2014/ 15 - 2016/ 17
Adjusted Medium Term Revenue
and Expenditure Framework
Table of Contents
Table of Contents 2
PART 1 - ANNUAL BUDGET 6
Section 1 - Mayor's Report 6
Section 2 - Budget Related Resolutions 10
Section 3 - Executive Summary 11
Section 4 - Adjustment budget tables 15
PART 2 - SUPPORTING DOCUMENTATION 16
Section 5 - Measurable performance objectives and indicators 16
Section 6 - Budget related policies 16
Section 7 - Overview of budget assumptions 16
Section 8 - Funding compliance 16
Section 9 - Overview of budget funding 17
Section 10 - Expenditure on allocations and grant programmes 18
Section 11 - Allocations and grants made by the Municipality 18
Section 12 - Councillor Allowances and employee benefits 18
Section 13 - Monthly targets for revenue, expenditure and cash flow 18
Section 14 - Adjustments to the quarterly service delivery and
budget implementation plans - internal departments 18
Section 15 - Annual budgets and service delivery agreements -
municipal entities and other external mechanisms 19
Section 16 - Contracts having future budgetary implications 19
Section 17 - Capital expenditure details 19
Section 18 - Municipal Manager's quality certification 20
Adjustments Budget - Prescribed in section 28 of the MFMA. The formal means by
which a municipality may revise its annual budget during the year.
Allocations - Money received from Provincial or National Government or other
Budget - The financial plan of the Municipality.
Budget Related Policy - Policy of a municipality affecting or affected by the
budget, examples include tariff policy, rates policy and credit control and debt
Capital Expenditure - Spending on assets such as land, buildings and machinery.
Any capital expenditure must be reflected as an asset on the Municipality's
Cash flow statement - A statement showing when actual cash will be received
and spent by the Municipality. Cash payments do not always coincide with
budgeted expenditure timings. For example, when an invoice is received by the
Municipality it is shown as expenditure in the month it is received, even though it
may not be paid in the same period.
DORA - Division of Revenue Act. Annual legislation that shows the total
allocations made by national to provincial and local government.
Equitable Share - A general grant paid to municipalities. It is predominantly
targeted to help with free basic services.
Fruitless and wasteful expenditure - Expenditure that was made in vain and
would have been avoided had reasonable care been exercised.
GFS - Government Finance Statistics. An internationally recognised classification
system that facilitates like for like comparison between municipalities.
GRAP - Generally Recognised Accounting Practice. The new standard for
IDP - Integrated Development Plan. The main strategic planning document of the
KPI's - Key Performance Indicators. Measures of service output and/or outcome.
MFMA - The Municipal Finance Management Act - No. 53 of 2003. The principle
piece of legislation relating to municipal financial management.
MTREF - Medium Term Revenue and Expenditure Framework. A medium term
financial plan, usually 3 years, based on a fixed first year and indicative further
two years budget allocations. Also includes details of the previous and current
years' financial position.
Net Assets - Net assets are the residual interest in the assets of the entity after
deducting all its liabilities. This means the net assets of the municipality equates
to the "net wealth" of the municipality, after all assets were sold/ recovered and
all liabilities paid. Transactions which do not meet the definition of Revenue or
Expenses, such as increases in values of Property, Plant and Equipment where
there is no inflow or outflow of resources are accounted for in Net Assets.
Operating Expenditure - Spending on the day to day expenses of the Municipality
such as salaries and wages.
Rates - Local Government tax based on the assessed value of a property. To
determine the rates payable, the assessed rateable value is multiplied by the rate
in the rand.
SDBIP - Service Delivery and Budget Implementation Plan. A detailed plan
comprising quarterly performance targets and monthly budget estimates.
Strategic Objectives - The main priorities of the Municipality as set out in the
IDP. Budgeted spending must contribute towards the achievement of the strategic
Unauthorised expenditure - Generally, spending without, or in excess of, an
Virement - A transfer of budget.
Vote - One of the main segments of a budget. The structure is for reporting
requirements and links the accounting performance both to the IDP and to the
responsible officials. The vote structure at Matzikama is made up as follows:
Executive & Council \
Local Economic Development
Sport and Recreation Vredendal
Refuse Removal Vredendal
Street Cleansing Vredendal
Cemetries Outside Towns
Sport and Recreation Outside Towns
Refuse Removal Outside Towns
Steet Cleancing Outside Towns
PART 1 - ANNUAL BUDGET
Section 1 - Mayor's Report
It is with great pleasure that I present the 2014/ 2015 Adj ustment Budget
to the Council for consideration.
The reason for the tabling of an adjustment budget is fully disclosed in the
executive summary of the budget documentation. The adjustments were
necessary as a result of changes and additions in grant funding as well as
adjustments required in a bid to effectively manage cash flow.
Council is still committed to ensure high quality basic services and is very
aware of the pressure on disposable income levels.
The main adjustments proposed in this adjustment budget are:
1) An increase in total revenue amounting to R5, 052 million. This increase
is mainly as a result of the following -
a. An increase in the levied service charges revenue for electricity,
sewerage, refuse and water.
b. Provincial Allocations in the Revised Government Gazette
Provincial Financial Management Grant R0.490 million
Municipal Infrastructure Support Grant R0.250 million
Municipal Capacity Building Grant R0.500 million
Municipal Performance Management Grant R0.100 million
2) An increase in certain operating expenditure items amounting to
R5, 256 million. This increase was necessary to fund critical
expenditure items, of which the material adjustments are listed below
a. An increase in the bad debt contribution as it's legislatively
requirement to make a contribution towards a bad debt
provision. After detailed analysis of outstanding debtors older
than 1 year, it was deemed necessary to increase the provision.
b. An increase in electricity and water bulk purchases of R 2,400
million. This increase was necessitated by the increased
electricity and water demand and higher bulk tariffs.
The net effect from these adjustments inclusive of reducing expenditure
resulted in the projected operating surplus for the year (excluding capital
transfers) previously stated at Rl, 01 million, declining to R0, 807 million.
The municipality increased its planned capital expenditure from R 27,680
million to R38, 948 million. This increase is mainly attributed to a
movement of the Housing Grant Funding from the operational budget to
the capital budget and the reduced 2013/2014 MIG roll over approval.
The revised forecasted expenditure can be summarised as follows: (R 000)
Funding and Cash flows
The revised budget for 2014/2015 is cash-funded.
The expected Cash flows for the MTREF period is as follows (R'000
(DECREASE) IN CASH
Cash/ cash equivalents
at the year begin:
equivalents at the
As can be seen from the above illustrations, the municipality's cash
resources are envisaged to increase over the MTREF period provided that
prudent financial management and budgetary constraints are maintained
to be in line with cash flow. We have to plan accordingly and embark on
strategies to do more with less in order for this municipality to be in a
position to deliver sustainable services over the long-term. It must be
emphasised that the reference to increased cash resources refer to
planned or budgeted cash and not actual as budgets are planned on the
principles of management accounting.
I believe we have done all in our power to address service delivery
requirements within our financial means and would like to thank our
community for their patience and inputs into the I.D.P. process, my fellow
Councillors for their continued hard work and support as well as the
Municipal Manager and his staff for all their efforts.
Unforeseen and unavoidable expenditure
None to report.
Changes to allocations and grant adjustments
Changes to expected grant expenditure are reflected below. Full details
regarding income and allocations are disclosed in documentation forms SB7
It is recommended:
1) That the Council approves the adj ustments budget; and
2) That the Council approves the changes to the service delivery and
budget implementation plan.
Section 2 - Budget Related Resolutions
ADJUSTMENT BUDGET 2014/2015
The resolution to be tabled at Council for consideration of approval of the
adj ustments budget is:
a) That the adjustments budget, inclusive of the adjustments as
envisaged by section 28(2) of the MFMA, for the financial year
2014/2015; and indicative for the two projected years 2015/16
and 2016/ 17, as set-out in the schedules contained in Section 4,
(i) Table B1 Adjustments Budget Summary;
(ii) Table B2 Adjustments Budget Financial Performance
(by standard classification);
(iii) Table B3 Adjustments Budget Financial Performance
(by municipal vote);
(iv) Table B4 Adjustments Budget Financial Performance
(revenue by source); and
(v) Table B5 Adjustments Budget Capital Expenditure (by
municipal vote and funding source)
b) That the amended performance objectives as contained in the
SDBIP be approved (Attached supporting documentation form).
Section 3 - Executive Summary
The financial position of Matzikama Municipality is still under pressure at
this stage. It is however advised that new funding sources be exploited to
fund the capital program (i.e. more own revenue or additional grant
funding). The current financing structure places enormous strain on the
accumulated reserves of the municipality and it is inevitable that all
reserves will be depleted in the near future. This will result in a major
downturn in capital expenditure in future periods that could result in a
slowdown of economic growth in the municipal area.
Management should always strive to maintain, and where possible increase
accumulated reserves. This is however only possible if capital projects
from own resources are reduced and or additional revenue streams are
accessed in order to ensure a sustainable long term capital expansion plan.
Effect of the adjustment budget
The overall changes made to the 2014/2015 budget can be best illustrated
in the charts below.
Revenue (Excluding Capital Grant Revenue)
Source Q Grapltem El
Sum of APPROVED BUDGET 2014/15 Sum of ADJUSTMENT Sum of ADJUSTMENT BUDGET 2014/15
Gains on Disposal of PPE
Interest Earned -external Investors
Interest earned -outstanding debtors
Licences and Permits
Rental of Facilities and Equipment
Serie charges -electricity revenue
Serie charges -refuse revenue
Serie charges -sanitation revenue
Serie charges -mter revenue
Transfers recognised -operational
Revenue (Including Capital Transfers)
Budgeted capital grant revenue from national and provincial government
increased from R23, 853 million to R33,451 million, mainly due to the
movement of the Integrated Human Settlement Development Grant
revenue and the 2013/2014 MIG roll-over .
Gains on Disposal of PPE
Interest Earned- external Investments
Interest earned -outstanding debtors
Licences and Permits
Rental of Facilities and Equipment
Service charges - electricity revenue
Service charges - refuse revenue
Service charges - sanitation revenue
Service charges - water revenue
Transfers recognised -capital
Transfers recognised - operational
ISum of APPROVED BUDGET 2014/15 Sum of ADJUSTMENT Sum of ADJUSTMENT BUDGET 2014/15
-1 527 500
-1 973 863
-2 308 865
-31 210 077
-2 831 106
-4 007 994
-4 109 644
-11 272 314
-2 246 757
-13 089 690
-13 172 284
-23 853 000
-9 598 166
-56 870 000
7 043 153
-49 826 847
■14 650 520
The operational expenditure budget has been adjusted upwards from
R 226, 757 million to R 232, 013 million.
Sumof APPROVED BUDGET 2014/15 Sum of ADJUSTMENT Sum of ADJUSTMENT BUDGET 2014/15
69 964 818
72 364 818
Depreciation & asset impairment
Employee related costs
81 979 770
Remuneration of Councillors
Transfers and grants
The new projected forecasts for the MTREF are as follows:
OPERATING BUDGET (R' 000)
Less: Capital Grants
excluding capital grants
CAPITAL BUDGET (R' 000)
Infrastructure - Electricity
Infrastructure - Other
Infrastructure - Road transport
Infrastructure - Sanitation
Infrastructure - Water
The projected funding of the capital budget is as follows: (R 000)
A summary of the revised budget can be seen on table Bl.
Section 4 - Adjustment budget tables
The adjustments budget tables are attached to this document asTables B1
to B 10. Tables supporting the above (SB1 to SB20) are also attached and
The Budget tables are:
Table B1 - Adjustments Budget Summary
Table B2 - Adjustments Budgeted Financial Performance (revenue and
expenditure by standard classification)
Table B3 - Adjustments Budgeted Financial Performance (revenue and
expenditure by municipal vote)
Table B4 - Adjustments Budgeted Financial Performance (revenue and
Table B5 - Adjustments Budgeted Capital Expenditure by vote, standard
classification and funding
Table B6 - Adjustments Budgeted Financial Position
Table B7 - Adjustments Budgeted Cash Flows
Table B8 - Adjustments Cash backed reserves/ accumulated surplus
Table B9 - Adjustments Budget Asset Management
Table BIO - Adjustments Budget Basic service delivery measurement
The municipality does not have any entities for which adjustments budgets
must be prepared. The municipality is currently investigating vehicles to
start a entity in respect of LED.
PART 2 - SUPPORTING DOCUMENTATION
Section 5 - Measurable performance
objectives and indicators
Changes to measurable performance obj ectives and indicators are included
in the supporting tables (SB3) attached. These indicators are part of the
indicators contained in the Service Delivery and Budget Implementation
Plan, which again forms the basis of the performance contracts of the
Municipal Manager and Senior Management.
Section 6 - Budget related policies
There are no changes to the budget related policies proposed in the
adj ustments budget.
Section 7 - Overview of budget assumptions
There are no changes to the budget assumptions proposed in the
adj ustments budget.
Section 8 - Funding compliance
The adjustments budget is cash-funded which is the first indicator of a
Cash and investments
Application of cash and
Section 9 - Overview of budget funding
Funding the Budget
Section 18(1) of the MFMA states that an annual budget may only be funded
• Realistically anticipated revenues to be collected;
• Cash backed accumulated funds from previous years' surpluses not
committed for other purposes; and
• Borrowed funds, but only for the capital budget referred to in section
Achievement of this requirement in totality effectively means that a Council
has 'balanced' its budget by ensuring that budgeted outflows will be offset by
a combination of planned inflows.
A Credible Budget
Amongst other things, a credible budget is a budget that:
• Funds only activities consistent with the revised 1DP and vice versa
ensuring the IDP is realistically achievable given the financial constraints
of the municipality;
• Is achievable in terms of agreed service delivery and performance
• Contains revenue and expenditure projections that are consistent with
current and on past performance and supported by documented
evidence of future assumptions;
• Does not jeopardise the financial viability of the municipality (ensures
that the financial position is maintained within generally accepted
prudential limits and that obligations can be met in the short, medium
and long term); and
• Provides managers with appropriate levels of delegation sufficient to
meet their financial management responsibilities.
A budget sets out certain service delivery levels and associated financial
implications. Therefore the community should realistically expect to receive
these promised service delivery levels and understand the associated financial
implications. Major under spending due to under collection of revenue or poor
planning is a clear example of a budget that is not credible and unrealistic.
Furthermore, budgets tabled for consultation at least 90 days prior to the
start of the budget year should already be credible and fairly close to the final
Section 10 - Expenditure on allocations and
Details of each grant to be received and spent are shown in the schedules
SB7 to SB9 attached to the report.
Section 11 - Allocations and grants made by
Allocations Made by the Municipality
No allocations are made by the municipality.
Section 12 - Councillor Allowances and
Salaries, Allowances and Benefits
Details of Councillor Allowances and employee benefits are included in
supporting table SB11 attached.
Section 13 - Monthly targets for revenue,
expenditure and cash flow
Monthly Cash Flows by source
Supporting tables SB 12 to SB 17 show the adjusted monthly cash flows.
Section 14 - Adjustments to the quarterly
service delivery and budget implementation
plans - internal departments
Supporting table SB3 indicates the major adjustments.
Section 15 - Annual budgets and service
delivery agreements - municipal entities and
other external mechanisms
The municipality does not have any entities.
Other Service Delivery Mechanisms.
The municipality has service delivery agreements with external parties for
the delivery of the Municipality's services.
Section 16 - Contracts having future
No exceptions noted that will have future budgetary implications.
Section 17 - Capital expenditure details
Capital expenditure details are listed in Supporting Table SB 18 to SB 19.
Section 18 - Municipal Manager's quality
I, Municipal Manager of Matzikama Municipality,
hereby certify that the adjustments budget and supporting documentation
have been prepared in accordance with the Municipal Finance Management
Act and the regulations made under the Act, and that the adjustments
budget and supporting documents are consistent with the Integrated
Development Plan of the Municipality.
Municipal Manager of Matzikama Municipality (WC011)