Dr Pixley Ka Isaka Seme Local Municipality (Registration number MP304) Annual Financial Statements for the year ended 30 June 2020 Dr Pixley Ka Isaka Seme Local Municipality (Registration number MP304) Annual Financial Statements for the year ended 30 June 2020 General Information Legal form of entity Local Municipality Nature of business and principal activities The main business operations of the municipality is to engage in local governance activities, which includes planning and promotion of integrated development planning, land, economic and environmentaldevelopment and supplying services to the community. Executive Mayor PV Malatsi Speaker IL Mkhwanazi Chief Whip GO Ngwenya Mayoral committee: Corporate and Community Services TV Hlakutse Mayoral committee: Infrastructure and Planning Services LM Nkomo Councillors MA Dlangamandla OT Shabangu SN Nxumalo L De Jager BJ Mhlanga TP Dakile BG Mavuso V Vilakazi FE Mahlaba TE Manana BS Mavuso NLP Moloi GR Nkambule XI Simelane TA Mazibuko PJ Maseko Grading of local authority 3 Accounting Officer LB Tshabalala Chief Financial Officer (CFO) M Phetla - from 1 July 2019 - 2 June 2020 Business address Dr Nelson Mandela and Adelaide Tambo Street Volksrust 2470 Postal address Private bag X 9011 Volksrust 2470 Bankers First National Bank Auditors Auditor General of South Africa Registered Auditors Attorneys Coetzee, Spoelstra and Van Zyl Mjali and Zimema Attorneys TMN Kgomo and Associates Telephone and fax (017) 734 - 6100 (Telephone) 086 630 2209 (Fax) E mail [email protected] 1 Dr Pixley Ka Isaka Seme Local Municipality (Registration number MP304) 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 3 Accounting Officer's Report 4 - 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 - 11 Appropriation Statement 12 - 11 Accounting Policies 12 - 35 Notes to the Annual Financial Statements 36 - 76 COID Compensation for Occupational Injuries and Diseases CRR Capital Replacement Reserve DBSA Development Bank of South Africa GRAP Generally Recognised Accounting Practice HDF Housing Development Fund IAS International Accounting Standards IMFO Institute of Municipal Finance Officers IPSAS International Public Sector Accounting Standards ME's Municipal Entities MMC Member of the Mayoral Committee MFMA Municipal Finance Management Act MIG Municipal Infrastructure Grant (Previously CMIP) 2 Dr Pixley Ka Isaka Seme Local Municipality (Registration number MP304) 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 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 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 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. 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 auditorsare 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 4. The annual financial statements set out on page 4, which have been prepared on the going concern basis, were approved by the accounting officer on 31 October 2020 Accounting Officer LB Tshabalala 3 Dr Pixley Ka Isaka Seme Local Municipality (Registration number MP304) 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 engaged in providing municipal services and maintaining the best interests of the local community and operates principally in South Africa. 2. Going concern 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. 3. Subsequent events The accounting officeris not aware of any matter or circumstance arising since the end of the financial year. 4. Accounting policies The annual financial statements prepared in accordance with the South African Statements of Generally Accepted Accounting Practice (GAAP), including any interpretations of such Statements issued by the Accounting Practices Board, and in accordance with the prescribed Standards of Generally Recognised Accounting Practices (GRAP) issued by the Accounting Standards Board as the prescribed framework by National Treasury. 5. Accounting Officer The accounting officer of the municipality during the year and to the date of this report is as follows: Name Nationality LB Tshabalala South African 6. Corporate governance General The accounting officeris committed to business integrity, transparency and professionalism in all its activities. As part of this commitment, the accounting officer supports the highest standards of corporate governance and the ongoing development of best practice. The municipality confirms and acknowledges its responsibility to total compliance with the Code of Corporate Practices and Conduct ("the Code") laid out in the King Report on Corporate Governance for South Africa 2002. The accounting officer discuss the responsibilities of management in this respect, at Council meetings and monitor the municipality's compliance with the code on a three monthly basis. Audit and risk committee For the first 3 months of the current financial year the audit committee members were Mr I Mpatlanyane(Chairperson), Mr T Baloyi, Mr M Mahonga and Mr M Mathamaha. 7. Auditors Auditor General of South Africa will continue in office for the next financial period. 8. Non-compliance with applicable legislation We are not aware of any non-compliance with regulations and applicable legislations. The annual financial statements set out on page 4, which have been prepared on the going concern basis, were approved by the accounting officer on 30 October 2020 and were signed on its behalf by: 4 Dr Pixley Ka Isaka Seme Local Municipality (Registration number MP304) Annual Financial Statements for the year ended 30 June 2020 Accounting Officer's Report Accounting Officer LB Tshabalala 5 Dr Pixley Ka Isaka Seme Local Municipality (Registration number MP304) 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 9 1,649,410 1,795,130 Financial assets 7 606,672 747,861 Receivables from exchange transactions 10 1,554,434 1,554,434 Receivables from non-exchange transactions 11 370,376 302,983 Consumer debtors 12 115,113,152 77,056,209 Cash and cash equivalents 13 109,462,355 102,654,204 228,756,399 184,110,821 Non-Current Assets Investment property 3 105,361,173 106,733,899 Property, plant and equipment 4 693,705,365 661,751,921 Heritage assets 6 3,485,999 3,485,999 802,552,537 771,971,819 Total Assets 1,031,308,936 956,082,640 Liabilities Current Liabilities Finance lease obligation 14 80,092 126,680 Payables from exchange transactions 17 138,191,962 116,202,395 VAT payable 18 17,786,404 18,183,701 Consumer deposits 19 2,057,545 1,984,843 Employee benefit obligation 8 1,428,000 1,684,867 Unspent grants and receipts 15 4,613,004 6,359,911 Provisions 16 - 3,028,334 164,157,007 147,570,731 Non-Current Liabilities Finance lease obligation 14 - 80,092 Employee benefit obligation 8 25,423,000 26,393,243 Provisions 16 63,876,943 28,385,920 89,299,943 54,859,255 Total Liabilities 253,456,950 202,429,986 Net Assets 777,851,986 753,652,654 Accumulated surplus 777,851,986 753,652,654 * See Note 46 & 45 6 Dr Pixley Ka Isaka Seme Local Municipality (Registration number MP304) 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 Service charges 20 127,295,266 103,066,399 Rental from fixed assets 21 1,953,272 1,610,440 Agency fees 23 6,327,949 7,879,435 Operational revenue 25 269,359 364,091 Interest, Dividend and Rent on Land 26 67,104,023 54,853,745 Gain on disposal of assets 189,348 1,732,964 Actuarial gains 3,342,668 - Total revenue from exchange transactions 206,481,885 169,507,074 Revenue from non-exchange transactions Taxation revenue Property rates 27 55,965,309 37,931,238 Transfer revenue Government grants & subsidies 28 181,729,304 174,000,065 Levies - 127,286 Public contributions and donations 29 946,320 9,953,731 Fines, Penalties and Forfeits 22 458,607 517,018 Total revenue from non-exchange transactions 239,099,540 222,529,338 Total revenue 445,581,425 392,036,412 Expenditure Employee related costs 30 (89,265,102) (81,926,780) Remuneration of councillors 31 (8,892,008) (8,645,293) Inventory Consumed 32 (10,346,210) (1,371,134) Depreciation and amortisation 33 (43,263,199) (41,686,762) Finance costs 34 (5,542,745) (3,802,831) Lease rentals on operating lease 24 - (19,729) Debt Impairment 35 (106,644,902) (84,474,444) Bulk purchases 36 (85,570,840) (66,592,219) Contracted services 37 (24,743,674) (26,450,715) Actuarial losses - (1,232,848) Inventories losses/write-downs - (1,134,298) Operational costs 38 (47,110,583) (42,923,016) Total expenditure (421,379,263) (360,260,069) Surplus for the year 24,202,162 31,776,343 * See Note 46 & 45 7 Dr Pixley Ka Isaka Seme Local Municipality (Registration number MP304) 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 721,876,311 721,876,311 Changes in net assets Surplus for the year 31,776,343 31,776,343 Total changes 31,776,343 31,776,343 Opening balance as previously reported 751,119,142 751,119,142 Adjustments Prior year adjustments 2,530,682 2,530,682 Restated* Balance at 01 July 2019 as restated* 753,649,824 753,649,824 Changes in net assets Surplus for the year 24,202,162 24,202,162 Total changes 24,202,162 24,202,162 Balance at 30 June 2020 777,851,986 777,851,986 Note(s) * See Note 46 & 45 8