Council meeting: 2015-02-25
MATTERS NOT DELEGATED TO THE EXECUTIVE MAYOR OR MAYORAL COMMITTEE CONTAINS
RECOMMENDATIONS WHICH MAY BE ADOPTED BY COUNCIL
Report of the Executive Mayor
A-136 REPORT ON THE ADJUSTMENT BUDGET IN TERMS OF SECTION 28 OF THE MFMA:
2014/2015 FINANCIAL YEAR
1.
Purpose
1.1
2.
Background
2.1
3.
To table the Municipal Adjustment budget in terms of Section 28 of the Municipal
Finance Management (MFMA) Act no 56 of 2003. Accordingly the Mayor may
table an adjustment budget in the Municipal Council and Municipal tax and tariffs
may not be increased during a financial year except when required in terms of a
financial recovery plan.
Council at its sitting dated 22 January 2015 under item A-130 Report on Mid-Year
Performance Assessment for 2014/2015 Financial Year resolved as follow:
1.
That Council CONSIDERED the report and deal with it in terms of Section
54 of the Municipal Finance Management Act (MFMA).
2.
That as a result of the 6 (six) months performance review an
Adjustment Budget SHOULD BE PREPARED and tabled before Council,
3.
That the SDBIP BE REVISED as part of budget adjustment review in
order to be realistic with the Council objectives,
4.
That Council APPROVED the recommendations of the Executive Mayor.
Discussion
3.1
Section 28 of the Municipal Finance Management (MFMA) Act 56 of 2003 –
Municipal Adjustment Budget:
(i)
(ii)
(iii)
must adjust the revenue and expenditure estimates decrease if there is
material under collection of revenue during the current year;
may appropriate additional revenues that have become available over and
above those anticipated in the annual budget, but only to revise or
accelerate spending programmes already budgeted for;
may within a prescribed framework, authorize unforeseeable and
unavoidable expenditure recommended by the Mayor of the Municipality;
(iv)
(v)
(vi)
(vii)
b)
may authorize the utilization of projected savings in one vote towards
spending under another vote;
may authorize the spending of funds that were unspent at the end of the
past financial year where the under-spending could not be reasonably
have been foreseen at the time to include projects roll-overs when the
annual budget for the current year was approved by the Council;
may correct any errors in the annual budget; and
may provide for any other expenditure within a prescribed framework.
Section 18 of the Municipal Finance Management Act (MFMA) the funding
of expenditure, a budget may only be funded from:
(i)
(ii)
(iii)
(iv)
3.2
In terms of Section 18 of the Municipal Finance Management Act (MFMA) the
funding of expenditure, a budget may only be funded from:
a)
b)
c)
d)
4.
Realistically anticipated revenues to be collected,
Cash-backed accumulated funds from previous years surpluses
not committed for other purposes
Borrowed funds, but only for capital budgets.
Revenue projections in the budget must be realistic
Realistically anticipated revenues to be collected
Cash-backed accumulated funds from previous year’s surpluses not
committed for other purposes
Borrowed funds, but only for capital budgets
Revenue projections in the budget must be realistic
The adjustment budget outcome for 2014/2015 is as follows:
Description
Original Budget
Adjusted Budget
Variance
%
Revenue
470 547 997
480 270 874
9 722 877
2.07%
Expenditure
509 848 910
610 148 692
100 299 782
19.67%
Surplus /(deficit)
-39 300 913
-129 877 818
90 576 905
230.47%
4.1
Revenue has INCREASED by 2.07% due to:
a)
b)
c)
d)
4.2
Service charges billed
Rental of facilities and equipment
Interest earned on outstanding debtors
Fines
Expenditure has INCREASED by -19.67% due to the increase in
a)
b)
Employee related costs
Debt impairment and provisions
c)
d)
e)
Depreciation and asset impairment
Bulk purchases
Contracted services
NB: Below is a summarized version used for analysis of the attached B-Schedule as per
Annexure A.
5.
Analysis of Revenue by Source
5.1
Revenue: Operating Budget
Description
Original Budget
Adjusted Budget
Variance
%
Property rates
66 131 310
66 099 528
-31 782
-.05
Service charges - electricity
170 479 891
171 265 001
785 110
.46
Service charges – water revenue
25 208 589
36 105 203
10 896 614
43.23
Service charges - sanitation
18 179 879
20 234 039
2 054 160
11.30
Service charges – refuse revenue
15 140 867
17 349 698
2 208 831
14.59
Service charges - other
8 387 907
14 233 496
5 845 589
69.69
Rental of facilities and equipment
1 962 158
2 178 460
216 302
11.02
Interest earned
330 000
200 000
-130 000
-39.39
Interest earned outstanding debtors
10 000 000
20 000 000
10 000 000
100
Fines
315 609
484 582
168 973
53.54
Licences and permits
3 717 000
3 717 000
0
0
Agency services
5 097 600
5 097 600
0
0
Transfers recognised - operational
121 155 800
103 368 120
-17 787
680
-14.48
Other revenue
20 430 767
17 627 976
-2 802 791
-13.72
Gains on disposal of PPE
4 010 620
2 310 171
-1 700 449
-42.40
TOTAL REVENUE
470 547 997
480 270 874
9 722 877
2.07
5.2
6.
Total operating revenue has INCREASED by 2.01%.
Service charges
Description
Original Budget
Adjusted Budget Variance
%
Property rates
66 131 310
66 099 528
-31 782
-.05
Service charges - electricity
170 479 891
171 265 001
785 110
.46
Service charges – water revenue
25 208 589
36 105 203
10 896 614
43.23
Service charges - sanitation
18 179 879
20 234 039
2 054 160
11.30
Service charges – refuse revenue
15 140 867
17 349 698
2 208 831
14.59
Service charges - other
8 387 907
14 233 496
5 845 589
69.69
6.1
7.
Service charges increased average with 19.89% as compared to original budget
due to the improvement of billing after the successful installation of meters in
areas which was not metered. There was also an increase in the revenue of reconnection fees.
Rental of facilities and equipment
Description
Original budget
Adjusted budget Variance
%
Rental of facilities and equipment
1 962 158
2 178 460
11.02
7.1
8.
The revenue of rental of facilities and equipment increased with 11.02% as
compared to original budget due to rental revenue from the hostel and land and
buildings
Interest earned on outstanding debtors
Description
Original Budget
Interest earned on outstanding 10 000 000
debtors
8.1
9.
216 302
Adjusted Budget
Variance
%
20 000 000
10 000 000
100
The interest earned on outstanding debtors increased with 100% as compared to
original budget due to the trend of interest charged on outstanding debtors with
the growing debt book, the possibility that this revenue will have an effect on the
cash flow will not materialized
Fines
Description
Original Budget
Adjusted Budget
Variance
%
Fines
315 609
484 582
168 973
53.54
9.1
10.
The revenue budget on fines increased with 53.54% as compared to original
budget due to increase of fines
Transfers recognised – operational
Description
Original Budget
Adjusted Budget
Variance
%
Transfers recognised operational
121 155 800
103 368 120
-17 787
-14.48
680
10.1
11.
The revenue budget on transfers recognised operational decreased with 14.48%
as compared to original budget due to the R17 800 000 which was reduced with
the allocation of the equitable share. This was due to the unspent MIG and INEP
grants of 2013/2014 which were not cashed back and used for operational
expenses.
Other revenue
Description
Original Budget
Adjusted Budget
Variance
%
Other revenue
20 430 767
17 627 976
-2 802 791
-13.72
11.1
12.
The revenue budget on other revenue decreased with 13.72% as compared to
original budget due to unrealistic anticipated revenue
Gains on the disposal of PPE
Description
Original Budget
Adjusted Budget
Variance
%
Gains on the disposal of PPE
4 010 620
2 310 171
-1 700 449
-42.40
12.1
13.
The revenue budget on gains of disposal of PPE decreased with 42.40% as
compared to original budget due to the sale of erven which have not been realised
during the first half of the financial year
Analysis of Expenditure by Type
13.1
Expenditure: Operating Budget
Description
Original Budget
Adjusted Budget
Variance
%
Employee related cost
141 251 078
142 419 889
1 168 811
.83
Remuneration of councillors
11 645 061
11 654 623
9 562
.08
Debt impairment and provisions
26 509 708
77 424 068
50 914 360
192.0
6
Depreciation and asset impairment 49 575 028
59 962 615
10 387 587
20.95
Finance charges
10 507 274
10 303 605
-203 669
-1.94
Bulk purchases
165 390 000
188 265 560
22 875 560
13.83
19 218 747
-1 521 387
-7.34
Other
material/Repairs
Maintenance
& 20 740 134
Contract services
37 081 803
53 504 098
16 422 295
44.29
Other expenditure
47 148 824
47 395 487
246 663
.52
Total expenditure budget
509 848 910
610 148 692
100 299 782
19.67
13.2
14.
Total operating expenditure has increased by -19.67%
Employee Related Cost
Description
Original Budget
Adjusted Budget
Variance
%
Employee related costs
141 251 078
142 419 889
1 168 811
.83
14.1 Employee related costs have increased by -0.83% as compared to original
budget. The revised budget didn’t make provision for new post. The increase
is due to the high vacancy rate which results in higher overtime to attend to
service delivery as well as the new collective service level agreement on the
payment of allowances. This cost on overtime and allowances will be better
managed.
15.
Debt impairment and provisions
Description
Original Budget
Adjusted Budget
Variance %
Debt impairment and provisions
26 509 708
77 424 068
50 914
360
16.
Description
192.06
15.1
The provision for debt impairment increased by 192.06% as compared to original
budget, in the original budget provision for debt impairment was 5% accompanied
by a revenue enhancement plan which hope for a 95% collection rate. The
provision for debt impairment is change to 27% which represent the average
payment rate of 73% for the past 6 months.
15.2
The municipality must ensure that the collection rate improves and to improve the
revenue collection rate, it needs a collective effort from Council, community and
administration.
Depreciation and asset impairment
Original Budget
Depreciation and asset impairment 49 575 028
Adjusted Budget
Variance
%
59 962 615
10 387 587
20.95
16.1 The depreciation and asset impairment increased with 20.95% as compared to
original budget, due to the new updated asset register.
16.2 In terms of Circular 66 of Municipal Finance Management Act (MFMA) states
that “under provision of non-cash expenditure items during the budget
compilation process is a material misstatement of the surplus/(deficit)
position of the municipality”
16.3 The adjustment budget needed to be corrected to provide adequate budgeting
for non-cash items
17.
Bulk Purchases
Description
Original Budget
Adjusted Budget
Variance
%
Bulk purchases
165 390 000
188 265 560
22 875 560
13.83
17.1 The bulk purchases increased with 13.83% as compared to original budget.
NERSA propose an increase in electricity in the months to follow.
18.
Contracted services
Description
Original Budget
Adjusted Budget
Variance
%
Contracted services
37 081 803
53 504 098
16 422 295
44.29
18.1
19.
The contracted services increased with 44.29% as compared to original budget.
Altimax was appointed in contracted services after the approval of the original
budget and the cost incurred with this contract was not included in the original
budget. Maxprof the service provider for VAT costs also increased as well as
Lima Liqhame Investments who received 25% commission when collecting
property rates from the governmental departments.
Other expenditure
Description
Original Budget
Adjusted Budget
Variance
%
Other expenditure
47 148 824
47 395 487
246 663
.52
19.1 Other expenditure increased with 0.52% as compared to original budget, due
to the increase of fuel cost in the first six months and costs incurred from the
covering of the dumping site. Each department realized the financial position
of the municipality and identified all possible areas in which the budget could
be cut to limit the cash flow challenges
20.
Other material/Repairs and maintenance
Description
Other
material/Repair
Original Budget
and 20 740 134
Adjusted Budget
Variance
%
19 218 747
-1 521 387
-7.34
maintenance
21.
Other material/ repairs and maintenance decreased with 7.34% as compared
to original budget due to the cash flow problems in the municipality.
21.
Capital Budget
21.1
List of capital budget and projects
Project Description
Original
Adjustment
Construction of storm water drainage
500 000
500 000
Internal Sewer network in Breyten Ext 5
4 000 000
4 000 000
Install of Convert. Waterborne Toilets in farm areas (Flush Tech
syst)
5 500 000
5 500 000
Drilling of boreholes in Msukaligwa farm Areas Phase 2
5 500 000
5 500 000
Extend water reticulation in Sheepmoor
4 000 000
4 000 000
Internal Water network in Breyten Ext 5
2 336 907
2 336 907
Installion of boreholes & bulk line at Warburton
2 058 201
2 058 201
Construction of a 10 ML water reservior at Southern WTW
2 300 000
2 300 000
Installation of high mast lights in Msukaligwa
350 000
350 000
Upgrade of amsterdam weg (phase 3)
280 000
280 000
Upgrade of Road at Nganga
252 000
252 000
Upgrade of Kwa-dela
250 000
250 000
Upgrading of Ermelo/ Wesselton Sewer Treatment Plant Phase
1
3 000 000
3 000 000
Refurbishment of WWTW at Lothair,Breyten & Chrisiesmeer
3 000 000
3 000 000
Upgrade sewer network in Msukaligwa
2 250 000
2 250 000
Refurbishment of the package plant in Sheepmoor
4 000 000
4 000 000
Upgrade of sports facility in Msukaligwa
882 000
882 000
Replacement of AC pipes in Ermelo/Wesselton
2 663 092
2 663 092
Refurbishment of WTW at Lothair, Breyten, Chrisiesmeer &
Davel
3 500 000
3 500 000
Upgrade of 11KV Main Intake point
10 000 000
10 000 000
Computer - office of the Municipal Manager
0
7 717
0
4 179 800
Roll over projects 2013/2014
Rand Water project
Upgrading of Manana street (Phase 2)
12 814
Upgrading of Tayob street
108 735
Installation of High Mast in Msukaligwa
22 809
Upgrade of roads in Silindile
259 810
Upgrade of sports facility
708 999
Electrification of 265 connections
96 798
Electrification of 380 connections
586 921
Electrification of 457 connections
155 830
Construction of substation
728 295
SUB TOTAL ROLL OVER
0
6 860 811
TOTAL CAPITAL PROJECTS
56 622 200
63 483 011
21.2
22.
The unspent amount on capital projects for 2013/2014 was 24 660 811 and
R17 800 000 (MIG 14 300 000 and INEP 3 500 000) was repaid to National
Treasury via the withholding of the Equitable share, which left a roll over amount of
6 860 811 for capital projects.
Cash Flow
22.1
The municipality cannot meet their current obligations as it has a short fall
(126 566 000) in cash flow as per B7 in Annexure ‘A’.
22.2 During the Budget Steering Committee meeting an additional 5 million was cut
on the expenses.
22.3
23.
Employee related costs, bulk purchases and contracted services represent 81%
(494 220 440) of the expenditure budget (610 148 692) which left an amount of
115 928 251 which is already cut to the bone.
Strategic Objective
23.1
The strategic objective/vision of the municipality is to:
a)
Enhancing community participation to steer development initiatives
towards community needs;
b)
Stimulating local economy to promote economic growth and development;
c)
Improving service standards through adopting ethos of good governance
and measurable service delivery techniques;
d)
Enhancing effectiveness and efficiency in the utility of available resources;
e)
Empowering its communities and the vulnerable groups in particular;
f)
Working in partnership with all its stakeholders;
g)
Continuously developing its human resources to achieve high standards in
service delivery; and
h)
Setting realistic goals and working hard to achieve them.
24.
Measures to improve cash flow:
24.1 It is clear that the municipality is in serious financial dilemma which cannot be
solved in the near future but to improve the situation by increasing revenue on
the following will have an effect:
(i)
Aggressive revenue enhancement strategy implementation
(ii)
Vigorous application of credit control and debt collection policy
(iii)
Installation of meters in areas where there is no meters
(iv)
Attend to trading losses – replacement of ageing infrastructure
(v)
Attend to tampering
(vi)
Enhancement of tariff model in 2015/2016
(vii)
Cost curtailment implementation
(viii)
Proper contract management systems
(ix)
Re-prioritization of expenditure to core functions of the municipality:
water, electricity sewerage and refuse
RECOMMENDATIONS BY THE EXECUTIVE MAYOR
1.
That Council NOTES the report of the Executive Mayor regarding the Municipal
Adjustment budget presented in terms of Section 28 of the Municipal Finance
Management (MFMA) Act 56 of 2003,
2.
That Council NOTES the adjustment budget of 2014/2015 financial year,
3.
That Council APPROVE the adjustment budget which contains adjusted operational and
capital budget for 2014/2015 financial year,
4.
That subject to paragraph (3) above the Accounting Officer (Municipal Manager) BE
DELEGATED to submit to both National and Provincial treasuries the adjusted budget for
2014/2015 financial year in both electronic and printed formats in terms of Section 22(b) (i)
of the Municipal Finance Management (MFMA) Act 56 of 2003,
5.
For Council TO APPROVE the recommendations of the Executive Mayor.