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Matzikama Municipality 


matzikama 



Adjustment Budget 
2014/ 15 - 2016/ 17 

Adjusted Medium Term Revenue 
and Expenditure Framework 


Table of Contents 

Table of Contents 2 

Glossary 3 

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 


2 



Glossary 

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 
municipalities. 

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 
collection policy. 

Capital Expenditure - Spending on assets such as land, buildings and machinery. 
Any capital expenditure must be reflected as an asset on the Municipality's 
balance sheet. 

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 
municipal accounting. 

IDP - Integrated Development Plan. The main strategic planning document of the 
Municipality 

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. 


3 



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 
objectives. 

Unauthorised expenditure - Generally, spending without, or in excess of, an 
approved budget. 

Virement - A transfer of budget. 


4 



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: 


Vote 1 

Executive & Council \ 

1.1 

Council 

1.2 

Local Economic Development 

1.3 

Municipal Manager 

1.4 

DMA 

1.5 

Tourism 

Vote 2 

Finance \ 

2.1 

Equitable Share 

2.2 

Expenses 

2.3 

Finance 

2.4 

Income 

2.5 

Taxes 

Vote 3 

Corporate \ 



Corporate 
Human Resources 
Property Management 
I.T 

Town Planning 
Libraries 



Community Services 


Community Halls 
Cemetries 
Housing 
Traffic 

Vehicle Licencing 
Sport and Recreation Vredendal 
Refuse Removal Vredendal 
Street Cleansing Vredendal 



Technical 


Cemetries Outside Towns 

Sport and Recreation Outside Towns 

Resorts 

Refuse Removal Outside Towns 

Sewerage 

Roads 

Steet Cleancing Outside Towns 
Water Distributions 
Electricity Distributions 


5 



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: 


Operating Budget 


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 
published for: 

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. 


6 



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. 


Capital Budget 


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) 


TYPE 

2014/2015 

2015/2016 

2016/2017 

Operating 

232 013 

263 515 

284 302 

Capital 

38 948 

26 746 

26 490 

TOTAL 

270 961 

290 261 

310 792 


Funding and Cash flows 

The revised budget for 2014/2015 is cash-funded. 


7 





The expected Cash flows for the MTREF period is as follows (R'000 


Source 

2014/2015 

2015/2016 

2016/2017 

NET CASH 

FROM/(USED) 

OPERATING 

ACTIVITIES 

36 381 

44 677 

13 152 

NET CASH 

FROM/(USED) 
INVESTING ACTIVITIES 

(31 448) 

(18 804) 

(18 110) 

NET CASH 

FROM/(USED) 

FINANCING 

ACTIVITIES 

(5 828) 

(5 837) 

(3 668) 

NET INCREASE/ 
(DECREASE) IN CASH 
HELD 

(895) 

20 037 

(8 626) 

Cash/ cash equivalents 
at the year begin: 

2 319 

1 804 

21 841 

Cash/cash 
equivalents at the 
yearend: 

1 804 

21 841 

13 215 


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. 


8 





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 
to SB9. 


Recommendations 


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. 


9 



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: 

RECOMMENDATION: 


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, 
be approved: 

(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). 


10 



Section 3 - Executive Summary 

Introduction 

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 

Agency Services 

-2000000 

-200000 

-2200000 

Fines 

-1527500 

-617000 

-2144500 

Gains on Disposal of PPE 

-7500000 

0 

-7500000 

Interest Earned -external Investors 

-190000 

-310000 

-500000 

Interest earned -outstanding debtors 

-1973863 

0 

-1973863 

Licences and Permits 

-1680650 

-920 

-1681570 

Other Revenue 

-2308865 

-481156 

-2790021 

Property rates 

-31210077 

-2831106 

-34041183 

Rental of Facilities and Equipment 

-4007994 

-101650 

-4109644 

Serie charges -electricity revenue 

-80964765 

-4121307 

-85086072 

Serie charges -refuse revenue 

-11272314 

-2246757 

-13519071 

Serie charges -sanitation revenue 

-13089690 

-128460 

-13218150 

Serie charges -mter revenue 

-13172284 

-1057153 

-14229437 

Transfers recognised -operational 

-56870000 

7043153 

-49826847 


■5052355 

■232820357 


11 




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 . 


Source flGrapItem 


T 


P 


Agency Services 
Fines 

Gains on Disposal of PPE 
Interest Earned- external Investments 
Interest earned -outstanding debtors 
Licences and Permits 
Other Revenue 
Property rates 

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 

-2000000 

-200000 

-2200000 

-1 527 500 

-617000 

-2 144500 

-7500000 

0 

-7500000 

-190000 

-310000 

-500000 

-1 973 863 

0 

-1 973863 

-1 680650 

-920 

-1681 570 

-2 308 865 

-481156 

-2 790021 

-31 210 077 

-2 831 106 

-34041 183 

-4 007 994 

-101650 

-4 109 644 

-80964765 

-4121307 

-85086 072 

-11 272 314 

-2 246 757 

-13519 071 

-13 089 690 

-128 460 

-13218150 

-13 172 284 

-1057 153 

-14229437 

-23 853 000 

-9 598 166 

-33451 165 

-56 870 000 

7 043 153 

-49 826 847 

■251621003 

■14 650 520 

■266 271523 


12 





Operating Expenditure 


The operational expenditure budget has been adjusted upwards from 
R 226, 757 million to R 232, 013 million. 


Source Q 


Sumof APPROVED BUDGET 2014/15 Sum of ADJUSTMENT Sum of ADJUSTMENT BUDGET 2014/15 

M 

Bulk purchases 

69 964 818 

2400000 

72 364 818 


Contracted services 

110000 

0 

110000 


Debt Impairment 

6000000 

6660000 

12660000 


Depreciation & asset impairment 

13071681 

■1300000 

11771681 


Employee related costs 

81 979 770 

1283 769 

83263539 


Finance Charges 

7381800 

593000 

7974800 


Other expenditure 

41556010 

■4380926 

37 175085 


Remuneration of Councillors 

5756447 

0 

5756447 


Transfers and grants 

936520 

0 

936520 

EXP Total 


226757046 

5255843 

232012889 


The new projected forecasts for the MTREF are as follows: 


OPERATING BUDGET (R' 000) 


Type 

2014/15 

2015/16 

2016/17 

Revenue 

266 270 

293 066 

314 665 

Expenditure 

(232 013) 

(263 515) 

(284 302) 

Surplus/(Deficit) 

34 259 

29 552 

30 363 

Less: Capital Grants 

(33 451) 

(23 879) 

(24 645) 

Surplus/(Deficit) 
excluding capital grants 

807 

5 673 

5 718 


13 





CAPITAL BUDGET (R' 000) 


Asset type 

2014/15 

2015/16 

2016/17 

Community 

4 790 

200 

0 

Infrastructure - Electricity 

2 058 

3 000 

5 000 

Infrastructure - Other 

779 

0 

0 

Infrastructure - Road transport 

8 535 

8 500 

1 000 

Infrastructure - Sanitation 

16 729 

250 

3 766 

Infrastructure - Water 

3 389 

12 539 

15 129 

Intangibles 

0 

0 

0 

Other assets 

2 667 

2 257 

1 595 

Total 

38 948 

26 746 

26 490 


The projected funding of the capital budget is as follows: (R 000) 


Funding Source 

2014/15 

2015/16 

2016/17 

National Government 

25 243 

23 879 

24 645 

Provincial Government 

8 208 

0 

0 

Own Funds 

5 497 

2 867 

1 845 

Total 

38 948 

26 746 

26 490 


BUDGET SUMMARY 

A summary of the revised budget can be seen on table Bl. 


14 






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 
listed separately. 

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 
expenditure) 

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 
reconciliation 

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. 


15 



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 

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 
''credible" budget. 



2014/2015 

2015/2016 

2016/201 

Cash and investments 
available 

1 804 

21 841 

13 215 

Application of cash and 
investments 

(3 926) 

(1 808) 

(17 578) 

Surplus/(Shortfall) 

5 730 

23 649 

30 793 


16 





Section 9 - Overview of budget funding 

Funding the Budget 

Section 18(1) of the MFMA states that an annual budget may only be funded 
from: 

• 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 
17. 

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 
targets; 

• 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 
approved budget. 


17 



Section 10 - Expenditure on allocations and 
grant programmes 


Grant allocations 

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 
the Municipality 

Allocations Made by the Municipality 

No allocations are made by the municipality. 

Section 12 - Councillor Allowances and 
employee benefits 


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. 


18 



Section 15 - Annual budgets and service 
delivery agreements - municipal entities and 
other external mechanisms 


ENTITIES 

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 
budgetary implications 

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. 


19 



Section 18 - Municipal Manager's quality 
certification 


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) 


Signature 


Date 


20