Port St Johns Local Municipality Consolidated Annual Financial Statements for the year ended 30 June 2019 Published 30 November 2019 Port St Johns Local Municipality Consolidated Annual Financial Statements for the year ended 30 June 2019 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. NM Cingo (appointed 14 February 2018) Speaker Cllr. B Nokhanda (From 14 February 2018 to 20 March 2019) Cllr. A.A Gantsho (appointed 20 March 2019) Chief Whip Cllr. C.S. Mazuza Councillors Cllr. N. F. Bokwe Cllr. Cube Z. H Cllr. Dyosoba M Cllr. Fono K. M Cllr. Jama F Cllr. Fono N. C Cllr. Hobo M Cllr. Madini D.V Cllr. Mafaka F Cllr. Majali N. P Cllr. Majeke K Cllr. Maqina Z Cllr. Mavimbela S. V Cllr. Rolobile L Cllr. Mhlabeni Z Cllr. Mfiki N Cllr. Mnceba D. Z Cllr. Mjakuja B Cllr. Moni X Cllr. Mtiki Z Cllr. Mtuku N.B Cllr. Mzungule A Cllr. Ndamase L Cllr. Msongelwa T. M Cllr. Ntlatywa S. L Cllr. Ntsham T Cllr. Sicoto S. E Cllr. Soga. N. P Cllr. Tani N Cllr. Tshitshiliza N Cllr. Tshotho G Cllr. Totwana Z Cllr. Vava N Cllr. Veni M Cllr. Vimba G. X Cllr. Zweni R. M 1 Port St Johns Local Municipality Consolidated Annual Financial Statements for the year ended 30 June 2019 General Information Chief Finance Officer (CFO) Mrs P Gwana (Appointed 1 July 2015 - 31 July 2018) Acting Chief Finance Officer (CFO) Ms N Hlangu (Appointed 10 August 2018) Accounting Officer Mr H T Hlazo (Appointed 20 August 2018) Mr B Mase (Appointed 14 February 2018 - 17 August 2018) 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 Published 30 November 2019 Municipal demarcation code EC154 Grading of Local Authority Grade 3 Capacity of local authority Low 2 Port St Johns Local Municipality Consolidated Annual Financial Statements for the year ended 30 June 2019 Index The reports and statements set out below comprise the consolidated annual financial statements presented to the provincial legislature: Page Accounting Officer's Responsibilities and Approval 4 Accounting Officer's Report 5 Statement of Financial Position 6 Statement of Financial Performance 7 Statement of Changes in Net Assets 8 Cash Flow Statement 9 Statement of Comparison of Budget and Actual Amounts 10 - 17 Appropriation Statement 18 - 23 Accounting Policies 24 - 58 Notes to the Consolidated Annual Financial Statements 59 - 123 GRAP Generally Recognised Accounting Practice CIGFARO Chartered Institute of Government Finance Audit and Risk Officers IPSAS International Public Sector Accounting Standards ME's Municipal Entities MEC Member of the Executive Council MFMA Municipal Finance Management Act No. 56 of 2003 MIG Municipal Infrastructure Grant (Previously CMIP) Cllr Councillor EPWP The Expanded Public Works Programme 3 Port St Johns Local Municipality Consolidated Annual Financial Statements for the year ended 30 June 2019 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 consolidated annual financial statements and related financial information included in this report. It is the responsibility of the accounting officer to ensure that the consolidated 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 consolidated annual financial statements and was given unrestricted access to all financial records and related data. The consolidated 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 consolidated 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 economic entity 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 economic entity and all employees are required to maintain the highest ethical standards in ensuring the economic entity’s business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the economic entity is on identifying, assessing, managing and monitoring all known forms of risk across the economic entity. While operating risk cannot be fully eliminated, the economic entity 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 consolidated 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 economic entity’s cash flow forecast for the year to 30 June 2020 and, in the light of this review and the current financial position, heis satisfied that the economic entity has or has access to adequate resources to continue in operational existence for the foreseeable future. The consolidated annual financial statements set out on page 5, which have been prepared on the going concern basis, were approved by the accounting officer on 30 November 2019 and were signed him: Mr H T Hlazo Accounting Officer 4 Port St Johns Local Municipality Consolidated Annual Financial Statements for the year ended 30 June 2019 Accounting Officer's Report The accounting officersubmitshis report for the year ended 30 June 2019. 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 consolidated 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 2019, the municipality had an accumulated surplus of 512 365 217 and that the municipality's total liabilities exceed its assets by 512 365 217. The consolidated 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. The ability of the municipality to continue as a going concern is dependent on a number of factors. The most significant of these is that the accounting officer continue to procure funding for the ongoing operations for the municipality. 3. Subsequent events The accounting officeris not aware of any matter or circumstance arising since the end of the financial year. 4. Accounting Officer The accounting officer of the municipality during the year and to the date of this report is as follows: Name Nationality Changes Mr H T Hlazo South African Appointed 20 August 2018 Mr B Mase South African Secondment withdrawn on 17 August 2018 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. 5 Port St Johns Local Municipality Consolidated Annual Financial Statements for the year ended 30 June 2019 Statement of Financial Position as at 30 June 2019 Economic entity Controlling entity 2019 2018 2019 2018 Restated* Restated* Notes Assets Current Assets Inventories 3 733 097 1 587 716 733 097 1 587 716 Receivables from exchange transactions 4 6 457 265 733 400 6 434 195 733 400 Receivables from non-exchange transactions 5&8 4 962 808 6 281 010 4 962 808 6 281 010 VAT receivable 6 16 497 672 4 264 590 16 497 672 4 264 590 Consumer debtors 7 1 274 183 819 721 1 274 183 819 721 Cash and cash equivalents 9 57 308 528 57 908 801 57 055 088 57 804 801 87 233 553 71 595 238 86 957 043 71 491 238 Non-Current Assets Investment property 10 11 461 003 11 461 003 11 461 003 11 461 003 Property, plant and equipment 11 464 846 419 411 573 361 464 402 328 411 101 889 476 307 422 423 034 364 475 863 331 422 562 892 Total Assets 563 540 975 494 629 602 562 820 374 494 054 130 Liabilities Current Liabilities Finance lease obligation 12 377 500 319 155 343 906 226 102 Payables from exchange transactions 13 31 390 447 21 862 724 29 597 523 20 036 983 VAT payable 14 4 510 006 4 673 978 - - Consumer deposits 15 61 000 61 000 61 000 61 000 Employee benefit obligation 16 403 759 244 793 403 759 244 793 Unspent conditional grants and receipts 17 4 203 304 11 272 001 1 951 670 9 020 367 Provisions 19 6 152 935 5 583 430 - - 47 098 951 44 017 081 32 357 858 29 589 245 Non-Current Liabilities Finance lease obligation 12 31 757 262 732 31 757 228 001 Operating lease liability 18 2 349 705 1 917 574 2 349 705 1 917 574 Employee benefit obligation 16 3 624 453 2 631 390 3 624 453 2 631 390 Provisions 19 12 091 384 11 644 361 12 091 384 11 644 361 18 097 299 16 456 057 18 097 299 16 421 326 Total Liabilities 65 196 250 60 473 138 50 455 157 46 010 571 Net Assets 498 344 725 434 156 464 512 365 217 448 043 559 Accumulated surplus 498 344 725 434 156 464 512 365 217 448 043 559 * See Note 52 6 Port St Johns Local Municipality Consolidated Annual Financial Statements for the year ended 30 June 2019 Statement of Financial Performance Economic entity Controlling entity 2019 2018 2019 2018 Restated* Restated* Notes Revenue Revenue from exchange transactions Service charges 20 1 021 941 862 744 1 021 941 862 744 Rental of facilities and equipment 21 12 635 20 821 12 635 20 821 Investment revenue (trading) 3 654 008 2 023 702 3 654 008 2 023 702 Licences and permits 22 30 966 46 537 30 966 46 537 Other income 23 2 623 942 733 973 2 502 836 733 973 Investment revenue - investment 24 5 619 535 3 691 816 5 619 535 3 691 816 Gain on disposal of assets and liabilities - 57 796 - 57 796 Fair value adjustments 101 486 105 886 - - Total revenue from exchange transactions 13 064 513 7 543 275 12 841 921 7 437 389 Revenue from non-exchange transactions Taxation revenue Property rates 25 9 092 763 8 754 396 9 092 763 8 754 396 Transfer revenue Government grants & subsidies 26 236 140 082 179 796 653 236 140 082 179 796 653 Fines, Penalties and Forfeits 27 252 423 355 650 252 423 355 650 Total revenue from non-exchange transactions 245 485 268 188 906 699 245 485 268 188 906 699 Total revenue 258 549 781 196 449 974 258 327 189 196 344 088 Expenditure Employee related costs 28 (71 155 764) (71 013 504) (65 887 364) (66 192 268) Remuneration of councillors 29 (13 436 340) (14 266 170) (13 120 696) (14 020 264) Depreciation and amortisation 30 (34 333 771) (31 301 661) (34 142 139) (31 116 335) Finance costs 31 (2 097 632) (1 688 690) (1 448 544) (1 157 789) Lease rentals on operating lease 32 (2 359 414) (1 125 929) (2 273 814) (1 049 821) Debt Impairment 33 (4 396 859) (7 205 329) (4 396 859) (7 205 329) Contracted services 34 (5 752 250) (5 548 483) (5 752 250) (5 548 483) Transfers and Subsidies 35 - - (10 363 478) (7 322 273) Loss on disposal of assets and liabilities (383 214) - (383 207) - Actuarial losses (662 002) (286 105) (662 002) (286 105) Inventories losses/write-downs (1 042 305) (24 796) (1 042 305) (24 796) General Expenses 36 (56 940 604) (44 756 571) (52 731 505) (42 813 542) Total expenditure (192 560 155) (177 217 238) (192 204 163) (176 737 005) Surplus for the year 65 989 626 19 232 736 66 123 026 19 607 083 * See Note 52 7 Port St Johns Local Municipality Consolidated Annual Financial Statements for the year ended 30 June 2019 Statement of Changes in Net Assets Accumulated Total net surplus assets Economic entity Opening balance as previously reported 420 894 152 420 894 152 Adjustments Prior year adjustments (5 970 424) (5 970 424) Balance at 01 July 2017 as restated* 414 923 728 414 923 728 Changes in net assets Surplus for the year 19 232 736 19 232 736 Total changes 19 232 736 19 232 736 Opening balance as previously reported 434 156 467 434 156 467 Adjustments Prior year adjustments (1 801 368) (1 801 368) Restated* Balance at 01 July 2018 as restated* 432 355 099 432 355 099 Changes in net assets Surplus for the year 65 989 626 65 989 626 Total changes 65 989 626 65 989 626 Balance at 30 June 2019 498 344 725 498 344 725 Controlling entity Opening balance as previously reported 434 295 774 434 295 774 Adjustments Prior year adjustments (5 859 298) (5 859 298) Balance at 01 July 2017 as restated* 428 436 476 428 436 476 Changes in net assets Surplus for the year 19 607 083 19 607 083 Total changes 19 607 083 19 607 083 Opening balance as previously reported 448 043 559 448 043 559 Adjustments Prior year adjustments (1 801 368) (1 801 368) Restated* Balance at 01 July 2018 as restated* 446 242 191 446 242 191 Changes in net assets Surplus for the year 66 123 026 66 123 026 Total changes 66 123 026 66 123 026 Balance at 30 June 2019 512 365 217 512 365 217 * See Note 52 8 Port St Johns Local Municipality Consolidated Annual Financial Statements for the year ended 30 June 2019 Cash Flow Statement Economic entity Controlling entity 2019 2018 2019 2018 Restated* Restated* Notes Cash flows from operating activities Receipts License and permits 30 966 46 537 30 966 46 537 Grants 229 071 385 188 699 895 229 071 385 188 699 895 Interest income 5 251 460 3 691 816 5 251 460 3 691 816 Trafic fines 37 900 77 200 37 900 77 200 VAT refunds 5 636 482 10 154 511 5 636 482 10 154 511 Receipts from consumers (rates and refuse) 4 602 701 3 267 356 4 602 701 3 267 356 Other receipts 2 170 950 944 452 2 049 844 944 452 246 801 844 206 881 767 246 680 738 206 881 767 Payments Employee costs (70 490 707) (69 947 331) (65 176 771) (65 136 609) Remuneration of councillors and directors (13 436 339) (14 266 169) (13 120 696) (14 020 264) Suppliers (74 840 417) (66 803 179) (70 383 741) (64 385 816) Finance costs (568 063) (428 090) (484 941) (240 722) Grants and subsides paid - - (10 363 478) (7 322 273) (159 335 526) (151 444 769) (159 529 627) (151 105 684) Net cash flows from operating activities 39 87 466 318 55 436 998 87 151 111 55 776 083 Cash flows from investing activities Purchase of property, plant and equipment 11 (87 633 028) (47 612 606) (87 570 256) (47 471 001) Proceeds from sale of property, plant and equipment 11 - 620 251 - 620 251 Net cash flows from investing activities (87 633 028) (46 992 355) (87 570 256) (46 850 750) Cash flows from financing activities Finance lease payments (433 563) (138 134) (330 568) (34 163) Net increase/(decrease) in cash and cash (600 273) 8 306 509 (749 713) 8 891 170 equivalents Cash and cash equivalents at the beginning of the year 57 908 801 49 602 292 57 804 801 48 913 631 Cash and cash equivalents at the end of the year 9 57 308 528 57 908 801 57 055 088 57 804 801 * See Note 52 9