Table Of ContentUmzumbe Local Municipality
Annual Financial Statements
for the year ended June 30, 2010
Auditor General
Issued August 31, 2010
Umzumbe Local Municipality
Annual Financial Statements for the year ended June 30, 2010
General Information
Legal form of entity Municipality
Mayoral committee
Executive Mayor Gumede S.T.
Councillors Dlamini N.Y.
Ngcobo S.R.
Msomi D.K.
Ngcobo M.R.
Mqadi M.R.
Nkomo. P.Z.
Mchunu G.M.
Peters T.L.
Ngcongo M.J.
Mkhize J.M.
Mntambo L.M.
Chiliza Z.T.
Mbhele K.B.M.
Luthuli M.Z.
Shozi D.Z.
Shozi Z.B.
Sithole S.C.
Shozi M.P.
Duma Y.L.
Zuma S.M.
Chiliza M.A.
Dlungwana M.A.
Shezi C.L.
Ngcobo J.P.
Chiliza S.D.
Doncabe K.S.
Khuzwayo T.M.
Luthuli B.B.
Shozi B.N.
Ngcobo N.I.
Ngcobo A.T.S.
Qumbisa E..
Mpisane C.N.
Dlamini K.O.
Shezi M.T.
Ngcobo L.M.R.
Accounting Officer Mbhele TB (Resigned 31 July 2010)
Chief Finance Officer (CFO) Audan K.
Ngesi MJ (DR) (Appointed 1
Accounting Officer August 2010)
Registered office P.O. Box 561
Hibberdeen
4220
Business address P.O. Box 561
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Umzumbe Local Municipality
Annual Financial Statements for the year ended June 30, 2010
General Information
Hibberdeen
4220
Bankers ABSA Bank Limited
Auditors Auditor General
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Umzumbe Local Municipality
Annual Financial Statements for the year ended June 30, 2010
Index
The reports and statements set out below comprise the annual financial statements presented to the provincial legislature:
Index 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
Accounting Policies 9 - 15
Notes to the Annual Financial Statements 16 - 24
Abbreviations
CRR Capital Replacement Reserve
DBSA Development Bank of South Africa
GRAP Generally Recognised Accounting Practice
GAMAP Generally Accepted Municipal Accounting Practice
HDF Housing Development Fund
IMFO Institute of Municipal Finance Officers
ME's Municipal Entities
MEC Member of the Executive Council
MFMA Municipal Finance Management Act
MIG Municipal Infrastructure Grant (Previously CMIP)
A report of the accounting officer has not been prepared as the municipality is a wholly owned controlled entity of which is
incorporated in South Africa.
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Umzumbe Local Municipality
Annual Financial Statements for the year ended June 30, 2010
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).
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 June 30, 2011 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 municipality is wholly dependent on the grant allocations through the Division of revenue act (Dora) for continued funding
of operations. The annual financial statements are prepared on the basis that the municipality is a going concern and that the
Umzumbe Municipality has neither the intention nor the need to liquidate or curtail materially the scale of the municipality.
Although the Accounting Officer are primarily responsible for the financial affairs of the municipality, they are supported by the
municipality's Chief Finance Officer.
The external auditors are 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 5.
The annual financial statements set out on pages 5 to 24, which have been prepared on the going concern basis, were
approved by the accounting officer on August 31, 2010 and were signed on its behalf by:
Ngesi MJ (DR) (Appointed 1 August 2010)
Municipal Manager
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Umzumbe Local Municipality
Annual Financial Statements for the year ended June 30, 2010
Statement of Financial Position
Figures in Rand Note(s) 2010 2009
Assets
Current Assets
Operating lease asset 3 47,112 -
Other receivables 4 102,218 129,270
VAT receivable 5 5,974,403 3,051,044
Consumer debtors 6 595,478 -
Cash and cash equivalents 7 19,786,493 9,683,713
26,505,704 12,864,027
Non-Current Assets
Property, plant and equipment 2 84,446,665 58,441,227
Total Assets 110,952,369 71,305,254
Liabilities
Current Liabilities
Trade and other payables 11 6,718,798 3,877,671
Unspent conditional grants and receipts 9 15,796,416 8,886,763
Provisions 10 979,985 806,672
Bank overdraft 7 - 441,670
23,495,199 14,012,776
Total Liabilities 23,495,199 14,012,776
Net Assets 87,457,170 57,292,478
Net Assets
Accumulated surplus 87,457,170 57,292,478
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Umzumbe Local Municipality
Annual Financial Statements for the year ended June 30, 2010
Statement of Financial Performance
Figures in Rand Note(s) 2010 2009
Revenue
Property rates 12 771,400 -
Interest received 1,558,947 963,629
Government grants & subsidies 13 79,405,298 62,384,114
Other income 652,099 653,835
Total Revenue 82,387,744 64,001,578
Expenditure
Employee related costs 15 (17,473,911) (11,670,574)
Remuneration of councillors 16 (4,369,738) (7,726,854)
Depreciation and amortisation (6,646,344) (3,254,307)
Finance costs - (8,579)
Debt impairment (94,139) -
Repairs and maintenance (459,048) (114,874)
Community participation (1,128,184) (4,404,985)
General Expenses 14 (23,830,887) (27,492,270)
Total Expenditure (54,002,251) (54,672,443)
Surplus for the year 28,385,493 9,329,135
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Umzumbe Local Municipality
Annual Financial Statements for the year ended June 30, 2010
Statement of Changes in Net Assets
Accumulated Total net
Figures in Rand surplus assets
Opening balance as previously reported 51,039,672 51,039,672
Adjustments
Prior year adjustments (Note 28) (3,076,329) (3,076,329)
Balance at July 01, 2008 as restated 47,963,343 47,963,343
Changes in net assets
Surplus for the year 9,329,135 9,329,135
Total changes 9,329,135 9,329,135
Opening balance as previously reported 58,030,610 58,030,610
Adjustments
Prior adjustment on Accumulated depreciation 1,541,548 1,541,548
Prior year error (732,766) (732,766)
Prior year adjustments 232,285 232,285
Balance at July 01, 2009 as restated 59,071,677 59,071,677
Changes in net assets
Surplus for the year 28,385,493 28,385,493
Total changes 28,385,493 28,385,493
Balance at June 30, 2010 87,457,170 87,457,170
Note(s)
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Umzumbe Local Municipality
Annual Financial Statements for the year ended June 30, 2010
Cash flow statement
Figures in Rand Note(s) 2010 2009
Cash flows from operating activities
Receipts
Cash receipts for equittable share, conditional grants and from debtors 86,647,082 66,543,232
Other cash item 652,099 963,633
87,299,181 67,506,865
Payments
Finance costs - (8,579)
Cash paid to suppliers and employees (45,882,149) (44,524,051)
(45,882,149) (44,532,630)
Net cash flows from operating activities 41,417,032 22,974,235
Cash flows from investing activities
Purchase of property, plant and equipment 2 (31,120,727) (21,550,413)
Proceeds from sale of property, plant and equipment 2 248,145 -
Net cash flows from investing activities (30,872,582) (21,550,413)
Net increase/(decrease) in cash and cash equivalents 10,544,450 1,423,822
Cash and cash equivalents at the beginning of the year 9,242,043 7,818,221
Cash and cash equivalents at the end of the year 7 19,786,493 9,242,043
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Umzumbe Local Municipality
Annual Financial Statements for the year ended June 30, 2010
Accounting Policies
1. Presentation of Annual Financial Statements
The annual financial statements have been prepared in accordance with the effective Standards of Generally Recognised
Accounting Practice (GRAP) including any interpretations, guidelines and directives issued by the Accounting Standards
Board.
These annual financial statements have been prepared on an accrual basis of accounting and are in accordance with
historical cost convention unless specified otherwise. They are presented in South African Rand.
A summary of the significant accounting policies, which have been consistently applied, are disclosed below.
1.1 Property, plant and equipment
Property, plant and equipment are tangible non-current assets (including infrastructure assets) that are held for use in the
production or supply of goods or services, rental to others, or for administrative purposes, and are expected to be used during
more than one period.
The cost of an item of property, plant and equipment is recognised as an asset when:
it is probable that future economic benefits or service potential associated with the item will flow to the
municipality; and
the cost of the item can be measured reliably.
Property, plant and equipment is initially measured at cost.
The cost of an item of property, plant and equipment is the purchase price and other costs attributable to bring the asset to the
location and condition necessary for it to be capable of operating in the manner intended by management. Trade discounts and
rebates are deducted in arriving at the cost.
Where an asset is acquired at no cost, or for a nominal cost, its cost is its fair value as at date of acquisition.
Where an item of property, plant and equipment is acquired in exchange for a non-monetary asset or monetary assets, or a
combination of monetary and non-monetary assets, the asset acquired is initially measured at fair value (the cost). If the
acquired item's fair value was not determinable, it's deemed cost is the carrying amount of the asset(s) given up.
When significant components of an item of property, plant and equipment have different useful lives, they are accounted for as
separate items (major components) of property, plant and equipment.
Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred
subsequently to add to, replace part of, or service it. If a replacement cost is recognised in the carrying amount of an item of
property, plant and equipment, the carrying amount of the replaced part is derecognised.
The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located is also
included in the cost of property, plant and equipment, where the entity is obligated to incur such expenditure, and where the
obligation arises as a result of acquiring the asset or using it for purposes other than the production of inventories.
Major spare parts and stand by equipment which are expected to be used for more than one period are included in property,
plant and equipment. In addition, spare parts and stand by equipment which can only be used in connection with an item of
property, plant and equipment are accounted for as property, plant and equipment.
Major inspection costs which are a condition of continuing use of an item of property, plant and equipment and which meet the
recognition criteria above are included as a replacement in the cost of the item of property, plant and equipment. Any remaining
inspection costs from the previous inspection are derecognised.
Property, plant and equipment are depreciated on the straight line basis over their expected useful lives to their estimated
residual value.
The useful lives of items of property, plant and equipment have been assessed as follows:
Infrastructure
Leveling Drains on roads 20
Roads construction 10
Road gravelling 10
Borehole pump 15
Other
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