King Sabata Dalindyebo Municipality Annual Financial Statements for the year ended June 30, 2019 King Sabata Dalindyebo Municipality Annual Financial Statements for the year ended June 30, 2019 General Information Nature of business and principal activities King Sabata Dalindyebo Municipality is a South African Category B Municipality (Local Municipality) as defined by the Municipal Structures Act (Act no. 117 of 1998). Mayoral committee Executive Mayor Cllr G N Nelani Speaker Cllr T G Maqoko Chief Whip Cllr M Nyoka Members of the Mayoral Committee Cllr D M Zozo Cllr N R Gcingca Cllr S Nyengane Cllr N Sibeko Cllr Z Madyibi Cllr L N Ntlonze Cllr M T Mtirara Cllr T Machaea Cllr T E Mapekula Councillors Cllr J Voko Cllr Z D Kutu Cllr M Mabaso Cllr S Jadiso Cllr V N S Roji Cllr M Menzelwa Cllr M Qotyana Cllr Z Luvantyu Cllr N Mkontwana Cllr Z M Gusana Cllr T Mcimbi Cllr C S Tokwana Cllr U Daniso Cllr N Diblokwe Cllr O Khotso Cllr M Mrwebi Cllr M J Msakeni Cllr E M Fileyo Cllr Z Ntliziyombi Cllr S Mhlaba Cllr A Ndzendze Cllr S Mlotywa Cllr B Bikani Cllr X M Mbongwana Cllr M Mkhotheli Cllr L Mkonto Cllr S Sikrenya Cllr M D Teti Cllr L D Liwani Cllr B D Bara Cllr N Gcinindawo Cllr B Ndlobongela Cllr B Babile Cllr T Mngoma 1 King Sabata Dalindyebo Municipality Annual Financial Statements for the year ended June 30, 2019 General Information Cllr T Bhova Cllr M Bunzana Cllr G N Lusu Cllr N F Mzimane Cllr M W Malotana Cllr B B Gqwetha Cllr M Gogo Cllr N Ngqongwa Cllr N Pali Cllr N Nyangani Cllr M Mpangele Cllr W V Sanda Cllr R Knock Cllr A Mgquba Cllr L M Luwaca Cllr U N V Malghas Cllr N M Nqwazi Cllr M Sitshwala Cllr N Mtwa Cllr N A Sobahle Cllr L P Zuma Cllr M A Manzolwandle Cllr B Malghas Cllr L A Tshiseka Cllr N P Ngalo Grading of local authority Grade 4 Chief Finance Officer Mr E Jiholo Accounting Officer Mr N Pakade Registered office Munitata Building Sutherland Street Mthatha Postal address Private Bag X5083 Mthatha 5099 Bankers ABSA FNB Auditors Auditor General of South Africa Chairperson of the Audit Committee Adv PV Msiwa Members of the Audit Committee Mr M N De Beer Ms T Njozela Dr E P Vermaak 2 King Sabata Dalindyebo Municipality Annual Financial Statements for the year ended June 30, 2019 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 - 10 Appropriation Statement 11 - 12 Accounting Policies 13 - 41 Notes to the Annual Financial Statements 42 - 88 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 IPSAS International Public Sector Accounting Standards ME's Municipal Entities MEC Member of the Executive Council MFMA Municipal Finance Management Act MIG Municipal Infrastructure Grant (Previously CMIP) UIF Unemployment Insurance Fund WCA Workmen's Compensation Act 3 King Sabata Dalindyebo Municipality Annual Financial Statements for the year ended June 30, 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 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 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 and place considerable importance on maintaining a strong control environment. To enable the accounting officer to meet these responsibilities, the municipality sets standards for internal control aimed at reducing the risk of error or loss 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 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 loss. The accounting officer has reviewed the municipality’s cash flow forecast for the year to June 30, 2020 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 auditor general is responsible for independently reviewing and reporting on the municipality's annual financial statements. The annual financial statements set out on pages 5 to 88, which have been prepared on the going concern basis, were approved on 31 August 2019 by the accounting officer. Accounting Officer Mr N Pakade 4 King Sabata Dalindyebo Municipality Annual Financial Statements for the year ended June 30, 2019 Statement of Financial Position as at June 30, 2019 Figures in Rand Note(s) 2019 2018 Restated* Assets Current Assets Inventories 3 7,324,102 3,241,212 Receivables from exchange transactions 4 43,359,779 34,890,659 Receivables from non-exchange transactions 5 47,091,773 39,008,724 VAT receivable 6 1,973,003 15,392,356 Cash and cash equivalents 7 22,263,053 27,366,032 122,011,710 119,898,983 Non-Current Assets Investment property 8 318,382,747 309,116,446 Property, plant and equipment 9 2,562,422,081 2,561,170,287 Intangible assets 10 533,429 666,436 Heritage assets 11 3,201,000 3,201,000 2,884,539,257 2,874,154,169 Total Assets 3,006,550,967 2,994,053,152 Liabilities Current Liabilities Other financial liabilities 12 12,897,505 10,312,675 Finance lease obligation 13 17,895,063 13,933,850 Payables from exchange transactions 14 386,940,763 391,903,240 Consumer deposits 15 18,180,959 17,419,966 Unspent conditional grants and receipts 16 14,412,365 23,794,033 450,326,655 457,363,764 Non-Current Liabilities Other financial liabilities 12 14,627,799 17,159,819 Finance lease obligation 13 73,791,580 43,424,161 Provisions 17 48,480,121 45,499,381 136,899,500 106,083,361 Total Liabilities 587,226,155 563,447,125 2,419,324,812 2,430,606,027 Reserves Revaluation reserve 18 383,988,031 383,988,031 Self insurance reserve 3,681,232 3,566,825 2,031,655,549 2,043,051,171 Total Net Assets 2,419,324,812 2,430,606,027 * See Note 53 5 King Sabata Dalindyebo Municipality Annual Financial Statements for the year ended June 30, 2019 Statement of Financial Performance Figures in Rand Note(s) 2019 2018 Restated* Revenue Revenue from exchange transactions Service charges 19 428,198,502 399,066,611 Rental of facilities and equipment 20 17,163,520 16,966,730 Licences and permits 21 12,472,546 14,558,291 Other income 22 15,028,513 12,804,174 Investment revenue 23 48,716,810 39,431,480 Fair value adjustments 37 9,910,301 40,197,446 Total revenue from exchange transactions 531,490,192 523,024,732 Revenue from non-exchange transactions Taxation revenue Property rates 24 216,698,664 216,426,743 Transfer revenue Government grants and subsidies 25 423,722,101 488,945,310 Public contributions and donations 26 16,716,500 30,781,013 Fines, penalties and forfeits 2,726,802 1,954,400 Total revenue from non-exchange transactions 659,864,067 738,107,466 Total revenue 1,191,354,259 1,261,132,198 Expenditure Employee related costs 27 (429,922,269) (402,364,123) Remuneration of councillors 28 (27,574,446) (26,476,647) Depreciation and amortisation 29 (160,450,510) (139,028,467) Impairment loss 9 (432,521) - Finance costs 30 (25,520,558) (22,421,865) Lease rentals on operating lease 31 (7,675,990) (15,446,629) Debt Impairment 32 (84,339,706) (98,812,462) Bulk purchases 33 (268,269,413) (256,242,917) Contracted services 34 (7,550,879) (8,991,500) Grants and Subsidies paid 35 (59,646,881) (34,907,977) Loss on disposal of assets (3,522,904) (62,099,073) General Expenses 36 (132,479,147) (144,093,125) Total expenditure (1,207,385,224)(1,210,884,785) (Loss) profit for the year (16,030,965) 50,247,413 * See Note 53 6 King Sabata Dalindyebo Municipality Annual Financial Statements for the year ended June 30, 2019 Statement of Changes in Net Assets Revaluation Insurance Total reserves Accumulated Total net Figures in Rand reserve reserve Surplus assets Opening balance as previously reported 383,988,031 3,425,513 387,413,544 2,021,138,182 2,408,551,726 Adjustments Correction of errors - - - (28,334,424) (28,334,424) Balance at July 1, 2017 as restated* 383,988,031 3,425,513 387,413,544 1,992,803,758 2,380,217,302 Changes in net assets Movement in self insurance reserve - 141,312 141,312 - 141,312 Net income (losses) recognised directly in net - 141,312 141,312 - 141,312 assets Surplus for the year - - - 50,247,413 50,247,413 Total recognised income and expenses for - 141,312 141,312 50,247,413 50,388,725 the year Total changes - 141,312 141,312 50,247,413 50,388,725 Restated* Balance at July 1, 2018 383,988,031 3,566,825 387,554,856 2,043,051,172 2,430,606,028 Changes in net assets Movement in self insurance reserve - 114,407 114,407 - 114,407 Transactions posted directly to accumulated - - - 4,635,342 4,635,342 surplus Net income (losses) recognised directly in net - 114,407 114,407 4,635,342 4,749,749 assets Surplus for the year - - - (16,030,965) (16,030,965) Total recognised income and expenses for - 114,407 114,407 (11,395,623) (11,281,216) the year Total changes - 114,407 114,407 (11,395,623) (11,281,216) Balance at June 30, 2019 383,988,031 3,681,232 387,669,263 2,031,655,549 2,419,324,812 Note(s) 18 * See Note 53 7 King Sabata Dalindyebo Municipality Annual Financial Statements for the year ended June 30, 2019 Cash Flow Statement Figures in Rand Note(s) 2019 2018 Restated* Cash flows from operating activities Receipts Taxation 168,924,643 167,283,590 Receipts from Customers 421,716,406 405,936,176 Grants 414,340,433 489,256,802 Interest income 48,716,836 39,431,480 1,053,698,318 1,101,908,048 Payments Employee costs (454,515,975) (423,870,189) Suppliers (465,102,007) (458,232,239) Finance costs (25,520,558) (22,421,865) (945,138,540) (904,524,293) Net cash flows from operating activities 39 108,559,778 197,383,755 Cash flows from investing activities Purchase of property, plant and equipment 9 (148,044,225) (178,314,665) Acquisition of Self Insurance - 141,312 Net cash flows from investing activities (148,044,225) (178,173,353) Cash flows from financing activities Repayment of other financial liabilities 52,810 (10,385,319) Movement in finance lease 34,328,632 - Net cash flows from financing activities 34,381,442 (10,385,319) Net decrease in cash and cash equivalents (5,103,005) 8,825,083 Cash and cash equivalents at the beginning of the year 27,366,032 18,540,950 Cash and cash equivalents at the end of the year 7 22,263,027 27,366,033 * See Note 53 8 King Sabata Dalindyebo Municipality Annual Financial Statements for the year ended June 30, 2019 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 Service charges 465,696,307 347,681 466,043,988 428,198,502 (37,845,486)Ref to note 40 Rental of facilities and 18,592,986 9,434,007 28,026,993 17,163,520 (10,863,473)Ref to note 40 equipment Licences and permits 17,245,404 - 17,245,404 12,472,546 (4,772,858)Ref to note 40 Other income 16,625,262 2,732,467 19,357,729 15,028,513 (4,329,216)Ref to note 40 Interest received 40,075,756 6,057,947 46,133,703 48,716,810 2,583,107 Ref to note 40 Total revenue from exchange 558,235,715 18,572,102 576,807,817 521,579,891 (55,227,926) transactions Revenue from non-exchange transactions Taxation revenue Property rates 246,182,733 - 246,182,733 216,698,664 (29,484,069)Ref to note 40 Transfer revenue Government grants & subsidies 321,330,607 (1,917,956) 319,412,651 423,722,101 104,309,450 Ref to note 40 Public contributions and - 103,000 103,000 16,716,500 16,613,500 Ref to note 40 donations Fines, Penalties and Forfeits 2,146,744 - 2,146,744 2,726,802 580,058 Ref to note 40 Total revenue from non- 569,660,084 (1,814,956) 567,845,128 659,864,067 92,018,939 exchange transactions Total revenue 1,127,895,799 16,757,146 1,144,652,945 1,181,443,958 36,791,013 Expenditure Personnel (443,146,638) 13,096 (443,133,542) (429,922,269) 13,211,273 Remuneration of councillors (26,721,205) (674,069) (27,395,274) (27,574,446) (179,172) Depreciation and amortisation (78,818,990) (84,966,733) (163,785,723) (160,450,510) 3,335,213 Impairment loss/ Reversal of - - - (432,521) (432,521) impairments Finance costs (29,969,854) - (29,969,854) (25,520,558) 4,449,296 Lease rentals on operating lease (22,222,101) 4,728,965 (17,493,136) (7,675,990) 9,817,146 Debt Impairment (29,539,809) - (29,539,809) (84,339,706) (54,799,897) Bulk purchases (306,543,054) - (306,543,054) (268,269,413) 38,273,641 Contracted Services (12,972,124) 324,265 (12,647,859) (7,550,879) 5,096,980 Grants and Subsidies Paid (60,411,730) 1,796,759 (58,614,971) (59,646,881) (1,031,910) General Expenses (119,057,645) (25,477,778) (144,535,423) (132,479,147) 12,056,276 Total expenditure (1,129,403,150) (104,255,495)(1,233,658,645)(1,203,862,320) 29,796,325 Operating loss (1,507,351) (87,498,349) (89,005,700) (22,418,362) 66,587,338 Fair value adjustments - - - 9,910,301 9,910,301 Ref to note 40 Gains on disposal of non-current 1,507,351 - 1,507,351 (3,522,904) (5,030,255)Ref to note 40 assets 1,507,351 - 1,507,351 6,387,397 4,880,046 Loss before taxation - (87,498,349) (87,498,349) (16,030,965) 71,467,384 9