 Of 2001 and section 43 of the Municipal Systems Act 32 of 2000. This key performance 
indicator is linked to the National Key Performance Area - Good Governance and Public Participation 


Key Performance Area and Indicators 

Municlpai Achievement 

2010/2011 

2011/2012 

The percentage of the municipality's capital budget actually spent on capital projects identified for a particular 
financial year in terms of the municipality's integrated development plan 

70% 

73% 


Table 13: Key Performance Area and Indicators 


2.2 Performance Highlights - Good Governance and Public Particlpation 


Highlight 

Description 

Radio Broadcasting 

Have a fixed slot on Setsoto FM and Naledi FM 

Communication Unit 

Beefed up the Manager legal and Communications with the appointment of 
Communications Officer 

Administrative Skilis 

Employees in different levels were enrolled in learnerships, internships and 
development programmes 

Community involvement 

Establishment and induction of all wards 


Table 1 4: Performance Highlights-Good Governance and Public Participation 


2.3 Challenges - Good Governance and Public Participation 


Description 

Action to Address 

Community Participation 

Develop a Community Participation Strategy 

IDP Steering Committee 

Mobilise Council and officials fo actively participate 

Alignment 

Sector Departments active involvement 


Table 15: Challenges-Good Governance and Public Participation 


2.4 Governance Structure 

2.4.1 Political Governance Structure 

The municipal council consists of 35 councii members, majority of which belong to the ANC. The municipal 
Council is made up of the following political parties: 


Page 12 of 62 






























A) Council 

Categorisation of councillors within their specific political parties and wards 


Party Name 


AFRICAN NATIONAL CONGRESS (ANC 


Name 


Mohlomi M P 


Jokobo T B 


Mothibeli Mercy Moselontia 


Mohaoi Lisbet Dieketsen 


Mthimkulu L Mamotena 


Mokhuoane kroa Sexton 


Motsei D Matlakala 


Selasi William Mofsamai 


Modiri Paul Lehlaku 


Nakasi Celesiine Moiaben 


Koalane Elias Komane 


Lithebe Moeletsi 


Thamae P Motsamai 


Makae Elias Thaban 


Makhalanyane Georae Tieho 


Mohal Rose Vunaa 


Kere Francis Lefa 


Mavaleliso Isaac Phakalitha 


Maduna S Mbothoma 


Semahla Hilda mookho 


Muso Marianna Tshepiso 


Tsolo Johannes Thabiso 


Malebo Dorothy Matsiliso 


Mahlanau Alina Matsiliso 


Fuso Selby Sebata 


Raboroko ioyce Mantwa 


Mohase Vincent Teboho 


Number of Deleaates 



Bath Raymond Hen 




Setoi J Lithebe 


Maiwick Peter Clive 


Du Toit Johannes Beniamin 


Lubbe Martins Cornelius 


Bester Catharina Aletta 


Table 1 6; Councillors 


Ordina 


Ordina 


Member of the 


Ordina 


Ordina 


Ordina 


Ordina 


Ordina 


Member of the 


Member of the 


Ordina 


Member of the 


Ordina 


Ordina 


Ordina 


Ordina 


Ordina 


Ordina 


Ordina 


Ordina 


Ordina 


Ordina 


Member of the 


Ordina 


CONGRESS OF THE PEOPLE (COPE 


Ordina 


Ordina 


DEMOCRATIC ALLIANCE (DA 


Ordina 


Executive Committee 


Executive Committee 


Executive Committee 


Executive Committee 


Executive Committee 






Member of the 


Ordina 


Ordina 


Ordina 


Ordinar 


Executive committee 


ProDortional 


WardS 


Ward 1 


Ward 2 


Ward 3 


Ward 4 


Ward 5 


Ward 6 


Ward 7 


Ward 9 


Ward 1 1 


Ward 12 


Ward 13 


Ward 14 


Ward 15 


Ward 1 6 


Ward 1 7 


Ward 18 


Proportional 


ProDortional 


ProDortional 


ProDortional 


Proportional 


ProDortional 


roDortional 


Proportional 


ProDortional 


Ward 10 


ProDortional 


ProDortional 


ProDortional 


Proportional 


FREEDOM FRONT(FF+ 


Council meetings attendance for the 201 1 /201 2 financial year 


Meeting dates 


04/08/201 1 


27/09/201 1 


06/10/2011 


27/10/2011 


02/12/2011 


29/12/2011 


25/01/2012 


20/03/2012 


30/03/2012 


30/05/2012 


Table 17: Council Meetings 


Number of minotes submitted 


Percenfage council meetings 
Attendance 


Percentage Apologies for non- 
attendance 



B) Executive Commlttee 

The Mayor, assisted by the members of the Executive Committee, heads fhe executive arm of the 
municipality. 


Name of Member 

Capacity 

Councillor Jakobo T B 

Mayor 

Councillor Motsei M 

infrastructure Committee- Chairperson 

Councillor Makae T E 

Community Services Committee- Chairperson 

Councillor Mthimkulu M 

Urban Planning and Housing Committee- Chairperson 

Councillor Koalane K 

Finance Committee- Chairperson 

Coundllor Strydom P 

Social Development Committee- Chairperson 

Mahlangu A 

Administration and Human Resources Committee- Chairperson 


Table 18: Executive Committee Members 


Page 13 of 62 

































































































































2.4.2 Adminlstrative Governance Structure 

The Municipal Manager is the Chief Accounting Officer of the Municipality. He is the head of the 
administration, and primarily has to serve as chief custodian of service delivery and implementation of 
political priorities. He is assisted by his direct reports, which constitutes the Management Team, whose 
structure is outlined below. 


Municipal Manager 



Director Financial Services 


Director Economic & 
Community Services 


Director Technical Services Director Corporate 

Services 


AAanagement Structure 


Title 

Name 

Position 

1 Performance Agreements siqned 1 

Yes 

No 


Ramakarane STR 

Munidpal Manager 

Yes 


BBHHi 

Maseiane T 

Director Corporate Services 

Yes 


■SSHHi 

Nthedi M 

Director Economic and CommunitY Services 

Yes 


1 Mr. 

Mocheko 

Acting DirectorTechnicai Services 

1 Secondi I 

iSIBHH 

Van Tonder N 

Acting Director Financial Services 


Mr. 

Erasmus J 

Service Development Faciiitator 

Secondi 

Mr. 

Spangenberg D 

Financial Advisor-MFMA 

Secondi 



Me 

Mihailescu S 

Manager Administration and Support 

Fulitime 

Me 

Lebeko S 

Chief Audit Executive 

Mr. 

Makhele M S 

Manager iDP 


Table 19: Management Structure 


2.5 Public Accountability 

Section 106 of the Municipal Systems Act refers specifically to the development of a culture of community 
participation within municipalities. It states that a municipality must develop a culture of municipal 
governance thaf compliments a formal representative government with a system of participatory 
governance. For this purpose it must encourage and create conditions for the local community to 
participate in the affairs of the community. Such participation is required in terms of: 

The preparation, implementation and review of the IDP; 

Establishment, implementation and review of the performance management system; 

Monitoring and review of the performance, including the outcomes and impact of such 
performance; and preparation of municipal budget. 

2.5.1 Ward Commlttees 

The ward committee function resorts in under the Office of the Speaker. Due to capacity constraints, it was 
not’possible to keep sufficient records during the year under review and the information below is the 
records of available information. 


Page 14 of 62 































2.5.2 Funcflonality of Ward Commiffees 


The purpose of the ward committees is to: 

• Get better participation from the community to inform council decisions; 

• Make sure that there is more eftective communication between the council and the 
community; and 

• Assist the ward councillor with consultation and report-backs to community. 

Ward committees should be elected by the community they serve. A ward committee may not 
have more than ten (10) members and women should be presented. The ward councillor serves 
on the ward committee and act as the chairperson. Ward committees have no formal powers; 
they advise the ward councillor who makes specitic submissions directly to the council. These 
committees play a very important role in the development and annual revlsion of the integrated 
development plan of the municipality. 

2.6 Corporate Governance 

Corporate governance Is set ot processes, practices, poiicies, laws and stakeholders atfecting 
the way an institution is directed, administered or controlled, corporate governance also 
includes the relationships among the many stakeholders involved and the goals for which the 
institution is governed. 

2.6.1 Anfi-Corrupfion and Anfi-Fraud 

Municipal Systems Act, sectlon 83(c) refers to the implementotion of etfective bidding to minimise the 
possibility of traud and corruption and the Municipal Finance Management Act, section 1 12(1) (m)(i) 
identify supply chain measures to be enforced to combat fraud and corruption, favouritism and unfair and 
irregular practices. Section 1 15(1 ) of Municipal Finance Management Act states that the accounting 
otticer must take steps to ensure mechanisms and separation of duties in supply chain management 
system to minimise the likelihood of corruption and fraud. 

A) Developed Sfrafegies 


Name of Sfrategy 

Developed Yes/No 

Reviewed 

Fraud Prevention Strategy/Plan adopted as a 
policy of council 

Yes 

No 


Table 20: Developed Strategies 


B) Implemenfafion of Sfrafegies 


Strategy 


Key measures to curb corruption and fraud 

Fraud Prevention Poiicy 

Supply chain management 

Roil out of Anti-Fraud and corruption policy to the internai 
stakehoiders through presentation 

Ethics Awareness programme 

Possible loss of income af traffic due to 
inactive foilow up on traffic vioiations 

Roll out of Anti-Fraud and Corruption Policy fo the external 
stakeholders though outreach programme 

Outreach programme on Fighting fraud and 
Corruption 

Lack of awareness of fraud amongst staff 

Investigation of fraud and corruption cases 

Whistle-Blowing Policy 

Possible misuse of policy to disclose sensitive 
information 

Monitoring recommendations with regards to disciplinary, 
criminal and recoven/ actions. Effective delegation systems 


Table 21 : Implementation Strategies 


2.6.2 Audif Commiffee and Performance Audif Commiffee 

Section 1 66(2) of Municipal Finance Management Act states that an audit committee is an independent 
advisory body which must- 

(a) Advise the municipal council, the political office-bearers, the accounting officer and the management 
staff of the municipality, on matters relating to- 

• Internal financial controls; 

• Risk management; 

• Performance management; and 

• Effective governance 


Page 15 of 62 























Section 14(3) (a) of the regulations requires that the performance committee of a municipality must meet 
at least twice during each financial year. However, additional special meetings of the performance audit 
committee may be called for by any member of the committee, where sufficient justification exists in terms 
of section 14(3) (b) of the Regulations. 

The Council resolved that it will have one committee dealing with both audit and performance audit. 

A) Functions of the Audit ond Performance Audit Committee 

As council has resolved that the both the audit and performance audit will be handled by a single 
committee, the Audit and the Performance Audit Committee has the following roles with regards to 
performance management: 

• To advise council on the functionality of performance management systems 

• To advice council whether the PMS complies with the Act. 

• To advice council on the extent to which the municipality’s performance measures are reliable in 
measuring performance. 

• To advice council on the effectiveness of the financial administrative system in terms of systems 
auditing as well as making recommendations with regard to perceived shortcomings. 

• To ensure effective functioning of the Internal Audit and IDP/PMS Units. 

• To advice council on the standard of service pertaining to Internal Audit and IDP/PMS functions. 

• To advice council on all matters related to compliance and effective governance. 

• To review the annual financial statements to provide council with an authoritative and credible 
view of the financial position of the municipality, its efficiency and it's overall. level of compliance 
with MFMA, the annual DoRA and other applicable legislation. 

• Respond to council on any issues raised by the Auditor-general in the audit report. 

• Carry out such investigations into the financial affairs of the municipality as council may request. 

• To review quarterly reports submitted to it by the internal audit and the IDP/PMS. 

• To evaluate audit reports pertaining to financial, administrative and technical systems 

• To evaluate the compliance to existing policies and relevant legislation. 

• To evaluate audited financial statements and reports with regard to the procurement of item and 
services. 

• The compilation of reports to council, at least twice during a financial year. 

• To review the performance management system and make recommendations in this regard to 
council. 

• To assess whether the performance indicators are sufficient. 

• To determine possible reasons for discrepancies between performance and targets. 

• To identify major risks to which council is exposed and determine the extent to which risks have 
been minimised. 

• Investigating cases of fraud, misbehaviour and conflict of interest involving employees 

• To focus on and review changes in accounting policies. 

• Investigate any matter it deems necessary for the performance of its duties and the exercise of its 
powers. 

• Review the plans of the Internai Audit function and in doing so; ensure that the plan addresses the 
high-risk areas and ensure that adequate resources are available. 

• Review audit results and action plans implemented by management. 

• Provide support to the Internal Audit and IDP/PMS function. 

• Ensure that no restrictions or limitation are placed on the Internal Audit and IDP/PMS divisions. 

• Evaluate the activities of the internal Audit and IDP/PMS function in terms of their roles as 
prescribed by legisiation. 

• 

B) Members of the Audit and Pertormance Audit Commlttee 


Member Name 

Capacity 

Meeiinq Daies 

Tshake M P 

Chairperson 

30 August 201 1 

Makhale K T 

Member 

HiflM T!] 

Moietsane D S 


24 January 2012 



20March2012 



15 June2012 



29 June2012 


Table 22: Members of the audit and Performance Audif Committee 


Page 16 of 62 














Page 11 of 62 



Chapter 2 
Governance 



2.6.4 Internal Auditlng 

Section 165(2) (a), (b)(iv) of the municipal finance Management Act requires that; 

The internal audit of the municipality must- 

(a) prepare a risk based audit plan and an internal audit programme for each financial year; and 

(b) advise the accounting officer and report to the audit committee on the implementation on the internal 
audit plan and matters relating to: 

(c) risk and risk management. 

The municipality has established a full capacity internal audit unit 

Risk Register and Three-Year Strategic Plan 

Approved 

Annual Risk Based Audit Plan 

Approved 

Internal Audit coverage plan for the period 201 1 /2012 


Audit Activity 

Revenue 

Receipts (Including all cash point) 

Refunds [consumer deposits) 

Bank Reconciliations 

Revenue generatinq units e.g. hiring of halls and stadiums 

Hand written receipts 

Traffic ' 

Expenditure: Supply Chain Management 

Contracts relatlng to tender awarded 

Expenditure including procurement policy 

Petty cash 

Human Resources: HR Administratton 

Personnel administration 

Personnel appointments ' 

Attendance register 

Leave 

Employee development (Training) 

Dismissals: retirement and resignation 

Human Resources-Payroll 

Overtime 

Temporary workers 

Payments to councillors 

Payments of salaries (including deductions) 

Subsistence and travellinq allowgnce 

Acting Allovrance 

Assets 

Movable Assets 

Immovable assets-Land 

Fleet manggement control 

Face yglue documents 

Inventories (stores) 

Financial Controls 

Approval of tariffs e.g. electricity and clearance certificate 

Application of services 

Meter readings: billing and sending of accounts 

Valuation roll 

Journals: debit and Credit notes 

Credit Control-long overdue accounts 

Credit Control: Indigents 

Housing 

Allocation/reallocation of sites 

Contracts (council houses, miscellaneous, land and campsl 

Pertormance Management System 

Auditing Performance Information (IDP.EPAS and SDBIPl 

Appraisal for section 56 

Performance Audit (3Es) 

Handling of complaints related to service rendered 

Duration of the requisition from request to actual order 

Treasury 

DORA" AG key control and checklist 

Investments 

Insurance 

Budgetary controls 

OHASA 


I Hours 


Timing 


160 

72 

120 

160 

160 

160 


and 3'*^ Quarter 
2^*^ and Quarter 
l^' and 3^*^ Quarter 
and 3'^ Quarter 
and 3'''^ Quarter 
1 and Quarter 


160 

240 

80 


1 gnd 3'‘=‘ Quarter 
l^* and 3'd Quarter 
l^* and Quarter 


80 

112 

200 

160 

120 

80 


2^*^ and 4**^ Quarter 
1 and 3^'^ Quarter 
gnd Quarter 
and 3''^ Quarter 
2 '^'^ and 3 ^^ Quqrfer 
1 and 3'^ Quarter 


160 


160 

210 

140 

112 


and 3^^ Quarter 
l^' and 3'^^ Quarter 
2"*^ and 3'^ Quarter 
and 3'''^ Quarter 
2”<^ and 4'^ Quarter 
2^^^ and 4"^ Quarter 


160 

80 

112 

80 

112 


2 "d gnd 4t Quarter 
1 and 3'^^ Quarter 
2 ^^^ and 4*^1 Quarter 
2”^ and 4*'^ Quarter 
1 and 3^^ Quarter 


112 

160 

210 

112 

160 

368 

168 


1 gnd 3'*^ Quarter 
1 and 3''^ Quarter 
1 and 3^^ Quarter 
2"'^ and 4*i~' Quarter 
2^^^ and 4'*^ Quarter 
1 and 3^*:* Quarter 
1 and 3'^ Quarter 


128 

256 


l^’ and 3^d Quarter 
l^* and 3^^ Quarter 


240 

160 

200 

112 

128 


Half yearly 
Half yearly 
Quarterly 
l^* and 3^*^ Quarter 
1 and 3'^'^ Quarter 


160 

60 

200 

240 


isi, 2 nd gnd 4 **^ Quarter 

quarter 

2"^ and 4 '^ Quarter 
l^' and 3^d Quarter 


832 


480 


752 


862 


544 


1290 


384 


640 


660 


210 


Page 17 of62 

































































































General Safetv Environment 

210 

and 3^^ Quarter 

Information Technology 


Auditinq Informafion Technoloqy (environment and appllcations) 

210 

1*' and Quarter 

Year End Procedure 

348 

Stock Taking and Assets Verification 

48 

Year End 

Other items that affect financial statements 


Year End 

Management Requests 

320 

Correct usage of votes 

0 

As reguested 

Cash float count 

0 

As reguested 

Cancellation of receipf 

0 

As reguested 

Exceptional report on the meter reading 

0 

As reguested 

Logsheet-trip aufhorisation 

0 

As requested 

Pre audit of MIG expenditure 


As requested 

Monitorlng and Management Reporting 

720 

Follow up audits on Externai Audit 

120 

Ord Quarter 

Conducting speciai audits and follow up on ad hoc audits 

^^^^hhhhshhhhhhi 

On-going 

Co-ordination of work with external audit 

240 

On-qoinq 

Senior Management Reporting 

100 

On-going 

Performance and Audit Reporting 

180 

Quarterly 


Table 23; Internal audlt Coverage Plan 


Functions of the internal Audit Division that were performed during the financial year under review 



Risk Assessment report 

Risk based audit plan approved for 201 1 /201 2 financial year 

Number of audits conducted and reported on 

Audit reports issued 

Indigent management 

IT General Controls 

Income and Debtors Management 

Division of Revenue Act 

Performance Management- h' quarter 

Performance Management 2'^'* and 3"^ quarter 

Progress report- Implementation of Internal Audit findings 


Table 23.1 : Functlons of the Internal Audlt Division Performed 


2.6.5 Audltor General 

The municipality was audited by the Auditor-General of South Africa in terms of section 188 of the 
Constitution and section 4 of the public audit Act and section 126 of the Municipal Finance Management 
Act and the audit report for financial year under review is in annexure B of this report. 

2.6.6 By-laws and Pollcles 

The municipality is given executive and iegislative authority to pass and implement by-laws and policies by 
section 1 1 of the Municipal Systems Act. 

By-laws developed and reviewed during the financial year under review 


By-law 

Date review 

Public Participation conducted Yes/No 

Cemeteries and Crematoria 

13 July2012 

Yes 

Electricity Supply 

Waste Management 

Water Restrictions 


Table 24: By-laws 


Policies developed and reviewed during the financial year under review 
None 

2.6.7 Communlcatlon 

Local government has a legal obligation and political responsibility to ensure regular and effective 
communication with the community. The Constitution of the Republic of South Africa Act of 1 996 and other 
statutory enactments all impose an obligation on local government communicator and require high levels 
of transparency, accountability, openness, participatory democracy and direct communication with 
communities to improve the lives of ali communities. 

Good customer care is clearly of fundamental importance to any organisation, and analysis here shows 
that iocal residents view the municipality’s people relations in a negative light, hence the service delivery 
protest. A successful communication strategy therefore links the people to the municipality’s programme 
for the year. 


Communication checklist of the compliance to the communication requirements 


Page 18 of 62 













































Communication Activities 

Communication Unit established 

Communlcation Strategy in place 

Communication Policy in place 

Customer satisfaction survey conducted 
Functional complaint management system 
Newsletter distributed at least quarterly 
Table 25; Communication Checklist 


Yes/No 

Yes 

No 

No 

No 

Yes 

Yes, but stopped in the second quarter 


2.6,8 Website 


A municipal website should form an integral part of a municipality's communication infrastructure and 
strategy. It serves as a tool for community participation, improves stakeholder involvement and facilitates 
stakeholder monitoring and evaluation of municipal performance. Section 75 of the Municipal finance 
Management Act requires that municipalities place key documents and information on their website, 
including IDP, the annual budgets, adjustments budgets and budgets related documents and policies. 
Checklist to indicate the compliance with section 75 of the Municipal Finance Management Act 


Documents on Municipal Website 

Yes/No 

Current annual and adjustment budgets and all budget-related documents 

Yes 

All current related policies 

The orevious annual report (2010/201 1 1 


Budaet ImDlementation policv- Credit control and debt Coilection Policy 

Budaet Implementation policy- Valuation Policy 

Budaet Implementation policv-Supplv Chain Manaqement Policy 

All current performance aareemenfs required in terms of section 57(1 )(bl of the Municipal System Act (2010/201 1 ) 

All services deliverv aqreements (2011/12) 

All lonq term borrowinq contracts (2011/12) 

All Supplv chain manaqemenf contracts above a prescribed value (qive value) for 201 0/201 1 

An information system containing a list of assets over a prescribed value that have been disposed of in terms of section 1 4(2) or (4) during 
(2011/12) 

Contracts agreed in 20 1 1 /20 1 2 to which subsection ( 1 ) of the section 33 apply, subject to subsection (3) of that section 

Public Private partnership agreements referred to in section 120 made in (201 1/12) 

All quarterly reports tabled in the council in terms of section 52 (d) during (2011/12) 


Table 26: Documents on Website 


Page 19 of 62 




















This chapter indicates the municipality's performance in terms of the National Key Performance indicators 
required in terms of the local Government; Municipal Planning and Performance Management Regulation 
2001 and section 43 of the Municipal Systems Act. These key performance indicators are linked to the 
National key Performance Area- Municipal Transformation and Organisational Development. 

The municipality encountered certain challenges like employees that occupying position that they do not 
fit. The municipality does not bring in new staff and put them on a proper induction and once they are not 
performing, it becomes a problem due to non-proper induction that took place and taking action will 
have negative results for the municipality. The municipality however try to afford all personnel the 
opportunity to develop themselves in the form of training courses that can be attended and promote 
further studies. 

3.2 Performance Hlghlights- Munlclpal Transformatlon and Organisational Development 


Administrative SuDDort to Council 


Human Capital Manaaement 


Descripiion 


Council and Committee meetinas 


Appointment of employees in vacant posts 


Table 27: Challenges-Municipal Transformation and Organisational Development 

3.3 Challenges- Municlpal Transformatlon and Organisational Development 


Actions to Address 


Strict Compliance 


Challenaes 


Employment Eaulty and Disabled Applicants 


Scarce Skills for Strategic positions | Introducing g Scarce Skills Policy 

Table 28: Challenges-Municipal Transformation and Organisational Development 

3.4 Introduction to the Munlcipal Workforce 

The municipality currently employs 628 (excluding non-permanent positions) officiais, who individually and 
collectively contribute to the achievement of the municipality’s objectives. The primary objective of 
Human Resource Management is to render an innovative Human Resources service that addresses both 
skiiis development and administrative function. 

The municipality has appointed more employees permanently and using less temporary workers to perform 
full-time jobs. A Human resource Policy is in piace that covers a broad spectrum of human relations and 
personnel issues. The policies in place address affirmative employment on various aspects. The municipality 
still have to address challenges on proper induction orientation and courses that ensure new comers to the 
jobs obtain the necessary skiil after finishing the applicable qualifications. 

3.4.1 Employment Equity 

The Employment Equity Act (1998) Chapter 3, section 15(1) states that affirmative action measures are 
measures designed to ensure that suitable quaiified people from designated employment opportunities 
and are equitably represented in all occupational categories and levels in the workforce of a designated 
employer. The national performance indicator also refers to: “Number of people from empioyment equity 
target groups employed in the three highest levels of management in compliance with the municipality’s 
approved employment equity plan". 

A) Employment Equity Targets/Actual by Racial Classification 


African 


Actual I Reach 


Coloured 


Aciual 


Table 29: Employment Equity Target/Actual by Race Classificafion 

Employment Equity Targets/Actual by Gender Classification 


Tabie 30: Employment Equity Targets/Actual by Gender Classification 


Indian 


Actual Reach 


1 Yes 


White 


Actual Reach 


38 Yes 


Page 21 of 62 


































B) Employment Equity v/s Population 


Descrlpiion 

Afiican 

Coloured 

Indian 

White 

Total 

Population Numbers 

611 

13 

1 

38 

663 


fable 31 ; Employment Equity v/s Population 


C) Occupational Categories 


Occupational 

Categories 

Legislators, senior officials and managers 

Professionals 

Technicians and associate professionals 

Clerks 

Service and sales workers 

Crafts and related trades workers 

Plant and machine operators and assemblers 

Elementary occupations 

Total permanent 

Non-permanent 

Grand total 

Table 32: Occupational Categories 


No 

40 

2 

52 

92 

19 

14 

70 

329 

618 


618 


Atrican 

% 

80 

28.57 

80 

88.46 

95 

100 

95 

99 

93.21 

I 93.21 T 


No 

_ 0 _ 

0 

4 

0 

0 

_ 3 _ 

1 

8 


Coloured 

% 

0__ 

g__ 

o__ 

3 ^ 

g_ 

cg_ 

£_ 

g__ 

1.21 


No 

0 

1 

0 

0 

0 

0 

0 

0 

1 


Indian 


% 

0 

14.29 

0 

0 

0 

0 

0 

0 

0.15 


No 

10 

4 

13 

8 

1 

0 

0 

0 

36 


8 I 1.21 I 1 I 0,15 I 36 


White 


% 

20 

57.14 

20 

7.69 

5 

0 

0 

0 

5.43 


5.43 


Total 


50 

7 

65 

104 

20 

100 

73 

330 

663 

76 

704 


D) Occupational Levels 


Deparfment 

African 

Coloured 

Indian 

White 

Total 


No 

% 

No 

% 

No 

% 

No 

% 


Top Monogement 

29 


0 

0 

0 

0 

6 

■IHQI 

35 

Senior Mgnogement 

n 


0 

0 

0 

0 

4 


15 

Professionol 

2 


0 

0 

1 


4 


7 

skilled ond ocademicolly quolified workers 

71 


0 

0 

0 


14 

16.47 

85 

Semi-skilled 

176 

92.15 

7 

3.66 

0 

0 

8 

4.19 

191 

Unskiiled ond defined decision 

329 

99.70 

1 

0.30 

0 

0 

0 

0 

330 

Total permanenl 

618 

■EESH 

8 

1.21 

1 


36 

5.43 

663 

Non-permonent 



76 

Grand total 

618 

93.21 

8 

1.21 

1 

0.15 

36 

5.43 

704 


Table 33: Occupational levels 


3.4.2 Vacancy Rate 

The approved organogram for the munidpality had 770 posts for 2011/2012 financial year. The actual 
positions filled are indicated in the tables below by post level and by functional level. 76 posts were vacont 
at the end of 201 1/2012, resulting in a vacancy rate of 13.77% 


Post Level 

Filled 

Vacant 

Municipol Monager ond Municipol Systems Amendment Act section 56 Monaoers 

3 

2 

Senior Monagement 

35 

2 

Professionally qualified and experienced specialists and middle manaoement 

7 

15 

Skilled technical and academically qualified workers, junior manaqement, supervisors, foremen and superintendents 

85 

20 

Semi-skilled and discretionary decision makinq 

176 

12 

Unskilled and defined decision makinq 

322 

25 

Total 

628 

76 


3.4.3 Turnover Rate 

A high turnover may be costly to the municipality and might negatively affect productivity, service delivery 
and institutional memory/organisational knowledge. The turnover rate shows a decrease/increase from 
2.63 % in 2010/201 1 to 5.92% in 201 1 /2012. 


Year 

Total number of 
appointments at the end of 
the financial year 

New appointments 

Number of terminations 
during the year 

Turnover rate 

2009/2010 

Information not available 

2010/2011 

645 


17 

2.63% 

2011/2012 

628 

28 

39 

5.92% 


Table 35; Turnover Rate 


3.5 Managlng the Munlcipal Workforce 

Managing the municipal workforce refers to analysing and coordinating employee behaviour. 

3.5.1 Injuries 

An occupational injury is a personal injury, disease or death resulting from an occupational accident. 
Compensation claims for such occupational injuries is calculated according to the seriousness of the 


Page 22 of 62 







































injury/disease and can be costly to the municipality. Occupational injury will influence the loss of man 
hours and therefore financial and productivity performance. 

3.5.2 Sick Leave 

The number of day's sick leave taken by employees has service delivery and cost impllcations. The 
monitoring of sick leave identifies certain patterns or trends. Once these patterns are identified, corrective 
actions can be taken. 

3.5.3 Human Resource policies and Pians 

Policies and plans provide guldance for fair and consistent staff treatment and consistent approach to 
managing of staff. 



Human Resource Policles and Plans 


Name of Policy 

Completed 

Reviewed 

Date adopted by Council or comment on failure to adopt 

1 

Affirmative Action 

Yes 

No 

02/06/2008 

2 

Attraction and Retention 

No 

No 

Draft to be tabled to Council 

3 

Code of conduct for empioyees 

Yes 

Yes 

MSA 

4 

Delegations, Authorfeations and Responsibilify 

Yes 

No 

31/05/2011 

5 

Disciplinary Code and Procedures 

Yes 

Yes 

21/04/2010 

6 

Employee assistance/Wellness 

Yes 

No 

05/10/2009 

7 

Employment Equity 

Yes 

No 

02/06/2008 

8 

Exit Management 

Yes 

No 

9 

Grievance Procedures 

Yes 

Yes 

01/05/2007 

10 

HIV/Aids 

Yes 

No 

02/06/2008 

11 

Human Resource and Development 

Yes 

No 

12 

Information Technology 

Yes 

Yes 

02/12/2011 

13 

Job Evaluation 

No 

No 

SALGBC Collective Agreement 

14 

Leave 

Yes 

No 

01/05/2005 

15 

Occupational Health and Safety 

Yes 

No 

02/06/2008 

16 

Officlal Housing 

Yes 

Yes 

Central SALGBC 

17 

Official Journeys 

Yes 

No 

30/05/2008 

18 

Official Transport to attend funerais 

Yes 

No 

28/09/2010 

19 

Official Working hours and Overtime 

Yes 

No 

SALGBC Collective Agreement 

20 

Organbational Rights 

Yes 

No 

21 

Payroll Deducfions 

No 

No 

02/06/2008 

22 

Performance Management and Development 

Yes 

No 

23 

Recruitment, Selection and Appointments 

Yes 

No 

SALGA 

24 

Remuneration Scales and Allowances 

Yes 

No 


25 

Resettlement 

Yes 

No 

02/06/2008 

26 

Sexual Harassment 

Yes 

No 

27 

Skills Development 

Yes 

No 


28 

Smoking 

No 

No 


29 

Special Skills 

No 

No 

02/06/2008 

30 

Work Organiiation 

Yes 

No 

28/09/2010 

31 

Uniforms and Protective Clothing 

Yes 

No 

02/06/2008 

32 

Other: Bereavement and Dress Code 

No 

No 

Draft to be tabled to Council 


3.5.4 Employee Performance Rewards 

In accordance to regulation 32, a performance bonus, based on affordability, may be paid to an 
employee, after- 

(1 ) the annual report for the financial year under review has been tabled and adopted by the municipal 
council; 

(2) an evaluation of performance in accordance with the provislons of regulation 32; and 

(3) approval of such evaluation by the municipal council as a reward for outstanding performance 
The evaluation of the performance of section 56 Managers forms the basis for rewarding outstanding 
performance. For the year under review no performance rewards were paid to municipal employees. 

3.6 Capacitating the Municipal Workforce 

Section 68(1 ) of the Municipal Systems Act states that the municipality must develop its human resource 
capacity to a level that enables it to perform its functions and exerclse its powers in an economical, 
effective and efficient and accountable way. Forthis purpose the human resource capacity of a 


Page 23 of 62 



municipality must comply with the provision of the Skills Development Act, 81 of 1998 and the Skills 
development Levies Act, 28 of 1999. 

3.6.2 Skills Development-Tralnlng Provlded 

The Skills development act and the Municipal systems Act require employers to supply employees with the 
necessary training in order to develop its human resource capacity. Section 55(1 ){f) states that as head of 
administration the Municipai Manager is responsible for management, utilisation and training of staff. 


3.6.3 Skills Development-Budget Allocation 

The municipality aliocated R 984 708 to the workplace skiils plan and R of the total amount of the 
aliocation was spend in the financial year. 


1 Total personnel budpet I 

1 Total Allocation I 

1 Total Spend I 

% Spend 

III" 



29.22% 


Table 37: Skills Development-Budget Allocation 


Due to serious financial constraints the municipality did not spent much on training. 

3.7 Managing the Munlclpal Workforce Expendlture 

Section 66 of the Municipal Systems Act states that the accounting officer of a municipality must report to 
council on all expenditure incurred by the municipality on staff salaries, wages, allowances and benefits. 
This is in line with the requirements of the public service reguiations, 2002, as weil as the National treasury 
budget and Reporting Regulations SA 22 and SA23. 

3.7.1 Personnel Expendlture 

The percentage expenditure is essentiai in the budgeting process as it reflects on the current and future 
efficiency. 


Year 

1 Total Expenditure on salary and allowances I 

1 Total Operatinq Expenditure I 

Percentaqe 

2009/2010 



30% 

2010/2011 


niinim 

33% 

2011/2012 





Table 38: Personnel Expendlture 


Summary of Counciliors and staff benefits for the year 


Year 

2009/20T0 

2010/2011 

2011/2012 

Description 

Actual 

Actual 

Budget | Adjustments | Actual 

Councillors | 



Pension 

Amounts included in the sqlary. Remuneration at a coat to company basis 

Medical 













1 Senlor Managers of the AAunicipality I 

Basic Saiary 




■■■■^^^ 


Social Contributions 

1 446216 1 

1 744 792 i 

■■^■1^1 


■il^^EPl'iH 

Motor Vehicie Aliowances 



^l■■■■ 



Performance Bonus 

1 0 

1 0 


■^^■■■1 




■K^EEI 

■■■■■ 


■■■S^EI 





1 Other Municipal Staff | 

Basic salaries and wages 



!■■■■■ 


■ma 

Social contributions 

111111 I 





Motor vehicle allowances 

iiiiiiii 





Cell phone allowances 

348 097 

—■ 1 1 1 1 1 ■ 

■■■■■ 



Housing aliowances 

255 364 

■■IIKlE^i 

■■■■■ 



Overtime 


llll ■ 


■■■■^^K 


Other benefits or allowances 

— IIIIIII 

wamfMvidAM 







■l^■■■ 


mmEÈMsm 





Total Munlcipality I 88 394 013 


^^^■■■■■^^^^■ii 

■nsiii^ 

% Increase 

1 2% 




Table 39: Summary' of councillors and staff beneflts 


Page 24 of 62 









































Chapter 4: Strategic Performance 


In this chapter the municipality provide information on the strategic performance and will indicate how 
weli the municipality is meeting its objectives and which policies and process are working and which are 
not working. All government institutions must report on strategic performance to ensure that service 
delivery is efficient, effective and economical. 

Municipalities must develop strategic plans and allocate resources for the implementation. The 
implementation must be monitored on an on-going basis and the results must be reported on during the 
financial year to various role-players to enable them to timeously implement corrective measures where 
required. 

The chapter the illustrates the performance highlights in terms of the Municipality’s integrated 
development Plan, the Service delivery and Budget Implementation Plan, performance on basic service 
delivery backlogs addressed in the Municipal Infrastructure Grant projects as well as the spending priorities 
for the following year. It addresses the communication and public participation processes of the institution 
to give a holistic view and feedback of how the municipality communicates performance to its 
stakeholders. 

The Municipal Systems Act, 32 of 2000 and the Local Government: Municipal Planning and Performance 
Management regulations 2001 require municipalities to adopt a performance management system. Once 
the IDP and the Budget has been prepared and approved, the municipality prepared a Service Delivery 
and Budget Implementation Plan in accordance with Municipal Finance Management Act and Municipal 
Management Act Circular 13. 

4.1 Natlonal Key Performance Indlcators-Baslc Servlces Dellvery and Local Economlc Development 


Key Performance Area and Indicators 

1 Municipal Achievement I 


1 2009/2010 1 

1 2010/2011 1 

1 2011/2012 1 

1 Basic Service Delivery | 

The percentage of households earnlng less than R 1 100 per month with 
access to free baslc services 

70% 

60% 

57% 

The percentage of households with access to basic service level of 
water 

100% 

100% 

100% 

The percentage of households with access to basic service level of 
sanitation 

64% 

64% 

64% 

The percentage of households with access to basic service level of 
electricity 

100% 

100% 

100% 

The percentage of households with access to basic service level of 
solid waste removal 

100% 

100% 

100% 

1 Local Economic Developmeni | 

The number of jobs created through municipality’s local economic 
development initiatives including capital proiects 





Table 40: National Key Performance Indicators-Basic Service Delivery and Local Economic Development 


4.2 Strateglc Servlce dellvery and Budget Implementatlon Plan (Top Layer) 

The purpose of the strategic performance reporting is to report specifically on the implementation and 
achievement of the IDP outcomes. This section provides an overview on the strategic achievement of a 
municipality in terms of strategic intent and deliverables achieved as stated in the IDP. The top level SDBIP 
is the municipality’s strategic plan and shows the strategic alignment between the different documents; 
(IDP, Budget and Performance Agreements). 


Page 26 of 62 































4.2.1 Top Level SDBIP-Good Governance and Public Participation 

The National KPA Good Governance and Public Participation are linked to the Municipal Key Performance 
Area namely “Institutional Development". 


Annual Performance 


Approval of SDBIP 


Community 
Satisfaction Survey 


Effective functioning 
of committee system 


Functionai Internal 
Audit Committee and 
Performance Audif 
Commitfee 


IDP endorsed by all 
wards 


IDP endorsed by 
community 
organisations and 
stakeholders as local 
social compacts 


IDP includes all 
sectoral plans 


Improved good 
governance 


Institutional 
Performance 
management 
Systems in place 


Compliance with all 
relevant leaislation 


Number of ward 
committee meetings 
per ward per annum 


Reaching 

emolovment taraets 


Reviewed IDP 


Strengthening role of 
communities 


Effective fire fighting 
services 


Reviewed Disaster 

Management 

Framework 


Approval of 
adiustments budaet 


Approval of main 
budaet 


Effective 

communication with 
communities 


Effective functioning 
of council 


Effective an up to 
date bv-laws 


Effective and up to 
date HR Dolicies 


Effective labour 
relations 


Targeted skills 
development 


Unit of measure 


Annual report and 
oversight report of 
council submitted 
before legislative 
deadline 


Approved SDBIP before 
leaislative deadline 


Development of 
safisfaction survey by 
end October 


Number of committee 
meetinas oer annum 


Approved Risk based 
plan 


Number of ward based 
planning meetings held 
to produce Ward Plans 


Number of community 
organisations and 
stakeholders endorsing 
IDP with regards to 
meetinas 


Number of required 
secforai plans included 


% anti-corruption and 
fraud policies reviewed 


Individual performance 
management 
implemented up to the 
lowest level 


% compliance with 
leaislation 


Number of ward 
committee meetings 
per ward per annum 


% of targets reached 


Number of ward based 
developed plans 
completed 


Establishment of a fire 
fighting section 


Reviewed disaster 

management 

framework 


Approval of adjustments 
budaet before deadline 


Approval of budget 
before deadline 


% vacancy levels as % 
of oraanoaram 


No of council meetings 


Wards | Baseline 


Number of LLF meetlngs 


% reviewed and 
submission of skills 
develoDment Dlan 


Actual 

2010/2011 


Actual performance 201 1 /2012 


Actual 












































Oversight 
Committee 
did not finish 
its work 


Still to be 
done in the 
2012/2013 


n/a 


Corrective 

Measure 


Strict adherence 
to legislative 
requirements 


Ensure that it is 
done annually 










Delay in the 
imDlementat 
ion of the 
IDP Review 
Drocess Plan 


Lack of 

participation 

by 

councillors 
and officials 


Lack of 
capacity 
and funding 


Not 

implemente 

d 


Approved 
but not 
implemente 
d 


Audit report 


Non- 

submission 
of reports 


Adherence to the 
approved IDP 
Review process 
Plan Programme 
of action 


Encourage 
councillors to fully 
participate in the 
IDP processes 


Involvement and 
assistance from 
national and 
Provindal sector 
departments 


To be actioned in 
the following 
financial vear 


Approved EPAS 
to be 

implemented in 
the following 
financial vear 


Regular 
submission of 
reports to fhe 
Office of the 
Speaker 





n/a 

n/a 

Estabiishmen 
t of ward 
committees 
not finalised 

n/a 

Posfs not 
identified on 
the 

organogram 

Review and 
approval of the 
new organogram 

Capacity 

Nationai and 
Provincial secfor 
departmenfs to 
assist 

n/a 

n/a 

n/a 

n/a 


Capacity 

Appointed 

communication 

Officer 

n/a 

n/a 


Page 27 of 62 

















































































































































































To provide an 
efficient and 
effective 
Administration of 
Committee Service 


To deveiop By-laws 
for effective control 
over municipal 
activities 


To monitor teiephone 
usage with functional 
telephone 

manaaement svstem 


To provide a 
functional 
environment for 
committees to 
ooerate 



Capacity workshop 
for ward committees 


Awareness 

camoaian 



Number of EXCO 
meetinas 


Number EXCO 
resolutions implemented 


Number of council 
resolutions implemented 


Number of delegated 
reports submitted from 
EXCO to council 


Number of by-laws 


Deductions list for 
personal calls submitted 
to salaries for 
deductions 


Number of boardroom 
tables 


Number of chairs 


Number of meetings per All 
ward per month 


Number of workshop 
per quarter 


Number of awareness 
campaign held 


Approved 

Communication 

Strategy 


Number of reports to be All 
produced that are in 
line with IIA standard 



2 

Currently 

receiving 

programs 

2 

Ward 

committee 
members 
eiections not 
yet 

completed 


Systems descriptions; Number systems 
audit programmes I descriotions 
and 

quarterly plan 

I Number of quarterly 
plans 






Half yearly reports 


Meeting held 


Signed declaration 



Coverage plan 




Number of audit 
committee meetings to 
be held 


Number of 

departmental meetings 
to be held to improve 
client/customer 
relationshio 


Number of declarations 
of independency and 
secrecy to be signed for 
the adoption of 
standards of 
professional practice of 
internal audit 


Number of coverage 
plan to be compiled 
that will determine the 
focus and priority of 
auditable areas 


Number of report to be 
produced that are in 
line with the IIA standard 
and number of ad hoc 


45 

47 

38 

109 

12 

38 

2 

2 

5 

5 

2 

2 

56 

56 

2 

2 


Some 
owners of 
the 

auditable 
entities did 
not submit 
responses 
and it 

affected the 
compilation 
of the 
reDorts 


Excessive 
difference 
on the plan 
and actual 
occurs as 
the reason 
making 
foilow up 
and this wiil 
assist 

institution to 
achieve its 
obiective 








Some 
owners of 
the 

auditable 



Page 28 of 62 





























































































































audit to be audit to be 
executed 


Table 41: Top Level SDBIP-Good Govemance and Public Participation 

4.2.3 Top Level SDBIP -Municipal Financial Viability and Management 

The National Key Performance Area Municipal Financial Viability and Management 
Municipal Key Performance Area “Institutiona! Development”. 


KPI 


Updated indigent Updated indigent 

register for provision register on a monthly 
of free basic services basis 


Improvement in 
conditional grant 
soendina-caoital 


Improvement in 
conditional grant 
SDendina-ODerational 


Clean Audit 


Improved revenue 
collection 


% of property 
valuation aoDeals 


Preparation of 


Table 42; Top Level SDBIP-Municipal Financial Viability and Management 

4.2.4 Top Level SDBIP-Local Economlc Development 

The National key Performance Area Local Economic Development is linked 
Performance Areas “Local Economic Development and Social Development. 


is linked to the 


Unit of measure 

Wards 

Updated indigent 
register on a monthly 
basis 

All 

% of total conditional 
grant spent 

All 

% of total conditionai 
grant spent 

All 

% Root causes of issues 
raised by AG in AG 
report addressed 

All 

Number of successful 
appeals 

All 

% debt recovery rate 

All 



Financial statements 
submltted by end of 
August 

Aii 



Comment 

Corrective 

Measure 

Lack of 
registration by 
community 
members 

Awareness 

campaign 



Ensure safety of 
municipal property 
and personnel 


Ensure safefy of 
municipal property 
and personnel 


Unit of measure 

Wards 

Baseline 

Installation of CC TV 
cameras 

All 

0 

Installation of panic 
buttons 

All 

0 

Installation of sound 
proofs 

All 

0 

Building of guard rooms 

All 

0 

Installation of X/scanner 
machine 

All 

0 

Installation of alarm 
system 

All 

0 

Purchase of LDV bakkies 

All 

0 

Installation of intercom 

Ali 

0 


All 

0 

Installation of fire arm 
safes 

All 

0 


Actual performance 2011/2012 


Actual 


to the Municipal Key 


Comment Corrective 

Measure 


Public Safety Law 
enforcement 


Road maintenance 


Fire Disaster 
Management ServTces 


Issuina of traffic fines 


Amount received 


Road biocks conducted 


Point dutv and escort 


Amount received 


Accidents 


Purchase of vehicles 


Maintenance of signs 
and road markinas 


Road oaintin 


Number of vehicles 


Risk assessment 
conducted 


Number of Incident & 
Disaster Forum meetinas 




Page 29 of 62 





















































































































































Unit of measure 


Wards 


Baseline 


Aciual 


Comment 


Actual performance 2011/2012 


Target 


Aciual 


Corrective 

Measure 


Fire Disaster 
Management Services 


Number meetings with 
NGO’s 


All 


12 


Number of inspections( 

Fire prevention) 


All 


89 


15 


72 


Number of fines issued 


All 


Number of emergencies/ 
accident attended to 


All 


Number of fires 


All 


241 


Number of hazardous 
maferial incident 


All 


22 


Number of vehicles 


All 


Number of fire sfations 


All 


19 


78 


501 


257 


Table 43: Top Level SDBIP-Local Economic Development 

4.2.5 Top Level SDBIP - Baslc Service Delivery 


The National Key Performance Area Basic Service Delivery is linked to the Municipal key Performance Area 
namely Infrastructure and Basic services. 


KPi 


Water provision 


Number of water 
service points (taps) 
installed for formal 
settlement 
customers 


Number of 
sanitation seivice 
points for formal 
settlement( No. of 
buckets removed) 


Number of 
sanitation seivice 
points for formal 
settlements ( Septlc 
Tanks ) 


Number of 
sanitation service 
points for formal 
settlement ( 
Waterborne ) 


Manage Water 
Demand 


Water Conservation 


Water Quality 


Unit of measure 

Wards 


All 

Install lOOOTaps 

All 

Remove 1 0772 Buckets 

Ail 

Service 443 Septic Tanks 

All 

Service8173 Full 

Waterborne Toilets 

All 

Megaliters of Water 

Purified to meet Water 
Demand target 

All 

Number of Water Leaks 
repaired 

All 

% Blue Drop 

All 

Fickburg 


Clocolan 

Ail 

Marquard 

All 

Senekal 

All 



Page 30 of 62 































































































KPI 

Unit of measure 

Wards 

Conserve Natural 

Resources 

Number of Sewer 
blockages opened 

All 

Number of 

sanitation service 

Number of buckets 

Ail 

points for formal 
settlement 

Number of Septic tank 
suctioned 

All 


Number of full 

waterborne serviced 

All 

Waste Water 

Quality 

% Green Drop 

Ali 


Ficksburg 

All 


Clocoian 

All 


Marquard 

All 


Senekal 

All 

Street lighting 

Number of fittings 
replaced 

All 


Number of street lights 
repaired 

All 

Maintenance 

Number of transformers 

services 

Ali 

Electricity provision 

Number of kiiometres of 

LV cable 

All 


Number of 60 x 10.5 



Number of substations 

maintained 



Number of mini- 

substations installed 



Table 44: Top Level SDBIP-Basic Service Delivery 



CAPITAL EXPENDITURE 2011/2012: WATER SERVICES 





Budget 

Adjustments budget 

Actual 

Expenditure 

Variance from original budget 

Total Project Value 

Marquard: Augmentation of 
Raw Water Supply: 

Construction of Pipeline & 
Reservoir 

3 358 726.87 

3 358 726.87 

4 076 356.23 

-717 629.36 

24 472 152.00 

Marquard: Upgrading of 

Water Treatment Works 

3 512136.58 

3 512 136.58 

4 643 682.03 

-1 131 545.45 

1 1 763 400.00 

Meqheleng/Ficksburg: 
Upgrading of Bulk Water 

Supply 

22 414 027.89 

22 414 027.89 

8 326 305.26 

14 087 722.63 

55 000 000.00 

Matwabeng/Senekal: The 
Development of Boreholes 

1 1 021 400.33 

1 1 021 400.33 

5 677 056.85 

5 344 343.48 

24 580 594.00 

Installation of 481 5 Water 

Meters in 

Marquard/Moemaneng 

643 161.61 

643 161.61 

31 280.39 

611 881.22 

5 049 972.1 1 

Installation of 5684 Water 

Meters in 

Clocolan/Hlohlolwane 

293 987.37 

293 987.37 

105 141.75 

188 845.62 

5 961 379.21 

Installation of 1 1521 Water 

Meters in 

800 954.94 

800 954.94 

252 903.35 

548 051.59 

1 1 962 392.00 


Page 31 of 62 

































































































































Ficksburg/Meqheleng 








Senekal /Matwabeng: 
Installation of 7576 Water 

Meters 

3 182 511.99 

3 182 511.99 

1 198 825.95 

1 983 686.04 

7 916 672.00 

Intervention by DWA, War on 
Leaks 

0.00 

1 000000.00 

1 000000.00 

0.00 

1 000000.00 

Intervention by DWA, 

Marquard water Crisis 

0.00 

1 500000.00 

1 500000.00 

0.00 

1 500000.00 

Total All 

45 226 907.58 

47 726 907.58 

26 811 551.91 

20 915 355.77 

149 206 561.00 


Table 45: Capital Expenditure-Water 


CAPITAL EXPENDITURE 2010/2011: SANITATION SERVICES 


Capltal Projects 

2010/11 1 

Budget 

Adjustments budget 

Actual Expenditure 

Variance from originai budget 

Totai Project Value 

Senekal: Upgrading of 

Waste Water Treatment 

Works 

6 870 615.87 

6 870 615.87 

4 458 526.52 

2 412 089.35 

23 540 096.00 

Marquard/Moemaneng: 
Upgrading of Oxidation 

Ponds 

8 567 226.55 

8 567 226.55 

9 288 757.42 

-721 530.87 

36 787 1 67.00 

Refurbishment of the 
Sewerage System in 

Ficksburg Meqheleng 

0.00 

4 500 000.00 

4 507 746.04 

-7 746.04 

16 900 000.00 

Total All 

15 457 842.42 

19 957 842.42 

18 255 029.98 

1 682 812.44 

77 227 263.00 


Table 46: capital Expenditure-Sanitation 


CAPITAL EXPENDITURE 2011/2012: ELECTRICITY SERVICES 


Capital Expenditure 2010/11: Eiectricity Services 


Capital Projects 

2011/2012 

Budget 

Adjustments budget 

Actual Expenditure 

Variance from originai budget 

Total project Value 

Clocolan/ Hlohlowane; 

Installation of 2 high mast 
lights (MIS:1 93476) 

435 009.30 

435 009.30 

1 72 832.69 

262 176.69 

587 122.00 

Ficksburg/Meqheleng: 

Installation of 7 high mast 
lights (MIS: 193462) 

1 780 675.95 

1 780 675.95 

470 913.76 

1 309 762.19 

2 043184.00 

Senekal/Matwabeng; 

Installation of 5 high mast 
lights (MIS: 193454) 

1 273 615.92 

1 273 615.92 

381 288.86 

892 327.06 

1 468123.00 

Marquard/Moemaneng: 

Installation of 2 high mast 
lights (MIS:1 94946) 

435 009.38 

435 009.38 

194 434.55 

240 574.83 

587 122.00 

Total All 

3 924 310.10 

3924 310.10 

1 219 469.86 

2 704 840.77 

4 685 551.00 


Table 47: Capital Expenditure-Electricity 


Page 32 of 62 






































































































CAPITAL EXPENDITURE 201 11/2012: WASTE MANAGEMENT SERVICES 


Capttal Projects 

2010/11 1 

Budget 

Adjustments 

budget 

Actual 

Expenditure 

Variance from original 
budget 

Totai Project Value 

Ficksburg: Development ot Solid Waste 

Disposal Sites 

0 

0 

283 557.87 

-283 557.87 

7 128 420.00 

Senekal: Development of Solid Waste Disposal 
Sites 

0 

0 

290 646.42 

-290 646.42 

4 990 872.00 

Marquard: Development of Solid Waste 

Disposal Sites 

0 

0 

242 809.19 

-242 809.19 

3 115 620.00 

Clocolan; Development of Solid Wasfe 

Disposal Sites 

0 

0 

234 455.98 

-234 455.98 

3 203 400.00 

Total All 

0 0 1 051 469.46 -1 051 469.46 18 438 312.00 


Table 48: Capital Expenditure-Waste Management Services 


CAPITAL EKPENDITURE 2011/2012: HOUSING SERVICES 


Capital Projects 

2011/2012 

Budget 

Adjustments budget 

Acfual Expenditure 

Variance from originai 
budget 

Totai Project 
Value 

Development of 1000 sife AAeqheleng 
and Hlohlolwane 

22 162 000.00 

22 162 000.00 

0.00 

22 162 000.00 

22 1 62 000.00 

Total Ali 

22 162 000.00 

22 162 000.00 

0.00 

22 162 000.00 

22 162 000.00 


Table 49: Capital Expenditure-Housing Services 


CAPITAL EXPENDITURE 2011/2012: ROADS AND STORM WATER SERVICES 


Capital Projects 

2011/2012 

Budget 

Adjustments budget 

Actual Expenditure 

Variance from original 
budget 

Tofal Project 
Value 

Marquard/Moemaneng: 
Construction of 2.0 km 

Paved Road and Storm 

Water Drainage 

4 948 292.77 

4 948 292.77 

5 607 609.82 

-659 317.05 

8 654 133.61 

Ficksburg/Meqheleng: 
Construction of 2,3 km 

Paved Road and Storm 

Water Drainage 

6 779 366.00 

6 779 366.00 

6 285 990.26 

493 375.74 

1 1 044 018.20 

Clocolan/Hlohlolwane: 
Construction of 2.1 km 

Paved Road and Storm 

Water Drainage 

5 194 293.23 

5 194 293.23 

5 836 356.18 

-642 062.95 

8 147 832.61 

Matwabeng/Senekal: 
Construction of 2.2 km 

Paved Road and Storm 

Water Drainage 

4 381 987.37 

4 381 987.37 

4 913 886.34 

-531 898.97 

9 088 307.00 

Total All 

21 303 939.37 

21 303 939.37 

22 643 843.60 

-1 339 903.23 

36 934 291.45 


Table 50: Capital Expenditure-Roads and Storm Water Ser/ices 


Page 33 of 62 


































































































4.3 Development and Servlce Dellvery Priorities for 201 1 /2012 
4.3.1 To Ensure Flnancial Viability and Sustainability 


Key Performance Indicator 


Annual Target 

Actuai 

Rnancial viability measured in terms of the available cash to cover 
fixed operatinq expenditure 

Cost coverage (available cash+investment)/monthly 
fixed operatinq expenditure as per SA8 



Rnancial viability measured in terms of municipality's ability to meet its 
service debt obligation 

Debt coverage ( Total operating revenue-operating 
grants received/debt service payments due within the 
year as per SA8 



Rnancial viability measured in terms of the outstanding service 
debtors 

Service debtors to revenue-{Total outstanding service 
debtors/revenue received for services as per SA8 



Improved revenue coiiection 

% debt recovery rate as per SA8 



Approve financial statements submitted by 31 Auqust 

Approved financial statement submitted 

1 

1 

Compliance with GRAP 1 6,1 7 and 102 to ensure effective assets 
manaqement 

0 findings in the audit report on non-compliance affecting 
the audit opinion 

0 


Improvement in operational conditional grant spending measured in 
terms of % spent 

% of grant spent 



Number of issues raised by AG in AG report of the previous financial 
year attended to promote clean audit 

Number of issues attended to 



Compliance with the SCM Policy measured by the limitation of 
appeals aqainst the municipality 

0 successful appeals 

0 

0 

Training of senior and finance middle management staff in minimum 
competencies 

Number of candidates registered 



improvement on capital conditional grant spending measured in 
terms of % spent 

% of the grant spent 

100% 

100 


Table 51 : Rnancial Viability and Sustainability 


4.3.2 To Create Integrated, Sustainable, Linked and Productive Human Settlement 


4.3.3 To deepen and Entrench Good Governance Practices, including Better Communication and Public 
Involvement 


Key Performance Indicator 

Unit of measure 

Annual Tarqet 

Actual 

IDP measured by the alignment of the municipal spending with the 

IDP 

% of munidpality’s capital budget spent on 
capital proiects identified in the IDP 

76 000 000 

77 000 000 

Number of Municipal Manager section 56 performance agreements 
signed at the end of June 

Number of performance agreements signed 

5 

3 

Institutionai performance management system in place and 
implemented by all employees below the sectlon 56 

Number of employees signed agreements 

623 

0 

Compliance with ali iegislation 

0 findings in the audit report on non- 
compliance with leqislation 

Clean Audit 


Functional audit and performance audit committee measured by 
number of meetinqs heid per annum 

Numberof meetings held 

4 

4 

Adjustments budget approved by council by legislative deadline 

Approval of adjustments budget before the 
end of February 

February 

March 

Budget approved by council by leqislative deadline 

Approval of budget by the end of May 

May 

May 

The Top layer SDBIP approved by the Mayor within 28 days after the 
approval of the budqet 

Top layer SDBIP approved within 28 days after 
the approval of the budqet 

28 June 

28 June 

Initiatives in the anti-corruption policy is successfuily implemented 

Number of initiatives implemented in terms of 
the approved strategy 

Development, 
approval and 
impiementation 
of the strategy 

Three 

resignations 
and three 
disciplinary 
action 

Effective function of ward committees to ensure consistent and 
regular communication with residents 

Number of ward committees meetings per 
ward per annum 

18 

12 

The municipality listens and talks back to its peopie by ensuring that 
the IDP is endorsed by all wards 

Number of ward committees endorsing the 

IDP 

18 

co 

The municipality listens and talks to its by ensuring that the IDP is 
endorsed by community organisations and stakeholders as local 
social compact 

Number of community stake holders and 
community organisations and stakeholders 
endorsinq the DiP 

100 

85 

Risk based audit plan approved 

Approved plan 

1 

1 

IDP reviewed and compiled by end of May 

Reviewed IDP approved by end of May 

1 

1 

The IDP is comprehensive, credible and compliance with the 
requirements of the Systems Act 

% alignment as assessed 

100% 

80% 

Spatial Development Framework aligned to the NSDP and FSGDS as 
assessed 

% alignment as assessed 

100% 

0% 


Table 52: Entrench Good Governance Practices, including Better Communication and Pubiic Involvement 


4.3.4 To Foster and Strengthen Strategic partnership and social Development 


Key Performance Indicator 

Unit of measure 

Annual Target 

Actual 

Targeted skills deveiopment measured by the impiementation of the 
workplace skills plan 

% of the budget spent on the 
implementation of the workplace skills olan 



Effective communication with communities 


1 

0 

Review identified HR policies to ensure compliance and up to date HR 
policies 

Number of policies reviewed 



Effective labour relations by facilitating regular LLF meetings per 
annum 

Number of LLF meetings per Annam 

12 


Implementation of the skills plan with the tarqeted skills development 

Numberof personnel actually trained 



Creative of effective institution with sustainable capacity 

% vacancy levels as % of approved 
organogram 

0% 

6% 

The number of people from employment equity target groups 
employed in the three highest levels of management in compliance 
with employment equity plan 

Number of people employed 




Page 34 of 62 


The number of people from employment equity target groups 
employed in the three highest levels of management in compliance 
with employment equity plan 





























































































To determine citteen satisfaction 

Customer satisfaction survey conducted 

1 

0 

% customer satisfaction 


0% 

Effective and up to date By-laws 

Number of By-iaws reviewed and 
promulgated per annum 



Effective functioning of council measured by the number of council 
meetings per annum 

Number of council meetings 

4 


Effective functioning of standing committees measured by the 
number committee meeting held by committees per quarter 

Number of committee meetings held 

3 



Table 53: Strategic Partnership and Social Development 


4.3.5 To Grow the Local Economy in Order to Increase Opportunities for Participation and Equlty 


Key Performance Indicator 

Unit of measure 


Actuai 

Number of jobs created through municipality's local economic 
development initiatives including capital proiects 

Number of jobs created of contracts 
assigned to SMME's 



Value of contracts assigned to SMME's to enhance economic 
stimulation and deveiopment 

Rand vaiue of contracts assigned 




Table 54: Local Economy in order to increase opportunities for Participation and Equity 


4.4 Basic Service Delivery 


4.4.1 Baslc Service Delivery Performance Highlights 


Key Performance Indicator 

Unit of measure 

Annual Tarqet 

Actual 

Blue drop awards 

Number of towns receiving blue drop awards 

4 


Green drop awards 

Number of towns receiving biue green 
awards 

4 



Table 55: Basic Sen/ice Delivery Highlights 


4.4.2 Service Dellvery Challenges 


Service Area 

Challenge 

Action to address 

Water 

Increase on the blue drop awards 

Improve and maintain the standard set 

Reduce water losses 

Implementatlon of zonal meters and implementation of meterinq system 

Water provision 

Increase bulk water supply 

Sanitation 

Increase on green drop awards 

Improve and maintain the standard set 

Bucket eradication 

Completion of the sanitation proiects 

Solid Waste Disposal 

Continuous service deliverv 

Provide service at least twice a week 

Permitted iandfill sites 

Rnalisation of the application and Implementation 

Electricity 

Electricity losses 

Reduce % to below 5% 

All services 

Lack of maintenance and refurbishment 
of assets compromises service delivery 
and quality of supply 

Implementation of approved organogram and replacement of old vehicles 
and equipment 

Lack of maintenance leading to poor 
service deliveiy due to shortage of 
resources 

Vacant posts to be filled with competent and specialised vehicles to be 
replaced 


Maintenance and deveiopment of GIS for 
ward profiling 

Lobby for technical and financial support 

Inadequate access, development and 
maintenance to GIS 

Development of Master Plans 

Lack of funds to commission the 
compilation of master plans and other 
sector plans 

No departmental capacity and lack of 
technical support 

Appoint skilled and qualified officials 

Improve capital spending-Unspent grants 

Management and Monitoring 


Table 56: Service Deiiveiy Challenges 


4.4.3 Access to Free Basic Services 


In accordance with the municipality’s approved Indigent Policy, all household earning less than R 1 100.00 
per month will receive free basic services as prescribed by national policy. 




Households 

Year 

Total Number 

Free Basic Elecfricity 

Free Basic Wafer 

Free Basic Sanifation 

Free Basic Refuse Removal 


of HH 

Number of 
Access 

% 

Number of 
Access 

% 

Number of 
Access 

% 

Number of 
Access 

% 

2009/2010 

29 572 

26 560 


26 560 

89.81% 

21 166 


21 166 

71.57% 

2010/2011 

29 572 

26 560 


26 560 

89.81% 

21 166 


21 166 

71.57 

2011/2012 

29 572 

26 560 

89.81% 

26 560 


21 166 

71.57% 

21 166 

71.57% 


Table 57: Access to free Basic Services 



Page 35 of 62 

























































































2010/2011 


2011/2012 


Table 59; Water 


2010/2011 


2011/2012 


Table 60: Sanitatlon 


Indiqent Households 


Number of HH 


Sanitation 


Value 


Non-lndiqent Households 


Number of HH 




Refuse removal 

Year 

Indigent Households 

Non-lndiqent Households 


Number of HH 

Service per HH per 
month 

Value 

Number of HH 

Service per HH per 
month 

Value 

2010/2011 

5 394 



HHIIEIBSHH 


■§■■■■■■ 

2011/2012 

2 448 

^^■^■HHHI 






4.4.4 Access to Baslc Level of Servlces 

Number of households that gained access for the first time to the different types of basic services 




I 


Sanitation 


Refuse Removai 


Table 62: Number of households that gained access for the first time to the different fypes of basic services 

A) Capltal Budget Spent on Munlclpal Servlces 

The percentage of total approved capital budget spent on each municipal service delivery 


Refuse Removal I Streefs and Storm Water I Communlty Facilities 



2009/2010 


2010/2011 


2011/2012 


Table 62: Capital budget spent on Municipal Seivices 

B) Percentage Spendlng on Total Capltal Budget 


Year 


2010/2011 


Table 63: Percentage Spending on Total Capital Budget 

4.4.5 Water and Sanltatlon 

Water is probably the most fundamental and indispensable of natural resources, fundamental to life, the 
environment, food production, hygiene and power generation. Poverty reduction and improved water 
management are inextricably linked. Section 4 (b) of the Constitution lists water and sanitation services 
limited to portable water supply systems and domestic wastewater and sewerage disposal system as a 
local government function. Basic water is defined as 25 litres of portable water per day supplied within 200 
metre of a househoid. 

A) Water Servlce Dellvery Levels 


Descrlption 


2009/2010 


Actual 


2010/2011 


Actual 


2011/2012 


Actual 


Above Minimum Level 




m 


Piped water inside dweliin 


Piped water inside yard (but not in dweilin 


ublic tap (within 2000 metres from dwellin 


Other water supply (within 200 meters 


Minimum Service Level and Above- Sub-Total 


Minimum Service Level and Above Percentaqe 


imsm 


ublic tap (more than 200 metres from dwellin 


Other water supply (more than 200 metres from dweliin 


Below Minimum Level 




Below Minimum Service Level Sub-Totai 


Below Minimum Servlce Level Percentage 


Total Number of Households (Formal and Informan 38723 






Page 36 of 62 












































































B) Sanitation Service Delivery Levels 


Description 

2009/2010 

2010/2011 

2011/2012 


Actual 

Actual 

Actual 



22 196 

26 582 

26 582 

Flush toilet (with septic tank) 

373 

443 

443 

Pit toilet (ventilated) 

0 

0 

0 

Othertoilet provisions (above minimum service level) 

130 

130 

130 

Minfmum Service Level and Above- Sub-Total 

22 699 

27 155 

27 155 

Minimum Service Levei and Above Percentaqe 

58.61 

70.12 

70.12 


Below Minimum Level 


Bucket toilet 

13 111 

8 655 

8 655 

Other toiiet provisions (below minimum service level) 

2913 

2913 

2913 

No toilet provision 

0 

0 

0 

Below Minimum Service Level Sub-Total 

16 024 

11 568 

11 568 

Below Minimum Service Level Percentage 

41.39 

29.88 

29.88 

Total Number ot Households {Formal and Informal) 

2 913 

2 913 

2 913 


Table 65: Sanitation Service Levels 


4,4.6 Electrlcity 


Local Government plays a very important role in the provision of electricity. Section 1 53 of the Constitution 
places the responsibility on municipalities to ensure the provision of services to communities in a sustainable 
manner for economic and social support. 


Description 

2009/2010 

2010/2011 

2011/2012 

Actual 

Actual 

Actual 

Above Minimum Level 


Energy at least minimum service levei 

24 590 

24 950 

4 307 

Prepaid (minimum service levell 

21 928 

21 928 

21 928 

Minimum Service Levei and Above- Sub-Totai 



26 235 

Minimum Service Level and Above Percentage 



84.2% 

Below Minimum Level 

Enerqy below minimum service level 

5 000 

500 

0 

Prepaid below minimum service level 

4 911 

4 911 

4911 

Below Mlnimum Service Level Sub-Total 

4 911 

4911 

4 911 

Below Minlmum Setvlce Level Percentaae 

15.6% 

Total Number of Households (Formal and Informal) 

31 146 


Table 66: Electricity Service Levels 


4,4.7 Refuse Removal 


Description 

2009/2010 

2010/2011 

2011/2012 

Actual 

Actual 

Actual 

Above Minlmum Level 


Removed at least once a week 

0 

0 

0 

Minimum Service Level and Above- Sub-Total 

0 

0 

0 

Minimum Service Level and Above Percentaqe 

0 

0 

0 

Below Mlnimum Level 


Removed less frequentiy than once a week 

29 838 

29 838 

29 838 

Usinq communal refuse dump 

0 

0 

0 

Usinq own refuse dump 

0 

0 

0 

Usinq rubbish disposal 

0 

0 

0 

Other rubbish disposal 

0 

0 

0 

No rubbish disposal 

0 

0 

0 

Below Mlnimum Service Level Sub-Total 



29 838 

Below Mlnimum Service Level Percentaqe 

100 

Total Number of Households (Formal and Informal) 

29 838 


4.4.8 Roads 
A) Tarred Roads 


Overview of the total kilometres of roads maintained and new roads tarred 


Year 

Total kilometre tarred 
roads (km) 

kilometre of new tar 
roads (km) 

Kilometre existing tar 
roads re-tarred (km) 

Kilomefre of existing tar 
roads re-sheeted (km) 

Kilometre tar roads 
maintained (km) 

2009/2010 

128.26 

0 



1 28.26 

2010/201 1 

1 28.26 

0 



1 28.26 

2011/2012 

128.26 

0 


' 

1 28.26 


Page 37 of62 















B) Gravelled Roads 


Total kilomeire gravel 
roads (km) 


kilometre of new gravel 

roads constructed (km) 


Kilometre gravel roads upgraded to 
tar (km) 


Kilometre tar roads graded and 
malntained fkm) 


2009/2010 


143.71 


143.71 


2010/201 1 


143.71 


143.71 


2011/2012 


143.71 


143.71 


Table 69: Gravelled Road 


4.4.10 Storm Water 
A) Storm Water Infrastructure 

Total kilometres of storm water maintained and upgraded as well as the kilometres of new storm water 
pipes installed 


Year 

Total kilometre storm water 

measures 

Kilometres new storm water 
measures 

Kilometres storm water 
measures upgraded 

Kilometres storm water 
measured maintained 

2009/2010 

0 

0 

0 

0 

2010/201 1 

0 

0 

0 

0 

2011/2012 

0 

0 

0 

0 


Table 70: Storm Water Infrastructure 


B) Cost of Construction and Maintenance 

The amount of money spend on storm water projects 


Year 

Capital 

Maintenance 

2009/2010 

0 

0 

2010/2011 

0 

0 

2011/20012 

0 

0 


Table 71: Cost of Consfruction and Malntenance 


4.5 Munlclpal Grants 


Descripfion 


Equltable Share 


Finance 

Management 

Grant 


Munlcipal 

Improvement 

Grant 


EPWP 


RBIG 


MIG 


2009/2010 


Amount 

received 


107 565 127 


1 450000 


790 000 


0 


21 933 812 


Amount 

Spent 


107 565 127 


1 45 000 


790 000 


21 933 812 


2010/2011 


Amount 

received 


133 873 936 


1 450 000 


790 000 


0 


70 782 824 


Table 72: Municipal Grants 

4.6 Additional Performance 


Amount Spent 


133873 936 


450000 


790 000 


70 782 824 


Amount 

carried 

forward 


0 


28 062 000 


2011/2012 


Amount 

received 


144 525 000 


1 450000 


790 000 


10 642 000 


4 000 000 


) 325 232 


Amount Spent 


144 525 000 


1 450 000 


790 000 


10 642 000 


4 000000 


80 325 232 


Extent to 
which grant 
purposes 
were met 


Fully 


None 


4.7 Local Economlc Development 

4.7.1 Local Economic Development: Highllghts 


Description 

Highlights 

Appointment of EPWP Clerk and MIS Clerk to monitor EPWP ]ob creation 

EPWP Clerk and MIS Clerk have been appoinfed to monifor EPWP job creation 
projects 


4.7.2 Local Economlc Development Challenges 


Description 

Lack of LED Strategy 

Lack of sustainable long term programme 

Lack of skllls in SMME's 

Lack of formal business support implementation 

Seasonal unemployment 

Table 74: Local Economic Development Challenges 


Highlights 

Development and implementation of LED Strategy 

Grant funding for long term programmes 

Increase skills development 

Establishment of high level LED forum 

Increase job creation opportunities 


Page 38 of 62 































Chapter 5: Functional Performance 


5.1 Performance Hlghlights per Functional Area 

The munidpality is made up of the following functional areas; 


Department 

Division 

Office of the Municipal Manager 

Municipal Manaqer 

Inteqrated Development Planninq 

Internal Audit 

Information Technology 

Corporate Services 

Administration and Support 

Fluman Resources 

Leqal and Communications 

Human Settlement and Planning 

Financial Services 

income, Budqet and Financiai Statements 

Expenditure 

Supply Chain Management 

Economic and Community Services 

Local Economic Development and Tourism 

Protection Services 

Waste, Parks, Cemeteries and Council Properties 

Technical Services 

Proiect Manaqement Unit 

Electricity, Roads and Storm Water 

Water and Sanitation 


Table 75: Functional Areas 


5.2 Overview of Performance 

The municipality did not submit a Top Layer SDBIP for approvaL the following performance overview is as 
per the departmental SDBIPs. 

5.3 Performance per Functional Area (Departmental/Operational SDBIP) 

5.3.1 Office of the Municlpal Manager 

It consists of the following divisions; 

• Municipal Manager 

• Integrated development Planning 

• Internal Audit 

• Information Technology 

The operational Key Performance Indicators for Office of Municipal Manager are aligned to the following 
National Key Performance Areas, Municipal Key Performance Areas and IDP Strategic Objectives; 


National Key Performance Area 

Municipal Key Performance Area 

Municipal Tronsformation and Institutional Development 

Institutional Development 

Municipal Finandal Viability and Management 

Institutional Development 

Good Governance and Public Participation 

Institutional Development and Social Development 


Table 76: National Key Performance v/s Municipal Key Performance Area-Municipal Manager 


5.3.2 Corporate Services 

Corporate Services consists of the following divisions 

• Director; Corporate services 

• Administration and Support 

• Legal and Communications 

• Human Resources Management 

• Human Settlement and Planning 


National Key Performance Area 

Municipal Key Performance Area 

Municipal Transformation and Institutional Development 

Institutional Development 

Municipal Financial Viability and Manaqement 

Institutional Development 

Good Govemance and Public Participation 

Institutional Development and Social Development 

Local Economic Development 

Local Economic Development 


Table 77: National Key Performance v/s Municipal Key Performance Area-Corporate Services 


Page 40 of 62 














































5.3.3 Flnancial Services 


Financial Services consists of the following divisions: 

• Director: Financial Services 

• Income, Budget and Annual Financial Services 

• Expenditure 

• Supply Chain Management 


National Key Performance Area 

Municipal Key Performance Area 

Municipal Transformation and Institutional Development 

Institutional Development 

Municipal Financial Viability and Management 

Institutional Development 

Good Governance and Public Participation 

Institutional Development and Social Development 


Table 78: National Key Performance v/s Municipal Key Performance Area-Finandal Setvices 


5.3.4 Economic and Community Services 

Economic and Community Services consists of the following divisions: 

• Local Economic Development and Tourism 

• Protection 

• Waste, Parks, Cemeteries and Councii Properties 


National Key Performance Area 

Municipal Key Pertormance Area 

Municipal Transformation and Institutional Development 

Institutional Development 

Municipal Financial Viabiiity and Manaqement 

Institutional Development 

Good Governance and Public Participation 

institutional Development and Social Development 

Basic Setvice Delivery 

Infrastructure and Basic Services 


Table 79: National Key Performance v/s Municipal Key Performance Area-Economic and Community Services 


5.3.5 Technlcal Services 

Technical Services consists of the following divisions: 

• Director: Technical Services 

• Project Management Unit 

• Electricity, Roads and Storm Water 

• Water and Sanitation 


National Key Pertormance Area 

Municipal Key Performance Area 

Municipal Transformation and Institutional Development 

Institutional Development 

Municipal Financial Viability and Management 

Institutionai Development 

Basic Service Delivety 

Institutional Development and Social Development 


Table 80: National Key Performance v/s Municipal Key Performance Area-Technical Services 


Page 41 of 62 




























Chapter è: Financial Performance 


Chap 
Financial Pe 



6.1 Financlal Sustainability 


Key Performance Area and Indicator 

Debt coverage (Total operating 
revenue-operating grants 
received):debt service payments 
due within a year 

Service debtors to revenue -{Total 
outstanding sen/ice debtors: 
revenue received for sen/ices) 

Cost coverage (Avaiiable cash + 
investments): Monthly fixed 
operating expenditure 


Table 81 : Financial Sustainabiiity 

6.2 Financial Viability Highlights 

Description 

Revenue Collection 

Electricitv losses 

Table 82: Financial Viability Highlights 

6.3 Financial Viability Challenges 

Challenqes 

Debt Collection 

Poverty ridden society 

Table 83: Flnancial Viability Chailenges 

6.4 Financial Sustainability 


2009/2010 

17.9:1 


Comments 

The indicator determines if 
the municipality generates 
enough money to cover 
outstanding debts, the 
higher the ration, the better 
This is the percentage that 
outstanding debtors are of 
annual revenue, the lower 

the better. 

This is the percentage that 
cash on hands will be able 
to cover monthly 
expenditure, the higher the 
better 


Hiqhliqhts 

Appointment of a Coliection Company 

Commissioning of electricity losses investigations 


Action to address 

Appointment of Debt Collection Company 
Development and Implementation of LED Stratec 


6.4.1 Operating Results 

Perforinance against Budget. 



2009/2010 


2010/2011 


2011/2012 


Table 84: Performance againsf Budget 


The actual revenue is 19.8% above the budgeted amount 


Page 43 of 62 












Fines 


1 634 064 


20 041 I" 


1 577 540 


234 546 666 


386 664 


12 115 


! Service Charges 
Rental of Facilities 
: Propert Rates 

s Interest Earned-Outstanding 
Receivables 


Lincences and Permits 

Government Grants and 
Subsidies 

Sale of Land 

Other Income 

Interest Earned-External 
Investment 


Graph 1 : Revenue 


Operating Expenditure 


7 894 262- 
726 892 


15 230 392 


Graph 2: Operating Expenditure 


Employee Related Costs j 

f 

I 

Remuneration of Councillors j 

I 

I 

Depreciation and Amortisation l 

Expense j 

Finance Costs 

Bad Debts ! 


8 223 103 


17 917 661 Repairs and Maintenance 


1 874 590 


Page 44 of 62 








m Rates 


Other 


6.4.2 Outstandlng Debtors 

A) Gross Outstandlng Debtors per Servlce 


Economic Services 


Sanitatlon and Refuse 


year Property Rates Trading Services 

Elecfricity and Water 


2009/2010 


2010/201 1 


2011/2012 


Table 85: Gross Outstanding Debtors per Service 


pgiwiy/gi 




1^^ 




standing Debtors 


Electricity and Water 


Sewerage 


Water 


Sanitation and Refuse i 


3 020 111 


Graph 3: Outstanding Debtors 


B) Total Debtors Age Analysis 


Befween 61 -90 davs I More than 91 davs 








lišAlAa 


2009/2010 


2010/2011 


2011/2012 


Tabie 87: Total Debtor Age Analysis 


300000000 


250000000 


200000000 4 


150000000 + 


100000000 


50000000 


0-30 Days 31-60 Days 61-90 Day 91 and more 

Days 


Graph 4: Total Debtor Age Analysis 


'2009/2010 

2010/1011 

2011/2012 


Page 45 of 62 




















6.4.3 Viabllity Indicators 

A) Level of Reliance on Grants and Subsidies 


Year 

Toial Grants And Subsidies Received 

Totai Operating Revenue 

Percentage Reliance 

2009/2010 

II III 11 

M 1 1 !■ M ■ 



1 ^—— lllllllll 


60.18% 




62.17% 


Table 88; Level of Reliance on Grants and Subsidies 


[■ 

I 400 000 000 
I 350 000 000 

I 

i 300 000 000 
i 250 000 000 

I 200 000 000 

i 

I 150 000 000 

; 100 000 000 

I 

50 000 000 



2009/2010 

2010/2011 

2011/2012 


Grants 


Revenue 


Graph 5: Level of Reliance on Grants 

B) Liquidity Ratio 


Year 

Net Current Assets 

Net Current Liabiiities 

Ratio 

2009/2010 



0.83:1 

2010/2011 

119 689 190 

117 979 084 

1.01:1 

2011/2012 

mammMMMi^^mmmmM 



1.25:1 


Table 89: Liquidity Ratio 

6.4.4 Audited Outcomes 


Year 

2009/20TO 

2010/2011 

2011/2012 

Status 

Qualified 

Adverse 



Tabie 90: Audited Outcomes 


Details on the outcome of the past financial yearwith the corrective steps implemented: 


No. 

AFR 201 1 

Intervention to correct 

Action 


Responsible 

person 

Target date tor 
implementation of 
corrective steps 

Cash flow Stafement 






7. 

In terms of paragraph of GRAP 3 
Accounting Policies, Changes in 
Accounting Estimates and Errors (GRAP 

3), an entity that restates comparative 
figures is required to disclose the nature 
of the prior period error; for each prior 
period presented, to the extent 
practicable, the amount of the 
correction for each financial statement 
iine item affected. The comparative 
figures for the cash flow for the period 
ending 30 June 201 1 are as it did not 
agree with the finai audited figures of 
the previous financial year and nof 
disclosed in the financial statements. 

The matter will be 
address during the 
preparation of the 
financial statements 
for the 201 1/12 
financial year. 

The AFS for 30 June 2012 will 
address the issue and 
ensure correctness. 

Acting Chief Financial 
Officer 

31 July 22012 


Page 46 of 62 








































lant and eauipment f PPE 


I could not obtain sufficient appropriate 
audit evidence to support the 
existence, completeness and valuation 
of, as well as the municipality’s rights to, 
PPE amounting to R642 682 817 (2010: 
R546 038 278) as disciosed in note 8 to 
the financial statements. The asset 
register, which is deemed to be the only 
suitable record of the municipality’s 
assets, differed by R 708 1 05 from the 
disclosed balances. It was also not 
considered to be realised due to the 
following shortcoming identified: 


The assets register did not in all 
instances provide sufficient information 
on the physical iocation, unique 
identification numbers and valuation of 
assets. 


Various assets were also identified 
without any information on the cost of 
the assets the municipality’s records did 
not allow me to perform alternative 
procedures to obtain sufficient and 
appropriate audit evidence. 


Sufficient appropriate audit evidence 
for capital expenditure of R4 524 1 30 
(2010: R8 012 297) couid not be 
presented for audit purposes. Thus, I 
could not confirm the existence, 
completeness and valuation of, and 
the municipality’s rights to, PPE. The 
municipality’s records did not allow me 
to perform aiternative procedures in this 
reqards. 


The opening balance of PPE in 2010-1 1 
was restafed in the asset register from 
R323 154 016 to R 128 836 970. However, 
the restatement did not agree to the 
financial position and note 8 to the 
financial statements. The different could 
not be explained and I was unable to 
perform alternative procedure in this 
reaard. 


The statement of changes in assets 
was resfafed for a prior period error 
adjustment form R94 791 ro R4 019 603. 
This amount was not verifiable against 
the audited financial stafements of 
2009-10, which inciuded an error 
adjustment of only R94 791 . The 
completeness, valuation as well as the 
municipality's rights could not be 
verified against sufficient, appropriate 
audit evidence. I was unable to 
perform alternative procedure in this 
reaards. 


I could not obtain sufficient 
appropriate audit evidence to confirm 
the existence, completeness and 
valuation of, and the municipality’s 
rights to, impairment amounting to 
R203 830 435 disclosed in note 8 to the 
financiai statement and R 189 31 5 032 
disciosed in the statement of changes 
to the net assets. This is due to the fact 
that the opening balances for each 
class of assets and the net value of 
any impairment for each class of asset 
could not be confirmed. The balance 
of impairment losses disclosed in note 
8 to the financial statement also 
differed from the balance disclosed in 
the reconciliation of PPE in note 8 by 
R1 3 1 59 079, and the difference could 
not be resolved. The municipality’s 
records did not allow me to perform 
reasonable alternafive audit 


Intervention to correct 


In terms of directive 4 
all asset registers need 
to be correctly 
implemented during 
the 201 1 financiai 
year. A request was 
made to COGTA for 
assistance of vaiuation 
and costing of 
infrastructure assets. 


Resolved with AG as 
the information has 
been provided, but 
the issue has not been 
taken out of the 
queries. 


The issue has been 
investigated and will 
be rectified during the 
compiiation of the 
Annual Financial 
Statement for the year 
2011/2012. 


The matterwill be 
rectified during the 
compilation of the 
Annual Financial 
Statement for the year 
2011/2012. 


The matterwiii be 
rectified during the 
compilation of the 
Annual Financial 



Responsible person 


Acting Chief Financial 
Officer 


Target date for 
Implementation of 
corrective steps 


New updated verification 
of assets has been done by 
the municipaiity. The only 
thing that is outstanding is 
to renumber the assets with 
an aluminum bar label 
machine that was ordered. 


Vaiuation and costing of 
assets specificaily 
infrastructure assets as weii 
as land will be done by 
IMESA personnel. The draft 
report will be presented to 
the ACFO on Friday, 03 
August 2012, then the 
second process will be 
unfold and the final report 
will be presented by 31 
Auqust 2012 


Resolved. Information is 
available and 
documentation will be 
provided again. 


The Accountant Asset, 
together with the person 
responsible for the financial 
statements will investigate 
and address the disclosed 
shortcoming. 


The Accountant Asset, 
together with the person 
responsible for the financial 
statements will investigate 
and address the disclosed 
shortcoming. 


Statement for the year and address fhe disclosed 

2011/2012. shortcoming. 



Accountant Assets 
Management 


Acting Chief Financial 
Officer 


31 December2012 


Acting Chief Financial 
Officer 



Acting Chief Financial 
Officer 


17 August 2012 


Acting Chief Financial 
Officer 


The Accountant Asset, 
together with the person 
responsible forthe financial 
statements will investigate 


Acting Chief Financial 
Officer 



Page 47 of 62 













































13. Intermsof paragraph 18ofGRAP21 - The matfer wili be The Accountanf Asset, Acting Chief Financial 17August2012 

impairment of non cash generating recfified during the together with the person Officer 

assets, an entity shail assess at each compilation of the responsible for the financial 

reporting date whether there is any Annuai Financial statements wili investigate 

indication that an asset may be Statement for the year and address the disciosed 

impaired. If any such indication exists, 2011/2012. shortcoming. 

the entity shall estimate the 

recoverable service amount of fhe 

asset. In the previous year it was 

reported that lease assets with a carry 

value of R6 898 601 were identified thaf 

could be impaired. No prior error were 

identified in the 2010/1 1 financial 

statements for the correction of this 

error not adjusted in the previous year 

and therefore the opening balance of 

leasehold assets of R 1 5 4 1 9 696 couid 

be misstated. 

14. GR AP U Properfy, Plant and Equipment The matter will be Vaiuation and costing of Acting Chief Financial 17August2012 

requires the municipality to review the rectified during the assets specificaliy Officer 

residual value and the useful life of an compilation of the infrastructure assets as well 

asset at least at each reporting date Annual Financial as land wiil be done by 

and, if expectations differ from previous Statement for the year IMESA personnel. 

estimates, the changes must be 201 1 /2012. 

accounted for as a change in an 

accounting estimate in accordance 

with GRAP 3. 1 could not obtain 

sufficient appropriate audit evidence 

that the municipality had reviewed the 

assets to determine if f here was a 

change in accounting esfimate. 

1 5. I could not obtain sufficient appropriate The municipality does No Action Acting Chief Financial 30 June 2012 

audit evidence that the municipality not have property that Officer 

had identified investment properties were obtained for the 

and made the appropriate disclosures purpose of Investment 
in the financial statement as required Property and property 
by paragraph 84 of GRAP 1 6 Investment that is leased out, only 
Property. Although the municipality serves as housing or 

recognised rental income of R355 344, communal land for 
the asset register did not clearly identify future extensions to 
the investment properties. . town estabiishment, 

Consequently, I could not obtain any 
assurance over the valuation and 
completeness of investment property 
included in land and community assets 
of R78 368 850 disclosed in note 8 to the 

financial statements. 

16. GRAP 1 7 requires that subsequent to The issue raised here Is No action to be taken by Actlng Chief Financial 31 July2012 

initial recognition at cost, an ifem PPE about erven (stands) management - perhaps the Officer 

should be carried af cost less in the townships that PPE policy can address the 

accumulated depreciation and has been sold over issue by stipulating that 

accumulated impalrment losses. As years to the stands that have been 

indicated in note 8 to the financial community, but the sold/issued in the townships 

statements, land and buildings were not Title Deeds have not been indicated as sold and 

impaired but had it been done, land yet been transferred nof be recognised as PPE. 

and buildings of R288 667 050 wouid into the name of the 

have been impaired to R78 368 850, new owners. The 

which is currently disclosed in the municipaiity has no 

financiai sfatement, an amount of R210 right to these stands 

298 200 from the properties owned by and cannot indicafe it 

the municipality as indicated in the as impairment iosses. 

valuation roll is not recognised in the 

financial statements resulting in a The amounts used by 

misstatement of PPE and impairment the AG to calculate 
losses by this amount. the amount of R21 0 

298 200 is based on 
the valuation roll that 
has been prepared 
four years ago. These 
stands have been soid 

many years aqo. 

17. An amount of R189 315 545was directly The matter will be The Accountant Asset, Acting Chief Financial 20August2012 

accounted as impairment losses rectified during the together with the person Officer 

against the accumulated surplus for the compilation of the responsible for the financial 

year ending 30 June 201 1 as disclose in Annual Financial statements wili investigate 

the statement of changes in the net Statement for the year and address the disciosed 

assets. Since the municipality did not 201 1 /2012. shortcoming. 

distinguish between what assets are 

cash generations and those are not, 

there are no disclosures in the financial 

statements as required by paragraph 72 

of GRAP 21 - Impairment of non-cash 

generated assets or 1 20 of GRAP 26 - 

Impairmenf Of Cash Generafinp Assefs. 

18. Included in the amount of R2 651 107 in The matter will be The correct figures will be Acting Chief Financial 31July2012 

note 21 (other income) to the financial investigated and stated in the Annual Officer 

statements were proceeds of R1 184 corrected during the Financial Statement for the 

254 in lieu of property sales not yet compilation of the year 201 1/2012. 

recognised and disclosed as disposals in Annual Financial 
a reconciliation to the class of PPE as Statement for the year 

required by paragraph 82(e) of GRAP 201 1/2012. 


Page 48 of 62 







































1 7, resulting in the PPE in note 8 and 
revenue being overstated by R1 184 
254. 


Net effect on the 
revenue wili be zero 
and thus not 
overstated. 



Trade and other payables ffom exchange transactions 

1 9. Included with trade and other payables 

from exchange transactions is an 
amount of R4 889 345 in respect of 
unidentified deposits received. This 
account balance was not cleared at 
year end and the identity of the 
depositor was not known. 

Consequently, the amount could not 
be substantiated against sufficient 
appropriate audit evidence and 
therefore the valuation, obligation of 
this amount could not be confirmed. I 
was unable to perform altemative 
procedures owing to limitation with the 
computerised system in use. 


Paragraph 14 of lAS 39: Financial 
instruments: Recognition ond 
measurement states that an entity shali 
recognise a financial iiability in its 
statement of financial position when, 
and only when, the entity becomes a 
party to the contractual provisions of 
the insfrument. Trade payable 
transactions of R540 1 73 were identified 
fhat were nof included in the balance 
of trade and other payable from 
exchange transaction in note 9 to the 
financial statements. Consequently, the 
completeness of trade and other 
Dayable could not confirm. 


Trade and other payables (note 9) were 
increased from R 1 2 551 924 to R 25 671 
567 in the revised financial statements 
Included was R6 141 81 6 in respect of 
payments received in advance, which 
were not supported by sufficient 
appropriate audit evidence. 

Furthermore, fhe balance of note 9 to 
the financial statements of R741 620 
(2010: R681 933) could not be 
substantiated against sufficient 
appropriate audit evidence. 


Consequently, I was unable to confirm 
the valuation, right and obligations as 
well as completeness of trade and 
other payables in note 9. 1 was not able 
to perform aiternative procedure owing 
to iimitations with the accounting 
svstem in use. 


Included with the balance for trade 
and other payables from exchange 
transactions of R25 671 567 as disclosed 
in note 9 was a staff leave accrual of 
R7 01 7 048. This balance includes leave 
credits calculated af R2 1 60 862 that 
should not form part of this account 
thus overstating the account balance 
and understating the accumulated 
surolus at vear-end. 


Trade and other receivables from exchange fransactions 


The letterwill be 
written to the First 
National Bank 
whereby we 
requested the bank to 
provide us with detail 
information of the 
money that was 
deposited into our 
bank account. 


The statement will be 
investigated and 
rectified during the 
compilation of the 
Annuai Financiai 
Statement for the year 
2011/2012. 


The statement will be 
investigated and 
rectified if necessary. 
TheR12 551 924 should 
be R18 459 235. The 
debtorTrial Balance 
indicates the credits 
used and this practice 
is the acceptable 
procedure to report. 


A difference of R1 million exist 
between management calculations of 
non-recoverabie of R231 074 513 and 
the financial statements in support of 
the trade and other receivables 
amount of R230 071 476 resulting in an 
understatement of this acc’ount 
balance. The entity's systems did not 
permit me to perform alternative 
procedures as a result, the 
completeness and valuation of non 
recoverable could not be confirmed. 


Management has 
found no difference 
between the figure as 
presented in the AFS 
and the reporf 
provided to the AG. 



The Bank Reconciliation 
Clerk together with the 
Accountant Income are 
busy allocating the money 
to the specific accounts, 
however they are still 
waltlng for the bank to give 
them other information on 
those deposlts that could 
not be traced. 


ACFO will ensure that the 
AFS stated correctly. 


Acting Chief Financial 7 August 2012 

Officer 


Acting Chief Financial 20 August 201 2 
Officer 


ACFO will ensure that the 
disclosures not are being 
supported with evidence. 


Acting Chief Financial 20 August 2012 
Officer 


The Salary Accountant 
togetherwith budget 
and statement will be 
scrutinlze the 
information before 
included in the Annual 
Financial Statement. 


ACFO together with the 
MFMA Advisor will 
thoroughly review the AFS 


Acting Chief Financial 20 August 2012 
Officer 



Acting Chief Financial N/A 
Officer 


Page 49 of 62 




























24. 

The completeness and validity of an 
amount of R6 1 46 354 that is included in 
net trade and other receivables from 
exchange transactions of R70 231 973 
could not be audit satisfactory owing to 
a lack of sufficient, appropriate audit 
evidence. As a result, 1 am unable to 
verify the municipality's claim and 
confirm that that these monies were not 
owed to and recoverable by the 
municipality, nor could 1 perform 
alternative procedures owing to 
limitations identified with the 
accountinq system in use. 

The matterwill be 
investigated and 
corrected during the 
compilation of the 

Annuai Financial 
Statement for the year 
2011/2012. 

The correct figures will be 
stated in the Annual 

Financial Statement for the 
year2011/2012. 

Acting Chief Financial 
Officer 

31 July2012 

25. 

The financial statement disclosure of 
note 4 (trade and other recelvables 
from exchange transactions) was 
incorrect, owing to the reconciliation of 
the debt impairment provision showing 
a closing balance of R230 071 476 that 
differed by R5 231 579 from fhe trade 
and other receivables from exchange 
transactions analysis in note 4 to the 
financial statements of R224 839 897. 
Similarly, trade and other receivables 
from exchange transactions of R300 303 
449 differed by R 1 1 373 395. 

The matterwas 
investigate and found 
that the difference 
was R1 491 315 and 
not as indicated by 
the AG. 

The matter will be rectified 
during the Annual Financial 
Statement for the year 
2011/2012. 

Acting Chief Financial 
Officer 

20 August 2012 

Inventory 



26. 

As reported in paragraph 1 3 of my 
previous report, inventory of R1 744 376 
[2010: R1281 881) was again not 
audited satisfactory because 1 did not 
find sufficient appropriate audit 
evidence that the process of stock 
count were done in an adequate 
manner. Shortcomings identified 
includes inventory items were identified 
that were not recorded on the 
inventory system and stores trail 
balance, old, damaged and 
redundant items stlll at store location 
and not taken off the inventory registers 
and third party inventory at the 
municipal store location that were not 
counted and recorded as consignment 
stock. Owing to this, 1 could again not 
perform reasonable alternative 
procedures to confirm the 
municipality's right to inventory, 
valuafion, existence and completeness 
of inventory af 30 June 2011. 

The necessary steps 
and procedures will be 
established and put 
into place to ensure 
that every item is 
counted during stock 
taking as well quarterly 
veriflcation. 

Stock count has been done 
on quarterly basis and 
deviations found are 
corrected. 

Acting Chiet Finandal 
Officer 

06July2012 

27. 

Contrary to paragraph 45 of GRAP 1 2 - 
Inventories that requires that the 
financial statements disclose the 
amount of inventories recognised as an 
expense during the period and the 
amount of any write-down of 
inventories recognised as an expense 
and other associated disclosures, no 
such disclosures was included in the 
financial statements for the year ending 
30June2011. 

The disclose note will 
be included in the 
financiai statement for 
theyear 2011/2012. 

Acting CFO to ensure that 

AFS been disclosed 
properly. The MFMA Advisor 
wiil review the AFS before 
being present to the 

Internal Audit Unit and 

Audit Committee. 

Acting Chief Financial 
Officer & MFMA 

Advisor 

20 August 2012 

1 UnsDentconcfdionalaranis 1 

28. 

The balance of unspent conditional 
grants of R8 1 75 1 55 (2010: R32 205 544) 
could not be substantiated by sufficient 
audit evidence. Consequently, 1 could 
not confirm the completeness, 
valuation, obligation and existence 
assertions and was unable to perform 
alternative procedures as a result of 
shortcominq in internal control. 

The Expenditure Clerk 
furnish the Project 
Management Unit with 
the payment voucher 
as and when the 
payment has been 
made. 

ACFO has prepared a cash 
flow statement on monthly 
basis. Management and 
Councillors are being 
informed about finance of 
the municipality on monthly 
basis. 

Acting Chief Financial 
Officer 8, Acting 
Technical Services 

On going 

29. 

According to note 1 4; an amount of 

R78 831 389 were recognised as income 
during the year. The completeness, 
valuation, obiigation and existence 
assertions of this amount could not be 
audited owing to lack of sufficient, 
appropriate audit evidence. According 
to note 8, an amount of R66 610 389 
were spent on property, plant and 
equipment resulting in a difference of 

R1 1 720 503 which could not be 
resolved satisfactorily. The application 
of alternative procedures was not 
possible owing to shortcoming in 
internal control. 

The matter was 
investigated and 
found that the amount 
that the AG reflected 
was incorrect with R 

500 000 and the 
correct amount was 

R78 331 389. 

The Council to condone 
the expenditure on PPE as 
District Municipal Grants 
and Provincial Government 
Grants as from own funds if 
it is cleared that it will not 
be received. 

Acting Chief Financial 
Officer 

30 June2012 

Council Resolutionl! 


Irregular expenditure 


30(a). 

Payments of R25 903 939 were made 
towards contracts that had not been 

Matters has be 
investigate and report 

Acting CFO to finalise. 

Acting Chief Financiai 
Officer 

30 June2012 


awarded in accordance with the 

will be table to council 



Council 


municipal supply chain management 

for condonation. 



condonation of 


Page 50 of 62 
































(SCM) policy, resulting in irregular 
expenditure. The possibility that 
fraudulent actions took place with the 
awarding of these contracts could not 
be excluded. 




irregular 
expenditure by 
Council with 
reasons. 

30 (b). 

Irregular expenditure of R31 004 (2010: 

R1 183 153) incurred as a result of 
payments to councillors in excess of the 
limits determined in terms of the 
Remuneration of Public Officer Bearers 

Act, 1 998, are not disclosed in note 36. 

The Councillors dispute 
the money that were 
wrongly paid to them 
and they pass a 
resolution that an 
independent 

Chartered Accountant 
to be appointed. 

The money owed are being 
deducted on monthiy basis 
and an independent CA 
firm has been appointed to 
verify the transactions 
(overpayments and the 
deductions). 

Acting Chief Financial 
Officer 

31 August 2012 

30 (c). 

In terms of section 43(2) of the annual 
Division of Revenue Act, 2010 (Act No. 1 
of2010) (DoRA), spending of an 
allocation in contravention of the DoRA 
constitutes irregular expenses in terms of 
the MFMA. An amount of R4 529 873 
from the municipal infrastructure grant 
was used to defray operational 
expenses in the previous financial year, 
resulting in irregular being understated 
by the same amount in the financial 
statements. 

Due to the negative 
cash fiow situation, the 
administration was 
compelled to utilize 
the cash avaiiable 
from infrastructure 
grants. 

The municipality has take 
steps to improve its cash 
flow situation and part of 
the unspent funds has been 
withheld by NT in the 
current financial year. 

Council to toke note of the 
cash flow situation and to 
condone fhe irregular 
expenditure 

Acting Chief Financial 
Officer 

30 June2012 

Fruitless ar 

d wasteful expenditure . . — 1 

31. 

The completeness, accuracy, 
classification and occurrence of 
fruitless and wasteful expenditure of 

Rll 038 059 (2010: R1 347 142) 
disclosed in note 35 to the financial 
statements could not be determined, 
as transactions of R4 370 294 were 
identified during the year that had 
not been included in the disclosure 
note. These exclude amounts to be 
paid as a result of the deiays with the 
finalisation of the audit processes and 
additional work performed on late 
responses to replies to audit findings, 
which were in many instances not 
submitted or submitted late. 

The municipality will 
endeavour to rectify 
the situation and put 
procedures in place to 
ensure positive 
outcomes. 

The Expenditure Clerk 
updates register relating to 
the unauthorised, irregular 
as well as fruitless and 
wasteful expenditure. 

Expenditure incurred that 
does not comply with the 
SCM threshold- Deviation 
report are been reported to 
the Finance Committee as 
when it happened. 

Acting Chief Financial 
Officer 

30 June 2012 

Unauthorised exDencl!ure 

32. 

The completeness of unauthorised 
expenditure of R21 181 328 disclosed in 
note 34: Unauthorised Expenditure to 
the financial statements could not be 
determined because of the following:- 

The capitai 
expenditure to be 
investigated. clarified 
and council to 
approve (authorise) 

Same as point 31. 

Acting Chief Financial 
Officer 

20August2012 

32.(0) 

Capital expenditure of R1 095 548 was 
identified in the previous year that 
constitute unauthorised expenditure 
because it was not budgeted for or 
disclosed in the financial statements 

the expenditure. 




32.(b) 

Current year spending exceed the limits 
of the amounts appropriated for the 
different votes in an approved budget 
by R21 552 328 for which only 

R21 141 328 was included in note 34 to 
the financial statements, resulting in an 
understatement of R41 1 000. 

The expenditure to be 
investigated and 
council to approve. 

The Expenditure Clerk 
updates register relating to 
the unauthorised, irregular 
as weil as fruitless and 
wasteful expenditure. 

Expenditure incurred that 
does not comply with the 
SCM threshold- Deviation 
report are been reported to 
the Finance Committee as 
when it happened. 


20 August 2012 


General expenditure 


33. 

Sufficient appropriate audit evidence 
for expenditure payments of 

R1 9 850 412 was not obtained, resulting 
in a limitation on the audit. The systems 
in use by the municipality did not permit 
the application of alternative 
procedures. 

The Accountant 
Expenditure is 
retrieving the 
expenditure payments 
and it will be 
submitted to external 
auditor during their 
planning stage. 

There are personnel who 
have been assigned to do 
fiiing of payment voucher. 

The payment voucher has 
been filing in terms of the 
cheque numbers and 
eiectronic transfer. There is 
also a spreadsheet that 
indicates payment 
vouchers that are 
contained in the file and 
has been updated as and 
when a person removes the 
document. 

Acting Chief Financial 
Officer 

05 Sepf em ber 20 1 2 

34. 

An amount of R644 816 was paid to 
several contractors for the 
establishment of a nursery in previous 

Same as point 33. 

The item will be drawn and 
presented to Council for 
condonation. 

Acting Chief Financial 
Officer 

30 June2012 


Page 51 of 62 
























Related pa 


36. 



financial years, which to date could not 
be substantiate by way of sufficient 
appropriate audit evidence, while 
management processes were not 
adequate to enable me to perform 
altematlve orocedures. 


investment in municipal enti 


The financlal statements of the 
municipality could be materially 
misstated because the financial 
information of the municipal entity, the 
Setsoto Integrated Dairy Project, 
established by the council during the 
financial year was not consolidated 
and a consolidated set of financial 
statements presented for audit as 
required by section 1 26(1 (b) of the 
MFMA. 


fransactions 


I was unable to obfain the 
representations considered necessary 
from the accounting officer with 
respect to the identification and 
balances of, and transactions with, 
related parties. Consequently, I could 
nof determine the effect on the 
disclosures in note 32 to the financial 
stafements and was also unable to 
perform alternative procedures owing 
to limitation with obtaining of 
information. 


Going Concern 


The municipality faces challenges that 
highiighted in note 47(going concern), 
but the disclose is incomplete and does 
not include the following going concern 
risks faced by the municipality; 


Decline in service standards: during the 
financiai year, severai community 
protests were obsen/ed of which the 
most notable were the one on 1 4 April 
201 1 and subsequent to year-end on 1 4 
September 201 1 . A commission of 
enquiry was set up to investigate cases 
of irreguiarities, of which the report was 
presented to the council. As per the 
approved adjustment budget, the 
council included R21 miilion from a 
government department in respect of 
capital spending but by year-end no 
monies had been received. 


Poor accounting and performance 
management systems and controls: 
during the year, financial reports were 
not submitted timeously to the relevant 
stakeholders owing to the 
impiemenfation of a new financial 
statement system. These included VAT 
201 returns, bank reconciliations, section 
71 (2) MFMA reports and valuation roll 
reconciliations. 


Over-reliance on government grants 
and subsidies: the municipalify is not 
able to generate sufficient cash to 
finance it normal course of business 
transactions. According to the 2010-1 1 
financial statement, revenue exchange 
and non-exchange transactions was 
R343 278 736 whereas government 
grants and subsidies of R206 606 760 
represent 60% of the total revenue in 
2010-1 1 . According to the approved 
budget, the council indicated that the 
budget of R379 million would be 40% 
financed internally and 60% from 
external sources. Eight mlllion rand of 
the government grants received from 
the conditional municipal infrastructure 
grant was spent on items not related to 
the condition of the arant. 


Operating issues: during the previous 
year, numerous findings were raised by 
internal and external audit. To date, no 
formai replies to these findings have 
been received. The financial statements 
presented for auditing contained 
material errors and were not prepared 
in terms of the appropriate accounting 
framework, which required external 
assistance several aovernment 







Meeting between the 
Entity CEO and 
responsible official in 
finance to agree on a 
process to make 
available all relevant 
documents and 
information to 
complete a 
consolidated AFS, if 
anv is still outstandinq. 


A process has put in 
place and a policy 
was drafted and 
approved by the 
Council on the 30'*^ 
May 2012. 


Council takes note 
and will endeavour to 
rectify. 


Council to ensure that 
only funds published in 
the DORA or Provincial 
Gazettes to be 
included in the budget 
in order not to create 
expectations. 


Management take 
note and will 
endeavour to rectify 
the situation 


Improved budget 
principles and 
budgeting to be 
effected. 


Entity CEO make available 
(if any is still outstanding) 
relevant documents to 
finance department 


Awareness campaign on 
employees will done which 
is schedule from the 02'^'^ - 
08"iAugust2012. 


Improved budgeting and 
more strict measures and 
management of 
expenditure 


Council to ensure that only 
funds published in the 
DORA or Provincial 
Gazettes to be inciuded in 
the budget in order not to 
create expectations. 


Procedures are put in 
place and internal 
audit findings are 
being submitted to the 
office of the municipal 
manager. Then upon 
the receipt the 
secretary distribute the 
findings that are 
accompanied with 


The CAE reports in the 
Management meeting on 
the status of the responses 
include detailed findings. 


Chief Executive Officer 27 February 2012 
- Entity 


The financial reports has 
been submitted to the 
different stakeholders on 
monthiy basis, however 
there was financial reports 
that has incorrect figure 
and were place to Council. 
And those reports were 
corrected. Since then the 
MFMA Advisor is verif/ing 
the reports before being 
submitted. 


The municipality has buffed 
up the credit control 
division and they are 
enforcing credit and debt 
coliection policy. The 
attorney has been 
appointed on the 27 June 
2012 to assist with 
collection. 


Acting Chief Financial 31 August 2012 
Officer & Director 
Corporate Ser/ices 


MM/CFO/AII Directors 





Acting Chief Financial 
Officer 



Acting Chief Financial 
Officer 



Municipal Manager On going 


Page 52 of 62 









































departments to bring it in line with the 
GRAP accounting framework. 


Financlal instruments: presentation and disclosure 

38. In terms of paragraphs 33 and 34 of IFRS 

7, fhe municipality is required to disclose 
for each type of risk arising from 
financial insfruments prescribed 
qualitative and quantitative disclosures. 
The municipality did not provide me 
with sufficient appropriate audit 
evidence to substantiate the disclosure 
made in note 46 (risk management) to 
the financial statements. Consequently, 

I was unable to adequately audlt the 
occurrence, rights and obligations, 
completeness, classification, accuracy 
and compliance assertions. Owing to 
shortcomings identified with the 
accounting system, I was unable to 
erform alternative procedures. 


The disclose note will 
be inciuded in the 


Acting CFO to ensure that 
AFS been disclosed 


Acting Chief Financial 
Officer 


20 August 2012 


financial statement for properly. The MFMA Advisor 


the year 201 1/2012. 


will review the AFS before 
being presenf to the 
Internal Audit Unit and 
Audit Committee. 


39. 

The Value Added Tax (VAT) receivable 
of R5 584 510 was incorrectly included in 
both the VAT receivable and the VAT 
payable at 30 June 201 1 . This resulted in 
the overstatement of the VAT payable 
of R5 584 510 at year end as reflected in 
note 1 1 to the financial statements. 

The matter has been 
investigated and 
found that when 
payment was made 
the portion of vat was 
allocated incorrectiy 
and now the journal 
wili be pass on vat 
controi account. 

11 will be rectify during the 
compilation of the financial 
statement for the 

2011/2012. 

Acting Chief Financial 
Officer 

40. 

input VAT of R5 31 7 1 85 was not 
claimed resulting in VAT receivables as 
disclosed in note 12 to the financial 
statements understated by this amount 
and PPE overstated at 30 June 201 1 . 

Same as point 39. 

Same as point 39. 

Acting Chief Financial 
Officer 


20August 2012 


Bulk purchases 

41 . The disclosure of bulk purchases of R30 

341 173 in note 27 to the financial 
statements did not agree to the general 
ledger total of R33 922 1 73. Not all 
purchases were included in note 27 
resulting in an understatement of bulk 
urchase exDenditure of R3 581 068. 


Other recelvables trom non-exchange transactions 

42. Deductions in respect of employee 

taxes for certain employees were not 
done contrary to the tax tables 
determined in terms of paragraph 9(1 ) 
of the 4*fi Schedule, resulting in an 
overstatement of employees tax 
amounting to R868 033, which was 
inciuded in the amount of R8 468 466 
disclosed in note 38 to the financial 
statements. Payables from non- 
exchange transactions were 
understated by R868 033 and other 
payables and other receivables 
overstated with the same amount. 


The contract performance measures 
and the methods whereby they were 
monitored were insufficient to ensure 
effective contract management as per 
the requirements of section 1 1 6(2) (c) of 
the MFMA. Payments were made in 
previous years that included 
overpayments to suppliers for which not 
receivable was created. Other 
receivables were therefore understated 
by R802 581 at year-end. 


Predetermined objecfives 


49. I was unable to conduct the audit of 

performance against predetermined 
objectives as the municipality did not 
submit the annual performance report 
as required by section 46 of the MSA 
and section 1 21 (3) (c) of the MFMA, 



The municipality will 
endeavour to ensure 
that the same do not 
happen again. 


Matter has been 
investigated and 
rectified. 


The municipality will 
endeavour to rectify 
the situation and put 
procedures in place to 
ensure positive 
outcomes. 


Ali quarteriy reports to 
be submitted with 
supporting 
documentation 


Daily and monthly 
reconciliation has been 
done to ensure that the 
payments are being 
aliocated in the correct 
vote. 


The VIP consultant was 
called to rectify the matter 
as now on the system has 
been programmed to 
comply with SARS. 

However, the minor 
issue/probiem that we face 
was the rates for 
employees who travel with 
their own vehicie and claim 
money back. And this will 
have a negative impact 
on employees. 


Measures wiil be put in 
piace to ensure that 
overpayment does not 
take place. 

Project Management Unit 
Manager conduct site 
inspection before any 
payments made and 
performance are being 
measured against their 
contract/service level 


Annual Report to be made 
available by 31 August 
2012 


Acting Chief Financial 
Officer, Expenditure 
Manager 

Expenditure Clerks 


Acting Chief Financial 
Officer 


20August 2012 


On going 


30 June2012 


Acting Chief Financial 
Officer 



Municipal Manager 


31 August 2012 


Strategic and performance management 


50. 

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 


Revised Organisational Approved during council 

Performance meeting of the 02 August 

Management System 201 2 

Policy Framework 


Municipal Manager 



Page 53 of 62 






























will be conducted, organised and 
managed, including determining the 
roles of different role players as 
required by sections 38, 39, 40 and 41 
of fhe Municipal Systems Act (MSA) 
and Municipal Planning and 
Performance Management 
Regulafions (MPPMR) 7 and 8. 



51. 

The accounting officer of the 
municipality did not by 25 January 
assess the performance of the 
municipality during the first half of the 
financial year, taking into accounf the 
municipalify’s service delivery 
performance during the first half of the 
financiai year and the service deiivery 
targets and performance indicators set 
in the service delivery and budget 
implementation plan as required by 
section 72( 1 1 (a) (ii) of the MFMA. 

The Mid-year 

Assessment Report for 

201 1/201 2 was tabied 
on the 25 January 

2012 

Adherence to the 
requirement from January 
2012 onwards 

Municipal Manager 

25 January 2012 

52. 

The municipality did not enter into a 
service delivery agreement with the 
municipal entity for the provision of a 
municipal seivice as required by section 
76(b) of the MSA and MPPMR 9. 

The CEO to meet with 
the Legal Manager 
from the Municipality 
to discuss the Service 
Delivery Agreement 

Scheduie a meeting with 
the Legal Manager 

Chief Executive Officer 
- Entity 

28'^ February 2012 

1 ComDliance with laws and requlations, AAunicipal Finance AAanagement Act fMFMA^ and Annual Budgets 



53. 

The service delivery and budget 
Implementation plan (SDBIP) were 
never completed and submitted to the 
mayor for approval which is contrary to 
section 53( 1 ) (c) of the MFMA, that 
requires of the mayor of a municipality 
to take ali reasonable steps to ensure 
that the municipality's service delivery 
and budget implementation pian 
(SDBIP) is approved within 28 days after 
the approval of the budget. 

Executive Committee 
approved the SDBIP 
2012/2013 on the 03 

July 2012 

Approved SDBIP to ensure 
regularly quarterly reporting 

Municipal Manager 

03 July2012 

54. 

The accounting officer did not always 
submit the monthly budget statements 
to the mayor and/or relevant provincial 
treasury, as required by section 71(1) of 
the MFMA. 

Process will be put in 
place and the political 
office will be furnished 
with the report. 

On monthly basis, the 
budget and statement 
division furnish the office of 
the Mayor with the report 
on the same time when 
they submit the report to 
the Provincial and National 
treasury. 

ACFO & Municipal 
Manager 

Monthly basis 

55. 

The municipality incurred expenditure 
that was not budgeted for and/or 
incurred expenditure in excess of the 
limits of the amounts provided for in the 
votes in the approved budget, in 
contravention of section 1 5 of the 

MFMA. 

Process will be put in 
place and budget 
mid-year assessment 
will be done. 

The budget and statement 
division will have a formal 
session with the head of 
departments and division 
whereby their going to 
assess their budget in terms 
of spending and this will be 
done in Januaiy 201 2 and 
thereafter the adjustment 
budget wili be drafted and 
presented to Council. 

All Directors 

31 January 2012 


Human resource management 

56. The municipal manager and senior 

managers directly accountable to the 
municipal manager did not sign annual 
performance agreements for the year 
under review, as required by sections 
57(1 )(b) and 57(2) (a) of the MSA. 


The municipal manager did not provide 
job description’s for each post in the 
sfaff establishment as required by 
section 66 ( 1 ) (b) of the MS A because 
job descriptions in place were ail 
outdafed and not relevant to the 
operations of the municipality in all 
instances. 


Newly appointed 
Senior Officials signed 
Performance 
Agreements and 
Performance Plans for 
the period April 2012- 
June2012 


A plan has been 
drafted to address the 
outdated and 
unsigned job 
descriptions including 
appointment letters. 


For the period July 2012- 
June 201 3 the process is 
being finaliied 


The 202 personnel files have 
been verified and the 
outcome of the verification 
revealed that 29 job 
descriptions were not 
signed by both parties and 
69 were not placed in the 
personnel files. And 31 of 
appointment letters were 
not sighed and place in the 
personnel files. Currently, 
the division has drafted 
new appointment letters 
and wiil be sent to 
management for signature. 
The division is in the process 
of interacting with the head 


Municipal Manager 


Director Corporate 
Services 


09 July2012 



Page 54 of 62 





















Contrar/ to the requirements of sections 
38(a) and 40 of the MSA, no 
appropriate systems are in place that 
ensures that the performance of staff of 
the municipality are monitored and 
reviewed continuously and steps taken 
to address any shortcomings identified 
durina this orocess. 


Annual financial statements and annual repori 


59. The municipal council did not adopt an 

oversight report containing the 
council's comments on the annual 
report within two months from the date 
on which the 2009/10 annual report was 
tabled in the council as required by 
section 129(1) of theMFMA. 


The financial statement submitted for 
auditing did not comply with section 
122(3) of the MFMA. Material 
misstatements were identified during 
the audit, certain of which were 
corrected by management. Those that 
were not corrected are included in the 
basis for the adverse opinion 
paragraphs. 


Expenditure manaqement 


61 . The accounting officer did not take 

effective and appropriate steps to 
prevent unauthorised, irregular as well 
as fruitless and wasteful expenditure, as 
per the requirements of section 62(1 )(d) 
of the MFMA. 


Procurement and contract manaaement 


62. Sufficient appropriate audit evidence 

couid not be obtained that bid 
specifications were drafted by bid 
specification committees which were 
composed of one or more officials of 
the municipality as required by SCM 
regulation 27(3). 


Sufficient appropriate audit evidence 
could not be obtained that goods and 
services with a transaction value of 
between R 1 0 000 and R200 000 were 
procured by means of obtaining written 
price quotations from at least three 
different prospective providers as per 
the requirements of SCM regulation 
17(a)&(c). 


Sufficient appropriate audit evidence 
could not be obtained that goods and 
services of transaction vaiue above 
R200 000 were procured by means of 
inviting competitive bids as per the 
requirements of SCM regulation 19(a) 
and 36(1 ). 


The contract performance measures 
and methods whereby they are 
mentioned were insufficient to ensure 
effective contract management as per 
the requirements of section 1 1 6(2) (c) of 
the MFMA. 


Assets manaaement 


66. The accounting officer did not take ail 

reasonable steps to ensure that the 
municipality had and maintained an 
effective system of internal controi for 
assets (inciuding an asset register) as 
required by section 63(2) (c) of the 

MFMA. 

Audit Committees 


67. The performance audit committee or 

another committee functioning as the 
performance audit committee did not 
perform the following as required by 
Municipal Planninq and Performance 


Revised PMS Policy 


of affected departments 
for revising the outdated 
]ob descriptions including 
the unsigned ones. 


Implementation of the EPAS Director Corporate 





Framework approved throughout the municipai 
workforce 


Terms of reference for 
the Oversight 
Committee on the 
2010/2011 Annual 
Report to be extended 
to consider the 
2009/2010 Annual 
Report 


The municipality will 
endeavor to rectif/ 
the situation that the 
AFS do not misstate 
the financial situation 
in the munidpality 


The municipality will 
ensure that a register 
be kept for possible 
unauthorfeed, Irregular 
as well as fruitiess and 
wastefui expenditure 
and that the MM and 
senior staff do 
everything possible to 
orevent. 


The municipality will 
endeavor fo rectify 
the situation. 


The municipality wili 
endeavour to rectif/ 
the situation and put 
procedures in place to 
ensure positive 
outcomes. 


The municipality will 
endeavour to rectify 
the situation and put 
procedures in place to 
ensure positive 
outcomes. 


The municipality will 
endeavour to rectify 
the situation and put 
procedures in place to 
ensure positive 
outcomes. 


The municipality will 
endeavor to rectify 
and put processes in 
place to comply. 


A set of reports with 
regard to the financial 
performance and 

performance 
informafion were 



Municipal Manager 


Oversight Report on the 
2009/2010 to be submitted 
with the Oversight Report 
on the 2010/201 1 Annual 
Report for council 
consideration and 
condonation 


More emphasis has been Acting Chief Financial 

put on the timely finishing of Officer 

the AFS in order for another 

party and the Audit 

Committee to revise the 

AFS for material 

misstatements. 


02 August 2012 


20 August 201 2 


The municipality will 
endeavor to prevent 
unauthorized, irregular as 
well as fruitless and wasteful 
expenditure. An instance 
where it happen approvai 
will be obtalned. 


Documentation relating to 
Bld Specification will be 
kept and where the 
consultant has been 
appointed to draft the 
specification, we will ensure 
that they formal those 
deliberation. 


The Expenditure Cierk 
updates register relating to 
the unauthorised, irregular 
as weli as fruitiess and 
wasteful expenditure. 

Expenditure incurred that 
does not comply with the 
SCM threshold- Deviation 
report are been reported to 
the Finance Committee as 
when it hapoened. 


Expenditure incurred that 
does not comply with the 
SCM threshold- Deviation 
report are been reported to 
the Finance Committee as 
when it happened. 


Project Management Unit 
Manager conduct site 
inspection before any 
payments made and 
performance are being 
measured against their 
contract/service level 
agreement. 


Municipal Manager 



Municipal Manager 



Acting Chief Financiai 
Officer 



Acting Chief Financial 
Officer 


Actlng Director 
Technical Services 




Same as 8(a). 


Reports were present to the 
committee on the 25 
August 201 1 and 20 March 
2012 . 


Municipal Manager; 
Acting Chief Financial 
Officer, & Accountant 
Asset Management 


Chief Audit Executive 


31 December2012 


Implemented as 
from 25 August 2011, 


Page 55 of 62 

























































Management Regulation 14: 

• Review the municipality's 
performance management 
system and make 
recommendations in this regard to 
the council of the municipaiity 

• Submit an auditor’s report to the 
council regarding the 
performance management 
system at ieast twice during the 
financial year. 


tabled to the Audit 
Committee on the 29 
January 2011; 06 May 
201 1 and 27 June 
2011. The one of the 
financial performance 
- mid year assessment 
was tabled on the 06 
May20n. 

On the 03'^ August 
201 1, the Council took 
a resolution (i.e 
Council Resolution No 
28/8) to repeal a 
performance audit 
committee and give 
Audit Committee the 
power to performance 
the functions of the 
Performance Audit 
Committee and now 
we are having an 
Audit and 
Performance Audit 
Committee. 



Financial misconduct 

68. 

Investigations were not instituted into all 
allegations of finandal misconduct 
against officials of the municipality, as 
required by section 1 7 1 (4) (a) of the 

MFMA. 

Appiication of the 
recommendation by 
the section 1 05 
Commission 

Actions have been taken 
where applicable. 

Municipal Manager 

31 December2012 

Revenue management 

69. 

Revenue received by the municipality 
was not always reconaiied at least on a 
weekly basis, as required by section 

64(2) (h) oftheMFMA. 

Revenue is reconciled 
on a monthly basis 
due to the 

impracticality of doing 
it on a weekly basis. 

The municipality will 
continue reconciling 
revenue on a monthly basis 
as the financial procedures 
allow. 

Acting Chief Financial 
Officer 

28 February 2012 


Leadershi 


71 . The accounting officer did not exercise 

oversight responsibility regarding 
financial and performance reporting 
and compliance and related internal 
controls. 


Management did not implement 
proper record keeping in a timely 
manner to ensure that complete, 
relevant and accurate information is 
accessible and avaiiable to support 
financial and oerformance reoortina. 


The Mayor and Municipal Manager did 
not implement effective human 
resource management to ensure that 
performance is monitored by ensuring 
that performance agreements were 
signed in line with the MSA 


Adherence to 
legislative 
requirements to be 
implemented and 
quarterly reporting 
through the SDBIP 




Newly appointed 
Senior Officials signed 
Performance 
Agreements and 
Performance Plans for 
the period April 2012- 
June2012 


All certified section 71 
reports to be submitted to 
the Mayor, National and 
Provincial Treasury within 
the required timeframe 


Recordkeeping is done 
timely and on a continuous 
basis. 


For the period July 201 2- 
June 2013 the process is 
being finalized 


Municipal Manager 



Municipal Manager 


Municipal Manager 


31 January2012 



74. 

The accounting officer did not prepare 
regular, accurate and complete 
financiai and performance reports that 
are supported and evidenced by 
reliable information. 

The impiementation of 
the new financial 
system will overcome 
the wrongs. 

The implementation of the 
new financial system 
allowed us to improve on 
reporting and provide 
reliable information. 



Executive Committee 
approved the SDBiP 
2012/2013 on the 03 
July2012 

Approved SDBIP to ensure 
regularly quarterly reporting 


Municipal Manager 


31 August 2012 


03 July2012 


Page 56 of 62 









































75. 

Management did not review and 
monitor compiiance with applicable 
laws and regulation. 

Policies will be 
reviewed and 
communicated to all 
employees. 

Policies relating to financial 
matter were reviewed and 
approved by Council on 
the 30 May 201 2 and the 
only portion that is left was 
the policies pertaining to 
Human resource. Those 
policies were presented to 
the Human Resource 
Development Committee 
which is a sub-committee 
of the Labour Local Forum 
on the 25"’ June 201 2. 

All directors & 

Municipal Manager 

31 December2012 

76. 

The accounting officer did not 
implement controls over daily and 
monthiy processing and reconciling of 
transactions. 

Process will be put in 
place and 
reconciliation of 
transactions will be 
done on daily and 
monthly basis. 

Creditors are being 
reconciled before 
payments are done, 
however there are instance 
were reconciliation were 
done on the forth quarter 
and this matter will be 
corrected. The bank 
reconciliation has been 
done on monthly basis 
however there was a 
probiem regarding the 
closing balance and 
opening balance which 
the finance department is 
busy rectifying the matter. 
the same department is 
busy rectifying part A and 
part B of the valuation roll. 

Municipal Manager & 
Acting Chief Financial 
Officer 

On going 


Govemance 


77. 

Management did not implement 

Department of 

To mitigate the risks were 

Municipal Manager 

31 August 2012 


appropriate risk management activities 

Cooperative 

identified, the risk officerwill 




to ensure that regular risk assessments, 

Government and 

be appolnted and rlsk 




including consideration of IT risks and 

Traditional Affairs 

management will be 




fraud prevention, as weil as the review 

conduct a risk 

included in the 




of the effectiveness of the audit 

assessment on the 1 2- 

performance agreement of 




committee, were conducted and that 

13of FebruarY2012 

directors include fhe ones 




a risk strategy to address the risks is 

and a risk 

of the accounting officer. 




developed and monitored. 

management report 
was foiwarded to the 

Workshop was organised 


13July2012 



municipality to 

on the 29 February 201 2. 

Chief Audit Executive 




mitigate the risks that 

The assessment on the 





were identified. 

performance of the 
committee will be done at 
the end each financlal 
year. 





On the matter relating 
to the effectiveness of 






the Audit committee, 
an item was drawn 
and presented to 
Council on the 02 
December 201 1 and it 
was resolved that the 
workshop be held for 
the evaluation of the 
performance of the 
committee. 





Table 91 : Action Plan 


6.4.5 Grants Share v/s Total Revenue 


Descrlpiion of Revenue 

Amount Received 

Amount Received 

Amount Received 

2009/2010 

2010/2011 

2011/2012 

Equitable Share 


1 1 1 1 1 1 1 ■ 


MIG Grants 




Other Grants 




Total Revenue 



^™i^^™"iiViiiiii 


Table 92: Grants Share v/s Revenue 


Page 57 of 62 




































Graph 6: Grants Share v/s Total Revenue 

6.4.6 Repairs and Maintenance 


Description 


Total Operating Expenditure 


Repairs and Maintenance 


Percentage ot Total Operating Expenditure 


Table 93: Repairs and Malntenance 

6.4.7 Capital Funded by Source 


Description 


External Loans 


Grants and Subsidies 


Public Contributions and Donations 


Own fundin 


Other 


Total Capital Expenditure 


Table 94: Capital Funded by Source 




Page 58 of 62 






















List of Abbreviations 


AG 

Auditor General 

Bl 

Baseline Indicator 

Capex 

Capital Budget 

CBP 

Community Based Planning 

IDP 

Integrated Development Plan 

Km 

Kilometre 

KPA 

Key Performance Area 

KPI 

Key Performance Indicator 

LED 

Local Economic Development 

LGMSA 

Local Government: Municipal Systems Act 

MIG 

Municipal Infrastructure Grant 

MSA 

Municipal Structures Act 

Opex 

Operational Budget 

PMS 

Performance Management Systems 

SDBIP 

Service Delivery and Budget Implementation Plan 


Page 59 of 62 




Setsoto Local Municipality 

Financial statements 
for the year ended 30 June 2012 


Auditor-General of South Africa (AGSA) 



Setsoto Local Municipality 
General Information 


Legal form of entity 

Nature of business and principai activities 
Mayor 

Executive Committee 


Councillors 


Grading of local authority 
Accounting Officer 
Chief Finance Officer (CFO) 


A Municipality which is an organ of state within the local sphere of 
government exercising legislative and executive authority. 

A Local Authority providing municipal services and maintaining the best 
interest of the community in the Setsoto Municipal area. 

Jakobo, Tshediso 
Koalane, Komane 
Mthimkhulu, Motena 
Mahlangu, Matseliso 
Lithebe, Moeletsi 
Makae, Thabang 
Strydom, Evert 

Mohlomi, Molefi - Speaker 
Mothibeli, Moselantja 
Mohapi, Dieketseng 
Mokhuoane, Krog 
Motsei, Matlakala 
Selasi, Motsamai 
Modire, Lehlaku 
Nakasi, Mojabeng 
Bath, Henry 
Thamae, Motsamai 
Makhalanyane, Tieho 
Mohala, Vunga 
Kere, Lefa 
Mavaliso, Pakalitha 
Maduna, Mbothoma 
Semahla, Mookho 
Maphisa, Mapuleng 
Muso, Tshepiso 
Tsolo, Thabiso 
Malebo, Matsiliso 
Fuso, Sabata 
Raboroko, Mantwa 
Mohase, Teboho 
Selai, Lithebe 
Lubbe, Cornelias 
Du Toit, Benjamin 
Marwick, Clive (Dr) 

Bester, Catherine 

06 

ST R Ramakarane 
D J Van Tonder (Acting) 


1 



Setsoto Local Municipality 
General Information 


Business address 

Postal address 

Bankers 

Auditors 

Telephone Number 
Fax Number 
E-mail Address 


27 Voortrekker Street 

Ficksburg 

9730 

P O Box 116 

Ficksburg 

9730 

First National Bank (FNB) 
Auditor-General of South Africa (AGSA) 
(051) 933 9300 
(051) 933 9343 
manager@setsoto.co.za 


2 




Setsoto Local Municipality 
lndex 


The reports and statements set out below comprise the Annual Financial Statements presented to the Auditor-General of South Africa 


(AGSA): 

Contents Page 

Accounting Officer's Responsibilities and Approval 4 

Report of the Auditor General 5 

Accounting Officer's Report 6 

Statement of Financial Position as at 30 June 2012 7 

Statement of Changes in Net Assets 9 

Accounting Policies 11 - 32 

Appendix A: Schedule of External loans - Unaudited 79 

Appendix B: Analysis of Property, Plant and Equipment - Unaudited 81 

Appendix D: Segmental Statement of Financial Performance - Unaudited 84 

Appendix E(l): Actual versus Budget (Revenue and Expenditure) - Unaudited 85 

Appendix E(2): Actual versus Budget (Acquisitlon of Property, Plant and Equipment - 86 

Unaudited) 

Appendix F: Disclosure of Grants and Subsidies in terms of the Municipal Finance Management 87 

Act -Unaudited 

Abbreviations 


COID 

CRR 

DBSA 

SA GAAP 

GRAP 

GAMAP 

HDF 

lAS 

IMFO 

IPSAS 

MEC 

MFMA 

MIG 


Compensation for Occupational Injuries and Diseases 
Capital Replacement Reserve 
Development Bank of Southern Africa 

South African Statements of Generally Accepted Accounting Practice 

Generally Recognised Accounting Practice 

Generally Accepted Municipal Accounting Practice 

Housing Development Fund 

International Accounting Standards 

Institute of Municipal Finance Officers 

International Public Sector Accounting Standards 

Member of the Executive Council 

Municipal Finance Management Act [ Act No. 56 of 2003 ] 

Municipal Infrastructure Grant 


3 





Setsoto Local Municipality 
Accounting Officer's Responsibilities and Approval 


The accounting officer is required by the Municipal Finance Management Act (Act No. 56 of 2003), to maintain adequate accounting 
records and is responsible for the content and integrity of the financial statements and related financial information included in this 
report. It is the responsibility of the accounting officer to ensure that the 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 financial statements and was given unrestricted access to all financial 
records and related data. 

The financial statements have been prepared in accordance with Standards of Generally Recognised Accounting Practice (GRAP) 
including any interpretations, guidelines and directives issued by the Accounting Standards Board. 

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

The accounting officer acknowledges that he is ultimately responsible for the system of internal financial control established by the 
municipality and place 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 endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems 
and ethical behaviour 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 financial statements. 
However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material 
misstatement or deficit. 

The accounting officer has reviewed the municipality's cash flow forecast for the year to 30 June 2013 and, in the light of this review 
and the current financial position, he is satisfied that the municipality has or has access to adequate resources to continue in 
operational existence for the foreseeable future. 

The financial statements are prepared on the basis that the municipality is a going concern and that the Municipality has neither the 
intention nor the need to liquidate or curtail materially its scale. 

Although the accounting officer are primarily responsible for the financial affairs of the municipality, they are supported by the 
municipality's external auditors. 

The external auditors are responsible for independently reviewing and reporting on the municipality's financial statements. The 
financial statements have been examined by the municipality's external auditors and their report is presented on page 5. 

The financial statements set out on pagesSto 78, which have been prepared on the going concern basis (Please refer to Note 50), 
were approved by the accounting officer on 20 March 2013 : 


Accounting Officer 
S T R Ramakarane 


4 



AUDITOR-OENERAL 

Report of the Auditor General 

To the Auditor General of South Africa (AGSA) of Setsoto Local Municipality 
Report on the financial statements 

This report will be inserted after the completion of the audit. 

Auditor-General of South Africa (AGSA) 


20 March 2013 




Setsoto Local Municipality 
Accounting Offlcer's Report 


The accounting officer submits his report for the year ended 30 June 2012. 

1. Review of activities 

Main business and operations 

The municipality is engaged in a local authority providing municipal services and maintaining the best interest of the 
community in the Setsoto municipal area and operates principally in South Africa. 

The operating results and state of affairs of the municipality are fully set out in the attached financial statements and do not in 
our opinion require any further comment. 

Net deficit of the municipality was R 59,791,362 (2011: deficit R 98,806,411). 

2. Going concern 

We draw attention to the fact that at 30 June 2012, the municipality had accumulated surplus of R 2,195,191,765 and that the 
municipality's total assets exceed its liabilities. 

The financial statements have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes 
that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent 
obligations and commitments will occur in the ordinary course of business. 

The ability of the municipality to continue as a going concern is dependent on a number of factors. The most significant of these is 
that the accounting officer continue to procure funding for the ongoing operations for the municipality. 

3. Subsequent events 

The accounting officer is not aware of any matter or circumstance arising since the end of the financial year. 

4. Accounting Officer's interest in contracts 

The Accounting Officer had no interest in any contracts. 

5. Accounting policies 

The financial statements prepared in accordance with the South African Standards of Generally Recognized Accounting Practices 
(GRAP), including any interpretations and directives of such Standerds issued by the Accounting Practices Board, and in accordance 
with the prescribed Standards of Generally Recognised Accounting Practices (GRAP) issued by the Accounting Standards Board as the 
prescribed framework by National Treasury. 

6. Non-current assets 

Details of major changes in the nature of the non-current assets of the municipality during the year were as follows: 

The Annual Financial Statements of the Municipality this year reflects a significant increase in the value of non-current assets. This was 
brought about by the conclusion of a project embarked by the Municipality to compile a GRAP compliant Fixed Asset Register. 

7. Accounting Officer 

The current accounting officer of the municipality is as follows: 

Name Nationality 

Mr S T R Ramakarane South African 

8. Auditors 

Auditor-General of South Africa (AGSA) will continue in office for the next financial period. 


6 





Setsoto Local Municipality 


Statement of Financial Position as at 30 June 2012 



Note 

2012 

Restated 

2011 

Assets 




Current Assets 




Inventories 

3 

1,616,233 

1,744,376 

Investments 

4 

- 

10,006,881 

Trade and Other Receivablesfrom Exchange Transactions 

5 

66,508,234 

59,622,343 

Other receivables from non-exchange transactions 

6 

5,446,434 

32,782,261 

VAT receivable 

7 

41,163,561 

17,731,372 

Current Portion of Receivables 

8 

3,573 

3,573 

Cash and cash equivalents 

9 

6,791,111 

4,300,406 



121,529,146 

126,191,212 

Non-Current Assets 




Investment property 

10 

14,635,448 

16,058,925 

Property, plant and equipment 

11 

2,156,383,140 

2,275,383,854 

Intangible assets 

12 

638,948 

651,501 

Investments 

4 

1,956,694 

1,131,714 

Non Current Receivables 

8 

4,866 

8,439 



2,173,619,096 2,293,234,433 

Total Assets 


2,295,148,242 2,419,425,645 

Liabilities 




Current Liabilities 




Current Portion of Borrowings 

13 

369,369 

3,342,020 

Finance lease Llability 

14 

1,729,946 

4,255,768 

Trade Payables and other payables from exchange transactions 

15 

51,116,770 

25,618,850 

VAT Payable 

16 

14,112,547 

16,927,633 

Consumer deposits 

17 

2,168,198 

1,997,051 

Current Portion of Unspent conditional grants and receipts 

18 

16,925,219 

28,062,562 

Provisions 

19 

493,643 

896,175 

Bank overdraft 

9 

- 

31,241,798 



86,915,692 

112,341,857 

Non-Current Liabilities 




Non Current Borrowings 

13 

7,722,733 

8,075,240 

Finance lease Liability 

14 

697,560 

2,437,369 

Provisions 

19 

4,620,492 

3,957,634 



13,040,785 

14,470,243 

Total Liabilities 


99,956,477 

126,812,100 

Net Assets 


2,195,191,765 2,292,613,545 

Net Assets 




Accumulated surplus 


2,195,191,765 

2,292,613,545 


7 


Setsoto Local Municipality 

Statement of Financial Performance for the year ended 30 June 2012 



Note(s) 

2012 

Restated 

2011 

Revenue 

Property rates 

22 

28,459,664 

23,679,681 

Service charges 

23 

101,681,034 

95,427,270 

Rental of facilities and equipment 

53 

130,661 

435,891 

Fines 


386,664 

296,925 

Licences and permits 


11,826 

756 

Government grants & subsidies 

24 

240,191,168 

209,090,580 

Sale of land 


20,041 

1,184,211 

Other income 

25 

1,636,938 

1,540,561 

Interest earned 

26 

29,645,356 

14,180,346 

Total Revenue 


402,163,352 

345,836,221 

Expenses 

Employee Related Cost 

27 

91,547,012 

81,791,173 

Remuneration of councillors 

28 

8,019,574 

8,143,684 

Depreciation and amortisation expense 

29 

192,450,464 

192,383,706 

Finance costs 

30 

1,879,220 

2,850,122 

Bad Debts 

31 

57,536,194 

56,657,462 

Repairs and maintenance 


15,262,740 

11,955,766 

Bulk purchases 

32 

44,284,271 

30,341,173 

Contracted services 

33 

726,892 

- 

Grants and subsidies paid 

34 

7,894,262 

13,384,929 

General Expenses 

35 

42,354,085 

47,134,617 


461,954,714 

444,642,632 


(59,791,362) 

(98,806,411) 


Deficit for the year 




Setsoto Local Municipality 


Statement of Changes in Net Assets 



Housing 

development 

fund 

Accumulated 

surplus 

Total net 

assets 

Opening balance as previously reported 

271,810 

287,420,955 

287,692,765 

Adjustments 




Revaluation of assets and correction of prior period 

- 

2,293,314,034 

2,293,314,034 

Balance at 01 July 2010 as restated 

271,810 

2,580,734,989 

2,581,006,799 

Surpius/(deficit) for the period 

- 

(98,806,411) 

(98,806,411) 

Correction of prior period errors( See Note 54) 

(513) 

(189,586,330) 

(189,586,843) 

Transfer to Accumulated Surplus 

(271,297) 

271,297 

- 

Total changes 

(271,810) 

(288,121,444) 

(288,393,254) 

Opening balance as previously reported 

- 

2,292,613,545 

2,292,613,545 

Adjustments 




Correction of errors 

- 

(37,630,418) 

(37,630,418) 

Balance at 01 July 2011 as restated 

- 

2,254,983,127 

2,254,983,127 

Surplus/(deficit) for the period 

- 

(59,791,362) 

(59,791,362) 

Total changes 

- 

(59,791,362) 

(59,791,362) 

Balance at 30 June 2012 

- 

2,195,191,765 

2,195,191,765 

Note(s) 

21 




9 




Setsoto Local Municipality 
Cash Flow Statement 



Note(s) 

2012 

Restated 

2011 

Cash flows from operating activities 




Receipts 

Property Rates 


21,950,954 

23,679,681 

Sale of goods and services 


97,987,468 

95,427,271 

Grants 


240,191,168 

198,301,938 

Interest income received 


2,365,950 

2,344,364 

Other receipts 

- 

2,186,130 

364,681,670 

15,220,663 

334,973,917 

Payments 

Employee costs 


(99,566,586) 

(89,885,406) 

Finance costs 


(1,879,220) 

(2,850,122) 

Suppliers 

- 

(158,976,120) 

(260,421,926) 

(182,184,989) 

(274,920,517) 

Net cash flows from operating activities 

36 

104,259,744 

60,053,400 

Cash flows from investing activities 

Purchase of property, plant and equipment 

11 

(72,026,273) 

(67,220,886) 

Purchase of other intangible assets 

12 

(95,653) 

(678,394) 

Proceedsfrom Call Investments 


9,181,901 

4,336,032 

Proceeds from Non Current receivables 


3,573 

3,573 

Net cash flows from investing activities 


(62,936,452) 

(63,559,675) 

Cash flows from financing activities 

Repayment of current portion of borrowings 


(3,325,158) 

(3,074,650) 

Finance lease payments 


(4,265,631) 

(3,827,067) 

Net cash flows from financing activities 


(7,590,789) 

(6,901,717) 

Net increase/{decrease) in cash and cash equivalents 


33,732,503 

(10,407,992) 

Cash and cash equivalents at the beginning of the year 


(26,941,392) 

(16,533,400) 

Cash and cash equivalents at the end of the year 

9 

6,791,111 

(26,941,392) 


10 




Setsoto Local Municipality 
Accounting Policies 


1. Presentation of Finandal Statements 

The financial statements have been prepared in accordance with the Standards of Generally Recognised Accounting Practice 
(GRAP) including any interpretations, guidelines and directives issued by the Accounting Standards Board. 

These financial statements have been prepared on an accrual basis of accounting and are in accordance with historical cost 
convention unless specified otherwise. They are presented in South African Rand. 

A summary of the significant accounting policies, which have been consistently applied, are explained in the relevant policies 
below. These accounting policies are consistent with the previous period, unless explicitly stated. 

1.1 Significant judgements and sources of estimation uncertainty 

In preparing the fmancial statements, management is required to make estimates and assumptions that affect the amounts 
represented in the financial statements and related disclosures. Use of available information and the application of judgement is 
inherent in the formation of estimates. Actual results in the future could differ from these estimates which may be material to the 
financial statements. Significant judgements include: 

Trade receivables / Held to maturity investments and/or loans and receivables 

The municipality assesses its trade receivables, held to maturity investments and loans and receivables for impairment at the end 
of each reporting period. In determining whether an impairment loss should be recorded in surplus or deficit, the surplus makes 
judgements as to whether there is observable data indicating a measurable decrease in the estimated future cash flows from a 
financial asset. 

The impairment for trade receivables, held to maturity investments and loans and receivables is calculated on a portfolio basis, 
based on historical loss ratios, adjusted for national and industry-specific economic conditions and other indicators present at the 
reporting date that correlate with defaults on the portfolio. These annual loss ratios are applied to loan balances in the portfolio 
and scaled to the estimated loss emergence period. 

Allowance for slow moving, damaged and obsolete stock 

An allowance for stock to write stock down to the lower of cost or net realisable value. Management have made estimates of the 
selling price and direct cost to sell on certain inventory items. The write down is included in the operation surplus note. 

Fair value estimation 

The fair value of financial instruments traded in active markets (such as trading and available-for-sale securities) is based on 
quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the municipality 
is the current bid price. 

The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The 
fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current 
market interest rate that is available to the municipality for similar financial instruments. 

Impairment testing 

The recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value-in-use 
calcuiations and fair values less costs to sell. These calculations require the use of estimates and assumptions. It is reasonably 
possible that the assumptions may change which may then impact our estimations and may then require a material adjustment to 
the carrying value of goodwill and tangible assets. 

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. 
Expected future cash flows used to determine the value in use of goodwill and tangible assetsare inherently uncertain and could 
materially change over time. They are significantly affected by a number of factors. 


11 





Setsoto Local Municipality 
Accounting Policies 


1.1 Significant judgements and sources of estimation uncertainty (continued) 

Provisions 

Provisions were raised and management determined an estimate based on the information available. Provisions are measured at 
the management's best estimate of the expenditure required to settle the obligation at reporting date, and are discounted to the 
present value where the time value effect is material. Additional disclosure of these estimates of provisions are included in note 
19 - Provisions. 

Useful iives and residuai values 

The municipality's management determines the estimated useful lives and related depreciation charges for property, plant and 
equipment as well as the intangible assets. The municipality re-assess the useful lives and the residual value on an annual basis, 
considering the conditional and use of the individual assets. This estimate is based on industry norm. Management will increase 
the depreciation charge where useful lives are less than previously estimated useful lives. 

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. 

The municipality determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to 
determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In 
determining the appropriate discount rate, the municipality considers the interest rates of high-quality corporate bonds that are 
denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the 
related pension liability. 

Other key assumptions for pension obligations are based on current market conditions. Additional information is disclosed in Note 
46. 

Effective interest rate 

The municipality uses an appropriate interest rate, taking into account guidance provided in the accounting standards, and 
applying professional judgement to the specific circumstances, to discount future cash flows. 

Appropriate adjustments have been made to compensate for the effect of deferred settlement terms that material impact on the 
fair value of the financial instruments, revenue and expenses at initial recognition. The adjustments require a degree of estimation 
around the discount rate and periods used. 

Allowance for doubtful debts 

On debtors an impairment loss is recognised in surplus and deficit when there is objective evidence that it is impaired. The 
impairment is measured as the difference between the debtors carrying amount and the present value of estimated future cash 
flows discounted at the effective interest rate, computed at initial recognition. 

GRAP 24: Presentation of budget information 

The municipality is required to present a comparison of the budget amounts for which it is held publicly accountable and actual. 
The comparison of budget and actual amounts present separately for each level of legislative oversight: 

- the approved and final budget amounts; 

- the actual amounts on a comparable basis; and 

1.2 Investment property 

Investment property is property (land or a building - or part of a building - or both) held to earn rentals or for capital appreciation 
or both, rather than for; 


12 




Setsoto Local Municipality 
Accounting Policies 


1.2 Investment property (continued) 

• use in the production or supply of goods or services or for 

• administrative purposes, or 

• sale in the ordinary course of operations. 

Owner-occupied property is property held for use in the production or supply of goods or services or for administrative purposes. 

Investment property is recognised as an asset when, it is probable that the future economic benefits or service potential that are 
associated with the investment property will flow to the municipality, and the cost or fair value of the investment property can be 
measured reliably. 

Investment property is initially recognised at cost. Transaction costs are included in the initial measurement. 

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

Costs include costs incurred initially and costs incurred subsequently to add to, or to replace a part of, or service a property. Costs 
include material, labour directly attributable and borrowing costs. If a replacement part is recognised in the carrying amount of the 
investment property, the carrying amount of the replaced part is derecognised. 

Cost model 

Investment property is carried at cost less accumulated depreciation and any accumulated impairment losses. 

Depreciation is provided to write down the cost, less estimated residual value by equal installments over the useful life of the 
property, which is as follows: 

Item Useful life 

Investment Property - land indefinite 

Investment Property - buildings 5 - 30 years 

Investment property is derecognised on disposal or when the investment property is permanently withdrawn from use and no 
future economic benefits or service potential are expected from its disposal. 

Gains or losses arising from the retirement or disposal of investment property is the difference between the net disposal proceeds 
and the carrying amount of the asset and is recognised in surplus or deficit in the period of retirement or disposal. 

Compensation from third parties for investment property that was impaired, lost or given up is recognised in surplus or deficit 
when the compensation becomes receivable. 

1.3 Property, plant and equipment 

Items of property, plant and equipment 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. 

The cost of an item of property, plant and equipment is recognised as an asset when: 

• it is probable that future economic benefits or service potential associated with the item will flow to the municipality; 
and 

• the cost of the item can be measured reliably. 

Property, plant and equipment is initially measured at cost. 

The cost of an item of property, plant and equipment is the purchase price and other costs attributable to bring the asset to the 
location and condition necessary for it to be capable of operating in the manner intended by management. Trade discounts and 
rebates are deducted in arriving at the cost. 

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


13 




Setsoto Local Municipality 
Accounting Policies 


1.3 Property, plant and equipment (continued) 

Where an item of property, plant and equipment is acquired in exchange for a non-monetary asset or monetary assets, or a 
combination of monetary and non-monetary assets, the asset acquired is initially measured at fair value {the cost). If the acquired 
item's fair value was not determinable, it's deemed cost is the carrying amount of the asset(s) given up. 

When significant components of an item of property, plant and equipment have different useful lives, they are accounted for as 
separate items (major components) of property, plant and equipment. 

Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred 
subsequently to add to, replace part of, or service it. If a replacement cost is recognised in the carrying amount of an item of 
property, plant and equipment, the carrying amount of the replaced part is derecognised. 

The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located is also included 
in the cost of property, plant and equipment, where the entity is obligated to incur such expenditure, and where the obligation 
arises as a result of acquiring the asset or using it for purposes other than the production of inventories. 

Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the location 
and condition necessary for it to be capable of operating in the manner intended by management. 

Major spare parts and stand by equipment which are expected to be used for more than one period are included in property, plant 
and equipment. In addition, spare parts and stand by equipment which can only be used in connection with an item of property, 
plant and equipment are accounted for as property, plant and equipment. 

Major inspection costs which are a condition of continuing use of an item of property, plant and equipment and which meet the 
recognition criteria above are included as a replacement in the cost of the item of property, plant and equipment. Any remaining 
inspection costs from the previous inspection are derecognised. 

Property, plant and equipment are depreciated on the straight line basis over their expected useful lives to their estimated 
residual value. 


Property, plant and equlpment is carried at cost less accumulated depreciation and any impairment losses. 


The useful lives of items of property, plant and equipment have been assessed as follows: 


Item 

Land 

• Land 
Buildings 

• Buildings 
Infrastructure assets 

• Electricity 

• Roads 

• Water 
Community assets 

• Buildings 

• Recreational facilities 

• Security measures 
Other assets 

• Office equipment 

• Furniture and fittings 

• Motor vehicles 


Estimated useful life 

Infinite 

30 years 

20 - 30 years 
10 - 30 years 
15 - 20 years 

30 years 
20 years 
3 - 5 years 

3 - 7 years 
7 - 10 years 
5-7 years 


The residual value, and the useful life and depreciation method of each asset are reviewed at the end of each reporting date. If the 
expectations differ from previous estimates, the change is accounted for as a change in accounting estimate. 

Reviewing the useful life of an asset on an annual basis does not require the entity to amend the previous estimate unless 
expectations differ from the previous estimate. 


14 



Setsoto Local Municipality 
Accounting Policies 


1.3 Property, plant and equipment (continued) 

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is 
depreciated separately. 

The depreciation charge for each period is recognised in surplus or deficit unless it is included in the carrying amount of another 
asset. 

Items of property, plant and equipment are derecognised 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 from the derecognition of an item of property, plant and equipment is included in surplus or deficit when 
the item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is 
determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item. 

Assets which the municipality holds for rentals to others and subsequentiy routinely sell as part of the ordinary course of activities, 
are transferred to inventories when the rentals end and the assets are available-for-sale. These assets are not accounted for as 
non-current assets held for sale. Proceeds from sales of these assets are recognised as revenue. All cash flows on these assets are 
included in cash flows from operating activities in the cash flow statement. 

1.4 Heritage assets 

Assets are resources controlled by an municipality as a result of past events and from which future economic benefits or service 
potential are expected to flow to the municipality. 

Carrying amount is the amount at which an asset is recognised after deducting accumulated impairment losses. 

Class of heritage assets means a grouping of heritage assets of a similar nature or function in an municipality's operations that is 
shown as a single item for the purpose of disclosure in the financial statements. 

Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the 
time of its acquisition or construction or, where applicable, the amount attributed to that asset when initially recognised in 
accordance with the specific requirements of other Standards of GRAP. 

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. 

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an 
arm's length transaction. 

Heritage assets are assets that have a cultural, environmental, historical, natural, scientific, technological or artistic significance 
and are held indefinitely for the benefit of present and future-generations. 

An impairment loss of a cash-generating asset is the amount by which the carrying amount of an asset exceeds its recoverable 
amount. 

An impairment loss of a non-cash-generating asset is the amount by which the carrying amount of an asset exceeds its recoverable 
service amount. 

An inalienable item is an asset that an municipality is required by law or otherwise to retain indefinitely and cannot be disposed of 
without consent. 

Recoverable amount is the higher of a cash-generating asset's net selling price and its value in use. 

Recoverable service amount is the higher of a non-cash-generating asset's fair value less costs to sell and its value in use. 

Value in use of a cash-generating asset is the present value of the future cash flows expected to be derived from an asset or cash- 
generating unit. 

Value in use of a non-cash-generating asset isthe present value of the asset's remaining service potential. 


15 





Setsoto Local Municipality 
Accounting Policies 


1.4 Heritage assets (continued) 

Recognition 

The municipalitY recognises a heritage asset as an asset if it is probable that 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. 

Initial measurement 

Heritage assets are measured at cost. 

Where a heritage asset is acquired through a non-exchange transaction, its cost is measured at its fair value as at the date of 
acquisition. 

Subsequent measurement 

After recognition as an asset, a class of heritage assets is carried at its cost less any accumulated impairment losses. 

After recognition as an asset, a class of heritage assets, whose fair value can be measured reliably, is carried at a revalued amount, 
being its fair value at the date of the revaluation less any subsequent impairment losses. 

If a heritage asset's carrying amount is increased as a result of a revaluation, the increase is credited directly to a revaluation 
surplus. However, the increase is recognised in surplus or deficit to the extent that it reverses a revaluation decrease of the same 
heritage asset previously recognised in surplus or deficit. 

If a heritage asset's carrying amount is decreased as a result of a revaluation, the decrease is recognised in surplus or deficit. 
However, the decrease is debited directly to a revaluation surplus to the extent of any credit balance existing in the revaluation 
surplus in respect of that heritage asset. 

Impairment 

The municipality assess at each reporting date whether there is an indication that it may be impaired. If any such indication exists, 
the municipality estimates the recoverable amount or the recoverable service amount of the heritage asset. 

Transfers 

Transfers from heritage assets are only made when the particular asset no longer meets the definition of a heritage asset. 

Transfers to heritage assets are only made when the asset meets the definition of a heritage asset. 

Derecognition 

The municipality derecognises heritage asset on disposal, or when no future economic benefits or service potential are expected 
from its use or disposal. 

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. Such difference is recognised in surplus or deficit when the 
heritage asset is derecognised. 

1.5 Intangible assets 

An asset is identified as an intangible asset when it: 

• is capable of being separated or divided from an entity and sold, transferred, licensed, rented or exchanged, either 
individually or together with a related contract, assets or liability; or 

• arises from contractual rights or other legal rights, regardless whether those rights are transferable or separate from the 
municipality or from other rights and obligations. 


16 





Setsoto Local Municipality 
Accounting Policies 


1.5 Intangibie assets (continued) 

An intangible asset is recognised 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 cost or fair value of the asset can be measured reliably. 

Intangible assets are initially recognised at cost. 

An intangible asset acquired at no or nominal cost, the cost shall be its fair value as at the date of acquisition. 

Expenditure on research (or on the research phase of an internal project) is recognised as an expense when it is incurred. 

An intangible asset arising from development (or from the development phase of an internal project) is recognised when: 

• it is technically feasible to complete the asset so that it will be available for use or sale. 

• there is an intention to complete and use or sell it. 

• there is an ability to use or sell it. 

• it will generate probable future economic benefits or service potential. 

• there are available technical, financial and other resources to complete the development and to use or sell the asset. 

• the expenditure attributable to the asset during its development can be measured reliably. 

Intangible assets are carried at cost less any accumulated amortisation and any impairment losses. 

An intangible asset is regarded as having an indefinite useful life when, based on all relevant factors, there is no foreseeable limit 
to the period over which the asset is expected to generate net cash inflows or service potential. Amortisation is not provided for 
these intangible assets, but they are tested for impairment annually and whenever there is an indication that the asset may be 
impaired. For all other intangible assets amortisation is provided on a straight line basis overtheir useful life. 

The amortisation period and the amortisation method for intangible assets are reviewed at each reporting date. 

Reassessing the useful life of an intangible asset with a finite useful life after it was classified as indefinite is an indicatorthat the 
asset may be impaired. As a result the asset is tested for impairment and the remaining carrying amount is amortised over its 
useful life. 

Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance are not recognised as 
intangible assets. 

Amortisation is provided to write down the intangible assets, on a straight line basis, to their residual values as follows: 

Item Useful life 

Computer software, other 3 -5 years 

intangible assets are derecognised: 

• on disposal; or 

• when no future economic benefits or service potential are expected from its use or disposal. 

The gain or loss is the difference between the net disposal proceeds, if any, and the carrying amount. it is recognised in surplus or 
deficit when the asset is derecognised. 


17 





Setsoto Local Municipality 
Accounting Policies 


1.6 Financiai instruments 
Ciassification 

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

• Financial assets at fair value through surplus or deficit - held for trading 

• Held-to-maturity investment 

• Loans and receivables 

• Available-for-sale financial assets 

• Financial liabilities measured at amortised cost 

Classification depends on the purpose for which the financial instruments were obtained or incurred and takes place at initial 
recognition. Classification is only re-assessed when contractual terms of the financial instrument have been changed. 

Initial recognition and measurement 

Financial instruments are recognised initially when the municipality becomes a party to the contractual provisions of the 
instruments. 

The municipality classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial 
liability or an equity instrument in accordance with the substance of the contractual arrangement. 

Financial instruments are measured initially at fair value, except for equity investments for which a fair value is not determinable, 
which are measured at cost and are classified as available-for-sale financial assets. 

For financial instruments which are not at fair value through surplus or deficit, transaction costs are included in the initial 
measurement of the instrument. 

Transaction costs on financial instruments at fair value through surplus or deficit are recognised in surplus or deficit. 


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1.6 Financial instruments (continued) 

Subsequent measurement 

Financial instruments at fair value through surplus or deficit are subsequently measured at fair value, with gains and losses arising 
from changes in fair value being included in surplus or deficit for the period. 

Net gains or losses on the financial instruments at fair value through surplus or deficit dividends and interest. 

Dividend income is recognised in surplus or deficit as part of other income when the municipality's right to receive payment is 
established. 

Loans and receivables are subsequently measured at amortised cost, using the effective interest method, less accumulated 
impairment losses. 

Held-to-maturity investments are subsequently measured at amortised cost, using the effective interest method, less accumulated 
impairment losses. 

Available-for-sale financial assets are subsequently measured at fair value. This excludes equity investments for which a fair value 
is not determinable, which are measured at cost less accumulated impairment losses. 

Gains and losses arising from changes in fair value are recognised in equity until the asset is disposed of or determined to be 
impaired. Interest on available-for-sale financial assets calculated using the effective interest method is recognised in surplus or 
deficit as part of other income. Dividends received on available-for-sale equity instruments are recognised in surplus or deficit as 
part of other income when the municipality's right to receive payment is established. 

Changes in fair value of available-for-sale financial assets denominated in a foreign currency are analysed between translation 
differences resulting from changes in amortised cost and other changes in the carrying amount. Translation differences on 
monetary items are recognised in surplus or deficit, while translation differences on non-monetary items are recognised in equity. 

Financial liabilities at amortised cost are subsequently measured at amortised cost, using the effective interest method. 

Financial assets and financial liabilities are offset and the net amount reported on the financial position where there is a current 
legally enforceable right to set-off the recognised amount and there is an intention to settle on a net basis or to realise the asset 
and settle the liability simultaneously. 

Fair value determination 

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for 
unlisted securities), the municipality establishes fair value by using valuation techniques. These include the use of recent arm's 
length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option 
pricing models making maximum use of market inputs and reiying as little as possible on entity-specific inputs. 


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1.6 Finandal instruments (continued) 

Impairment of financial assets 

At each end of the reporting period the municipality assesses all financial assets, other than those at fair value through surplus or 
deficit, to determine whether there is objective evidence that a financial asset or group of financial assets has been impaired. 

For amounts due to the municipality, significant financial difficulties of the debtor, probability that the debtor will enter 
bankruptcy and default of payments are all considered indicators of impairment. 

In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security 
below its cost is considered an indicator of impairment. If any such evidence exists for available-for-sale financial assets, the 
cumulative loss - measured as the difference between the acquisition cost and current fair value, less any impairment loss on that 
financial asset previously recognised in surplus or deficit - is removed from equity as a reclassification adjustment and recognised 
in surplus or deficit. 

Impairment losses are recognised in surplus or deficit. 

Impairment losses are reversed when an increase in the financial asset's recoverable amount can be related objectively to an event 
occurring after the impairment was recognised, subject to the restriction that the carrying amount of the financial asset at the 
date that the impairment is reversed shall not exceed what the carrying amount would have been had the impairment not been 
recognised. 

Impairment losses are also not subsequently reversed for available-for-sale equlty investments which are held at cost because fair 
value was not determinable. 

Where financial assets are impaired through use of an allowance account, the amount of the loss is recognised in surplus or deficit 
within operating expenses. When such assets are written off, the write off is made against the relevant allowance account. 
Subsequent recoveries of amounts previously written off are credited against operating expenses. 

Consumer deposits 

Consumer deposits consists of deposits due by consumers upon opening of service accounts. 

Consumer deposits are measured at initial recognition at fair value. Appropriate allowances for estimated irrecoverable amounts 
are recognised in surplus or deficit when there is objective evidence that the asset is impaired. The allowance recognised is 
measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted 
at the effective interest rate computed at initial recognition. 

Consumer deposits are classified as loans and receivables. 

Receivables from exciiange transactions 

Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the 
effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in surplus or deficit 
when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the 
asset's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at 
initial recognition. 

The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the deficit is recognised 
in surplus or deficit within operating expenses. When a trade receivable is uncollectible, it is written off against the allowance 
account for trade receivables. Subsequent recoveries of amounts previously written off are credited against operating expenses in 
surplus or deficit. 

Trade and other receivables are classified as loans and receivables. 

Payables from exchange transactions 

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest 
rate method. 


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1.6 Fmancial instruments (continued) 

Cash and cash equivalents 

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are 
readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and 
subsequently recorded at fair value. Cash and cash equivalents are classified as loans and receivables. 

Bank overdraft and borrowings 

Bank overdrafts and borrowings are initially measured at fair value, and are subsequently measured at amortised cost, using the 
effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption 
of borrowings is recognised over the term of the borrowings in accordance with the municipality's accounting policy for borrowing 
costs. 

Derivatives 

Derivative financial instruments, which are not designated as hedging instruments, consisting of foreign exchange contracts and 
interest rate swaps, are initially measured at fair value on the contract date, and are re-measured to fair value at subsequent 
reporting dates. 

Derivatives embedded in other financial instruments or other non-financial host contracts are treated as separate derivatives when 
their risks and characteristics are not closely related to those of the host contract and the host contract is not carried at fair value 
with unrealised gains or losses reported in surplus or deficit. 

Changes in the fair value of derivative financial instruments are recognised in surplus or deficit as they arise. 

Derivatives are classified as financial assets at fair value through surplus or deficit - held for trading. 

Held to maturity 

These financial assets are initially measured at fair value plus direct transaction costs. 

At subsequent reporting dates these are measured at amortised cost using the effective interest rate method, less any impairment 
loss recognised to reflect irrecoverable amounts. An impairment loss is recognised in surplus or deficit when there is objective 
evidence that the asset is impaired, and is measured as the difference between the investment's carrying amount and the present 
value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Impairment losses 
are reversed in subsequent periods when an increase in the investment's recoverable amount can be related objectively to an 
event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the 
date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been 
recognised. 

Financial assets that the municipality has the positive intention and ability to hold to maturity are classified as held to maturity. 

Financial liabilities and equity instruments 

Financial liabilities are classified according to the substance of contractual agreements entered into. Trade and other payables are 
stated at their nominal value. Equity instruments are recorded at the amount received, net of direct issue costs. 

Gains and losses 

A gain or loss arising from a change in a financial asset or financial liability is recognised as follows: 

• A gain or loss on a financial asset or financial liability classified as at fair value through surplus or deficit is recognised in 
surplus or deficit; 

• A gain or loss on an available-for-sale financial asset is recognised directly in net assets, through the statement of changes in 
net assets, until the financial asset is derecognised, at which time the cumulative gain or loss previously recognised in net 
assets is recognised in surplus or deficit; and 

• For financial assets and financial liabilities carried at amortised cost, a gain or loss is recognised in surplus or deficit when the 
financial asset or financial liability is derecognised or impaired, and through the amortisation process. 


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1.6 Financial instruments (continued) 

Derecognition 

Financial assets 

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised 
where: 

• the rights to receive cash flows from the asset have expired; 

• the municipality retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full 
without material delay to a third party under a 'pass-through' arrangement; or 

• the municipality has transferred its rights to receive cash flows from the asset and either 

has transferred substantially all the risks and rewards of the asset, or 

has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of 
the asset. 

Where the municipality has transferred its rights to receive 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 recognised to the extent of the 
municipality's continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred 
asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the 
municipality could be required to repay. 

Finandal liabilities 

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. Where an existing 
financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability 
are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the 
recognition of a new liability, and the difference in the respective carrying amounts is recognised in surplus or deficit. 

Impairment of finandal assets 

The municipality assesses at each statement of financial position date whether a financial asset or group of financial assets is 
impaired. 

The amount of the loss shall be recognised in surplus or deficit. The municipality first assesses whether objective evidence of 
impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets 
that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed 
financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics 
and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and 
for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. 

1.7 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. 

When a lease includes both land and buildings elements, the entity assesses the classification of each element separately. 


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Accounting Policies 


1.7 Leases (continued) 

Finance leases - lessee 

Finance leases are recognised as assets and liabilities in the statement of financial position at amounts equal to the fair value of 
the leased property or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is 
included in the statement of financial position as a finance lease obligation. 

The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease. 

Minimum lease payments are apportioned between the finance charge and reduction of the outstanding liability. The finance 
charge is allocated to each period during the lease term so as to produce a constant periodic rate of on the remaining balance of 
the liability. 

Any contingent rents are expensed in the period in which they are incurred. 

Operating leases - lessor 

Operating lease revenue is recognised as revenue on a straight-line basis over the lease term. 

Initial direct costs incurred in negotiating and arranging operating leases are added to the carrying amount of the leased asset and 
recognised as an expense over the lease term on the same basis as the lease revenue. 

The aggregate cost of incentives is recognised as a reduction of rental revenue over the lease term on a straight-line basis. 

The aggregate benefit of incentives is recognised as a reduction of rental expense over the lease term on a straight-line basis. 
Income for leases is disclosed under revenue ih statement of financial performance. 

Operating leases - lessee 

Operating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference between the 
amounts recognised as an expense and the contractual payments are recognised as an operating lease asset or liability. 

1.8 Inventories 

Inventories are initially measured at cost except where inventories are acquired at no cost, or for nominal consideration, then their 
costs are their fair value as at the date of acquisition. 

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

Current replacement cost is the cost the municipality incurs to acquire the asset on the reporting date. 

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

The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific 
projects is assigned using specific identification of the individual costs. 

The cost of inventories is assigned using the weighted average cost formula. The same cost formula is used for all inventories 
having a similar nature and use to the municipality. 


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Accounting Policies 


1.8 Inventories (continued) 

When inventories are sold, the carrying amounts of those inventories are recognised as an expense in the period in which the 
related revenue is recognised. If there is no related revenue, the expenses are recognised when the goods are distributed, or 
related services are rendered. The amount of any write-down of inventories to net realisable value or current replacement cost 
and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal 
of any write-down of inventories, arising from an increase in net realisable value or current replacement cost, are recognised as a 
reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs. 

1.9 Impairment of cash-generatlng assets 

Cash-generating assets are those assets held by the 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. 

Impairment is a loss in the future economic benefits or service potential of an asset, over and above the systematic recognition of 
the loss of the asset's future economic benefits or service potential through depreciation (amortisation). 

Carrying amount is the amount at which an asset is recognised in the statement of financial position after deducting any 
accumulated depreciation and accumulated impairment losses thereon. 

A cash-generating unit is the smallest identifiable group of assets held with the primary objective of generating a commercial 
return that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or 
groups of assets. 

Costs of disposal are incremental costs directly attributable to the disposal of an asset, excluding finance costs and income tax 
expense. 

Depreciation (Amortisation) is the systematic allocation of the depreciable amount of an asset over its useful life. 

Fair value less costs to sell is the amount obtainable from the sale of an asset in an arm's length transaction between 
knowledgeable, willing parties, less the costs of disposal. 

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

Useful life is either: 

(a) the period of time over which an asset is expected to be used by the municipality; or 

(b) the number of production or similar units expected to be obtained from the asset by the municipality. 

Criteria developed by the municipality to distinguish cash-generating assets from non-cash-generating assets are still in progress. 

1.10 Employee benefits 
Short-term employee benefits 

The cost of short-term employee benefits, (those payable within 12 months after the service is rendered, such as paid vacation 
leave and sick leave, bonuses, and non-monetary benefits such as medical care), are recognised in the period in which the service 
is rendered and are not discounted. 

The expected cost of compensated absences is recognised as an expense as the employees render services that increase their 
entitlement or, in the case of non-accumulating absences, when the absence occurs. 

Defined contribution plans 

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

Payments made to state plans, retirement benefit schemes are dealt with as defined contribution plans where the entity's 
obligation under the schemes is equivalent to those arising in a defined contribution retirement benefit plan. 


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Accounting Policies 


1.10 Employee benefits (continued) 

Other post retirement obiigations 

The entity provides post-retirement health care benefits, housing subsidies and gratuities upon retirement to some retirees. 

The entitlement to post-retirement health care benefits is based on the employee remaining in service up to retirement age and 
the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment. 
Independent qualified actuaries carry out valuations of these obligations. The entity also provides a gratuity and housing subsidy 
on retirement to certain employees. An annual charge to income is made to cover both these liabilities. 

1.11 Provisions and contingencies 

Provisions are recognised \when: 

• the municipality has a present obligation as a result of a past event; 

• it is probable 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 obligation. 

The amount of a provision is the best estimate of the expenditure expected to be required to settle the present obligation at the 
reporting date. 

Where the effect of time value of money is material, the amount of a provision is the present value of the expenditures expected 
to be required to settle the obligation. 

The discount rate is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the 
liability. 

Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the 
reimbursement is recognised when, and only when, it is virtually certain that reimbursement will be received if the municipality 
settles the obligation. The reimbursement is treated as a separate asset. The amount recognised for the reimbursement does not 
exceed the amount of the provision. 

Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. Provisions are reversed if it is no 
longer probable that an outflow of resources embodying economic benefits or service potential will be required, to settle the 
obligation. 

Where discounting is used, the carrying amount of a provision increases in each period to reflect the passage of time. This increase 
is recognised as an interest expense. 

A provision is used only for expenditures for which the provision was originally recognised. 

Provisions are not recognised for future operating deficits. 

If an entity has a contract that is onerous, the present obligation (net of recoveries) under the contract is recognised and 
measured as a provision. 

A constructive obligation to restructure arises only when an entity: 

• has a detailed formal plan for the restructuring, identifying at least: 

the activity/operating unit or part of a activity/operating unit concerned; 
the principal locations affected; 

the location, function, and approximate number of employees who will be compensated for services being 
terminated; 

the expenditures that will be undertaken; and 
when the plan will be implemented; and 

• has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan 
or announcing its main features to those affected by it. 


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Accounting Policies 


1.11 Provisions and contingendes (continued) 

A restructuring provision includes only the direct expenditures arising from the restructuring, \A/hich are those that are both: 

• necessarily entailed by the restructuring; and 

• not associated with the ongoing activities of the municipality 

No obligation arises as a consequence of the sale or transfer of an operation until the municipality is committed to the sale or 
transfer, that is, there is a binding arrangement. 

After their initial recognition contingent liabilities recognised in entity combinations that are recognised separately are 
subsequently measured at the higher of: 

• the amount that would be recognised as a provision; and 

• the amount initially recognised less cumulative amortisation. 

Contingent assets and contingent liabilities are not recognised. 

1.12 Revenue from exchange transactions 

Revenue is the gross inflow of economic benefits or service potential during the reporting period when those inflows result in an 
increase in net assets, other than increases relating to contributions from owners. 

An exchange transaction is one in which the municipality receives assets or services, or has liabilities extinguished, and directly 
gives approximately equal value (primarily in the form of goods, services or use of assets) to the other party in exchange. 

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an 
arm's length transaction. 

When uncertainty arises about the collectability of an amount already included in revenue, the uncollectable amount, or the 
amount in respect of which recovery has ceased to be probable, is recognised as an expense, rather than as an adjustment of the 
amount of revenue originally recognised. 

Measurement 

Revenue is measured at the fair value of the consideration received or receivable, net of trade discounts and volume rebates. 

Sale of goods 

Revenue from the sale of goods is recognised when all the following conditions have been satisfied: 

• the municipality has transferred to the purchaser the significant risks and rewards of ownership of the goods; 

• 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; 
and 

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


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Accounting Poiicies 


1.12 Revenue from exchange transactions (continued) 

Rendering of services 

When the outconne of a transaction involving the rendering of services can be estimated reliably, revenue associated with the 
transaction is recognised by reference to the stage of completion of the transaction at the reporting date. The outcome of a 
transaction can be estimated reliably when all the following conditions are satisfied: 

• 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 stage of completion of the transaction at the reporting date can be measured reliably; and 

• the costs incurred for the transaction and the costs to complete the transaction can be measured reliably. 

When services are performed by an indeterminate number of acts over a specified time frame, revenue is recognised on a straight 
line basis over the specified time frame unless there is evidence that some other method better represents the stage of 
completion. When a specific act is much more significant than any other acts, the recognition of revenue is postponed until the 
significant act is executed. 

When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue is recognised only 
to the extent of the expenses recognised that are recoverable. 

Revenue from the rental of facilities and equipment is recognised on a straight-lined basis over the term of the lease agreement. 

Interest and dividends 

Revenue arising from the use by others of entity assets yielding interest and dividends is recognised when: 

• It is probable that the economic benefits or service potential associated with the transaction will flow to the municipality, 
and 

• The amount of the revenue can be measured reliably. 

Interest is recognised, in surplus or deficit, using the effective interest rate method. 

Dividends, or their equivalents are recognised, in surplus or deficit, when the municipality's right to receive payment has been 
established. 

Service fees included in the price of the product are recognised as revenue over the period during which the service is performed. 
Penalty interest is levied on unpaid amounts each month. This revenue is recognised when leviable in terms of law. 

1.13 Revenue from non-exchange transactions 

Revenue comprises gross inflows of economic benefits or service potential received and receivable by a municipality, which 
represents an increase in net assets, other than increases relating to contributions from owners. 

Conditions on transferred assets are stipulations that specify that the future economic benefits or service potential embodied in 
the asset is required to be consumed by the recipient as specified or future economic benefits or service potential must be 
returned to the transferor. 

Control of an asset arise when the municipality can use or otherwise benefit from the asset in pursuit of its objectives and can 
exclude or otherwise regulate the access of others to that benefit. 

Expenses paid through the tax system are amounts that are available to beneficiaries regardless of whether or not they pay taxes. 

Fines are economic benefits or service potential received or receivable by entities, as determined by a court or other law 
enforcement body, as a consequence of the breach of laws or regulations. 

Non-exchange transactions are transactions that are not exchange transactions. In a non-exchange transaction, a municipality 
either receives value from another municipality without directly giving approximately equal value in exchange, or gives value to 
another municipality without directly receiving approximately equal value in exchange. 


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1.13 Revenue from non-exchange transactions (continued) 

Restrictions on transferred assets are stipulations that limit or direct the purposes for which a transferred asset may be used, but 
do not specify that future economic benefits or service potential is required to be returned to the transferor if not deployed as 
specified. 

Stipulations on transferred assets are terms in laws or regulation, or a binding arrangement, imposed upon the use of a transferred 
asset by entities external to the reporting municipality. 

Recognition 

An inflow of resources from a non-exchange transaction recognised as an asset is recognised as revenue, except to the extent that 
a liability is also recognised in respect of the same inflow. 

As the municipality satisfies a present obligation recognised as a liability in respect of an inflow of resources from a non-exchange 
transaction recognised as an asset, it reduces the carrying amount of the liability recognised and recognises an amount of revenue 
equal to that reduction. 

Measurement 

Revenue from a non-exchange transaction is measured at the amount of the increase in net assets recognised by the municipality. 

When, as a result of a non-exchange transaction, the municipality recognises an asset, it also recognises revenue equivalent to the 
amount of the asset measured at its fair value as at the date of acquisition, unless it is also required to recognise a liability. Where 
a liability is required to be recognised it will be measured as the best estimate of the amount required to settle the obligation at 
the reporting date, and the amount of the increase in net assets, if any, recognised as revenue. When a liability is subsequently 
reduced, because the taxable event occurs or a conditlon is satisfied, the amount of the reduction in the liability is recognised as 
revenue. 

Assessment Rates 

Revenue from rates, including collection charges and penalty interest, is recognised when: 

- it is probable that the economic benefits or service potential associated with the transaction will flow to the entity, 

- the amount of the revenue can be measured reliably, and 

- there has been compliance with the relevant legal requirements. 

- Changes to property values during a reporting period, which are referred to as "interims", are valued by a suitably qualified 
valuator and adjustments are made to rates revenue, based on a time proportion basis. Adjustments to rates revenue aiready 

recognised are processed or additional rates revenue is recognised. 

Transfers 

Apart from Services in kind, which are not recognised, the municipality recognises an asset in respect of transfers when the 
transferred resources meet the definition of an asset and satisfy the criteria for recognition as an asset. 

The municipality recognises an asset in respect of transfers when the transferred resources meet the definition of an asset and 
satisfy the criteria for recognition as an asset. 

Transferred assets are measured at their fair value as at the date of acquisition. 


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Accounting Policies 


1.13 Revenue from non-exchange transactions (continued) 

Fines 

Revenue from the issuing of finesi s recognised when: 

- it is probable that the economic benefits or service potential associated with the transaction will flow to the entity, and 

- the amount of the revenue can be measured reliably. 

- There are two types of fines: spot fines and summonses. Municipalities will usually issue both types of fines. There is 
uncertainty regarding the probability of the flow of economic benefits or service potential in respect of spot fines as these fines 
are usually not given directly to an offender. Further legal processes have to be undertaken before the spot fine is enforceable. 

- In respect of summonses the public prosecutor can decide whether to waive the made for the revenue amount collected from 
spot fines and summonses based on past experience of amounts collected. Where a reliable estimate cannot be made of 

revenue from summonses, the revenue from summonses should be recognised when the public prosecutor pays over to the 
entity the cash actually collected on summonses issued. 

Gifts and donations, including goods in-kind 

Gifts and donations, including goods in kind, are recognised as assets and revenue when it is probable that the future economic 
benefits or service potential will flow to the municipality and the fair value of the assets can be measured reliably. 

1.14 Borrowing costs 

The capitalisation of borrowing costs commences when all the following conditions have been met: 

• expenditures for the asset have been incurred; 

• borrowing costs have been incurred; and 

• activities that are necessary to prepare the asset for its intended use or sale are undertaken. 

1.15 Comparative figures 

Where necessary, comparative figures have been reclassified to conform to changes in presentation in the current year. 

l.lGUnauthorised expenditure 

Unauthorised expenditure means: 

• overspending of a vote or a main division within a vote; and 

• 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 unauthorised expenditure is recognised 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. 

1.17 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 recognised 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. 

1.18 Irregular expenditure 

Irregular expenditure as defined in section 1 of the MFMA is expenditure other than unauthorised expenditure, incurred in 
contravention of or that is not in accordance with a requirement of any applicable legislation, including - 

(a) this Act; or 

(b) the State Tender Board Act, 1968 (Act No. 86 of 1968), or any regulations made in terms of the Act; or 

(c) any provincial legislation providing for procurement procedures in that provincial government. 


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Accounting Policies 


1.18 Irregular expenditure (continued) 

National Treasury practice note no. 4 of 2008/2009 which was issued in terms of sections 76(1) to 76(4) of the PFMA requires the 
following (effective from 1 April 2008): 

Irregular expenditure that was incurred and identified during the current financial and which was condoned before year end 
and/or before finalisation of the financial statements must also be recorded appropriately in the irregular expenditure register. In 
such an instance, no further action is also required with the exception of updating the note to the financial statements. 

Irregular expenditure that was incurred and identified during the current financial year and for which condonement is being 
awaited at year end must be recorded in the irregular expenditure register. No further action is required with the exception of 
updating the note to the financial statements. 

Where irregular expenditure was incurred in the previous financial year and is only condoned in the following financial year, the 
register and the disclosure note to the financial statements must be updated with the amount condoned. 

Irregular expenditure that was incurred and identified during the current financial year and which was not condoned by the 
National Treasury or the relevant authority must be recorded appropriately in the irregular expenditure register. If liability for the 
irregular expenditure can be attributed to a person, a debt account must be created if such a person is liable in law. Immediate 
steps must thereafter be taken to recover the amount from the person concerned. If recovery is not possible, the accounting 
officer or accounting authority may write off the amount as debt impairment and disclose such in the relevant note to the financial 
statements. The irregular expenditure register must also be updated accordingly. If the irregular expenditure has not been 
condoned and no person is liable in law, the expenditure related thereto must remain against the relevant 
programme/expenditure item, be disclosed as such in the note to the financial statements and updated accordingly in the irregular 
expenditure register. 

Irregular expenditure is expenditure that is contrary to the Municipal Finance Management Act (Act No.56 of 2003), the Municipal 
Systems Act (Act No.32 of 2000), and the Public Office Bearers Act (Act No. 20 of 1998) or is in contravention of the economic 
entity's supply chain management policy. Irregular expenditure excludes unauthorised expenditure. Irregular expenditure is 
accounted for as expenditure in the Statement of Financial Performance and where recovered, it is subsequently accounted for as 
revenue in the Statement of Financial Performance. 

1.19 Use of estimates 

The preparation of financial statements in conformity with Standards of GRAP requires the use of certain critical accounting 
estimates. It also requires management to exercise its judgement in the process of applying the municipality's accounting policies. 
The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the 
financial statements are disclosed in the relevant sections of the financial statements. Although these estimates are based on 
management's best knowledge of current events and actions they may undertake in the future, actual results ultimately may differ 
from those estimates. 

1.20 Offsetting 

Assets, liabilities, revenue and expenses have not been offset except when offsetting is required or permitted by a Standard of 
GRAP 

1.21 Housing development fund 

The Housing Development Fund was established in terms of the Housing Act, (Act No. 107 of 1997). Loans from national and 
provincial government used to finance housing selling schemes undertaken by the municipality were extinguished on 1 April 1998 
and transferred to a Housing Development Fund. Housing selling schemes, both complete and in progress as at 1 April 1998, were 
also transferred to the Housing Development Fund. In terms of the Housing Act, all proceeds from housing developments, which 
include rental income and sales of houses, must be paid into the Housing Development Fund. Monies standing to the credit of the 
Housing Development Fund can be used only to finance housing developments within the municipal area subject to the approval 
of the Provincial MEC responsible for housing. 


30 



Setsoto Local Municipality 
Accounting Policies 


1.22 Revaluation reserve 

The surplus arising from the revaluation of property, plant and equipment is credited to a non-distributable reserve. The 
revaluation surplus is realised as revalued buildings are depreciated, through a transfer from the revaluation reserve to the 
accumulated surplus/deficit. On disposal, the net revaluation surplus is transferred to the accumulated surplus/deficit while gains 
or losses on disposal, based on revalued amounts, are credited or charged to the statement of financial performance. 

1.23 Investments 

Where the carrying amount of an investment is greater than the estimated recoverable amount, it is written down immediately to 
its recoverable amount and an impairment loss is charged to the statement of financial performance. 

1.24 Conditional grants and receipts 

Revenue received from conditional grants, donations and funding are recognised 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 recognised. 

Government grants can be in the form of grants to acquire or construct fixed assets (capital grants), grants for the furtherance of 
national and provincial government policy objectives and general grants to subsidise the cost incurred by entities in rendering 
services. Capital grants and general grants for the furtherance of government policy objectives are usually restricted revenue in 
that stipulations are imposed on their use. 

Government grants are recognised as revenue when: 

- it is probable that the economic benefits or service potential associated with the transaction will flow to the entity, 

- the amount of the revenue can be measured reliably, and 

- to the extent that there has been compliance with any restrictions associated with the grant. 

An entity needs to assess the degree of certainty attached to the flow of future economic benefits of service potential on the basis 
of the available evidence. Certain grants payable by one level of government to another are subject to the availability of funds. 
Revenue from these grants should only be recognised when it is probable that the economic benefits or service potential 
associated with the transaction will flow to the entity. An announcement at the beginning of a financial year that grants may be 
available for qualifying entities in accordance with an agreed programme may not be sufficient evidence of the probability of the 
flow. Revenue should only be recognised once evidence of the probability of the flow becomes available. 

Restrictions on government grants may result in such revenue being recognised on a time proportion basis. For example, equitable 
share grants per the Division of Revenue Act where the period of use of such funds is stated, should be recognised on a time 
proportion basis, i.e. over the stated period. Where there is no restriction on the period, such revenue should be recognised on 
receipt or when the Act becomes effective, which-ever is earlier. 

In certain circumstances government will only remit grants on a re-imbursement basis. Revenue should therefore be recognised 
when the qualifying expense has been incurred and to the extent that any other restrictions have been complied with and not 
when the grant is received. 

Other Grants and Donations 

Donations shall be measured at the fair value of the consideration received or receivable when the amount of the revenue can be 
measured reliably. 

Other grants and donations shall be recognised as revenue when: 

- it is probable that the economic benefits or service potential associated with the transaction will flow to the entity, 

- the amount of the revenue can be measured reliably, and 

- to the extent that there has been compliance with any restrictions associated with the grant. 


31 



Setsoto Local Municipality 
Accounting Policies 


1.25 Related parties 

The municipality operates in an economic sector currently dominated by entities directly or indirectly owned by the South African 
Government. As a consequence of the constitutional independence of the three spheres of government in South Africa, only 
entities within the national sphere of government are considered to be related parties. 

Management are those persons responsible for planning, directing and controlling the activities of the municipality, including 
those charged with the governance of the municipality in accordance with legislation, in instances where they are required to 
perform such functions. 

Close members of the family of a person are considered to be those family members who may be expected to influence, or be 
influenced by, that management in their dealings with the municipality. 

Only transactions with related parties not at arm's length or not in the ordinary course of business are disclosed. 

1.26 Segmental information 

Segmental information on property, plant and equipment, as well as income and expenditure, is set out in Appendices C and D, 
based on the International Government Financial Statistics classifications and the budget formats prescribed by National Treasury. 
The municipality operates solely in its area of jurisdiction as determined by the Demarcation Board. 

Segment information is prepared in conformity with the accounting policies applied for preparing and presenting the financial 
statements. 

1.27 Capital Commitments 

Items are classified as commitments where the Municipality commits itself to future transactions that will normally result in 
the outflow of resources. 

Capital commitments are not recognised in the statement of financial positlon as a liability but are included in the 
disclosure notes in the following cases: 

- Approved and contracted commitments, where the expenditure has been approved and the contract has been awarded at the 
reporting date, where disclosure is required by a specific standard of GRAP. 

- Approved but not yet contracted commitments, where the expenditure has been approved and the contract has yet to be 
awarded or is awaiting finalisation at the reporting date. 

- Items are classified as commitments where the municipality commits itself to future transactions that will normally result in 

the outflow of resources. 

- Contracts that are entered into before the reporting date, but goods and services have not yet been received are disclosed in 

the disclosure notes to the financial statements. 

- Other commitments for contracts are be non-cancellable or only cancellable at significant cost contracts should relate to 
something other than the business of the municipality.Additional text 


32 


Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 

2012 Restated 
2011 



Setsoto Local Municipality 


Notes to the Annual Financial Statements for the year ended 30 June 2012 


2. New standards and interpretations 

2.1 Standards and interpretations effective and adopted in the current year 

In the current year, the municipality has adopted the following standards and interpretations that are effective for the current financial year and 
that are relevant to its operations: 


Standard/ Interpretation: 

Effective date: 
Years beginning 
on or after 

Expected impact: 

• 

IFRIC 14: lAS 19 - The Limit on Defined Benefit Asset, Minimum Funding 
Requirements - Amendment - Prepayments of minimum funding 
requirements 

01 January 2011 

It is unlikely that the standard will 
have a materiai impact on the 
municipality's annual financial 
statements. 

• 

IFRS 7: Financial Instruments: Disclosures - Amendments to disclosures 

OlJanuary 2011 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

• 

GRAP 103: Heritage Assets 

01 April 2012 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

• 

IGRAP 1: Interpretation of GRAP: Applying the Probability Test on Initial 
Recognition of Exchange Revenue 

01 April 2010 

It is unlikely that the standard will 
have a material impact on the 
municipality's annuai financial 
statements. 

• 

IGRAP 2: Changes in Existing Decommissioning, Restoration and Similar 
Liabilities 

01 April 2011 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

• 

IGRAP 3: Determining Whether an Arrangement Contains a Lease 

01 April 2011 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

• 

IGRAP 4: Rights to Interests Arising from Decommissioning, Restoration 
and Environmental Rehabilitation Funds 

01 April 2011 

it is unlikely that the standard will 
have a material impact on the 
municipality's annuai financial 
statements. 

• 

IGRAP 5: Applying the Restatement Approach under the Standard of GRAP 
on Financial Reporting in Hyperinflationary Economies 

01 April 2011 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

• 

IGRAP 6: Loyalty Programmes 

01 April 2011 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

• 

IGRAP 7: The Limit on a Defined Benefit Asset, Minimum Funding 
Requirements and their Interaction 

01 April 2011 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

• 

IGRAP 8: Agreements for the Construction of Assets from Exchange 
Transactions 

01 April 2011 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

• 

IGRAP 9: Distributions of Non-cash Assets to Owners 

01 April 2011 

It is uniikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

• 

IGRAP 10: Assets Received from Customers 

01 April 2011 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 


34 



Setsoto Local Municipality 


Notes to the Annual Financial Statements for the year ended 30 June 2012 


2. New standards and interpretations (continued) 

• IGRAP 13; Operating Leases - Incentives 01 April 2011 


IGRAP 14: Evaluating the Substance of Transactions Involving the Legal 01 April 2011 
Form of a Lease 


IGRAP 15: Revenue - Barter Transactions Involving Advertising Services 01 April 2011 


GRAP 1 (as revised 2010): Presentation of Financial Statements 01 April 2011 


GRAP 2 (as revised 2010): Cash Flow Statements 


01 April 2011 


GRAP 3 (as revised 2010): Accounting policies, Changes in Accounting 01 April 2011 
Estimates and Errors 


GRAP 9 (as revised 2010): Revenue from Exchange Transactions 01 April 2011 


GRAP 10 (as revised 2010): Financial Reporting in Hyperinflationary 01 April 2011 
Economies 


GRAP 11 (as revised 2010): Construction Contracts 


01 April 2011 


GRAP 12 (as revised 2010); Inventories 


01 April 2011 


GRAP 13 (as revised 2010): Leases 


01 April 2011 


GRAP 14 (as revised 2010): Events After the Reporting Date 01 April 2011 


GRAP 16 (as revised 2010): investment Property 


01 April 2011 


GRAP 17 (as revised 2010): Property, Plant and Equipment 


01 April 2011 


GRAP 19 (as revised 2010); Provisions, Contingent Liabilities and 01 April 2011 
Contingent Assets 


GRAP 100 (as revised 2010): Non-current Assets Held for Sale and 01 April 2011 
Discontinued Operations 


It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality’s annuai financial 
statements. 

It is unlikely that the standard will 
have a materiai impact on the 
municipality’s annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality’s annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality’s annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality’s annual financial 
statements. 


35 



Setsoto Local Municipality 


Notes to the Annual Financial Statements for the year ended 30 June 2012 


2. New standards and interpretations (continued) 

• IGRAP 11: Consolidation - Special purpose entities 01 April 2014 


IGRAP 12: Jointly controlled entities - Non-monetary contributions by 01 April 2014 
ventures 


GRAP 101: Agriculture 01 April 2009 


GRAP 102: Intangible Assets 


01 April 2009 


It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 


2.2 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 2012 or later periods: 


Standard/ Interpretation: 


GRAP 18: Segment Reporting 


Effective date: 
Years beginning 
on or after 

no effective date determined 


GRAP 24: Presentation of Budget Information in the Financial Statements 01 April 2012 


GRAP 21: Impairment of non-cash-generating assets 


01 April 2012 


GRAP 26: Impairment of cash-generating assets 


01 April 2012 


GRAP 25: Employee benefits 


01 April 2013 


GRAP 104: Financial Instruments 


01 April 2012 


GRAP 105: Transfers of functions between entities under common control no effective date determined 


GRAP 106: Transfers of functions between entities not under common no effective date determined 
control 


GRAP 107: Mergers 


no effective date determined 


Expected impact: 


It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material Impact on the 
municipality's annual financial 
statements. 

It is unlikeiy that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It Is unlikely that the standard will 
have a materiai impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 


36 


Setsoto Local Municipality 


Notes to the Annual Financial Statements for the year ended 30 June 2012 


2. New standards and interpretations (continued) 

• GRAP 20: Related parties no effective date determined 


IGRAP 11: Consolidation-Special purpose entities 


01 April 2014 


IGRAP 12: Jointly controlled entities - Non-monetary contributions by 01 April 2014 
ventures 


GRAP 6 (as revised 2010); Consolidated and Separate Financial Statements 01 April 2014 


GRAP 8 (as revised 2010): Interests in Joint Ventures 


01 April 2014 


GRAP 1 (as revised 2012): Presentation of Financial Statements 01 April 2013 


GRAP 3 (as revised 2012): Accounting Policies, Change in Accounting 01 April 2013 
Estimates and Errors 


GRAP 7 (as revised 2012): Investments in Associates 


01 April 2013 


GRAP 9 (as revised 2012): Revenue from Exchange Transactions 01 April 2013 


GRAP 12 (as revised 2012): Inventories 


01 April 2013 


GRAP 13 (as revised 2012): Leases 


01 April 2013 


GRAP 16 (as revised 2012): Investment Property 


01 April 2013 


GRAP 17 (as revised 2012): Property, Plant and Equipment 


01 April 2013 


GRAP 27 (as revised 2012): Agriculture (Replaces GRAP 101) 01 April 2013 


GRAP 31 (as revised 2012): Intangible Assets (Replaces GRAP 102) 01 April 2013 


IGRAP16: Intangible assets website costs 


01 April 2013 


It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

t is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It Is unllkely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 

It is unlikely that the standard will 
have a material impact on the 
municipality's annual financial 
statements. 


37 


Setsoto Local Municipality 


Notes to the Annuai Financial Statements for the year ended 30 June 2012 


2. New standards and interpretations (continued) 

The aggregate impact of the initial application of the statements and interpretations on the municipality's financial statements is expected as 
presented in the following noets: 


38 


Setsoto Local Municipaiity 

Notes to the Annual Financial Statements for the year ended 30 June 2012 


2012 2011 


3. Inventories 


Consumable stores 

58,532 

71,065 

Maintenance materials 

1,174,348 

1,313,068 

Water 

383,353 

360,243 

No inventories were write-down during the prior and current year.. 

The cost of inventories recognised as an expense duringthe period is Rl,167,384.96 (2011 - R744,285.29 ). 

Inventory pledged as security 

No inventory was pledged as security for the year under review. 

Investments 

1,616,233 

1,744,376 

At fair value through profit or ioss - held for trading 

Listed shares 

Sanlam Shares 

572,429 

172,560 

Unlisted shares 

OVK/EFCShares 

495,421 

106,309 


1,067,850 

278,869 

Held to maturity 

Investments 

Fixed Deposits 

888,844 

10,859,726 

Non-current assets 

At fair value through profit or loss - held for trading 

1,067,850 

278,869 

Held to maturity 

888,844 

852,845 


1,956,694 

1,131,714 

Current assets 

Held to maturity 

- 

10,006,881 

Trade and Other Receivables from Exchange Transactions 

1,956,694 

11,138,595 

Gross balances 

Electricity 

35,541,915 

28,718,156 

Water 

89,889,453 

92,959,244 

Sewerage 

68,040,480 

58,244,218 

Refuse 

94,694,215 

80,926,665 

Other 

23,770,615 

19,749,473 


311,936,678 

280,597,756 


39 



Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 


2012 2011 


5. Trade and Other Receivables from Exchange Transactions (continued) 


Less: Provision for debt impairment 


Electricity 

(19,467,933) 

(8,757,858) 

Water 

(74,270,417) 

(80,449,170) 

Sewerage 

(55,690,882) 

(49,885,667) 

Refuse 

(75,932,222) 

(70,620,247) 

Other (specify) 

(20,066,990) 

(11,262,471) 


( 245 , 428 , 444 ) 

( 220 , 975 , 413 ) 

Net balance 

Electricity 

16,073,982 

19,960,298 

Water 

15,619,036 

12,510,074 

Sewerage 

12,349,598 

8,358,551 

Refuse 

18,761,993 

10,306,418 

Other (specify) 

3,703,625 

8,487,002 


66 , 508,234 

59 , 622,343 

Electricity 

Current (0-30days) 

14,934,883 

6,002,243 

31 - 60 days 

4,012,949 

1,553,960 

61 - 90 days 

2,235,166 

1,690,075 

91-120days 

917,490 

6,117,216 

121 - 365 days 

13,441,426 

7,212,846 

Provision for bad debts 

(19,467,932) 

(8,757,858) 


16 , 073,982 

19 , 960,298 

Water 

Current (0 -30 days) 

4,684,033 

3,777,356 

31 - 60 days 

2,112,513 

1,338,258 

61 - 90 days 

2,269,148 

1,287,590 

91 - 120 days 

2,240,666 

79,065,193 

121 - 365 days 

78,583,093 

7,490,847 

Provision for bad debts 

(74,270,417) 

(80,449,170) 


15 , 619,036 

12 , 510,074 

Sewerage 

Current (0 -30 days) 

1,530,661 

1,652,902 

31 - 60 days 

1,448,071 

1,421,954 

61 - 90 days 

1,433,475 

908,790 

91 - 120 days 

1,512,329 

48,311,722 

121-365days 

62,115,944 

5,948,850 

Provision for bad debts 

(55,690,882) 

(49,885,667) 


12 , 349,598 

8 , 358,551 

Refuse 

Current (0 -30 days) 

1,967,618 

1,955,445 

31 - 60 days 

1,815,527 

1,141,475 

61 - 90 days 

1,864,262 

1,117,422 

91-120days 

1,960,621 

68,574,869 

121 - 365 days 

87,086,187 

8,137,448 

Provision for bad debts 

(75,932,222) 

(70,620,241) 


18 , 761,993 

10 , 306,418 


40 



Setsoto Local Municipality 


Notes to the Annual Financial Statements for the year ended 30 June 2012 



2012 

2011 

5. Trade and Other Receivables from Exchange Transactions (continued) 



Other 



Current (0 -30 days) 

248,323 

225,664 

31 - 60 days 

255,449 

73,130 

61 - 90 days 

236,971 

53,620 

91 - 120 days 

243,552 

1,688,659 

121-365 days 

22,786,320 

17,708,401 

Provision for bad debts 

(20,066,990) 

(11,262,472) 


3 , 703,625 

8 , 487,002 

Summary of Trade and Other receivables by customer classification 



Consumers/Households 



Current (0 -30 days) 

26,578,876 

8,262,669 

31 -60days 

6,952,798 

5,075,614 

61 - 90 days 

8,005,186 

4,813,202 

91 - 120 days 

6,800,492 

209,216,218 

121 - 365 days 

263,144,190 

48,074,783 


311 , 481,542 

275 , 442,486 

Industrial / Commercial / Other 



Current (0 -30 days) 

1,078,834 

537,532 

31 - 60 days 

3,127,823 

439,390 

61 - 90 days 

446,686 

503,903 

91 - 120days 

511,986 

4,270,831 

121 - 365 days 

5,790,616 

1,523,930 


10 , 955,945 

7 , 275,586 

National and provincial government 



Current (0 -30 days) 

1,821,855 

461,260 

31 - 60 days 

1,906,177 

498,892 

61 - 90 days 

1,375,659 

191,481 

91 - 120 days 

604,996 

4,017,570 

121 - 365 days 

5,857,507 

770,055 


11 , 566,194 

5 , 939,258 

Total 



Current (0 -30 days) 

23,365,518 

13,613,610 

31 - 60 days 

9,644,509 

5,528,777 

61 - 90 days 

8,039,022 

5,057,497 

91-120days 

6,874,658 

203,757,659 

121 - 365 days 

264,012,970 

46,498,392 


311,936,677 

274,455,935 

Less: Provision fordebt impairment 

(245,428,443) 

(220,975,408) 


66 , 508,234 

53 , 480,527 

Provision for debt impairment 



Total 

(245,428,444) 

(220,975,413) 


41 



Setsoto Locai Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 

2012 2011 


5. Trade and Other Receivables from Exchange Transactions (continued) 


Reconciliation of debt impairment provision 


Balance at beginning of the year 

(220,975,637) 

(169,012,591) 

Contributions to provision 

(48,682,995) 

(53,603,409) 

Debt impairment written off against provision 

19,106,140 

1,640,587 

Correction of impairment between services 

5,124,048 

- 


(245,428,444) 

(220,975,413) 

Other receivables from non-exchange transactions 

Government grants and subsidies 

. 

233,236 

LED contributions and subsidies 

- 

1,284,602 

District contributions and subsidies 

- 

18,602,805 

Sundry Debtors 

2,385,567 

1,823,098 

Prepayments (Eskom and Fuel Deposits) 

1,000,839 

228,890 


3,386,406 

22,172,631 

Consumer receivables from non-exchange transactions 

Rates 

27,054,861 

19,705,693 

Less: Provision for debt impairment 

(24,994,833) 

(9,096,063) 


2,060,028 

10,609,630 

Rates - Ageing 

Current (0 -30 days) 

2,583,090 

894,049 

31 - 60 days 

2,342,290 

494,856 

61 - 90 days 

1,788,509 

457,788 

91-120days 

1,042,816 

13,977,259 

121 - 365 days 

19,298,156 

3,881,517 

Provision for bad debts 

(24,994,833) 

(9,095,839) 


2,060,028 

10,609,630 

Reconciliation of debt impairment provision 

Balance at beginning of the year 

(9,095,839) 

(12,104,115) 

Contributions to provision 

(10,774,946) 

(3,054,053) 

Correction of impairment between services 

(5,124,048) 

- 

Debt impairment written off against provision 

- 

6,062,329 


(24,994,833) 

(9,095,839) 

VAT receivable 

VAT receivable 

41,163,561 

17,731,372 


The Municipality is registerd on the payment basis., therefore VAT is paid over to the South African Revenue Services (SARS) only once payment is received 
from debtors. 

8. Non Current Receivables 


Prior to the implementation of the MFMA, Council grant a long term loan to Ficksburg Squash Club for the buiiding of a club house and squash courts. This 
loans is repayable to council on agreed terms and conditions. 


Non Current Receivables 

Current portion from Receivables 3,573 3,573 

Non-current portion from Receivables 4,866 8,439 

8,439 12,012 


42 



Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 


2012 2011 


9. Cash and cash equivalents 


Cash and cash equivalents consist of; 


Cash on hand 

8,988 

242,381 

Bank balances 

2,254,288 

5,423 

Short-term deposits 

4,527,835 

4,052,602 

Bankoverdraft 

- 

(31,241,798) 


6,791,111 

(26,941,392) 

Current assets 

6,791,111 

4,300,406 

Current liabilities 

- 

(31,241,798) 


6,791,111 

(26,941,392) 


The economic entity had the following bank accounts 


Account number / description 

Bank statement balances 



Cash book balances 



30June 2012 

30June2011 

30June 2010 

30June 2012 

30June 2011 

30 June 2010 

FNB BANK - Current Account - 620 

480 92647 

941,019 

4,053,603 

(7,311,215) 

2,254,288 

(31,241,798) 

(20,189,598) 

FNB BANK - Business Money 

Market -621 517 83563 

190,747 

56,171 

14,364,857 

190,747 

56,171 

14,364,857 

FNB BANK - Savings Account -620 
490 46205 

801,209 

4,051,716 

3,646,367 

801,209 

4,051,716 

3,646,367 

FNB BANK - Call Account -631 054 
0465 

3,535,879 

9,947,862 

“ 

3,535,879 

9,947,862 

- 

Total 

5,468,854 

18,109,352 

10,700,009 

6,782,123 

(17,186,049) 

(2,178,374) 


10. Investment property 




2012 



2011 



Cost/Valuation 

Accumulated 
depreciation and 
accumulated 
impairment 

Carrying value 

Cost/ Valuation 

Accumulated 
depreciation and 
accumulated 
impairment 

Carrying value 

Investment property 

21,752,834 

(7,117,386) 

14,635,448 

21,752,834 

(5,693,909) 

16,058,925 


43 





Setsoto Local Municipality 


Notes to the Annual Financial Statements for the year ended 30 June 2012 

Figures in Rand 


10. investment property (continued) 

Reconciliation of investment property - 2012 

Opening balance Depreciation Total 

Investment property 16,058,925 (1,423,477) 14,635,448 

Reconciliation of investment property - 2011 

Opening balance Depreciation Total 

Investment property 17,482,402 (1,423,477) 16,058,925 

A register containing the information required by section 63 of the Municipal Finance Management Act is available for inspection at the registered office of 
the municipality. 

The were no contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements. 

11. Property, plant and equipment 


2012 

2011 

Cost/Valuation Accumulated Carrying value 

depreciation and 
impairment losses 

Cost / Valuation Accumulated Carrying value 

depreciation and 
impairment losses 


Land and Buildings 

73,657,842 

- 

73,657,842 

73,657,842 

- 

73,657,842 

Leasehold property 

15,358,668 

(11,642,314) 

3,716,354 

15,358,668 

(8,721,738) 

6,636,930 

Infrastructure 

2,857,036,536 

(884,462,658) 

1,972,573,878 

2,793,859,678 

(707,541,728) 

2,086,317,950 

Community 

142,951,938 

(45,503,069) 

97,448,869 

137,132,689 

(36,402,455) 

100,730,234 

Other property, plant and equipment 

19,991,487 

(13,506,369) 

6,485,118 

17,883,663 

(11,862,624) 

6,021,039 

Landfill Site 

922,342 

(42,059) 

880,283 

- 

- 

- 

Heritage 

3,616,110 

(1,995,314) 

1,620,796 

3,616,110 

(1,596,251) 

2,019,859 

Total 

3,113,534,923 

(957,151,783) 

2,156,383,140 

3,041,508,650 

(766,124,796) 

2,275,383,854 


44 





Setsoto Local Municipality 


Notes to the Annual Financial Statements for the year ended 30 June 2012 

Figures in Rand 


11. Property, plant and equipment (continued) 

Reconciiiation of property, plant and equipment - 2012 



Opening balance 

Additions 

Work in Progress 

Depreciation 

Total 

Land and Buildings 

73,657,842 

- 

- 

- 

73,657,842 

Leasehold property 

6,636,930 

- 

- 

(2,920,576) 

3,716,354 

Infrastructure 

2,086,317,950 

15,687,624 

47,489,234 

(176,920,930) 

1,972,573,878 

Community 

100,730,234 

5,819,249 

- 

(9,100,614) 

97,448,869 

Other property, plant and equipment 

6,021,039 

2,107,824 

- 

(1,643,745) 

6,485,118 

Landfill Site 

- 

922,342 

- 

(42,059) 

880,283 

Heritage 

2,019,859 

- 

- 

(399,063) 

1,620,796 


2,275,383,854 

24,537,039 

47,489,234 

(191,026,987) 

2,156,383,140 


45 





Setsoto Local Municipality 


Notes to the Annual Financial Statements for the year ended 30 June 2012 

Figures in Rand 


11. Property, plant and equipment (continued) 

Reconciliation of property, plant and equipment - 2011 



Opening balance 

Addltions 

Work in Progress 

Depreciation 

Total 

Land and Buildings 

73,047,842 

610,000 

- 

- 

73,657,842 

Leasehold property 

9,590,546 

- 

- 

(2,953,616) 

6,636,930 

Infrastructure 

2,201,116,626 

- 

62,086,756 

(176,885,432) 

2,086,317,950 

Community 

109,830,848 

- 

- 

(9,100,614) 

100,730,234 

Other property, plant and equipment 

3,118,413 

4,524,130 

- 

(1,621,504) 

6,021,039 

Heritage 

2,418,922 

- 

- 

(399,063) 

2,019,859 


2,399,123,197 

5,134,130 

62,086,756 

(190,960,229) 

2,275,383,854 


Pledged as security 

No Property, Plant and Equipment was pledged as security. 

Assets subject to finance lease (Net carrying amount) 

Leasehold property 3,716,354 6,636,930 


A register containing the information required by section 63 of the Municipal Finance Management Act is available for inspection at the registered office of 
the municipality. 

12. Intangible assets 




2012 



2011 



Cost/Valuation 

Accumulated 
amortisation and 

accumulated 

impairment 

Carrying value 

Cost / Valuation 

Accumulated 
amortisatlon and 

accumulated 

impairment 

Carrying value 

Computer software, other 

824,047 

(185,099) 

638,948 

728,394 

(76,893) 

651,501 


46 





Setsoto Local Municipality 


Notes to the Annual Financial Statements for the year ended 30 June 2012 


Figures in Rand 

12. Intangible assets (continued) 

Reconciliation of intangible assets - 2012 

Computer software, other 

Reconciliation of intangible assets - 2011 

Computer software, other 

Pledged as security 

No intangible assets are pledged as security: 

Details of valuation 

The effective date of the revaluations was 30 June 2010. 

The valuation was based on open market value for existing use. 
These assumptions are based on current market conditions. 


Opening balance Additions Amortisation Total 

651,501 95,653 (108,206) 638,948 


Opening balance Additions Amortisation Total 

23,333 678,394 (50,226) 651,501 


47 





Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 

2012 2011 


13. Current Portion of Borrowings 
Measured at amortised cost 


Financial liabilities 

Refer to Appendix A for futher details on the borrowings. 

8,092,102 

11,417,260 

Non-current liabilities 

At amortised cost 

7,722,733 

8,075,240 

Current liabilities 

At amortised cost 

369,369 

3,342,020 

Finance lease Liability 

8,092,102 

11,417,260 

Minimum lease payments due 

- within one year 

1,878,996 

4,712,091 

- in second to fifth year inclusive 

744,149 

2,812,819 


2,623,145 

7,524,910 

less: future finance charges (in the second to fifth year) 

(463,865) 

(832,625) 

Present value of minimum tease payments 

2,159,280 

6,692,285 

Present value of minimum lease payments due 

-withinoneyear 

1,729,946 

4,255,768 

- in second to fifth year inclusive 

429,334 

2,436,517 


2,159,280 

6,692,285 

Non-current liabilities 

697,560 

2,437,369 

Current iiabilities 

1,729,946 

4,255,768 

Assets held under finance leases are vehicles, computers, faxes, and photo copy machines. 

The average lease term is 3 to 5 years and the average effective borrowing rate is 11.08-% (2011: 11.70-%). 

2,427,506 

6,693,137 

Trade Payables and other payables from exchange transactions 

Trade payables 

23,214,801 

2,708,216 

Payments received in advance 

6,744,651 

6,141,816 

Staff leave accrual 

5,128,491 

6,582,076 

Bonus 

2,091,547 

2,074,198 

Deposits received 

2,000 

3,200 

Other payables 

5,024,317 

11,285,211 

Salary Control 

1,110,963 

(3,175,867) 

National Treasury - Repayment of MIG grants used for operations 

7,800,000 

- 


51,116,770 

25,618,850 

VAT payable 

VAT payable 

14,112,547 

16,927,633 


48 



Setsoto Local Municipality 

Notes to the Annuai Financial Statements for the year ended 30 June 2012 


2012 2011 


17. Consumer deposits 


Electricity 

2,142,164 

1,968,869 

Other 

26,034 

28,182 


2,168,198 

1,997,051 

Guarantees held in lieu of electricity and other deposits 

Unspent conditional grants and receipts 

Unspent conditional grants and receipts comprises of: 



Unspent conditional grants and receipts 

MIG Grant 

16,925,219 

28,062,562 

Movement during the year 

Balance at the beginning of the year 

28,062,562 

52,092,951 

Received during the year 

62,963,000 

54,301,000 

Income recognition during the year 

(74,100,343) 

(78,331,389) 


16,925,219 

28,062,562 

Non-current liabilities 

. 


Current liabilities 

16,925,219 

28,062,562 


16,925,219 

28,062,562 


The Council concluded with the National Treasury to repay an amount of R 11 million of unspent conditional grants (MIG) to the National Revenue Fund 
which will be payable within a period of twelve months. During the current financial year and amount of R4,000 000.00 was deducted from the Equitable 
Share in respect of the abovementioned agreement. 


49 




Setsoto Local Municipality 


Notes to the Annual Financial Statements for the year ended 30 June 2012 

Figures in Rand 


19. Provisions 


50 




Setsoto Local Municipality 


Notes to the Annual Financial Statements for the year ended 30 June 2012 

Figures in Rand 


19. Provisions (continued) 

Reconciliation of provisions - 2012 


Opening Balance Additions Utilised duringthe Total 

year 


Environmental rehabilitation (longterm portion) 

2,412,070 

739,566 

(76,708) 

3,074,928 

Long service bonus (short term portion) 

896,175 

- 

(402,532) 

493,643 

Long service bonus (long term portion) 

1,545,564 

- 

- 

1,545,564 


4 , 853,809 

739,566 

( 479 , 240 ) 

5 , 114,135 

Reconciliation of provisions - 2011 


Opening Balance 

Additions 

Utilised duringthe 

Total 

Environmental rehabilitation 

1,755,494 

739,566 

year 

(82,990) 

2,412,070 

Long service bonus (short term portion) 

760,007 

136,168 

- 

896,175 

Long service bonus (long term portion) 

1,600,804 

- 

(55,240) 

1,545,564 


4 , 116,305 

875,734 

( 138 , 230 ) 

4 , 853,809 


Non-current provisions 
Current provisions 

5 , 114,135 4 , 853,809 


4,620,492 3,957,634 

493,643 896,175 


Long Service Bonus 

A long-service award is granted to municipal employees after the completion of fixed periods of continuous service with the Municipality. The provision represents an estimation of the awards to which employees in the service of the 
Municipality may become entitled to in future. Management is of the opinion according their fair value calculation that the provision made in respect of Long service bonus and Employee benefit are sufficient. 


51 




Setsoto Local Municipality 


Notes to the Annual Financial Statements for the year ended 30 June 2012 


Figures in Rand 


19. Provisions (continued) 

Enviromental Rehabilitation (Landfill Sites) 

In terms of the Mineral and Petroleum Resources Development Act, 2002 (Act No 28 of 2002), it is required from the municipality to execute the environmental management program to restore the landfill sites at Ficksburg and 
Senekal. Provision has been made forthis cost based on actual cost calculations received. The value of the provision is based on the expected future cost to rehabilitate the various sites discounted back to the balance sheet date at the 
cost of capital, which is currently 10%. The cost of such property includes the initial estimate of the costs of rehabilitating the land and restoring the site on which it is located, the obligation for which a municipality incurs as a 
consequence of having used the property during a particular period for landfill purposes. The Municipality estimates the useful lives and makes assumptions as to the useful lives of these assets, which influence the provision for future 
costs. 

The following assumptions were used to calculate the provision: 

Discount rate of 9% (2011 : 10%); 

Total area expected to be rehabilitated: 120 000 square metres; 

Rate per square metre: R117 escalating every year by inflation rate; 

Total area to be rehabilitated can be reconciled to the different sites as follows: 

Ficksburg 40 000 

Senekal 40 000 

Marquard 20 000 

Clocolan 20 000 

Each of the landfil sites have a different lifespan for rehabilitation ranging from 5 years to 10 years and are best estimates provided for by the respective Manager waste management, parks and properties. 

Ficksburg 5 Years 

Senekal 10 Years 

Marquard 5 Years 

Clocolan 5 Years 


20. Revaluation reserve 

This reserve forms part of accumulated surplus/{deficit) and was accordingly transferred to the accumulated surplus. 
Opening balance 

Consolidated with Accumulated Surplus 


28,471,476 

(28,471,476) 


52 




Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 


2012 2011 


21. OtherNDR 


This reserve forms part of accumulated surplus/(deficit}. 


Housing Development Fund 

- 

271,297 

Transferto Accumulated Reserve 

Property rates 

- 

(271,297) 

Rates received 

Residential / Commercial 

12,124,119 

14,807,432 

State 

16,353,868 

8,906,753 

Income forgone 

(18,323) 

(34,504) 


28,459,664 

23,679,681 

Service charges 

Sale of electricity 

45,331,417 

42,262,616 

Sale of vwater 

27,262,336 

22,360,537 

Sewerage and sanitation charges 

13,412,147 

14,282,748 

Refuse removal 

15,387,900 

16,355,977 

Other service charges 

287,234 

165,392 


101,681,034 

95,427,270 


53 






Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 

2012 2011 


24. Government grants and subsidies 


Equitable share 

147,875,000 

133,873,936 

MIG grant 

74,100,343 

73,266,644 

DBSA Grant 

2,064,454 

- 

EPWP Grant 

2,316,000 

- 

Municipal systems improvement grant (MSIG) 

790,000 

750,000 

Financial Management Grant (FMG) 

1,450,000 

1,200,000 

Police, Roads and Transport Grant 

3,075,980 

- 

Department of Water Affairs Grant 

7,869,391 

- 

COGTA Grant 

650,000 

- 


240,191,168 

209,090,580 

Equitable Share 

Current year receipts 

147,875,000 

133,873,936 

Conditions met - transferred to revenue 

(147,875,000) 

(133,873,936) 

In terms of the Constitution, this grant is used to subsidise the provision of basic services to indigent community members. 

All registered indigents receive a monthly subsidy of R 214 (2011: R 179), which is funded from the grant. 


MIG Grant 

Balance unspent at beginning of year 

28,062,562 

48,978,206 

Current year receipts 

62,963,000 

52,351,000 

Conditions met - transferred to revenue 

(74,100,343) 

(73,266,644) 


16,925,219 

28,062,562 


Conditions still to be met - remain liabilities (see note 18) 

In terms of the MFMA Circular No.48, all conditional allocations (excluding interest earned thereon) that at year-end are not utilised must revert back to 
National Revenue Fund unless the relevant receiving officer can prove to the satisfaction of the National Treasury that the unspent allocation is committed to 
identifiable projects. The entity reports at year-end all unspent conditional grants were committed to identifiable projects. 

The grant is used to supplement municipal capital budgets to eradicate backlogs in municipal infrastructure utilised in providing basic services for the benefit 
of poor households. The grants was used to construct roads and sewerage infrastructure as part of the upgrading of informal settlement areas. 

DBSA Grant 


Current-year receipts 2,064,454 

Conditions met - transferred to revenue (2,064,454) 


Conditions still to be met - remain liabilities (see note 18) 

This grant was used to compile masterplans for Roads and Stormwater, Electricity Network, Water network and Sewer Network. 

EPWP Grant 


Other 2,316,000 

Conditions met - transferred to revenue (2,316,000) 


Conditions still to be met - remain liabilities (see note 18) 

This grant is used in respect of job creation projects and programmes. 


54 





Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 

2012 2011 


24. Govemment grants and subsidies (continued) 
Municipal systems improvement grant (MSIG) 


Current-year receipts 790,000 750,000 

Conditions met- transferred to revenue (790,000) (750,000) 


Conditions still to be met - remain liabilities (see note 18) 

The purpose of the grant is to assist municipalities in building in-house capacity to perform their functions and stabilise 
institutional and governance systems as required in the Local Government and the Municipal Systems Act. 


Financial Management Grant (FMG) 


Current-year receipts 

Conditions met - transferred to revenue 


1,450,000 1,200,000 

(1,450,000) (1,200,000) 


Conditions still to be met - remain liabilities (see note 18) 

The purpose of the grant is to promote and support reforms to financial management and the implementation of the MFMA. 

Police, Roads and Transport Grant 


Current-year receipts 3,075,980 

Conditions met - transferred to revenue (3,075,980) 


Conditions still to be met - remain liabilities (see note 18) 

Intervention from Province during the unrest period in Setsoto Local Municipality. 

Department of Water Affairs Grant 


Current-year receipts 7,869,391 

Conditions met - transferred to revenue (7,869,391) 


Conditions still to be met - remain liabilities (see note 18) 

This grant was used to adress water loss control and assisting with water shortages in Clocolan, Marquard and Senekal during drought period. 

COGTA Grant 


Current-year receipts 650,000 

Conditions met - transferred to revenue (650,000) 


Conditions still to be met - remain liabilities (see note 18) 

Intervention from Province during the unrest period in Setsoto Local Municipality to buy vehicles. 

Changes in level of government grants 

Based on the allocations set out in the Division of Revenue Act, no significant changes in the level of government grant funding are expected over the 
forthcoming 3 financial years. 


55 





Setsoto Locai Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 


2012 2011 


25. Other income 


Other Income 

488,460 

206,409 

Skills Development Claims 

529,583 

488,657 

Commission: Escom 

183,424 

551,973 

Cementery Fees 

243,654 

271,449 

Commission 

191,817 

22,073 

Interest earned 

1,636,938 

1,540,561 

Interest revenue 

Banks 

2,364,950 

2,344,364 

Interest charged on trade and other receivables 

27,280,406 

11,835,982 


29,645,356 

14,180,346 


56 






Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 

2012 2011 


27. Employee related costs 


Basic 

55,907,317 

52,560,534 

Medical contributions 

5,599,583 

4,770,125 

UIF contributions 

703,445 

630,179 

SDL 

827,351 

710,161 

Pension contributions 

9,741,567 

7,955,318 

Travel, motor car, accommodation, subsistence and other allowances 

5,364,794 

6,555,298 

Overtime payments 

3,980,295 

3,073,742 

Housing benefits and allowances 

- 

201,009 

Bonus 

4,150,733 

2,532,071 

Casual wages 

5,064,627 

555,763 

Group insurance 

- 

133,928 

Cellphone allowance 

207,300 

1,702,285 

Long-service awards 

- 

410,760 


91,547,012 

81,791,173 

Included in the remuneration above are the following: 



Remuneration of Municipal Manager 



Annual Remuneration 

219,784 

828,039 

Contributions to UIF, Medical and Pension Funds 

98,819 

167,175 

Travel, motor car, accommodation, subsistence and other allowances 

78,172 

68,471 

Other 

88,301 

- 


485,076 

1,063,685 

The Municipal Manager tender his resignation and ended his service 31 October 2011. 



Remuneration of Municipal Manager 



Annual Remuneration 

288,535 


Contributions to UIF, Medical and Pension Funds 

3,613 

- 

Travel, motor car, accommodation, subsistence and other allowances 

78,562 

- 


370,710 

- 

The Municipal Manager was appointed on 1 April 2012, while he was acting in the capacity from 1 November 2011 and during his term of acting he 

remunerated by Cogta. 



Remuneration of Chief Financial Officer 



Annual Remuneration 

148,670 

626,262 

Contributionsto UIF, Medical and Pension Funds 

69,237 

178,898 

Travel, motor car, accommodation, subsistence and other allowances 

50,400 

164,416 

Other 

130,201 

- 


398,508 

969,576 

The CFO was suspended during the year under review and resigned from the position on 30 September 2011. 



Remuneration of Chief Financial Officer (Acting) 



Travel, motor car, accommodation, subsistence and other allowances 

210,124 

- 

During the year under review, a manager in financial department was appointed as Acting C F 0. 



Remuneration of Corporate Services Director 



Annual Remuneration 

159,750 

664,304 

Contributions to UIF, Medical and Pension Funds 

74,617 

204,682 


57 





Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 


27. Employee related costs (continued) 

Travel, motor car, accommodation, subsistence and other allowances 
Other 


The relevant director was on suspension and resigned on 30 September 2011 

Remuneration of Corporate Services Director 

Annual Remuneration 

Contributions to UIF, Medical and Pension Funds 

Travel, motor car, accommodation, subsistence and other allowances 


The director was appointed on 1 April 2012 

Remuneration of Community and Economic Services Director 

Annual Remuneration 

Contributionsto UIF, Medical and Pension Funds 

Travel, motor car, accommodation, subsistence and other allowances 

Other 


The Director resigned on 30 September 2012. 

Remuneration of Community and Economic Services Director 

Annual Remuneration 

Contributionsto UIF, Medical and Pension Funds 

Travel, motor car, accommodation, subsistence and other allowances 


The Director was appointed from 1 May 2012. 


Remuneration of the Corporate Services Director (Acting) 

Travel, motor car, accommodation, subsistence and other allowances 


Duringthe year under review, a manager in corporate services was appointed as Acting Director. 

28. Remuneration of councillors 

Mayor 

Speaker 

Councillors 

Executive Committee Members 


2012 

2011 

41,583 

113,926 

116,948 

389,876 

985,934 


136,342 

- 

25,337 

- 

18,000 

- 

179,679 

- 


169,784 

627,405 

70,909 

194,037 

54,136 

151,503 

126,982 

- 

421,811 

972,945 


94,930 

- 

23,405 

- 

18,000 

- 

136,335 

- 


405,048 

- 

632,385 

786,722 

508,356 

- 

5,275,188 

7,356,962 

1,603,645 

- 

8,019,574 

8,143,684 


In-kind benefits 


The Mayor and Speaker are full-time. Each is provided with an office and secretarial support at the cost of the Council. 
The Mayor has use of a Council owned vehicle for official duties. 


58 




Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 


2012 2011 


29. Depreciation and amortisation 

Property, plant and equipment 
Intangible assets 


30. Finance costs 

Bank 

Current borrowings 


31. Debt impairment 

Contributions to debt impairment provision 


32. Bulk purchases 

Electricity 


33. Contracted services 


Specialist Services 


34. Grants and subsidies paid 
Subsidies 

Distitutional help 
Grants and donations 
Free electricity - Eskom 


192,450,464 

192,333,480 

50,226 

192,450,464 

192,383,706 


133,670 

122,929 

1,745,550 

2,727,193 

1,879,220 

2,850,122 

57,536,194 

56,657,462 


44,284,271 

30,341,173 

726,892 



7,894,262 

8,605,529 

- 

9,656 

- 

4,769,744 

7,894,262 

13,384,929 


59 




Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 

2012 2011 

35. General expenses 


Advertising 

393,517 

398,661 

Disaster management 

67,856 

93,683 

Auditors remuneration 

3,611,574 

3,111,857 

Bank charges 

120,314 

137,022 

Billingcharges 

66,118 

63,618 

Chemicals 

3,035,429 

4,128,048 

Cleaning 

29,664 

209,455 

Town planning 

44,622 

385,273 

Computer expenses 

174,027 

501,872 

Conferences and delegations 

16,000 

74,034 

Analysis 

86,095 

39,019 

Consulting and professional fees 

7,522,584 

7,457,505 

Consumables 

16,901 

142,299 

Industrial council levy 

30,577 

31,976 

Departmental administration cost 

- 

(1) 

Departmental consumption 

1,574,889 

1,087,314 

Entertainment 

358,180 

586,572 

Ward committee expenses 

3,543 

400,466 

Streetlight electricity consumption 

1,419,559 

4,856,411 

Indigent and pauper burials 

- 

101,491 

Fuel and oil 

3,365,351 

2,729,011 

Skills development levy 

612,995 

758,060 

Insurance 

6,275,697 

3,808,501 

Lease rentals on operating lease 

1,740,549 

1,665,011 

Levies paid 

1,132 

2,137,574 

Youth expenditure 

322,409 

857,664 

Casualty insurance 

436,971 

129,448 

Other expenses 

222,393 

1,773,498 

Postage and courier 

999,918 

999,228 

Printing and stationery 

1,207,102 

1,095,928 

Publicity 

458,920 

1,198,840 

Protective clothing 

43,154 

80,455 

License fees 

967,236 

817,340 

Security (Guarding of municipal property) 

64,285 

55,933 

Subscriptions and membership fees 

11,401 

10,695 

Telephone and fax 

4,233,050 

1,162,192 

Valuation costs 

2,128 

294,130 

Training 

584,502 

1,678,752 

Travel and subsistence 

1,936,872 

1,901,176 

IDP establishment 

296,571 

174,606 


42,354,085 

47,134,617 


60 




Setsoto Local Municipality 


Notes to the Annual Financial Statements for the year ended 30 June 2012 




2012 

2011 

36. 

Cash generated from operations 




Deficit 

(59,791,362) 

(98,806,411) 


Adjustments for: 

Depreciation and amortisation 

192,450,464 

192,383,706 


Debt impairment 

57,536,194 

56,657,462 


Movements in provisions 

260,326 

737,504 


Adjust VAT on provision for bad debts as per exception 66 from Auditor General 

(25,754,221) 

- 


Vat adjustment ito 2011 audit report 

- 

10,901,695 


Other non-cash items 

(11,242,347) 

(1,401,794) 


District contributions and subsidies written off 

(18,602,805) 

- 


LED contributions and subsidies written off 

(1,284,602) 

- 


VAT on purchase of assets corrected 

(9,198,422) 

- 


Government grants and subsidies written off 

(233,236) 

- 


Overpayment of contractors 

- 

802,581 


Write off reserves 

(28,742,773) 

- 


Changes in working capital: 




Inventories 

128,143 

(462,495) 


Other receivables from non-exchange transactions 

27,335,827 

(160,265,387) 


Consumerdebtors 

(6,885,891) 

85,540,609 


Trade Payables and other payables from exchange transactions 

25,497,920 

5,286,999 


VAT receivable / payable (Amend as appropriate) 

(23,432,189) 

(15,295,932) 


Taxes and transfers payable (non exchange) 

(2,815,086) 

4,859,141 


Unspent conditional grants and receipts 

(11,137,343) 

(20,917,644) 


Consumer deposits 

171,147 

33,366 



104,259,744 

60,053,400 

37. 

Capital commitments 




37.1 Commitments in respect of capital expenditure 




Approved and contracted for 




• Infrastructure 

113,578,630 

74,244,587 


• Community 

56,408,056 

- 


• Other 

- 

- 



169,986,686 

74,244,587 


Approved but not yet contracted for 




• Infrastructure 

- 

4,380,940 


This expenditure will be financed from 

• Government grants 

169,986,686 

78,625,527 


• Own resources 

- 

- 



169,986,686 

78,625,527 

38. 

Related parties 




In terms of the MFMA, the municipality may not grant loans to its councillors, management, staff and public with effect from 1 July 2004.There are no loans 


to councillors, management, staff and the public. 




Related party transactions 




Purchases from (sales to) related parties 

E R B Marketing (Website design and maintenance) 

180,000 

180,000 


The IT Specialist have close family relations with the management of ERB Marketing that maintains the web site of council. 



61 




Setsoto Local Municipality 

Notes to the Annuai Financial Statements for the year ended 30 June 2012 

2012 2011 


39. Comparatlve figures 

Certain comparative figures have been reclassified. 

Expenditure related to district municipaiity commitments has been clasified previously as grants and been netted against unspent MIG grants. 
The effects of the reclassification are as follows: 


Statement of financial position 

Decrease in Current Portion of Unspent conditional grants and receipts (District grant) - (19,887,407) 

Increase in Other receivables from non-exchange transactions - 19,887,407 

40. Unauthorised expenditure 

Reconciliation of unauthorised expenditure 


Opening balance 

22,679,492 

75,929,807 

Unauthorised expenditure - current year 

149,967,318 

21,543,944 

Approval by Council or Condoned 

- 

(74,794,259) 

Transfer to receivables for recovery 

- 

- 

Unauthorised expenditure awaiting authorisation 

Details of Unauthorised expenditure 

172,646,810 

22,679,492 

Incident of Unauthorised Expenditure 

2007/2008 Exceed total expenditure - Condoned by Council 

- 

(2,599,032) 

2009/2010 Exceed total expenditure - Condoned by Council 

- 

(72,195,227) 

2009/2010 Credit card payment without documentation 

- 

40,000 

2009/2010 Unbudgeted Capital expenditure 

- 

1,095,548 

2010/2011 Overspending Employee costs, Bad debts, Collection costs - Awaiting condonation 

- 

21,543,944 

2011/2012 Purchase of Equipment during emergency situation 

1,798,320 

- 

2011/2012 Requiring of services during protest action 

1,480,552 

- 

2011/2012 Exceed total expenditure 

146,688,446 

149,967,318 

(52,114,767) 


62 




Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 


2012 2011 


41. Fruitiess and wasteful expenditure 

Reconciliation of fruitless and wastefui expenditure 


Opening balance 

15,408,353 

1,347,142 

Fruitless and wasteful expenditure - current year 

210,653 

14,061,211 

Condoned or written off by Council 

- 

- 

To be recovered - contingent asset 

- 

- 

Fruitless and wasteful expenditure awaiting condonement 

- 

- 


15,619,006 

15,408,353 

Detaiis of fruitless and wastefull expenditure 

2006/2007 Legal fees - Former Senekal TLC Councillors 

- 

610,424 

2009/2010 Payment made to W Vries 

- 

42,225 

2009/2010 Advance payment made to Vic Computors 

- 

60,840 

2006 to 2011 Payments made to Biofresh personnel wages 

- 

8,676,165 

2009 to 2011 Penalties and interest paid 

- 

1,021,485 

2010.2011 VAT incorrectly claimed on PPE 

- 

626,920 

Identified in the 2011 Audit report 

- 

4,370,294 

2011/2012 Penalties and interest paid 

210,653 

- 


210,653 

15,408,353 


63 




Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 


2012 2011 


42. Irregular expenditure 


Opening balance 


34,068,439 

29,674,745 

Irregular Expenditure - current year 


44,514,337 

4,393,694 

Amounts condoned or written off by Council 


(5,965,055) 

- 

Transferto receivables for recovery - not condoned 


- 

- 

Amounts recouped from Councilors 


(414,552) 

- 

Irregular expenditure awaiting condonement 


- 

- 



72,203,169 

34,068,439 

Details of irregular expenditure - Current year 



Current year 


- 

2,000,000 

Eskom payments 


- 

2,362,690 

Payment to Councillors in excess of limits 


- 

31,004 

Intervention from Cogta/Premiers office during protest action in Ficksburg. Suctioning of sewer 
manholes to reduce sewer spillages. Due to urgency only one quote received, thus the deviation from 

3,939,255 

" 

the SCM policy. 




Intervention from Cogta/DWA during water crisis in Marquard and Ficksburg. Due to urgency only 

1,921,956 

- 

one quote received, thus the deviation from the SCM policy. 




Expenditure item identified were the SCM process and procedures was notfollowed 

34,475,486 

- 

Long-term lease not approved by Council i.t.o MFMA 


2,624,205 

- 

Expenditure item identified were the SCM process and procedures was notfollowed : Mabalane 

1,553,435 

- 

Seobe Inc 






44,514,337 

4,393,694 

Details of irregular expenditure - Prior years 



Councillors paid in excess of the upper limits 

2007/08 


660,906 

Councillors pald in excess of the upper limits 

2008/09 


448,519 

Councillors paid in excess of the upper limits 

2009/10 


113,279 

Unspent conditional grants in terms of DoRA 

2007/08 


13,502,314 

Maxprof expences paid for the recovery of VAT 

2008/09 


1,319,322 

Non availability of Tender Documents 

2008/09 


842,016 

Long-term lease not approved by Council i.t.o MFMA 

2008/09 


2,814,169 

Payments where SCM procedures were not followed 

2009/10 


2,709,761 

Long-term lease not approved BY Council i.t.o MFMA 

2009/10 


2,734,586 

Operational expenses paid from MIG Funds 

2009/10 


4,529,873 




29,674,745 

Auditors' remuneration 




Fees 


3,611,574 

3,111,857 

Additional disclosure in terms of Municipal Finance Management Act 



Contributions to organised local government 



Current year subscription / fee 


612,995 

435,185 

Amount paid - current year 


(612,995) 

(435,185) 



- 

- 


64 




Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 


2012 2011 


44. Additional disclosure in terms of Municipal Finance Management Act (continued) 

Reticulation losses 

Estimated electricity losses suffered by the municipality for the year under review are as follows: 

Estimated electricity losses included distribution to townships with unmetered electricity. 

Estimated losses 

Estimated water losses suffered by the municipality for the year under review is as follows: 

Estimated water losses included distribution to townships with unmetered water. 

Estimated water losses 

Audit fees 

Current year subscription / fee 
Amount paid - current year 

PAYE and UIF 

Current year subscription / fee 
Amount paid - current year 

Pension and Medical Aid Deductions 

Current year subscription / fee 
Amount paid - current year 

VAT 

VAT receivable 41,163,561 17,731,372 


23,563,297 24,453,103 

(23,563,297) (24,453,103) 


10,927,445 8,468,466 

(10,927,445) (8,468,466) 


3,624,137 3,111,857 

(3,624,137) (3,111,857) 


20,853,869 6,368,567 


13,106,733 13,798,074 


VAT output payables and VAT input receivables are shown in note 14 and 6 respectively. 
All VAT returns have been submitted by the due date throughout the year. 


65 




Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 

2012 2011 


44. Additional disclosure in terms of Municipal Finance Management Act (continued) 
Counciliors' arrear consumer accounts 


The following Councillors had arrear accounts outstanding for more than 90 days at 30 June 2012: 


30June 2012 

Outstanding less 

Outstanding more 

Total 


than 90 days 

than 90 days 


CouncillorM Mthimkhulu 

520 

5,991 

6,511 

Councillor M Thamae 

695 

6,753 

7,448 

Councillor S Mohala 

604 

3,837 

4,441 

Councillor P Mavaleliso 

724 

4,100 

4,824 

CouncillorT Muso 

421 

265 

686 

CouncillorM Mahlangu 

541 

744 

1,285 

CouncillorS Fuso 

1,008 

19,600 

20,608 

Councillor M Raboroko 

740 

11,146 

11,886 

Councillor S Setai 

658 

4,953 

5,611 



5,911 

57,389 

63,300 

30June 2011 

Outstanding less 

Outstanding more 

Total 


than 90 days 

than 90 days 


CouncillorT.B Jakobo 

532 

4,370 

4,902 

Councillor M. Malebo 

482 

1,401 

1,883 

Councillor M. Malebo 

778 

7,390 

8,168 

CouncillorT.D Zim 

374 

1,035 

1,409 

CouncillorT.D Zim 

440 

6,995 

7,435 


2,606 

21,191 

23,797 


During the year the following Councillors' had arrear accounts outstanding for more than 90 days. 


30June 2012 

Highest 

Aging 


outstanding 

(in days) 


amount 


Councillor M Mthimhulu 

6,511 

1,116 

Councillor M Thamae 

7,448 

919 

Councillor S Mohala 

4,441 

669 

Councillor P Mavaleliso 

4,825 

600 

CouncillorT Muso 

687 

150 

Councillor M Mahlangu 

1,286 

180 

CouncillorS Fuso 

20,608 

1,839 

CouncillorM Raboroko 

11,886 

1,461 

CouncillorSSetai 

5,611 

775 


63,303 

7,709 


30June 2011 

Highest 

Aging 


outstanding 

(in days) 


amount 


Councillor T.B Jakobo 

4,902 

693 

Councillor M. Malebo 

1,883 

244 

Councillor M. Malebo 

8,168 

885 

CouncillorT.D Zim 

1,409 

230 

CouncillorT.DZim 

7,434 

939 


23,796 

2,991 


66 




Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 


2012 2011 


45. Deviation from supply chain management regulations 

Paragraph 12(l)(d){i) of Government gazette No. 27636 issued on 30 May 2005 states that a supply chain management policy must provide for the 
procurement of goods and services by way of a competitive bidding process. 

Paragraph 36 of the same gazette states that the accounting officer may dispense with the official procurement process in certain circumstances, provided 
that he records the reasons for any deviations and reports them to the next meeting of the Council and includes a note to the financial statements. 

Busses and gym equipment were procured during the financial year under review and the process followed in procuring those goods deviated from the 
provisions of paragraph 12(l){d)(i) as stated above. The reasons for these deviations were documented and reported to the accounting officer who 
considered them and subsequently approved the deviation from the normal supply chain management regulations. 

46. Retirement Benefit Information 

48.1 Defined Contribution Plan 

The following are defined contribution plans; 

- National Fund for Municipal Workers, 

- SAMWU Provident Fund, 

- Free State Provident Fund and 

- SALA. 

The contributions have been expensed during the year. 

An amount of R 8,308,852 (2011: R 7,529,091) was contributed by Council in respect of Councillors and Employees retirement funding. These contributions 
have been expensed and are included in employee related costs for the year. 

48.2 Deflned Benefit Plan 

The following is the defined benefit plans Free State Pension Fund; These are not treated as defined benefit plans as defined by IAS19, but are accounted for 
as defined contribution plans. This is in line with the exemption in lAS 19 par. 30 which states that where information required for proper defined plan 
accounting is not available In respect of multi-employer and state plans, these should be accounted for as defined contribution plans. The municipality has 
been unsuccesful in obtaining the neccesary information to support proper defined benefit plan due to restrictions imposed by the multi-employer plan. It is 
therefore deemed impracticable to obtain this information at a suitable level detail. 

An amount of R 428,944 (2011: R 426,228) was contributed by Council in respect of Councillors and Employees retirement funding. These contributions have 
been expensed and are included in employee related costs for the year, 

47. In-kind donations and assistance 

The Munlcipality did not receive any in-kind donations and assistance during the financial year. 

48. Events after the reporting date 


There are no significant matters to report after reporting date. 

49. Risk management 


Maximum credit risk exposure 

Credit risk consists mainly of cash deposits, cash equivalents, and trade debtors. The municipality only deposits cash with major banks with high quality 
credit standing and limits exposure to any one counter-party. 

Credit risk 

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the economic entity. The economic 
entity has adopted a policy of only dealing with creditworthy counterparties to the extent possible and obtaining sufficient collateral, where appropriate, as a 
means of mitigating the risk of financial loss from defaults. 


67 




Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 


2012 2011 


49. Risk management (continued) 

With the exception of trade receivables, the economic entityonly transacts with entities that are rated the equivalent of investment grade and above. This 
information is supplied by independent rating agencies where available and, if not available, the economic entity uses other publicly available financial 
information and its own trading records to rate its major customers. 

The economic entity's exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is 
spread amongst approved counterparties. Credit exposure is controiled by counterparty limits that are reviewed and approved by the risk management 
committee annually. 

Potential concentrations of credit rate risk consist mainly of investments, trade receivables, other receivables, short-term investment deposits and cash and 
cash equivalents. 

The credit exposure to any single counterparty is managed by setting transaction or exposure limits, which are included in the economic entity's Investment 
Policy. 

Trade receivables comprise of a large number of ratepayers, dispersed across different industries and geographical areas. Ongoing credit evaluations are 
performed on the financial condition of these customers. 

Trade receivables are presented net of an allowance for impairment and where appropriate, credit limits are adjusted. 

In the case of customers whose accounts become in arrears, it is endeavoured to collect such accounts by levying penalty charges, issuing demands for 
payment, restricting service and handing customers over for collection, whichever procedure is applicable in terms of Council's Credit Control and Debt 
Collection Policy. 

No credit limits were exceeded during the reporting period, and management does not expect any deficits from non-performance by these counterparties. 

Financial assets which expose the economic entity to credit risk at year end were as follows: 

Financial instrument 
Cash and cash equivalents 
Investments 

Trade and other receivables from exchange transactions 

These balances represent the maximum exposure to credit risk. 

The economic entity is exposed to a number of guarantees for the overdraft facilities of economic entities and for guarantees issued in favour of the creditors 
of A (Pty) Ltd. Referto note for additional details. 

[Discuss any changes from previous year in respect of objectives, policies and processes for managing risks and in methods to measure the risksj 

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. 

Cash Flowforecasts are prepared and adequate utilised borrowing facilities are monitored. 

The table below analyses the municipality's financial liabilities into relevant maturity groupings based on the remaining period at the Statement of Financial 
Position to contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows: 


2012 2011 
6,791,111 4,300,406 

10,006,881 
66,508,234 59,622,343 


At30June 2012 


Borrowings 

Gross finance lease obligations 


Not laterthan one 
month 


916,958 

300,453 


Laterthan one 
month and not 
laterthan three 
months 

528,819 


Laterthan three 
months and not 
laterthan one year 

689,680 

1,049,724 


Laterthan one year 
and not laterthan 
five years 

9,636,167 

744,149 


At 30june 2011 


Borrowings 

Gross finance lease obligations 


Not laterthan one 
month 


221,692 

405,542 


Laterthan one 
month and not 
laterthan three 
months 
443,385 
811,083 


Later than three 
months and not 
laterthan one year 

3,959,203 

3,495,466 


Later than one year 
and not laterthan 
five years 

9,834,617 

2,812,819 


68 



Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 


2012 2011 


49. Risk management (continued) 

Market risk 

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the economic entity's revenue 
or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within 
acceptable parameters, while optimisingthe return. 

There has been no change, since the previous financial year, to the economic entity's exposure to market risks or the manner in which it manages and 
measures the risk. 

Market risk consists of the following risks; 

Foreign currency risk 

The economic entity does not enter into significant foreign currency transactions had has limited exposure to foreign currency risk. 

Interest rate risk 

The municipality's interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the group to cash flow interest rate risk. 
Borrowings issued at fixed rates expose the municipality to fair value interest rate risk. Municipality policy is to maintain approximately 60% of its 
borrowings in fixed instruments. 

At year end, financial instruments exposed to interest rate risk were as follows: 

• Call deposits 

• Notice deposits 

• Long term annuity 

• Development Bank of Southern Africa loan 

• FNBOverdraft 

50. Going concern 

The annual financial statements have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be 
available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in 
the ordinary course of business. 

The ability of the municipality to continue as a going concern is dependent on a number of factors. The most significant of these is that the accounting officer 
continue to procure funding for the ongoing operations for the municipality. 

The municipality is currently experiencing financial difficulties. Indicators of the financial problems are: 

- The significant increase in accounts payable of R 25,5 million (2011: R 10,44 million); 

- The municipality incurred a deficit during the year of R 59,8 million (2011: R 98,8 million); 

- The creditors are not paid within 30 days as required by the MFMA; 

- Debt collection period has not improved during the current year; 

- The gross outstanding debtors increased from R 280,6 million in 2011 to R 311,9 million as at 30 June 2012; 

- The provision for doubtful debts have been estimated at R 245,4 million (2011: R 220,96 million). This equates to approximately 78,6% of gross 
outstanding debtors (2011: 78,6%). 

At 30 June 2012 the municipality's current liabilities amounted to R 86,9 million (2011; R 112,3 million), whilst the current assets amounted to 
R 121,5 million (2011; R 126,2 million). 

Previously disadvantaged areas are charged a basic tariff on water as opposed to the consumption tariff, thus resulting in a possible loss of income for the 
municipality. The above challenges did not impair the municipality to deliver services to the community as mandated by the Constitution of the Republic of 
South Africa. 

The municipality shall therefore continue to honour its financial obligations and strive to maintain its assets, and will therefore continue to exist within the 
foreseable future, as a going concern. 

The municipality is also exploring alternative options to improve it's financial position. 


69 




Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 


2012 2011 


51. Section 106 

During the financial year ending 30 June 2011 there was a community protest over service delivery which lead to invoking of section 106 of the Municipal 
Systems Act (No. 32 of 2000) by COGTA. A commision of enquiry was instituted and the report of the findings was tabled before Council meeting. 

52. Prior period errors 

Property, Plant, and Equipment was previously not componantized by the municipaltity and as a resuit carrying values were corrected during the asset 
register clear up exercise. 

The correction of the error(s) results in adjustments as follows; 

Statement offinanciai position 

Property, plant and equipment 
Opening Accumulated Surplus or Deficit 

Intangible assets ware not disclosed previously. 

The correction of the error(s) results in adjustments as follows: 

Statement of financial position 

Intangible Assets 
Accummulated Amortisation 
Accummulated Surplus 

(50,226) 


701,727 

(50,226) 

(701,727) 


2,064,870,300 

(2,064,870,300) 


Statement of Financial Performance 

Amortisation - 50,226 


Investment Property assets ware not disclosed previously. 

The correction of the error(s) results in adjustments as foilows: 


Statement of financial position 

Investment property 
Accummulated Amortisation 
Accummulated Surplus 


21,752,834 

(5,693,909) 

(17,482,402) 

(1,423,477) 


Statement of Financial Performance 

Amortisation - 1,423,477 


During the current year the revaluation reserve and the housing development fund was transferred to the accumulated surplus. 
The correction of the error(s) results in adjustments as follows: 


Statement of financial position 

Revaluation Reserve 
Housing Development Fund 
Accummulated Surplus 


28,471,476 

271,297 

(28,742,773) 


70 




Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 

2012 2011 


52. Prior period errors (continued) 


In terms of paragraph 22 of the previous years audit report staff leave accrual that was overprovided was corrected. 
The correction of the error(s) results in adjustments as follows: 


Statement of financial position 


Leave Reserve - 434,972 

Accummulated Surplus - (434,972) 


Receivables of R802,581.00 was created In terms of paragraph 43 of the previous years audit. 

The correction of the error(s) results in adjustments as follows: 



Statement of financial position 

Other receivables 

- 

(802,581) 

Accummulated Surplus 

Unclaimed VAT on Capital expenditure was taken into account in terms of paragraph 40 of the previous years audit. 

The correction of the error(s) results in adjustments as follows: 


802,581 

Statement of financial position 

VAT: Input (Capital) 

- 

5,317,185 

Accummulated Surplus 

Correct the duplicate VAT ammount R5,584,150.00 in terms of paragraph 39 of the previous years audit. 

The correction of the error(s) results in adjustments asfollows: 


(5,317,185) 

Statement offinancial position 

VAT: Output VAT Paid 

- 

(5,584,510) 

Accummulated Surplus 

- 

5,584,510 


Expenditure related to district municipality commitments has previously been classified as conditional grants and receipts and was now reclassified as other 
receivables from non-exchange transactions. This amount was subsequently also written off against the accumulated surolus. 

The correction of the error(s) results in adjustments as follows: 


Statement of financiai position 

Otherreceivablesfrom non-exchangetransactions - 19,887,407 

Accummulated Surplus - 19,887,407 


71 



Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 

~ ~ 2012 2011 


52. Prior period errors (continued) 


Other receivables from non-exchange transactions 

- 

(19,887,407) 

Current portion of Unspent Conditional Grants and Receipts 

Rates and taxes was reclassified as Other receivables from non-exchange transactions. 

The correction of the error(s) results in adjustments as follows: 


(19,887,407) 

Statement of financial position 

Other receivables fron non-exchange transactions 

- 

10,609,630 

Trade and other receivables from exchange transactions 

During the preparation of the 2012 Annual Financial Statement certain amounts were reclassified. 

The correction of the error(s) results in adjustments as follows: 


(10,609,630) 

Statement of financial position 

Accrued leave (paragraph 22 of 2011 audit report) 

■ 

434,974 

Statement of Financial Performance 

Other income 

- 

1,110,546 

Sale of land 

- 

(1,184,211) 

Employee related cost 

- 

(361,309) 

Duringthe preparation ofthe 2012Annual Financial Statementthe incomefrom MIG Grants wasadjusted. 

The correction of the error(s) results in adjustments as follows: 


( 434 , 974 ) 

Statement of financial position 

Accumulated Surplus 

- 

2,483,820 

Statement of Financial Performance 

Government grants and subsidies - MIG 

- 

(2,483,820) 

— 

- 

( 2 , 483 , 820 ) 


53. Rental of facilities and equipment 


Rental of facilities 


130,661 


435,891 




Setsoto Local Municipality 


Notes to the Annual Financial Statements for the year ended 30 June 2012 

Figures in Rand 


54. Statement of comparative and actual information 
2012 



Original budget 

Budget 

Final Shifting of funds 

Final budget 

Actual outcome 

Variance 

Actual 

Actual 



adjustments 

adjustments (i.t.o. s31 of the 




outcome 

outcome 



(i.t.o. s28 and 

budget MFMA) 




as % of 

as % of 



s31 of the 





final 

original 



MFMA) 





budget 

budget 

Financial Performance 









Property rates 

. 

23,746,932 

23,746,932 

23,746,932 

28,459,664 

4,712,732 

120 % 

DIV/0 % 

Service charges 

- 

99,586,918 

99,586,918 

99,586,918 

101,681,034 

2,094,116 

102 % 

DIV/0 % 

Investment revenue 

- 

20,708,450 

20,708,450 

20,708,450 

29,645,356 

8,936,906 

143 % 

DIV/0 % 

Transfers recognised - operational 

- 

152,115,000 

152,115,000 

152,115,000 

240,191,168 

88,076,168 

158 % 

DIV/0 % 

Other own revenue 

- 

19,140,249 

19,140,249 

19,140,249 

2,186,130 

(16,954,119) 

11 % 

DIV/0 % 

Total revenue (excluding capital transfers and contributions) 

- 

315,297,549 

315,297,549 

315,297,549 

402,163,352 

86,865,803 

128 % 

DIV/0 % 

Employee costs 

- 

(88,960,246) 

(88,960,246) 

(88,960,246) 

(91,547,012) 

(2,586,766) 

103 % 

DIV/0 % 

Remuneration of councillors 

- 

(9,317,466) 

(9,317,466) 

(9,317,466) 

(8,019,574) 

1,297,892 

86 % 

DIV/0 % 

Debt impairment 

- 

- 

- 

- 

(57,536,194) 

(57,536,194) 

DIV/0 % 

DIV/0 % 

Depreciation and asset impairment 

- 

(24,334,576) 

(24,334,576) 

(24,334,576) 

(192,450,464) 

(168,115,888) 

791 % 

DIV/0 % 

Finance charges 

- 

(3,507,906) 

(3,507,906) 

(3,507,906) 

(1,879,220) 

1,628,686 

54 % 

DIV/0 % 

Materials and bulk purchases 

- 

(43,658,345) 

(43,658,345) 

(43,658,345) 

(44,284,271) 

(625,926) 

101 % 

DIV/0 % 

Transfers and grants 

- 

(24,518,732) 

(24,518,732) 

(24,518,732) 

(7,894,262) 

16,624,470 

32 % 

DIV/0 % 

Other expenditure 

- 

(120,968,997) 

(120,968,997) 

(120,968,997) 

(58,343,717) 

62,625,280 

48 % 

DIV/0 % 

Total expenditure 

- 

(315,266,268) 

(315,266,268) 

(315,266,268) 

(461,954,714) 

(146,688,446) 

147 % 

DIV/0 % 

Surplus/(Deficit) 

- 

31,281 

31,281 

31,281 

(59,791,362) 

(59,822,643) 

(191,143)% 

DIV/0 % 


73 




Setsoto Local Municipality 


Notes to the Annual Financial Statements for the year ended 30 June 2012 

Figures in Rand 


54. Statement of comparative and actual information (continued) 


Transfers recognised - capital 

Original budget Budget 

adjustments 
(i.t.o. s28 and 
s31 of the 
MFMA) 

75,605,000 75,605,000 

Final Shifting of funds 

adjustments (i.t.o. s31 of the 
budget MFMA) 

151,210,000 

Final budget 

151,210,000 

Actual outcome 

Variance 

(151,210,000) 

Actual 

outcome 

as % of 
final 
budget 

- % 

Actual 

outcome 

as % of 
original 
budget 

- % 

Surplus (Deficit) after capital transfers and contributions 

75,605,000 75,636,281 

151,241,281 

151,241,281 

(59,791,362) 

(211,032,643) 

(40)% 

(79)% 

Surplus/(Deficit) for the year 

75,605,000 75,636,281 

151,241,281 

151,241,281 

(59,791,362) 

(211,032,643) 

(40)% 

(79)% 


74 



Setsoto Local Municipality 


Notes to the Annual Financial Statements for the year ended 30 June 2012 

Figures in Rand 


54. Statement of comparative and actual information (continued) 



Original budget Budget 

Final 

Shifting of funds 

Final budget 

Actual outcome 

Variance 

Actual 

Actual 


adjustments 

adjustments 

(i.t.o. s31 of the 




outcome 

outcome 


(i.t.o. s28 and 

budget 

MFMA) 




as % of 

as % of 


s31 of the 






final 

original 


MFMA) 






budget 

budget 

Capital expenditure and funds sources 









Total capital expenditure 

Sources of capital funds 

11,058,400 (11,058,400) 

- 

- 

- 

922,342 

922,342 

DIV/0 % 

8 % 

Public contributions and donations 

70,874,000 70,874,000 

141,748,000 

- 

141,748,000 

- 

(141,748,000) 

- % 

- % 

Cash flows 









Net cash from (used) operating 

- 

- 


- 

104,259,744 

104,259,744 

DIV/0 % 

DIV/0 % 

Net cash from (used) investing 

- 

- 


- 

(62,936,452) 

(62,936,452) 

DIV/0 % 

DIV/0 % 

Net cash from (used) financing 

- 

- 


- 

(7,590,789) 

(7,590,789) 

DIV/0 % 

DIV/0 % 

Net increase/(decrease) in cash and cash equivaients 

- 

- 


- 

33,732,503 

33,732,503 

DIV/0 % 

DIV/0 % 

Cash and cash equivalents at the beginning of the year 

- 

- 


- 

(26,941,392) 

(26,941,392) 

DIV/0 % 

DIV/0 % 

Cash and cash equivalents at year end 

- 

- 


- 

6,791,111 

(6,791,111) 

DIV/0 % 

DIV/0 % 


75 



Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 

2012 2011 

54. Statement of comparative and actual information (continued) 

2011 

Reported Expenditure Balance to be Restated 

unauthorised authorised in recovered audited 

expenditure terms of section outcome 

32 of MFMA 


Financial Performance 


Property rates 




23,679,681 

Service charges 

Investment revenue 




95,427,270 

14,180,346 

Transfers recognised - operational 




135,823,936 

Other own revenue 




3,458,344 

Total revenue (excluding capital transfers and contributions) 


' ' s. * '- ■ 


272,569,577 

Employee costs 

- 

- 

- 

(81,791,173) 

Remuneration of councillors 

- 

- 

- 

(8,143,684) 

Debt impairment 

- 

- 

- 

(56,657,462) 

Depreciation and asset impairment 

- 

- 

- 

(192,383,706) 

Finance charges 

- 

- 

- 

(2,850,122) 

Materials and bulk purchases 

- 

- 

- 

(30,341,173) 

Transfers and grants 

- 

- 

- 

(13,384,929) 

Otherexpenditure 

- 

- 

- 

(59,090,383) 

Total expenditure 

- 

- 

- 

(444,642,632) 

Surplus/(Deficit) 




(172,073,055) 

Transfers recognised - capital 




73,266,644 

Surplus (Deficit) after capitai transfers and contributions 


r- ■ ^ ss • •w^k’T ■<•■*»» -amsflff •' •, 


(98,806,411) 

Surplus/(Deficit) for the year 




(98,806,411) 


76 




Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 


2012 2011 


54. Statement of comparative and actual information (continued) 


Reported Expenditure Balance to be 
unauthorised authorised in recovered 
expenditure terms of section 
32 of MFMA 


Restated 

audited 

outcome 


Capital expenditure and funds sources 
Cash flows 


Net cash from (used) operating 

•V~ 

60,053,400 

Net cash from (used) investing 


(63,559,675) 

Net cash from (used) financing 


(6,901,717) 

Net mcrease/(decrease) in cash and cash equivalents 

(10,407,992) 

Cash and cash equivalents at the beginning of the year 


(16,533,400) 

Cash and cash equivalents at year end 


(26,941,392) 


55. Contingent Liability 

From confirmation received from the municipality's attorneys they indicate that the municipality has outstanding labour matters that could result in a 
possible contingent liability of R 240 000. This matter is carried forward from the previous financial year. 

56. Changes in accounting policy 

The financial statements have been prepared in accordance with Standards of Generally Recognised Accounting Practice on a basis consistent with the prior 
year except for the adoption of the following new or revised standards. 

• Accounting policy for property plant and equipment changed from revaluation model to cost model 

Accounting policy for property plant and equipment changed from revaluation model to cost model 

During the year, the municipality changed its accounting policy with respect to the treatment of Property Plant and equipment from the revaluation model to 
the cost model in order to conform with the benchmark treatment in GRAP17. 

The change of the policy was necessary because Property Plant and equipment, in paticular infrastucture, was unbundeled in terms of GRAP 17. 

The impact for the current period and also for the prior period could not be determined as the unbundeled assets could not be linked to assets in the old 
asset register. It is also very difficult to link the single line items in the old asset register to the unbundeled items in the new fixed asset register. 



Previously 
reported in 
2011 

Reported in 
2012 as 
comparative 
for 2011 

Impact on 
2011 

2012 

Land and Buildlngs 

72,909,500 

73,657,842 

748,342 

73,657,842 

Leasehold Property 

15,358,668 

15,358,668 

- 

15,358,668 

Infrastructure 

525,628,778 

2,793,859,678 

2,268,230,900 

2,857,036,536 

Community 

5,459,350 

137,132,689 

131,673,339 

142,951,938 

Other property plant and equipment 

23,326,521 

17,883,663 

(5,442,858) 

19,991,487 

Landfill sites 

- 

- 

- 

922,342 

Heritage assets 

- 

3,616,110 

3,616,110 

3,616,110 

Investment property 

- 

21,752,834 

21,752,834 

21,752,834 

Intangible assets 

- 

728,393 

728,393 

824,047 


642,682,817 

3,063,989,877 

2,421,307,060 

3,136,111,804 


The aggregate effect of the changes in accounting policy on the financial statements for the year ended 30 June 2011 is as follows: 


77 




Setsoto Local Municipality 

Notes to the Annual Financial Statements for the year ended 30 June 2012 


2012 2011 


56. Changes in accounting policy (continued) 

Statement of Financial Performance 
Depreciation 

Previously stated - (18,613,645) 

Current year stated - (192,383,706) 

173,770,061 


57. Operating lease 

The municipality have the following significant leasing arrangements: 

Canon Photocopy Rental 
ERB Marketing 
MWEB internet and usage 
Windeed deeds office searches 
Equipment rentais - ad hoc basis 

• the basis on which contingent rent payable is determined is as follow 

Canon -contract 

ERB Marketing - contract 

MWEB - contract and monthly usage 

Windeed - monthly usage 

Equipment rentals - ad hoc basis . 

• there are no existing terms of renewal or purchases options and/or any escalation clauses on these contracts; 

• there are no restrictions imposed by lease arrangements, such as those concerning return of net surplus, return of capital 
contributions, dividends, additional debt and further leasing. 


Minimum lease payments due 

- within one year 1,183,764 1,183,764 

- in second to fifth year inclusive 183,408 1,183,764 

Present value of minimum lease payments 1,367,172 2,367,528 


Present value of minimum lease payments due 

- within one year 1,183,764 1,183,764 

- in second to fifth year inclusive 183,408 1,183,764 

1,367,172 2,367,528 


Operating leases are on photo copy machines, it services relating to internet usage and ad hoc equipment rentals. 
The average lease term is 1 to 2 years and the average effective borrowing rate is 11.08-% (2011: 11.70-%). 


78 



Setsoto Local Municipality 
Appendix A 


Schedule of extemal loans as at 30 June 2011 


Loan 

Redeemable Balance at 

Received 

Redeemed 

Balance at 

Carrying 

Other Costs 

Number 

30 June 

during the 

written off 

30 June 

Vaiue of 

in 


2011 

period 

during the 

2012 

Property, 

accordance 




period 


Piant & 

with the 






Equip 

MFMA 


Rand 

Rand 

Rand 

Rand 

Rand 

Rand 


Development Bank of South 
Africa 


DBSA 

100 

2012/06/30 

1,289,181 

- 

1,289,181 

- 

- 

- 

DBSA 

101 

2012/06/30 

232,310 

- 

232,310 

- 

- 

- 

DBSA 

200 

2012/06/30 

780,672 

- 

780,672 

- 

- 

- 

DBSA 

301 

2020/06/30 

1,996,015 

- 

106,289 

1,889,726 

1,298,901 

- 

DBSA 

404 

2012/06/30 

220,202 

- 

220,202 

- 

- ' 

- 

DBSA 

525 

2024/12/31 

6,418,382 

- 

216,006 

6,202,376 

938,425 

- 

DBSA 

526 

2011/12/31 

547,963 

- 

547,963 

- 

- 

- 




11,484,725 


3,392,623 

8,092,102 

2,237,326 

- 

Lease liability 









Wesbank 

529 

2010/08/31 

1,877 

- 

1,877 

- 

- 

- 

Wesbank 

530 

2010/08/31 

1,244 

- 

1,244 

- 

- 

- 

Wesbank 

531 

2010/08/31 

2,164 

- 

2,164 

- 

- 

- 

Wesbank 

535 

2012/11/30 

990,533 

- 

675,643 

314,890 

333,917 

- 

Wesbank 

536 

2012/11/30 

1,954,215 

- 

1,332,970 

621,245 

388,730 

- 

Bankfin 

537 

2012/04/30 

584,554 

- 

584,554 

- 

- 

- 

Bankfin 

538 

2014/04/30 

2,135,172 

- 

672,309 

1,462,863 

1,222,426 

- 

Fintech 

539 

2012/03/31 

587,126 

- 

588,421 

(1.295) 

- 

- 

Fintech 

540 

2012/07/31 

433,870 

- 

403,837 

30,033 

671,171 

- 




6,690,755 

. 

4,263,019 

2,427,736 

2,616,244 

- 

Annuity loans 












- 

- 

- 

- 

- 

- 


Total external loans 


3.392,623 8,092,102 2,237,326 
4,263,019 2,427,736 2,616,244 


Development Bank of South Africa 
Lease liability 


11,484,725 

6,690,755 


Page 79 


Setsoto Local Municipality 
Appendix A 


Schedule of external loans as at 30 June 2011 


Loan 

Redeemable Balance at 

Received 

Redeemed 

Balance at 

Carrying 

Other Costs 

Number 

30 June 

during the 

written off 

30 June 

Value of 

in 


2011 

period 

during the 

2012 

Property, 

accordance 




period 


Plant & 

with the 






Equip 

MFMA 


Rand 

Rand 

Rand 

Rand 

Rand 

Rand 


Annuity loans ^ ;;; ;: ;; 1 _ 

18,175,480 7,655.642 10,519,838 4,853,570 


Page 80 


Setsoto Local Municipality 
Setsoto Local Municipality 
Appendix B 


Analysis of property, plant and equipment as at 30 June 2012 
Cost/Revaluation Accumulated depreciation 


Opening Additions Disposals Transfers Revaluations Other changes, Closing Opening Disposals Transfers Depreciation Impairment loss Closing Carrying 
Balance movements Balance Balance Balance value 

Rand Rand Rand Rand Rand Rand Rand Rand Rand Rand Rand Rand Rand Rand 


Land and buildings 
Infrastructure 
Community Assets 


Page 81 


Setsoto Local Municipality 
Setsoto Locai Municipality 
Appendix B 


Heritage assets 
Specialised vehicles 
Other assets 

Total property plant and equipment 
Intangible assets 

Computers - software & programming 


Investment properties 

investment property 

Totai 

Intangible assets 
Investment properties 


Analysis of property, plant and equipment as at 30 June 2012 
Cost/Revaluation Accumulated depreciation 


Opening 

Balance 

Additions 

Disposals 

Transfers 

Revaluations 

Other changes, 
movements 

Ciosing 

Balance 

Opening 

Balance 

Disposals 

Transfers 

Depreciation 

Impairment loss 

Closing 

Balance 

Carrying 

value 

Rand 

Rand 

Rand 

Rand 

Rand 

Rand 

Rand 

Rand 

Rand 

Rand 

Rand 

Rand 

Rand 

Rand 


728,394 

95,653 

. 

- 

- 

. 

824,047 

(76,893) 

- 

- 

(108,206) 

- 

( 185 , 099 ) 

638,948 

728,394 

95,653 


. 

- 

- 

824,047 

( 76 , 893 ) 

- 

- 

( 108 , 206 ) 

- 

( 185 , 099 ) 

638,948 

70,575,852 






70 , 575,852 

(5,833,257) 



(1,944,419) 


( 7 , 777 , 676 ) 

62,798,176 

70 , 575,852 




_ 

- 

70 , 575,852 

( 5 , 833 , 257 ) 

- 

- 

( 1 , 944 , 419 ) 

- 

( 7 , 777 , 676 ) 

62 , 798,176 

728,394 

95,653 





824,047 

(76,893) 



(108,206) 


( 185 , 099 ) 

638,948 

70,575,852 

- 

- 

- 

- 

- 

70 , 575,852 

(5,833,257) 

- 

- 

(1,944,419) 

- 

( 7 , 777 , 676 ) 

62,798,176 

71 , 304,246 

95,653 

- 

- 

- 

- 

71 , 399,899 

( 5 , 910 , 150 ) 

- 

- 

( 2 , 052 , 625 ) 

- 

( 7 , 962 , 775 ) 

63 , 437,124 


Page 82 


Setsoto Local Municipality 
Appendix C 


Segmental analysis of property, plant and equipment as at 30 June 2010 
Cost/Revaluation Accumulated Depreciation 


Opening Additions Disposals Transfers Revaiuations Other changes, Closing 
Balance movements Balance 

Rand Rand Rand Rand Rand Rand Rand 


Opening Disposals Transfers Depreciation Impairment deficit Closing Carrying 

Balance Balance value 

Rand Rand Rand Rand Rand Rand Rand 


Municipality 


Executive & Council/Mayor and 
Council 

Finance & Admin/Finance 
Planning and Development/Economic 
Development/Plan 


( 518 ) 

( 8 , 915 ) 


(518) 

(8,915) 


( 518 ) 

( 8 , 915 ) 


(518) ( 1 , 036 ) 

(8,915) ( 17 , 830 ) 


Flealth/Clinics 

- 

- 

- 

- 

- 

- 

- 

- 

- 

- 

- 

’ 

“ 

Comm. & Social/Libraries and archives 

- 

- 

- 

- 

- 

- 



- 

■ 

■ 

“ 


Flousing 

- 

- 

- 

- 

- 

“ 

“ 


■ 

■ 

■ 

" 


Public Safety/Police 

- 

- 

- 


“ 

" 



* 

■ 




Sport and Recreation 

- 

- 

- 


- 

" 

“ 


■ 

" 




Environmental Protection/Pollution 

Control 

■ 


■ 


" 

■ 








Waste Water Management/Sewerage 

- 

- 

- 


- 




" 

■ 

■ 

" 


Road Transport/Roads 

- 

- 

- 


“ 




* 

■ 




WaterAA/ater Distribution 

- 

- 

- 


- 



- 

" 

" 

* 

■ 


Electricity /Electricity Distribution 

- 

- 

- 


" 




- 

■ 

“ 

" 


Other/Air T ransport 

- 

- 

- 


- 




- 

“ 

“ 

“ 




(9,433) 

. 


- 

(9,433) 


(9,433) 

- 

- 

- 

(9,433) 

(18,866) 



Total 

- 

(9,433) 

- 

- 

- 

(9,433) 

- 

(9,433) 

- 

- 

- 

(9,433) 

(18,866) 


Page 83 


Setsoto Local Municipality 
Appendix E(2) 


Budget Analysis of Capital Expenditure as at 30 June 

2011 

Yearly Yearly 

Addition Revised Variance Variance Explanation of significant 
s Budget variances from budget 

Rand Rand Rand % 


Municipality 

Executive & Council/Mayor and 
Council 

Finance & Admin/Finance 
Planning and 
Development/Economic 
Development/Plan 
Health/Clinics 

Comm. & Social/Libraries and 

archives 

Housing 

Public Safety/Police 

Sport and Recreation 

Environmental Protection/Pollution 

Control 

Waste Water 

Management/Sewerage 

Road Transport/Roads 

Water/Water Distribution 

Electricity /Electricity Distribution 

Other/AirTransport 


Page 86 


Setsoto Local Municipality 
Appendix F 

Disclosures of Grants and Subsidies in terms of Section 123 MFMA, 56 of 2003 


Name of Name of Quarterly Receipts Quarterly Expencliture 

Grants organ of 
state or 
municipal 


entity 


MIG Grant 

National 

32,020 

15,304 

15,639 

- 

62,963 

35,343 

19,468 

45,174 

80,956 


FMG Grant 

National 

1,450 

- 

- 

- 

1,450 

96 

120 

881 

352 

1,450 

MSIG Grant 

National 

- 

790 

- 

- 

790 

- 

- 

238 

552 

790 

ACIP / DWA 

National 

- 

- 

5,719 

1,500 

7,219 

- 

- 

5,719 

1,500 

7,219 

POLICE, 
ROADS & 
TRANSPORT 

Provincial 

■ 

2,650 

1,076 


3,726 


2,650 

1,076 


3,726 



33,470 

18,744 

22,434 

1,500 76,148 ;35,439 22,238 53,088 83,360 94,126 



Section 5 - Page 


Grants and Subsidies delayed / 
withheld 


Reason for 

Did your 

delay/withholdi 

municipa 

ng of funds 

lity comp 
ly with 
the grant 
condition 


s in 

terms of 


grant 


framewor 


k in the 
latest 
Division 


of 


Revenue 


Act 


Yes/ No 


Reason for 
noncompliance 











REPORT OF THE AUDITOR-GENERAL TO THE FREE STATE PROVINCIAL LEGISLATURE 

AND THE COUNCILON SETSOTO LOCAL MUNICIPALITY 

REPORT ON THE FINANCIAL STATEMENTS 

Introduction 

1. I have audited the financial statements of the Setsoto Local Municipality set out on pages 
XX to XX, which comprise the statement of financial position as at 30June2012, the 
statement of financial performance, statement of changes in net assets and the cash flow 
statement for the year then ended, and the notes, comprising a summary of significant 
accounting policies and other explanatory information. 

Accounting officer’s responsibility for the financial statements 

2. The accounting officer is responsible for the preparation and fair presentation of the 
financial statements in accordance with South African Standards of Generally Recognised 
Accounting Practice (SA Standards of GRAP) and the requirements of the Local 
Government: Municipal Finance Management Act of South Africa, 2003 (Act No. 56 of 
2003) (MFMA) and the Division of Revenue Act of South Africa, 2011 (Act No. 6 of 2011) 
(DoRA), and for such internal control as the accounting officer determines is necessary to 
enable the preparation of financial statements that are free from material misstatement, 
whether due to fraud or error. 

Auditor-Generars responsibility 

3. My responsibility is to express an opinion on these financial statements based on my audit. 

I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 
25 of 2004) (PAA), the General Notice issued in terms thereof and International Standards 
on Auditing. 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. 

4. 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 and fair presentation 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. 

5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a 
basis for my qualified audit opinion. 


1 



Basis for qualified opinion 

Property, plant and equipment 

6. I was unable to obtain sufficient appropriate audit evidence that management had properly 
accounted for all items of other property, plant and equipment because items could not be 
traced to the fixed asset register due to lack of unique asset numbers allocated to individual 
assets. I was unable to trace these items to the fixed asset register by alternative means. 
Consequently, I was unable to determine whether any adjustment to other property, plant 
and equipment stated at R6 485 1 18 in note 1 1 of the financial statements was necessary. 

7. The municipality did not perform any calculations to determine whether assets identified as 
having undergone impairment are stated at the lower of its carrying value or its recoverable 
amount in accordance with Standards of Generally Recognised Accounting Practice, GRAP 
21 , Impairment ofnon-cash generating assets and GRAP 26, Impairment ofcash generating 
assets. Property, plant and equipment, heritage assets and investment property with a 
carrying value of R696 923 005 are included in the financial statements, but have been 
identified as having incurred impairment, with no estimation of their recoverable amounts. I 
was not able to determine the full extent of the understatement of the impairment loss and 
overstatement of property, plant and equipment as it was impractical to do so. 

8. I was unable to obtain sufficient appropriate audit evidence that management had properly 
accounted for all items of infrastructure assets because 2 116 items were introduced to the 
fixed asset register with the final submission of the financial statements. Consequently, I 
was unable to determine whether any adjustment to infrastructure assets stated at 
R1 972 573 878 (201 1:R2 086 317 950) in the financial statements was necessary. 

investment property 

9. The municipality did not recognise all property held for capital appreciation or for a future 
undeterminable use as investment property in accordance with Standards of Generally 
Recognised Accounting Practice, GRAP 16, Investment property. Consequently, investment 
property is understated by R23 109 500 (2011:R23 109 500) and property plant and 
equipment is overstated by the same amount. 

Inventory 

10. The municipality did not recognise all land held for sale as inventory in accordance with 
Standards of Generally Recognised Accounting Practice, GRAP 12, Inventories. 
Consequently, inventory is understated by R2 311 000 (2011:R2 311 000) and property 
plant and equipment is overstated by the same amount. 

Trade and other receivables from exchange transactions 

11.1 was unable to obtain sufficient appropriate audit evidence for all other trade and other 
receivables from exchange transactions as no supporting records could be obtained. 1 was 
unable to confirm these balances by alternative means. Consequently, I was unable to 
determine whether any adjustment to other trade receivables from exchange transactions, 
stated at R23 770 615 (2011; R19 749 473) before provision of R20 066 990 (2011: 
R11 262 471) in note 5 of the financial statements, was necessary. Furthermore, relevant 
information was not available for all indigents. Consequently, I was unable to determine 
whether any adjustment to trade receivables from exchange transactions, stated at 
R311 936 678 before provision for impairment of 245 428 444 in note 5 of the financial 
statements, was necessary. 


2 


12. Several debtors’ accounts contain incorrect year-end balances due to incorrect readings that 
were not detected and corrected before year-end. Consequently, revenue and trade and 
other receivables from exchange transactions are understated by a projected amount of 
R7 759 835. Consequently, there is an impact on the deficit for the period and the 
accumulated surplus. 

Other receivables from non-exchange transactions 

13. 1 was unable to obtain sufficient appropriate audit evidence for certain sundry debtors as 
included in other receivables from non-exchange transactions as supporting records for all 
sundry debtors were not available. I was unable to confirm these other receivables from 
non-exchange transaction by alternative means. Consequently, I was unable to determine 
whether any adjustment to other receivables from non-exchange transactions stated at 
R2 385 567 in note 6 of the financial statements was necessary. 

Revenue 

14. 1 was unable to obtain sufficient appropriate audit evidence for revenue as the municipality 
did not ensure that correct tariffs for sewerage and refuse were used on all consumer 
accounts, while differences between source records and consumer accounts occurred for 
water and electricity consumption. In addition, interest was levied on incorrect balances. 
Furthermore, proper control records, internal checking and reconciliations were not done or 
kept for other income relating to the caravan park, the renting of halls, traffic income, 
connection fees, building plan fees and refuse removals. Due to this, as well as the lack of 
sufficient supporting documentation for revenue journals, I was unable to determine whether 
any adjustment to revenue stated at R402 163 352 in the financial statements was 
necessary. 

Employee related cost 

15. I was unable to obtain sufficient appropriate audit evidence for employee-related cost as 
supporting documentation for certain employee-related expenses and journals processed 
could not be obtained. I was unable to confirm the employee-related cost transactions by 
alternative means. Consequently, I was unable to determine whether any adjustment to 
employee-related cost stated at R91 547 012 in the financial statements was necessary. 

Employee benefit obligation 

16. The municipality did not measure its post-employment benefit obligation in accordance with 
South African Statement of Generally Accepted Accounting Practice, lAS 19 Employee 
benefits. In the absence of an actuarial valuation, I was unable to determine the obligation 
that should have been disclosed in the financial statements. Consequently, there is an 
impact on the deficit for the period and the accumulated surplus. 

Expenses 

17. During the 2010-11 audit, I was unable to obtain sufficient appropriate audit evidence 
regarding operating expenditure. I was unable to confirm the expenditure by alternative 
means. Consequently, I was unable to determine whether any adjustment to operating 
expenditure for the prior year stated at R47 134 617 was necessary. My audit opinion on the 
financial statements for the period ended 30 June 2011 was modified accordingly. My 
opinion on the current period’s financial statements is also modified because of the possible 
effect of this matter on the comparability of the current period’s figures. 


3 



18. 1 was unable to obtain sufficient appropriate audit evidence for journal transactions as 
supporting evidence for journal transactions processed could not be submitted. I was unable 
to confirm the journal transactions by alternative means. Consequently, I was unable to 
determine whether any adjustment to expenses stated at R461 954 714 in the financial 
statements was necessary. 

Trade and other payables from exchange transactions 

19. 1 was unable to obtain sufficient appropriate audit evidence for payments received in 
advance from trade receivables disclosed as other payables from exchange transactions. 
These debtor accounts in credit could not be confirmed as numerous accounts contain error 
transactions that were not detected and corrected before year-end. I was unable to confirm 
these trade and other payables from exchange transactions by alternative means. 
Consequently, I was unable to determine whether any adjustment to trade and other 
payables from exchange transactions regarding payments received in advance of 
R6 744 651 stated in note 15 to the financial statements was necessary. 

Cash flow statement 

20. The cash flow statement and the related notes are not fairly stated due to the material effect 
on the cash flow statement and related notes of scope limitations identified and as reported 
in this report. An amount of R9 181 901 (2011; R4 336 032) was incorrectly disclosed as 
income from investments and not as cash and cash equivalents. 

Investments in municipal entity 

21 . The financial statements of the municipality could be misstated as the financial information 
of the municipal entity established by the council during the prior financial year, namely the 
Setsoto Integrated Dairy Project, was not consolidated and a consolidated set of financial 
statements was not presented for auditing, as required by section 126(1(b) of the MFMA. 

Aggregation of immaterial uncorrected misstatements 

22. The financial statements as a whole are materially misstated due to the cumulative effect of 
numerous individually immaterial uncorrected misstatements in the following elements 
making up the statement of financial position and the statement of financial performance: 

• Service charges reflected as R101 681 034 are overstated by R666 51 1 

• Employee-related cost reflected as R91 547 012 is understated by R344 775 

• General expenses reflected as R42 354 085 are overstated by R66 405 

• Cash and cash equivalents reflected as R6 791 1 1 1 are overstated by R43 062. 


Quaiified opinion 

23. In my opinion, except for the possible effects of the matters described in the Basis for 
qualified opinion paragraphs, the financial statements present fairly, in all material respects, 
the financial position of the Setsoto Municipality as at 30 June 2012, its financial 
performance and cash flows for the year then ended, in accordance with GRAP, MFMA and 
DoRA. 


4 



Emphasis of matters 

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

Restatement of corresponding figures 

25. As disclosed in note 52 to the financial statements, the corresponding figures for 30 June 
201 1 have been restated as a result of errors discovered during the current financial year in 
the financial statements of the Setsoto Local Municipality at, and for the year ended, 30 
June 2011. 

Material losses and impairments 

26. As disclosed in note 5 to the financial statements, material losses of R19 106 140 (2011: 
R1 640 587) were incurred as a result of the write-off of irrecoverable trade debtors (debt 
impairment). 

27. As disclosed in note 44 to the financial statements, material losses of R13 106 733 (2011: 
R13 798 074) and R 20 853 869 (2011: R6 368 567) were incurred as a result of the write- 
off of distribution losses relating to water and electricity, respectively. 

Additional matters 

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

Supplementary explanations of budget variances presented outside the financial 

statements 

29. The supplementary explanations of budget variances contained in appendix E do not form 
part of the financial statements. I have not audited these explanations and, accordingly, I do 
not express an opinion thereon. 

Unaudited supplementary schedule 

30. The supplementary information set out on pages 79 to 86 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 

31. In accordance with the PAA and the General Notice issued in terms thereof, I report the 
following findings relevant to performance against predetermined objectives, compliance 
with laws and regulations and internal control, but not for the purpose of expressing an 
opinion. 

Predetermined obiectives 

32. We performed procedures to obtain evidence about the usefulness and reliability of the 
information in the annual performance report as set out on pages xx to xx of the annual 
report. 

33. The reported performance against predetermined objectives was evaluated against the 
overall criteria of usefulness and reliability. The usefulness of information in the annual 


5 


performance report relates to whether it is presented in accordance with the National 
Treasury’s annual reporting principles and whether the reported performance is consistent 
with the planned development priorities. The usefulness of information further relates to 
whether indicators and targets are measurable (i.e. well defined, verifiable, specific, 
measurable and time bound) and relevant as required by the National Treasury Framework 
for managing programme performance information. 

34. The reliability of the information in respect of the selected development priority is assessed 
to determine whether it adequately reflects the facts (i.e. whether it is valid, accurate and 
complete). 

35. The material findings are as follows: 

Usefulness of information 

Presentation 

Measures taken to improve performance not disclosed 

36. Improvement measures in the annual performance report for a total of 79% of the planned 
targets not achieved were not disclosed as required by section 46 of the Municipal Systems 
Act, 2000 (Act No. 32 of 2000) (MSA). This was due to inadequate internal policies and 
procedures in respect of the processes pertaining to the reporting of performance 
information. 

Consistency 

Reported objectives, indicators, targets not consistent with planned objectives, 

indicators, targets 

37. Section 41 (c) of the MSA requires that the integrated development plan should form the 
basis for the annual report, therefore requiring consistency of objectives, indicators and 
targets between planning and reporting documents. None of the planned objectives (100%) 
as per the approved integrated development plan are stated in the annual performance 
report. A total of 77% of the reported indicators are not consistent with the indicators as per 
the approved integrated development plan, while a total of 85% of the reported targets are 
not consistent with the targets as per the approved integrated development plan. This is due 
to a service delivery and budget implementation plan (SDBIP) not being compiled and 
approved by the mayor of the municipality and a lack of monitoring of the completeness of 
reporting documents by management and the performance audit committee. 

Reliability of information 

Reported indicators and targets not supported by sufficient appropriate evidence 

(validity, accuracy and completeness) 

38. For 78% of the reported indicators and targets of the selected infrastructure and basic 
services, I was unable to obtain sufficient, appropriate audit evidence to satisfy myself as to 
the validity, accuracy and completeness of actual performance in terms of the reported 
indicators and targets in the annual performance report. This is due to inadequate review 
processes and reporting, which is an indication of material shortcomings in the processes, 
systems and procedures followed in the collection, recording, processing and reporting of 
performance information. 


6 


Additional matter 


39. 1 draw attention to the following matter below. This matter does not have an impact on the 
predetermined objectives audit findings reported above. 

Achievement of planned targets 

40. Of the total number of planned targets as per the approved integrated development plan, 
only nine were achieved during the year under review. This represents 81% of the total 
planned targets that were not achieved during the year under review. This was as a result of 
the late approval of the performance management policy framework which could not be 
implemented during the year under review. 

Compliance with laws and requlations 

41 . We performed procedures to obtain evidence that the entity had complied with applicable 
laws and regulations regarding financial matters, financial management and other related 
matters. Our findings on material non-compliance with specific matters in key applicable 
laws and regulations, as set out in the General Notice issued in terms of the PAA, are as 
follows: 

Strategic planning and performance management 

42. The municipality did not ensure that the annual objectives and indicators for the municipal 
entity, Setsoto Integrated Dairy (Pty) Ltd, are established by agreement with the municipal 
entity and included in the municipal entity’s multi-year business plan, as required by section 
93C(a)(iv) of the MSA. 

43. The performance of Setsoto Integrated Dairy (Pty) Ltd was not monitored and annually 
reviewed as part of the annual budget process, as required by section 93C(a)(v) of the MSA. 

44. The municipality did not establish mechanisms to monitor and review its performance 
management system, as required by section 40 of the MSA. 

Budget 

45. Quarterly reports on the implementation of the budget and financial state of affairs of the 
municipality were not submitted to council within 30 days after the end of each quarter, as 
required by section 52(d) of the MFMA. 

Annual financial statements, performance and annual report 

46. The financial statements submitted for auditing were not prepared in all material respects in 
accordance with the requirements of section 122 of the MFMA. Material misstatements of 
non-current assets, current assets, liabilities, expenditure, revenue, notes and disclosure 
items identified by the auditors in the submitted financial statements were subsequently 
corrected by a consulting firm appointed by the municipal manager during the course of the 
audit to effect extensive corrections to the financial records of the municipality and to 
compile a new set of financial statements for 2011-12 which was submitted on 20 March 
2013. Consolidated annual financial statements were not prepared as required by section 
122(2) of the MFMA. 

47. The accounting officer did not make the 2010-11 annual report public immediately after the 
annual report was tabled in the council, as required by section 127(5)(a) of the MFMA. 


7 




Expenditure management 

48. Reports regarding unauthorised, irregular or fruitless and wasteful expenditure incurred by 
the municipality were not submitted to the mayor, the MEC for local government and the 
Auditor-General, as required by section 32(4) of the MFMA. 

49. 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. 

50. The accounting officer did not in all instances take effective steps to prevent unauthorised, 
irregular or fruitless and wasteful expenditure, as required by section 62(1 )(d) of the MFMA. 

51. An effective system of expenditure control, including procedures for the approval, 
authorisation, withdrawal and payment of funds, was not in place, as required by section 
65(2)(a) ofthe MFMA. 

52. An adequate management, accounting and information system which recognised 
expenditure when it was incurred, accounted for creditors of the municipality and accounted 
for payments made by the municipality, was not in place as required by section 65(2)(b) of 
the MFMA. 

Revenue management 

53. A credit control and debt collection policy was not implemented, as required by section 
96(b) of the MSA and section 62(1)(f)(iii) of the MFMA. 

54. The municipality contravened section 15(2) of the Electricity Regulatory Act, 2006 (Act No 4 
of 2006) by charging electricity tariffs in excess of those approved by the National Electricity 
Regulator of South Africa. 

55. With reference to section 64(3) of the MFMA, proof could not be obtained that the 
municipality had informed the National Treasury of any payments due by an organ of state 
to the municipality in respect of municipal tax or for municipal services where payments 
were regularly in arrears for periods exceeding 30 days. 

56. All revenue received by the municipality was not reconciled at least on a weekly basis, as 
required by section 64(2)(h) of the MFMA. 

57. The rates policy was not annually reviewed by council, as required by section 5(1) of the 
Municipal Property Rates Act, 2004 (Act No. 6 of 2004) (MPRA). 

58. The accounting officer did not take all reasonable steps to ensure that the municipality had 
and maintained an effective management, accounting and information system which 
recognises revenue when it is earned, accounts for debtors and accounts for receipts of 
revenue, as required by section 64(2)(e) of the MFMA. 

59. The municipality did not update its valuation roll for the 2011-12 financial year, as required 
by section 77 of the MPRA, as no interim valuations were performed. 


8 


Asset management 

60. The accounting officer did not take all reasonable steps to ensure that the municipality had 
and maintained an adequate management, accounting and information as well as internal 
control system, including an asset register to account for assets, as required by section 
63 (2) of the MFMA. Consultants were contracted in to update the asset register and value 
the assets in accordance with Standards of Generally Recognised Accounting Practice. 


Procurement and contract management 

61 . Sufficient appropriate audit evidence could not be obtained that goods and services with a 
transaction value of below R200 000 were procured by obtaining the required price 
quotations, as required by Supply Chain Management (SCM) regulations 17(a) and (c). 

62. Goods and services of a transaction value above R200 000 were procured without inviting 
competitive bids, as required by SCM Regulation 19(a). Deviations were approved by the 
accounting officer even though it was not impractical to invite competitive bids, which is in 
contravention of SCM regulation 36(1). 

63. Sufficient appropriate audit evidence could not be obtained that bid specifications for 
procurement of goods and services through competitive bids were drafted in an unbiased 
manner which allowed all potential suppliers to offer their goods or services, as required by 
SCM regulation 27(2)(a). 

64. Sufficient appropriate audit evidence could not be obtained that bid specifications were 
drafted by bid specification committees which were composed of one or more officials of 
the municipality, as required by SCM regulation 27(3). 

65. Sufficient appropriate audit evidence could not be obtained that invitations for competitive 
bidding were advertised for the required minimum period of days, as required by SCM 
regulation 22(1) and 22(2). 

66. Awards were made to bidders other than those recommended by the bid evaluation 
committee without ratification by the accounting officer, as required by SCM regulation 
29(5)(a)(ii) and (b)(ii). 

67. Contracts were awarded to bidders based on preference points that were not calculated in 
accordance with the requirements of the Preferential Procurement Policy Framework Act, 
2000 (Act No. 5 of 2000) and its regulations. 

68. A list of accredited prospective providers was not in place for procuring goods and services 
through quotations, as required by SCM regulation 14(1 )(a). 

69. The prospective providers list for procuring goods and services through quotations was not 
updated at least quarterly to include new suppliers that qualify for listing, and prospective 
providers were not invited to apply for such listing at least once a year as per the 
requirements of SCM regulation 14(1)(a)(ii) and 14(2). 

70. Persons in service of the municipality who had a private or business interest in contracts 
awarded by the municipality failed to disclose such interest, as required by SCM regulation 
46(2)(e). 

71. The accounting officer did not ensure that the SCM policy was reviewed for the 2011-12 
financial year, as required by SCM regulation 3(1) and paragraph 3(1 )(a) of the Setsoto 
Local Municipality’s SCM policy. 


9 


72. All the councillors did not submit their declaration of interest to the municipality, as required 
by the code of conduct for councillors in terms of the MSA. 

Financial misconduct 

73. Sufficient appropriate audit evidence could not be obtained that investigations were 
instituted into all allegations of financial misconduct against officials of the municipality, as 
required by section 171(4)(a) of the MFMA due to the fact that, at the time of the audit, not 
all unauthorised, irregular or fruitless and wasteful expenditure incurred by the municipality 
was investigated. 

Human resource management and compensation 

74. The municipal manager and managers directly accountable to the municipal manager did 
not sign performance agreements, as required by section 57(2)(a) of the MSA. 

75. The municipality did not submit a report on compliance with prescribed competency levels 
to the National Treasury and relevant provincial treasury, as required by regulation 14(2)(a) 
of the Regulations on minimum competency levels. 

76. The annual report of the municipality did not reflect information on compliance with 
prescribed minimum competencies, as required by regulation 14(2)(b) of the Regulations 
on minimum competency levels. 

77. The municipality did not establish a performance management system, as required by 
section 67(cl) of the MSA. 


Environmental management 

78. The municipality operated one waste disposal site without a waste management licence or 
permit, in contravention of section 20(b) of the National Environmental Management: Waste 
Act, 2008 (Act No. 59 of 2008) and section 20(1) of the Environmental Conservation Act, 
1989 (ActNo. 73 of 1989). 


Internal control 

79. We considered internal control relevant to our audit of the financial statements, the annual 
performance report and compliance with laws and regulations. The matters reported below 
under the fundamentals of internal control are limited to the significant deficiencies that 
resulted in the basis for the qualified opinion, the findings on the annual performance report 
and the findings on compliance with laws and regulations included in this report. 

Leadership 

80. During the financial year under review, management failed to heed and implement all 
comments and recommendations made by the auditors in the previous financial year due to 
the fact that the action plan was not fully implemented. 

81. During the financial year under review, leadership did not hold staff of the municipality 
accountable due to the performance management system not being implemented. 

82. During the financial year under review, leadership did not take timeous and adequate action 
to address weaknesses in the finance and SCM directorates which resulted in non- 
compliance with applicable legislation and gave rise to unauthorised, irregular or fruitless 
and wasteful expencliture. 


10 



Financial and performance management 

83. During the financial year under review, the staff members of the municipality were not 
sufficiently skilled to ensure that daily financial activities were fully and correctly recorded in 
the records of the municipality. Management also did not ensure that all transactions and 
records were internally checked to detect possible fraudulent activities and to correct all 
errors in the financial records. Furthermore, evidence could not be submitted that monthly 
bank reconciliations were performed and reviewed by management. 

84. During the financial year under review, revenue received was not reviewed and reconciled 
on a weekly basis. In the absence of proper review of bank reconciliations, differences 
between receipts and bank deposits were not detected and corrected by management. 
Unidentified direct bank deposits were also not cleared on a regular basis during the 
financial year. 

85. As a result of inadequate of internal review of transactions, incorrect tariffs for sewerage 
and refuse as well as differences between source records and water and electricity debtor 
accounts were not detected and corrected by management. 

86. The financial statements submitted for auditing were not supported by a complete audit file. 
The financial statements and the audit file were not properly reviewed for completeness and 
accuracy prior to the submission thereof for auditing. 

87. The general ledger accounts and the financial statements were subjected to material 
corrections resulting from the audit process, which are attributable to shortcomings in the 
design and implementation of internal control in respect of financial reporting as well as 
shortcomings in the information system of the municipality. 

88. During the year under review, the accounting officer did not regularly review and monitor 
management’s compliance with all laws and regulations and internally designed policies 
and procedures. As a result, significant non-compliance issues were noted that could have 
been prevented. 


Auditof*' 
Bloemfontein 
30 April 2013 



AUDITOR-GENERAL 
SOUTH AFRICA 

Auditing fo build public confidence 


11 




SETSOTO LOCAL MUMICIPALITY 


DRAFT REPORT OF THE AUDIT COMMITTEE FOR THE YEAR ENDED 

30 JUNE 2012 

We are pleased to present our draft report for the financial year ended 30 June 2012. 
Audlt Commlttee Members and Attendance: 

The Audit Committee consisted of the members listed hereunder. During the current 
year, four (4) meetings were held. 

Name of Member Number of Meetings Attended 

Mr. MP Tshake (Chairperson) 4 

Mr. KT Makhale 2 

Mr. LW Tau 4 

Mr. DS Moletsane 3 

All four (4) members of the Audit Committee are independent, with no interest in the 
management or conduct of the business of the Municipality. 

The Free State Provincial Treasury and the Auditor-General South Africa is invited lo 
all meetings of the Audit Committee as per the provisions of the Audit Committee 
Charter. 

Audit Committee Responsibility 

The Audit CommUtee is pleased to report that it is properly constituted as required by 
section 166(2) of the MFMAand it has adopted appropriate formal terms of reference 
as its audit committee charter and has regulated its affairs in compliance with this 
charter. 

The Audit Committee atso report that it has adequately discharged ail its 
responsibilities arising from section 166(2) of the MFMA. 

The Effectiveness of Internal Control and Risk Management 

The system of internal controls applied by the municipality was not entirely effective 
for the year under review. During the year under review, several deflciencies in the 
system of internal controls, deviations and non compliance to the relevant fegisiative 
prescripts were reported by the Internal Audltors. In addition to the above, in certain 
instances Ihe matters reported previously have not been fully and satisfactorlly 
addressed. 

Although risk assessment was performed by the external service provider, the 
municlpallty dld not implement rlsk management strategies to manage risks facing 
the munlcipality. 


The quality of in year management and monthly / quarterly reports submitted In 
terms of the MFMA and the Dlvislon of Revenue Act 

The Audit Committee is unabfe to comment on the contents and quality of monthly 
and quarterly reports prepared and Issued by the Accounting Officer and the 
Municipality as it has not been presented with such reports to review. 

The Committee is however, informed that the in-year management reports were duly 
prepared and submitted to the Provindal Treasury and relevant Authorities. 

Evaluation of Annual Financial Statements and Annual Report 

The Audit Commltlee has reviewed and discussed the an-audited annual financial 
statements for the year ended 30 June 2012 prior to submission to Auditor-General 
South Africa. 

The Audit Committee had not been able to revlew the draft annual report at the tlme 
of the meeting, but however discussed progress on the drafting of the annual report 
and the municipality’s ability to submit such report by the statutory deadline. The 
Committee was provlded with assurance by management that deadlines will be met. 

internat Audlt Activity 

The internal Audit Activlly under the direction of the Chief Audit Executive operated in 
accordance with the Internal Audit Charter and Internal Audit Plan during the year 
under review. During the perlod under revtew numerous internal audit assignments 
were undertaken and the results were presented to the Committee. 

Conclusion 


The Audit Committee recommends the corrections on the un-audited annua! financial 
slatements before approval by the Accounting Officer. After all corrections have 
been effected, the Committee recommends that an-audited annual financial 
statements be submitted to the Auditor-General South Africa for audlting before 31 
August 2012. 



MFTshake 

Chairperspn of the Audit Committee 
Date: