Port St Johns Local Municipality Annual Financial Statements for the year ended 30 June 2020 Port St Johns Local Municipality Annual Financial Statements for the year ended 30 June 2020 General Information Legal form of entity Municipality Nature of business and principal activities The main business operation of the municipality is to engage in local governance activities, which includes planning and promotion of integrated development planning, land, economic and environmental development and supplying of the following services to the community: Rates, Refuse and Waste Management Services - The collection and disposal of refuse. Executive committee Mayor Cllr. N Mlombile-Cingo Speaker Cllr. A.A Gantsho Chief Whip Cllr. C.S Nduku/Mazuza Councillors Cllr. N.F Bokwe Cllr. Z.H Cube Cllr. M Dyosoba Cllr. K.M Fono Cllr. F Jama Cllr. N.C Fono Cllr. D.V Madini Cllr. F Mafaka Cllr. N.P Majali Cllr. K Majeke Cllr. Z Maqina Cllr. S.V Mavimbela Cllr. L Rolobile Cllr. Z Mhlabeni Cllr. N Mfiki Cllr. D.Z Mnceba Cllr. B Mjakuja Cllr. X Moni Cllr. Z Mtiki Cllr. N.B Mtuku Cllr. A Mzungule Cllr. L Ndamase Cllr. T.M Msongelwa Cllr. S.L Ntlatywa Cllr. T Ntsham Cllr. S.E Sicoto Cllr. N.P Soga Cllr. N Tani Cllr. N Tshitshiliza Cllr. G Tshotho Cllr. N Vava Cllr. M Veni Cllr. G.X Vimba Cllr. R.M Zweni Cllr. M Hobo 1 Port St Johns Local Municipality Annual Financial Statements for the year ended 30 June 2020 General Information Chief Financial Officer (CFO) Ms B.A Mbana (Appointed 1 March 2020) Acting Chief Financial Officer (ACFO) Ms N Hlangu (Appointed 10 August 2018 to 29 February 2020) Mr H.T Hlazo Registered office 257 Main street Port St Johns 5120 Business address 257 Main street Port St Johns 5120 Postal address P O Box 2 Port St Johns 5120 District Municipality OR Tambo District Municipality Bankers Standard Bank Auditors Auditor-General South Africa Municipal demarcation code EC154 Grading of Local Authority Grade 3 Capacity of local authority Low 2 Port St Johns 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 Accounting Officer's Report 5 - 6 Statement of Financial Position 7 Statement of Financial Performance 8 Statement of Changes in Net Assets 9 Cash Flow Statement 10 Statement of Comparison of Budget and Actual Amounts 11 - 13 Appropriation Statement 14 - 17 Accounting Policies 18 - 50 Notes to the Annual Financial Statements 51 - 114 GRAP Generally Recognised Accounting Practice CIGFARO Chartered Institute of Government Finance Audit and Risk Officers MFMA Municipal Finance Management Act MIG Municipal Infrastructure Grant (Previously CMIP) Cllr Councillor EPWP The Expanded Public Works Programme 3 Port St Johns 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 officeracknowledges that heis 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 annual financial statements set out on pages 6 to 104, 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: Mr H.T Hlazo Accounting Officer 4 Port St Johns Local Municipality 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 Port St Johns Local Municipality is a local government institution established in terms of the Municipal Systems Act 32 of 2000 and The Constitution of the Republic of South Africa. The main business operation of the municipality is to engage in local governance activities, which includes planning and promotion of integrated development planning, land, economic and environmental development and supplying of the following services to the community: Rates, refuse, general services and includes the rental of units owned by the municipality. The operating results and state of affairs of the municipality are fully set out in the attached annual financial statements and do not in our opinion require any further comment. 2. Going concern We draw attention to the fact that at 30 June 2020, the municipality had an accumulated surplus of R588 236 895 and that the municipality's total assets exceed its liabilities by R588 236 895. 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. Since March 2020 the consequences of the COVID-19 pandemic have materially and adversely affected the ability of the municipality to continue normal operations in delivering services to the community with all the efforts being directed towards the fight against the pandemic. The municipality has continued to operate with critical staff and implement the COVID 19 projects as well as perform the critical activities of council. However, most of the planned projects (mainly capital) for the fourth quarter have had to be deferred to the 2020/2021 financial year to give priority to the COVID 19 pandemic projects. The current national lock down restrictions which has been reduced to “Level 1” from midnight on 20th of September 2020 as announced by the President on the 16th of September 2020. Although there is still uncertainty as to when the restrictions will be fully lifted and other changes to restrictions, these uncertainties together with the plans explained above do not at this time cast significant doubt on the municipality's ability to continue as a going concern. The Municipality has also obtained an additional Equitable share grant amounting to R29 802 000 which necessitated the Special Adjustment Budget for the 2020/21 financial year to give relief of the uncollected revenue during the lockdown period. The adjustment budget was approved by Council on the 28th of September 2020. 3. Subsequent events Since 31 December 2019, the spread of COVID-19 has severely impacted many local economies around the globe. In many countries, businesses are being forced to cease or limit operations for long or indefinite periods of time. Measures taken to contain the spread of the virus, including travel bans, quarantines, social distancing, and closures of non-essential services have triggered significant disruptions to businesses worldwide, resulting in an economic slowdown. Global stock markets have also experienced great volatility and a significant weakening. Governments and central banks have responded with monetary and fiscal interventions to stabilise economic conditions. The municipality has continued to operate with critical staff and implement the COVID 19 projects as well as perform the critical activities of council during the hard lock down period from 26th of March 2020 to 30th of June 2020. However, most of the planned projects (mainly capital) for the fourth quarter have had to be deferred to the 2020/2021 financial year to give priority to the COVID 19 pandemic projects. The current national lock down restrictions which has been reduced to “Level 1” from midnight on 20th of September 2020 as announced by the President on the 16th of September 2020. There is still uncertainty as to when the restrictions will be fully lifted and other changes to restrictions. The municipality has determined that these events are non-adjusting subsequent events. Accordingly, the financial position and results of operations as of and for the year ended 30 June 2020 have not been adjusted to reflect their impact. The Municipality has also obtained an additional Equitable share grant amounting to R29 802 000 which necessitated the Special Adjustment Budget for the 2020/21 financial year to give relief of the uncollected revenue during the lockdown period. The adjustment budget was approved by Council on the 28th of September 2020. 5 Port St Johns Local Municipality Annual Financial Statements for the year ended 30 June 2020 Accounting Officer's Report 4. Accounting Officer The accounting officer of the municipality during the year and to the date of this report is as follows: Name Nationality Mr H.T Hlazo South African 5. Interest in controlled entities Name of controlled entity Country of incorporation Percentage Port St Johns Development Agency South African 100 6. Bankers The municipality banks with Standard Bank. 7. Auditors Auditor-General South Africa will continue in office for the next financial period. 6 Port St Johns Local Municipality Annual Financial Statements for the year ended 30 June 2020 Statement of Financial Position as at 30 June 2020 2020 2019 Restated* Notes R R Assets Current Assets Inventories 3 632 644 733 097 Receivables from exchange transactions 4 19 631 337 6 568 888 Receivables from non-exchange transactions 5&8 5 549 881 6 524 067 VAT receivable 6 7 577 946 20 191 220 Consumer debtors 7 1 041 967 1 089 339 Cash and cash equivalents 9 108 918 432 57 055 088 143 352 207 92 161 699 Non-Current Assets Investment property 10 11 461 003 11 461 003 Property, plant and equipment 11 511 200 790 491 082 194 522 661 793 502 543 197 Total Assets 666 014 000 594 704 896 Liabilities Current Liabilities Finance lease obligation 12 53 650 343 906 Payables from exchange transactions 13 41 476 150 29 578 682 Consumer deposits 14 61 000 61 000 Employee benefit obligation 16 1 057 000 403 759 Unspent conditional grants and receipts 15 18 753 306 1 951 670 61 401 106 32 339 017 Non-Current Liabilities Finance lease obligation 12 18 279 31 757 Operating lease liability 17 2 442 273 2 349 705 Employee benefit obligation 16 3 350 000 3 624 453 Provisions 18 10 565 447 12 091 384 16 375 999 18 097 299 Total Liabilities 77 777 105 50 436 316 Net Assets 588 236 895 544 268 580 Accumulated surplus 588 236 895 544 268 580 * See Note 52 7 Port St Johns Local Municipality Annual Financial Statements for the year ended 30 June 2020 Statement of Financial Performance 2020 2019 Restated* Notes R R Revenue Revenue from exchange transactions Service charges 19 956 782 861 208 Rental of facilities and equipment 20 9 844 12 635 Interest charged on overdue consumer accounts 4 233 799 3 654 008 Licences and permits 21 635 707 85 389 Other income 22 3 032 376 2 502 836 Investment revenue - investment 23 5 365 227 5 572 317 Actuarial gains 15 242 - Total revenue from exchange transactions 14 248 977 12 688 393 Revenue from non-exchange transactions Taxation revenue Property rates 24 9 792 798 9 092 763 Transfer revenue Government grants & subsidies 25 230 833 371 236 140 082 Donations received 26 5 710 844 - Fines, Penalties and Forfeits 27 253 300 198 000 Total revenue from non-exchange transactions 246 590 313 245 430 845 Total revenue 260 839 290 258 119 238 Expenditure Employee related costs 28 (76 070 698) (66 974 661) Remuneration of councillors 29 (13 596 950) (13 120 696) Depreciation and amortisation 30 (49 965 540) (45 950 000) Impairment loss 31 (42 612) - Finance costs 32 (1 332 327) (1 448 544) Lease rentals on operating lease (1 603 941) (2 273 814) Debt Impairment 33 (4 755 883) (4 433 846) Contracted services 34 (6 706 840) (5 015 575) Transfers and Subsidies 35 (8 724 134) (10 363 478) Loss on disposal of assets and liabilities (4 160 079) (258 478) Actuarial losses - (662 002) Inventories losses/write-downs (559 406) (1 042 305) General Expenses 36 (49 352 566) (51 034 875) Total expenditure (216 870 976) (202 578 274) Surplus for the year 43 968 314 55 540 964 * See Note 52 8 Port St Johns Local Municipality Annual Financial Statements for the year ended 30 June 2020 Statement of Changes in Net Assets Accumulated Total net surplus assets R R Opening balance as previously reported 446 242 191 446 242 191 Adjustments Prior year adjustments 42 485 425 42 485 425 Balance at 01 July 2018 as restated* 488 727 616 488 727 616 Changes in net assets Surplus for the year 55 540 964 55 540 964 Total changes 55 540 964 55 540 964 Restated* Balance at 01 July 2019 544 268 581 544 268 581 Changes in net assets Surplus for the year 43 968 314 43 968 314 Total changes 43 968 314 43 968 314 Balance at 30 June 2020 588 236 895 588 236 895 * See Note 52 9