Sundays River Valley Municipality Unaudited Annual financial statements for the year ended 30 June 2020 Sundays River Valley Municipality Unaudited Annual Financial Statements for the year ended 30 June 2020 General Information Legal form of entity Sundays River Valley Local Municipality is a South African Category B Municipality (Local Municipality) as defined by the Municipal Structures Act (No 117 of 1998). The municipality's operations are governed by: - Municipal Finance Management Act (No 56 of 2003) - Municipal Structures Act (No 117 of 1998) - Municipal Systems Act (No 32 of 2000) and various other acts and regulations. Nature of business and principal activities The municipality performs the functions as set out in the Constitution.This in effect means that the municipality provides services like water, electricity, sewerage and sanitation to the community. Mayoral committee Executive Mayor NG Bixa SH Rune- Speaker Councillors F Adams- Portfolio Head: Technical Services N Jack- Portfolio Head: Community Services K Smith- Portfolio Head: IDP and LED Services MW Kebe- MPAC Chairperson (Appointed on 04 October 2019) A Dancey L Erasmus NG Kausele M Bosman SC Nodonti MC Payi LE Baka ZA Tom A Ndawo TH Blowu Grading of local authority 2 Thembekile Machelesi Acting Municipal Manager [email protected] Acting Chief Finance Officer (CFO) Ncediwe Joko [email protected] Registered office 30 Middle Street Kirkwood 6120 Postal address P.O. Box 47 Kirkwood 6120 Bankers First National Bank Auditors Auditor General South Africa Attorneys Pumeza Bono Incorporated Le Roux Inc Attorneys Karsans Incorporated B Mashile 1st Attorneys 1 Sundays River Valley Municipality Unaudited 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 Council: Page Accounting officer's Responsibilities and Approval 3 Accounting officer's Report 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 - 12 Appropriation Statement 13 - 15 Accounting Policies 16 - 39 MIG Municipal Infrastructure Grant EPWP Expanded Public Works Works Programme FMG Financial Management Grant MSIG Municipal Systems Improvement Grant WSIG Water Services Infrastructure Grant VAT Value Added Tax MFMA Municipal Finance Management Act IAS International Accounting Standards GRAP Generally Recognised Accounting Practise DSRAC Department of Sports, Recreation, Arts and Culture UIF Unemployment Insurance Fund SDL Skills Development Levy PAYE Pay As You Earn SARS South African Revenue Services TMT Traffic Management Technologies 2 Sundays River Valley Municipality Unaudited Annual Financial Statements for the year ended 30 June 2020 Accounting officer's Responsibilities and Approval The Accounting Officeris 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 unaudited annual financial statements and related financial information included in this report. It is the responsibility of the accounting officer to ensure that the unaudited 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 unaudited annual financial statements and were given unrestricted access to all financial records and related data. The unaudited 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 unaudited annual financial statements are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates. The Accounting Officeracknowledges that heis ultimately responsible for the system of internal financial control established by the municipality and places 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 Officeris 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 unaudited 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 officerhas 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, heis 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 Department of Local Government and Traditional Affairs for continued funding of its operations. The annual financial statements are prepared on the basis that the municipality is a going concern and that the Department of Local Government and Traditional Affairs has neither the intention nor the need to liquidate or curtail materially the scale of the municipality. Although the Accounting Officer is primarily responsible for the financial affairs of the municipality, he is supported by the municipality's internal auditors. The external auditorsare responsible for independently auditing and reporting on the municipality's unaudited annual financial statements. The unaudited annual financial statements set out on page 6 to 81 which have been prepared on the going concern basis, were approved by the Accounting Officer on 31 October 2020 and were signed on its behalf by: Thembekile Machelesi Accounting Officer 3 Sundays River Valley Municipality Unaudited Annual Financial Statements for the year ended 30 June 2020 Accounting officer's Report The Accounting Officersubmitshis report for the year ended 30 June 2020. 1. Review of activities Main business and operations The municipality is a South African Category B. The operating results and state of affairs of the municipality are fully set out in the attached annual financial statements and do not in my opinion require any further comment. Net surplus of the municipality was R53,322,564 (2019: restated deficitR35,751,603). 2. Going concern The unaudited 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. 3. Auditors Auditor General South Africa will continue in office for the next financial period. 4 Sundays River Valley Municipality Unaudited Annual Financial Statements for the year ended 30 June 2020 Statement of Financial Position as at 30 June 2020 Figures in Rand Note(s) 2020 2019 Restated* Assets Current Assets Inventories 8 220,333 311,718 Receivables from exchange transactions 9&11 58,887,248 68,044,200 Receivables from non-exchange transactions 10&11 4,741,364 9,779,073 Cash and cash equivalents 12 2,436,947 626,163 66,285,892 78,761,154 Non-Current Assets Investment property 3 104,059,000 26,918,700 Property, plant and equipment 4 693,123,131 676,744,121 Intangible assets 5 4,664,880 4,718,388 Heritage assets 6 322,483 322,483 802,169,494 708,703,692 Total Assets 868,455,386 787,464,846 Liabilities Current Liabilities Finance lease obligation 13 695,854 1,054,545 Payables from exchange transactions 17 78,344,634 59,073,097 VAT payable 18 8,956,245 10,158,742 Consumer deposits 19 74,923 63,246 Employee benefit obligation 7 622,000 532,605 Unspent conditional grants and receipts 14 3,751,506 368,069 Borrowings 16 3,480,629 - 95,925,791 71,250,304 Non-Current Liabilities Finance lease obligation 13 45,939 408,479 Employee benefit obligation 7 4,910,000 4,778,343 Provisions 15 40,726,202 37,502,834 45,682,141 42,689,656 Total Liabilities 141,607,932 113,939,960 Net Assets 726,847,454 673,524,886 Accumulated surplus 726,847,454 673,524,886 * See Note 55 & 54 5 Sundays River Valley Municipality Unaudited Annual Financial Statements for the year ended 30 June 2020 Statement of Financial Performance Figures in Rand Note(s) 2020 2019 Restated* Revenue Revenue from exchange transactions Sale of property, plant & equipment 21 148,160 - Service charges 22 44,041,555 38,090,320 Rental of facilities and equipment 23 24,642 52,894 Interest earned - outstanding debtors 2,259,986 3,227,850 Agency services 25 2,528,417 3,553,968 Licences and permits 26 1,281,078 1,467,906 Other income 30 702,657 689,954 Interest earned - external investment 31 355,179 1,573,089 Fair value adjustments 3 77,140,300 - Inventories water gains 718 11,350 Total revenue from exchange transactions 128,482,692 48,667,331 Revenue from non-exchange transactions Taxation revenue Property rates 32 39,077,967 36,821,353 Licences and permits 27 20,741 13,305 Interest earned - Property Rates 29 1,052,080 2,485,419 Transfer revenue Government grants & subsidies 34 150,801,458 149,840,693 Public contributions and donations 35 - 1,295,882 Fines, Penalties and Forfeits 24 2,068,590 6,688,633 Total revenue from non-exchange transactions 193,020,836 197,145,285 Total revenue 20 321,503,528 245,812,616 Expenditure Employee related costs 36 (78,739,172) (69,919,809) Remuneration of councillors 37 (7,182,198) (7,025,581) Depreciation and amortisation 38 (29,395,545) (26,587,700) Impairment losses 39 (18,840,906) (5,659,552) Finance costs 40 (5,803,239) (5,257,765) Lease rentals 28 (1,010,405) (1,014,786) Debt Impairment 41 (38,117,433) (89,297,302) Bulk purchases 42 (31,012,342) (21,798,443) Contracted services 43 (27,513,754) (23,301,125) Loss disposal of assets 49 (1,792,648) - General Expenses 44 (28,773,322) (31,702,156) Total expenditure (268,180,964) (281,564,219) Surplus (deficit) for the year 53,322,564 (35,751,603) * See Note 55 & 54 6 Sundays River Valley Municipality Unaudited Annual Financial Statements for the year ended 30 June 2020 Statement of Changes in Net Assets Accumulated Total net Figures in Rand surplus assets Opening balance as previously reported 654,420,624 654,420,624 Adjustments Correction of errors 54,855,865 54,855,865 Restated reported balance as at 30 June 2018 709,276,489 709,276,489 Changes in net assets Surplus for the year (35,751,603) (35,751,603) Total changes (35,751,603) (35,751,603) Restated* Balance at 01 July 2019 673,524,890 673,524,890 Changes in net assets Surplus for the year 53,322,564 53,322,564 Total changes 53,322,564 53,322,564 Balance at 30 June 2020 726,847,454 726,847,454 Note(s) * See Note 55 & 54 7 Sundays River Valley Municipality Unaudited Annual Financial Statements for the year ended 30 June 2020 Cash Flow Statement Figures in Rand Note(s) 2020 2019 Restated* Cash flows from operating activities Receipts Cash reciepts from customers 65,093,635 66,734,515 Grants 150,433,389 151,080,309 Interest income 355,179 1,573,089 Other receipts 4,558,253 5,778,027 220,440,456 225,165,940 Payments Employee costs (85,921,370) (76,945,390) Suppliers (65,695,316) (72,530,080) Finance costs (2,464,525) (776,479) (154,081,211) (150,251,949) Net cash flows from operating activities 47 66,359,245 74,913,991 Cash flows from investing activities Purchase of property, plant and equipment 4 (62,250,058) (83,754,612) Purchase of other intangible assets 5 (1,725,332) (2,246,550) Proceeds from sale of PPE 148,160 - Net cash flows from investing activities (63,827,230) (86,001,162) Cash flows from financing activities Finance lease payments (721,231) (900,719) Net increase/(decrease) in cash and cash equivalents 1,810,784 (11,987,890) Cash and cash equivalents at the beginning of the year 626,163 12,614,053 Cash and cash equivalents at the end of the year 12 2,436,947 626,163 * See Note 55 & 54 8 Sundays River Valley Municipality Unaudited Annual Financial Statements for the year ended 30 June 2020 Statement of Comparison of Budget and Actual Amounts Budget on Cash Basis Approved Adjustments Final Budget Actual amounts Difference Reference budget on comparable between final basis budget and Figures in Rand actual Statement of Financial Performance Revenue Revenue from exchange transactions Sale of goods - - - 148,160 148,160 63.1 Service charges 51,883,130 5,000,000 56,883,130 44,041,555 (12,841,575) 63.2 Rental of facilities and 58,156 - 58,156 24,642 (33,514) 63.3 equipment Interest earned - Service 8,400,930 (6,107,855) 2,293,075 2,259,986 (33,089) charges Agency services 3,007,202 - 3,007,202 2,528,417 (478,785) 63.4 Licences and permits 1,803,937 - 1,803,937 1,281,078 (522,859) 63.5 Other income 597,322 112,017 709,339 702,657 (6,682) Interest earned - external 1,359,916 (964,700) 395,216 355,179 (40,037) investment Total revenue from exchange 67,110,593 (1,960,538) 65,150,055 51,341,674 (13,808,381) transactions Revenue from non-exchange transactions Taxation revenue Property rates 42,153,854 - 42,153,854 39,077,967 (3,075,887) 63.6 Licences and Permits (Non- 26,870 - 26,870 20,741 (6,129) exchange) Interest earned - Property rates 2,837,156 (1,046,588) 1,790,568 1,052,080 (738,488) 63.7 Transfer revenue Government grants & subsidies 154,985,018 (52,320) 154,932,698 150,801,458 (4,131,240) 63.8 Fines, Penalties and Forfeits 3,328,227 4,000,000 7,328,227 2,068,590 (5,259,637) 63.9 Total revenue from non- 203,331,125 2,901,092 206,232,217 193,020,836 (13,211,381) exchange transactions Total revenue 270,441,718 940,554 271,382,272 244,362,510 (27,019,762) Expenditure Personnel (81,843,485) 1,380,000 (80,463,485) (78,739,172) 1,724,313 63.10 Remuneration of councillors (7,441,310) - (7,441,310) (7,182,198) 259,112 Depreciation and amortisation (26,366,444) (5,743,542) (32,109,986) (29,395,545) 2,714,441 Impairment loss/ Reversal of - - - (18,840,906) (18,840,906) 63.11 impairments Finance costs (2,829,771) (743,307) (3,573,078) (5,803,239) (2,230,161) 63.12 Lease rentals on operating lease - - - (1,010,405) (1,010,405) 63.13 Debt Impairment (13,453,842) (250,814) (13,704,656) (38,117,433) (24,412,777) 63.14 Bulk purchases (29,522,539) (1,981,870) (31,504,409) (31,012,342) 492,067 Contracted Services (40,771,405) 9,114,589 (31,656,816) (27,513,754) 4,143,062 63.15 Inventory consumed (8,081,554) 3,606,517 (4,475,037) - 4,475,037 Loss on disposal of assets - - - (1,792,647) (1,792,647) General Expenses (33,479,760) 2,929,607 (30,550,153) (28,773,322) 1,776,831 Total expenditure (243,790,110) 8,311,180 (235,478,930) (268,180,963) (32,702,033) Operating deficit 26,651,608 9,251,734 35,903,342 (23,818,453) (59,721,795) 9