Nala Local Municipality Annual Financial Statements for the year ended 30 June 2020 Nala Local Municipality Annual Financial Statements for the year ended 30 June 2020 General Information Legal form of entity Local Municipality, governed by the Municipal Finance Management Act (Act No.56 of 2003) Nature of business and principal activities Providing municipal services and maintaining the best interests of the local community mainly in the Nala area. Mayoral committee Executive Mayor Mogoje TA Speaker Mashiya MN Councillors Khati MS Leburu GJ Mabeleng MP Mabaso MK Mafojane PW Marumule MS Mohloare TA Mokete XE Molutsi TL Moshane Z Mtombeni J Ngece M Ntseki ML Sebate KE Tau RT Reed D Makunye AM Jika NE Makhooe NE Botma HJ Masencamp BA Setheni SE Grading of local authority Nala Local Municipality is a grade 3 Local Authority in terms of item IV of the Government Notice R999 of 2 October 2001, published in terms of the Remuneration of Public Office Bearers Act, 1998 Capacity of local authority Medium Capacity Municipality Municipal demarcation code FS185 Acting Accounting Officer Radebe NR Chief Finance Officer (CFO) Busakwe S Registered office Municipal Offices 8 Preller Street Bothaville 9660 Postal address Private Bag X15 Bothaville 9660 Bankers First National Bank 1 Nala Local Municipality Annual Financial Statements for the year ended 30 June 2020 General Information External auditors Auditor-General of South Africa Attorneys Podbielski Incorporated Brits & Weideman Advocate Riaan Schmidt Bokwa Attorneys 2 Nala Local Municipality Annual Financial Statements for the year ended 30 June 2020 Index The reports and statements set out below comprise the annual financial statements presented to the provincial legislature: Page Accounting Officer's Responsibilities and Approval 4 Statement of Financial Position 5 Statement of Financial Performance 6 Statement of Changes in Net Assets 7 Cash Flow Statement 8 Statement of Comparison of Budget and Actual Amounts 9 Accounting Policies 10 - 39 Notes to the Annual Financial Statements 40 - 81 COID Compensation for Occupational Injuries and Diseases DBSA Development Bank of South Africa GRAP Generally Recognised Accounting Practice HDF Housing Development Fund IAS International Accounting Standards MEC Member of the Executive Council MFMA Municipal Finance Management Act MIG Municipal Infrastructure Grant (Previously CMIP) VAT Value Added Tax UIF Unemployment Insurance Fund PAYE Pay As You Earn (Employee's Tax) 3 Nala Local Municipality Annual Financial Statements for the year ended 30 June 2020 Accounting Officer's Responsibilities and Approval The accounting officer is required by the Municipal Finance Management Act (Act 56 of 2003), to maintain adequate accounting records and is responsible for the content and integrity of the annual financial statements and related financial information included in this report. It is the responsibility of the accounting officer to ensure that the annual 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 annual financial statements and was given unrestricted access to all financial records and related data. The annual 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 annual 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 annual 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 2021 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 municipality is wholly dependent on the municipality for continued funding of operations. The annual 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 the scale of the municipality. 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 annual financial statements. The annual financial statements have been examined by the municipality's external auditors and their report is presented on page 5. The annual financial statements set out on pages 5 to 81, which have been prepared on the going concern basis, were approved by the accounting officer on _______________ and were signed on its behalf by: Radebe NR Acting Accounting Officer 4 Nala Local Municipality Annual Financial Statements for the year ended 30 June 2020 Statement of Financial Position as at 30 June 2020 Figures in Rand Notes 2020 2019 Restated* Assets Current Assets Inventories 2 953 487 1 023 556 Receivables from exchange transactions 3 138 294 987 121 837 527 Receivables from non-exchange transactions 4 10 679 827 3 566 418 VAT receivable 5 63 154 297 48 131 286 Cash and cash equivalents 6 56 626 316 24 873 223 269 708 914 199 432 010 Non-Current Assets Investment property 7 616 830 955 616 895 620 Property, plant and equipment 8 1 193 745 359 1 217 859 853 Intangible assets 9 88 767 131 239 Other financial assets 10 112 280 118 211 1 810 777 361 1 835 004 923 Total Assets 2 080 486 275 2 034 436 933 Liabilities Current Liabilities Payables from exchange transactions 11 664 031 947 521 816 995 Consumer deposits 12 3 324 755 2 780 637 Employee benefit obligation 13 842 000 677 000 Unspent conditional grants and receipts 14 6 464 232 2 552 916 674 662 934 527 827 548 Non-Current Liabilities Employee benefit obligation 13 6 315 000 6 564 000 Provisions 15 32 266 384 32 273 241 38 581 384 38 837 241 Total Liabilities 713 244 318 566 664 789 Net Assets 1 367 241 957 1 467 772 144 Accumulated surplus 1 367 241 957 1 467 772 144 * See Note 36 5 Nala Local Municipality Annual Financial Statements for the year ended 30 June 2020 Statement of Financial Performance Figures in Rand Notes 2020 2019 Restated* Revenue Revenue from exchange transactions Discount received 275 646 402 Dividends received 16 7 725 7 347 Interest received - Exchange receivables 36 017 343 16 186 868 Interest received - Investment 16 3 325 758 1 036 250 Other income 17 47 985 418 1 596 513 Rental of facilities 415 772 428 140 Service charges 18 176 510 262 162 953 092 Total revenue from exchange transactions 264 537 924 182 208 612 Revenue from non-exchange transactions Taxation revenue Property rates 19 22 475 897 22 394 363 Fines, Penalties and Forfeits 62 396 96 607 Interest received - Non exchange receivables 3 130 581 14 322 673 Transfer revenue Government grants & subsidies 20 166 674 375 149 714 784 Total revenue from non-exchange transactions 192 343 249 186 528 427 Total revenue 21 456 881 173 368 737 039 Expenditure Employee related costs 22 (152 000 854) (141 321 363) Remuneration of councillors 23 (8 968 885) (8 630 474) Depreciation and amortisation 24 (47 333 814) (45 171 769) Finance costs 25 (34 293 505) (20 039 751) Bulk purchases 26 (138 119 621) (121 824 403) Contracted services 27 (11 553 380) (15 774 201) General Expenses 28 (37 366 772) (33 294 127) Total expenditure (429 636 831) (386 056 088) Operating deficit 27 244 342 (17 319 049) Gain / (loss) on property, plant and equipment recognised (7 572 099) 66 111 224 Fair value adjustments on other financial assets (5 931) 6 494 Actuarial gains / (losses) 1 326 084 2 159 866 Impairment loss 29 (121 522 584) (65 124 698) (127 774 530) 3 152 886 Deficit for the year (100 530 188) (14 166 163) * See Note 36 6 Nala Local Municipality Annual Financial Statements for the year ended 30 June 2020 Statement of Changes in Net Assets Accumulated Total net Figures in Rand surplus assets Balance at 01 July 2018 1 481 938 307 1 481 938 307 Changes in net assets Restated deficit for the year (14 166 163) (14 166 163) Total changes (14 166 163) (14 166 163) Restated* Balance at 01 July 2019 1 467 772 145 1 467 772 145 Changes in net assets Deficit for the year (100 530 188) (100 530 188) Total changes (100 530 188) (100 530 188) Balance at 30 June 2020 1 367 241 957 1 367 241 957 * See Note 36 7 Nala Local Municipality Annual Financial Statements for the year ended 30 June 2020 Cash Flow Statement Figures in Rand Notes 2020 2019 Restated* Cash flows from operating activities Receipts Taxation 10 784 648 18 727 833 Sale of goods and services 78 359 371 81 469 328 Grants 170 263 045 152 110 226 Interest income 42 473 682 31 545 791 Dividends received 7 725 7 347 301 888 471 283 860 525 Payments Employee costs (158 882 879) (150 424 199) Suppliers and other (46 616 185) (70 516 622) Finance costs (32 158 362) (17 281 842) (237 657 426) (238 222 663) Net cash flows from operating activities 31 64 231 045 45 637 862 Cash flows from investing activities Purchase of property, plant and equipment 8 (32 477 952) (22 712 867) Net increase/(decrease) in cash and cash equivalents 31 753 093 22 924 995 Cash and cash equivalents at the beginning of the year 24 873 223 1 948 228 Cash and cash equivalents at the end of the year 6 56 626 316 24 873 223 * See Note 36 8 Nala Local Municipality Annual Financial Statements for the year ended 30 June 2020 Statement of Comparison of Budget and Actual Amounts Budget on Accrual Basis Approved Adjustments Final Budget Actual Difference Reference budget amounts on between final comparable budget and Figures in Rand basis actual Statement of Financial Performance Revenue Revenue from exchange transactions Service charges 193 695 786 - 193 695 786 176 510 262 (17 185 524) Note 45 Rental of facilities and equipment 628 000 - 628 000 415 772 (212 228) Note 45 Interest received - Exchange 56 000 000 - 56 000 000 36 017 343 (19 982 657) Note 45 receivables Discount received 750 - 750 275 646 274 896 Note 45 Other income 1 884 317 - 1 884 317 47 985 418 46 101 101 Note 45 Interest received - investment 1 200 000 - 1 200 000 3 325 758 2 125 758 Note 45 Dividends received 8 000 - 8 000 7 725 (275) Note 45 Total revenue from exchange 253 416 853 - 253 416 853 264 537 924 11 121 071 transactions Revenue from non-exchange transactions Taxation revenue Property rates 23 514 000 - 23 514 000 22 475 897 (1 038 103) Note 45 Fines, Penalties and Forfeits 106 000 - 106 000 62 396 (43 604) Note 45 Interest received - Non-exchange - - - 3 130 581 3 130 581 Note 45 Transfer revenue Government grants & subsidies 189 056 933 - 189 056 933 166 351 729 (22 705 204) Note 45 Total revenue from non- 212 676 933 - 212 676 933 192 020 603 (20 656 330) exchange transactions Total revenue 466 093 786 - 466 093 786 456 558 527 (9 535 259) Expenditure Personnel (152 529 473) - (152 529 473) (152 000 854) 528 619 Note 45 Remuneration of Councilors (8 833 000) - (8 833 000) (8 968 885) (135 885) Note 45 Depreciation and amortisation (53 577 000) - (53 577 000) (47 333 814) 6 243 186 Note 45 Finance costs (13 250 000) - (13 250 000) (34 293 505) (21 043 505) Note 45 Bulk purchases (122 926 000) - (122 926 000) (138 119 621) (15 193 621) Note 45 Contracted Services (10 692 615) - (10 692 615) (11 553 380) (860 765) Note 45 General Expenses (80 707 224) - (80 707 224) (37 366 772) 43 340 452 Note 45 Total expenditure (442 515 312) - (442 515 312) (429 636 831) 12 878 481 Operating surplus 23 578 474 - 23 578 474 26 921 696 3 343 222 Loss on disposal of assets and - - - (7 572 099) (7 572 099) Note 45 liabilities Fair value adjustments - - - (5 931) (5 931) Note 45 Actuarial gains/losses - - - 1 326 084 1 326 084 Note 45 Impairment loss (53 250 000) - (53 250 000) (121 522 584) (68 272 584) Note 45 (53 250 000) - (53 250 000) (127 774 530) (74 524 530) Deficit before taxation (29 671 526) - (29 671 526) (100 852 834) (71 181 308) Actual Amount on Comparable (29 671 526) - (29 671 526) (100 852 834) (71 181 308) Basis as Presented in the Budget and Actual Comparative Statement 9