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Provincial Government Western Cape Provincial Treasury

ACCOUNTING REVIEW 2006 Working paper Municipalities

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Contents Foreword

Executive Summary 1

Chapter 1 Introduction 3

Categorisation of Municipalities 3

Accounting Framework 4

Relevant Legislation and Policies 4

Roles and Responsibilities of National and Provincial Treasuries

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Accounting Standards and Policies 5

Migration from IMFO to GAMAP/GRAP 6

MFMA Circulars 18 and 36 7

Reporting Timelines 7

Reporting and Oversight Process 7

Accounting Systems 8

Accounting Capacity 8

Chapter 2 Analyses and Interpretation of Annual Financial Statements

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Category A: Revenue and Expenditure 10

Ratio 1: Actual Revenue versus Budgeted Revenue 10

Ratio 2: Level of Reliance on Government Grants 13

Ratio 3: Actual Expenditure versus Budgeted Expenditure

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Ratio 4: Personnel Expenditure as a percentage of Total Expenditure

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Ratio 5: Interest as a percentage of Total Expenditure 24

Ratio 6: Repairs and Maintenance to Total Expenditure 27

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Accounting Review 2006 - Municipalities – Working Paper

Category B: Asset Management 31

Ratio 7: Acquisition of Property, Plant and Equipment - Actual versus Budget

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Ratio 8: Debtors Collection Period 35

Category C: Debt/Liability Management 38

Ratio 9: Acid test ratio 38

Ratio 10: Total Liabilities as a percentage of Total Assets 42

Ratio 11: Provision for bad debts compared to total Debtors

45

Chapter 3 Way Forward 51

References 53

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Abbreviations ACFS Annual Consolidated Financial Statements AFS Annual Financial Statements A-G Auditor-General AO Accounting Officer ASB Accounting Standards Board CFO Chief Financial Officer CMIP Consolidated Municipal Infrastructure Programme DBSA Development Bank of Southern Africa DORA Division of Revenue Act, 2004 FMIP Financial Management Improvement Programme FMG Financial Management Grant GAAP Generally Accepted Accounting Practice GAMAP Generally Accepted Municipal Accounting Practice GRAP Generally Recognised Accounting Practice IAS International Accounting Standards IFAC International Federation of Accounting IFMS Integrated Financial Management Solution IFRS International Financial Reporting Standards IMFO Institute of Municipal Financial Officers INCA Infrastructure Finance Corporation Limited IPFA Institute of Public Finance and Auditing ISA International Standards of Auditing IT Information Technology MEC Member of the Executive Council MFMA Municipal Finance Management Act No. 56 of 2003 MIG Municipal Infrastructure Grant MMS Maintenance Management System MSA Municipal Systems Act NERF New Economic Reporting Format NT National Treasury PFMA Public Finance Management Act, 1999 PPE Property, Plant and Equipment PRF Provincial Revenue Fund PT Provincial Treasury REAL Revenue, Expenditure, Assets and Liabilities SCoA Standard Chart of Accounts SCOPA Standing Committee on Public Accounts TR’s Treasury Regulations, 2002 WC Western Cape WCHDF Western Cape Housing Development Fund WCPT Western Cape Provincial Treasury

Foreword

The accounting environment within the local government sphere is undergoing various reforms, bringing with it many challenges for municipalities, the biggest being the capacity to implement. While municipalities remain steadfast in meeting these challenges, their hard work is bearing fruits in the form of improved financial reporting. Annual Financial Statements of municipalities are beginning to reflect a more full and true picture of the financial state of affairs of municipalities.

The Accounting Review 2006 Working Paper attempts to assess the accounting and financial practices by analysing and interpreting the Annual Financial Statements of the Western Cape municipalities. Benchmarking performance between municipalities will become more meaningful once all categories of municipalities have fully implemented Generally Recognised Accounting Practices. However, the Chief Financial Officers of municipalities should use the Review as a tool to improve the performance of their municipalities and make it more operationally sustainable in order that it may meet its service delivery imperatives.

The structure of the Review provides for an executive summary followed by a detailed analysis and interpretation of the Annual Financial Statements of municipalities focusing on Revenue, Expenditure, Assets and Liabilities.

The Accounting Review 2006 Working Paper is a team effort by the Local Government Section of the Directorate Accounting Services in Provincial Treasury.

DR JC STEGMANN HEAD OF DEPARTMENT DATE: 21 FEBRUARY 2008

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Executive Summary

Executive Summary

The Accounting Review 2006 working paper is a fairly new initiative, building on previous work done. It is an effort made to assess the financial performance and financial position of the Western Cape municipalities using 2003/04, 2004/05 and 2005/06 Annual Financial Statements. It aims to provide the users of financial statements with useful comparisons through the analyses and interpretation of financial information. The accounting ratios utilised for this purpose are based on certain assessment areas, namely Revenue, Expenditure, Assets and Liabilities (REAL) and the outcomes tested against accepted or determined norms.

It reflects on the broad strategic shifts in the accounting environment and the consequential challenges facing municipalities, the biggest being the different basis of preparation of Annual Financial Statements. Various performance indicators were established for the effective monitoring of the performance of municipalities. By grouping municipalities with the same basis of preparation of financial statements, it enabled benchmarking within the groups as well as establishing separate norms, averages and trends.

The critical concern is the operational sustainability of municipalities and whether municipalities can continue to operate as a going concern. The following key financial performance areas are highlighted as concerns and require further attention by municipalities:

• The consumer debt of 20 out of 30 municipalities increased over a year, emphasising the general perception that consumers are defaulting on their payments. Total debtors increased by R582 million from 2004/05 (R5.157 billion) to 2005/06 (R5.739 billion) that represents an increase of 11.3 per cent. The provision for total debtors also increased which is an indication that municipalities will be less likely to recover debts, as the large amount of these debtors are long outstanding.

• The consolidated liquidity average has deteriorated from 1,6:1 in 2004/05 to 1,5:1 in 2005/06 financial year, which indicates a decrease when compared to previous year. The deterioration in liquidity is the result of non-payment of municipal services as stated in the preceding paragraph, which negatively affect the cash flow of the municipality and which could seriously have an effect on the ability of municipalities to service their short-term obligations in the future.

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• The overall spending for the 2005/06 financial years on Property, Plant and Equipment in the consolidated results shows a variance of 26.4 per cent in the budget versus actual. The survey conducted on municipalities in respect of under spending on capital projects reveals that capital expenditure and financing are not well planned and controlled.

It is important that municipalities address the aforementioned areas of concern as it could impact on their service delivery imperatives.

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Chapter 1: Introduction

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Introduction

The Accounting Services of Financial Governance aims to ensure that financial reporting is a full and true reflection of the financial position, performance and cash flows of the Province. It is positioned to play a leading role in advising municipalities and entities on sound accounting policies and financial reporting practices required to enhance good financial governance.

Key services entail in-year monitoring of compliance with standards of Generally Accepted Accounting Practice (SA GAAP), Generally Recognised Accounting Practice (GRAP) and Generally Accepted Municipal Accounting Practice (GAMAP), analysis and interpretation of financial statements, and support to municipalities through training on prescribed accounting standards and on accounting matters.

This Review is an attempt to assess financial management practices by analysing and interpreting the Annual Financial Statements of the Western Cape Local Government. The main objective of the review is to provide meaningful information for decision-making and also a management tool for ensuring sound financial control and planning by municipalities. It also serves to encourage municipal officials as partners in ensuring sound financial governance to share their knowledge and skills in addressing the challenges facing financial management in the Local Government Sector.

Categorisation of Municipalities The National Treasury undertook a survey of municipalities during 2004 that requested responses to 22 questions relating to financial management capacity. The responses were tabulated and scores assigned. The highest scores and those municipalities with the largest budgets were classified into high capacity to implement the MFMA with the remaining municipalities classified as either medium or low capacity.

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The classification of municipalities in the Western Cape is as follows:

High capacity 8

Medium capacity 18

Low capacity 4

The Western Cape consists of 1 metropolitan municipality, 5 district municipalities and 24 local municipalities.

National Treasury also ranked municipalities according to the type of municipality as mentioned in section 155 of the Constitution of the Republic of South Africa, 1996:

• A: Metropolitan municipality – a municipality that has executive and legislative authority in its area.

• B: Local Municipality – a municipality that shares municipal executive and legislative authority in its area with a category C municipality within whose area it falls.

• C: District Municipality – a municipality that has municipal executive and legislative authority in an area that includes more than one municipality

Accounting Framework

Relevant Legislation and Policies The Financial Governance arena, particularly the Accounting facet, is firmly grounded in legislation and policy. Legislation is the key driver responsible for change in the public finance accounting environment. The legislative framework mainly consists of the Constitution of the Republic of South Africa, 1996 (“the Constitution”), and enabling legislation such as Municipal Systems Act (MSA), Municipal Finance Management Act (MFMA).

Reforms currently taking place in the accounting environment include, inter alia, the development of standards of GRAP by the Accounting Standards Board (ASB) and the incremental development of municipal AFS specimen in support of the transition from IMFO to GAMAP/GRAP. No AFS specimens have been issued since 2005.

The Constitution of the Republic of South Africa, 1996 (“the Constitution”) sets the scene for the introduction of financial management that is committed in improving transparency, accountability and performance within the public service.

The MFMA is a key component of the broader legislative framework governing municipalities. The Act aims to strengthen financial management in municipalities. The legal framework empowers the mayor or the executive mayor to provide political leadership by being responsible for policy and outcomes, and holds the municipal manager responsible for implementation and outputs.

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The support measures introduced by national and provincial government, via their financial management grant and systems improvement grant frameworks in terms of Division of Revenue Act (DoRA) as well as funds allocated to municipalities over the medium term, will hopefully assist in capacity building.

The MSA was developed for the purpose of effective co-operative governance. To provide for the core principles, mechanisms and processes necessary to enable municipalities to move progressively towards the social and economic development of local communities and ensure universal access to essential services that are affordable to the community.

Roles and Responsibilities of National and Provincial Treasuries MFMA provides greater involvement of treasuries in the regulation and management of the financial affairs of municipalities and to take appropriate measures including monitoring, support and intervention, if necessary. The Western Cape Provincial Treasury (WCPT) is expected to fulfil the following responsibilities in respect of the MFMA Section 5 (3), (4) and (7) with effect 1 July 2005:

• Promote cooperative governance amongst role players;

• Assist National Treasury in enforcing compliance by municipalities with the MFMA;

• Monitor municipal budget and outcomes;

• Monitor submission of reports by municipalities;

• Assist municipalities with budget preparation;

• Exercise powers and perform duties as delegated by National Treasury;

• Take intervention measures (breach of Act);

• Share all information received with National Treasury; and

• Monitor compliance with the MFMA.

The performance of these activities by the Provincial Treasury is subject to the existence of appropriate skills and capacity in the province. Regular audits of such skills and capacity are to be conducted by the National Treasury.

Accounting Standards and Policies Basis for the preparation of AFS:

• IMFO – Framework for the preparation and presentation of AFS by local government (2nd edition January 1996), as prescribed in terms of section 3 of the repealed Auditor-General Act of 1995.

• Apply all the effective GAMAP, GRAP and SA GAAP standards including any interpretation and relevant circulars issued by the Accounting Practices Board and SAICA. SA GAAP is based on International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS).

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Migration from IMFO to GAMAP/GRAP National Treasury in its quest to improve the quality of financial accounting and reporting, has outlined timelines *(in terms of capacity) for the transition from IMFO to GAMAP/GRAP financial reporting. The timelines, for the 2005/06 financial year (as per circulars 18 and 36) aims at having all municipalities compile AFS in accordance with GRAP by 30 June 2008. However at the time of writing this review NT introduced Government Gazette No. 30013 that grants exemptions to municipalities on compliance to certain accounting standards until 30 June 2010.

It was recognised that integrated and standardised accrual-based financial reporting had to be the first key deliverable on the road to transparent reporting. Throughout the GRAP conversion period issues such as management strategies; training; policies, procedures and guidelines and standards of GRAP will be addressed. During this period, Provincial Treasury - Accounting Services will conduct readiness assessments and establish training needs. This period requires enormous changes to accounting practices.

Section 216 of the Constitution requires National Treasury to introduce and develop GRAP. The ASB was established to set standards and guidelines for financial statements as required by section 216(1)(a) of the Constitution of South Africa.

GRAP was introduced to bring Public Sector accounting closer to Private Sector accounting principles and practices. Statements of GAAP, applicable to the Private Sector, have been used as a foundation for the development of initial GRAP Standards.

The ASB, established in 2002, is responsible for the development of accounting standards for the public sector. It is National Treasury’s responsibility to give guidance on the accounting prescripts.

Section 122(3) of the MFMA requires municipalities and municipal entities to prepare financial statements in accordance with GRAP.

In August 2002 the ASB began the process of reviewing and approving Standards of GAMAP and developing new GRAP standards. GAMAP was considered interim standards for municipalities and municipal entities until the national standards of GRAP have been developed and approved by the ASB.

The Minister of Finance has approved the implementation of the following Standards of GRAP with effect from 1 July 2004 for municipalities:

3 GRAP Standards

GRAP 1: Presentation of Financial Statements

GRAP 2: Cash Flow Statements

GRAP 3: Accounting Policies, Changes in Accounting Estimates and Errors

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8 GAMAP Standards

GAMAP 4: Effects of changes in foreign exchange rates

GAMAP 6: Consolidated financial statements and accounting for controlled entities

GAMAP 7: Accounting for investments in associates

GAMAP 8: Financial reporting of interests in joint ventures

GAMAP 9: Revenue

GAMAP 12: Inventories

GAMAP 17: Property, Plant and Equipment

GAMAP 19: Provisions, contingent liabilities and contingent assets

MFMA Circulars 18 and 36 National Treasury provided guidance as to which accounting standards would apply to the different categories of municipalities; the guidance is contained in MFMA Circulars 18 and 36, dated 23 June 2005 and 11 July 2006 respectively.

Circulars 18 and 36 prescribes the eleven standards as outlined above, emphasising the provisions of GRAP 3 paragraphs 7, 11 and 12 which stipulates that in the event of transactions not covered by the prescribed standards, the municipality was to draft appropriate accounting policy in accordance with paragraphs 7, 11 and 12.

National Treasury also issued additional guidance on 4 October 2006, which further clarified the information contained in the above circulars and compelled municipalities to report on the transactions and events not addressed by the prescribed standards in accordance with IFRS.

Reporting Timelines The municipal financial year runs from 1 July to 30 June each year. The accounting and reporting cycle to National Treasury starts 1 April (3 months before the start of the municipal financial year) and ends 31 March of the following year. A challenge that has been identified is to advance the year-end reporting timelines in respect of the previous year to enable the municipalities to address issues reported on by the A-G as early as possible in the current year.

Reporting and Oversight Process In terms of Section 126 of the MFMA:

(1) (a) The accounting officer of a municipality must prepare the AFS of the municipality and, within two months after the end of the financial year to which those statements relate, submit the statements to the A-G for auditing; and

(b) Must in addition, in the case of a municipality with entities, prepare ACFS and, within three months after the end of the financial year to which those statements relate, submit the statements to the A-G auditing.

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(2) The accounting officer of a municipal entity must prepare the AFS of the entity, and within two months after the end of the financial year, to which those statements relate, submit the statements to -

(a) The Parent municipality of the entity; and

(b) The A-G for auditing

(3) The A-G must –

(a) Audit those financial statements; and

(b) Submit an audit report on those statements to the accounting officer of the Municipality or Municipal entity within three months on receipt of the statements.

Accounting Systems Set out below is a summary of the accounting systems currently being used by municipalities in the Western Cape Province.

Table 1: Accounting systems utilised by municipalities in the Western Cape Province

Municipality System Municipality System

Cederberg ABACUS Overstrand SAMRAS DB4 Central Karoo District ABACUS Bitou SAMRAS DB4 Eden District ABACUS Swellendam SAMRAS DB4 Theewaterskloof ABACUS Witzenberg SAMRAS DB4 Hessequa VENUS Swartland PROMUN Drakenstein VENUS Mossel Bay PROMUN West Coast District SAMRAS DB4 Oudtshoorn PROMUN Saldanha Bay SAMRAS DB4 Knysna PROMUN Kannaland SAMRAS DB4 Breede River PROMUN Stellenbosch SAMRAS DB4 Bergrivier PROMUN Cape Winelands District SAMRAS DB4 Matzikama PROMUN Overberg District SAMRAS DB4 City of Cape Town SAP Breede Valley SAMRAS DB4 Beaufort West TURBO MUNICX Cape Agulhas SAMRAS DB4 Prince Albert AFRIRAAD George SAMRAS DB4 Laingsburg AFRIRAAD

Accounting Capacity National Treasury offered GRAP workshops countrywide. Western Cape Provincial Treasury – Accounting Services coordinated the Western Cape workshops held on 4 and 5 April 2006.

Although workshops were held with municipalities in the Province on the implementation of these GRAP standards, municipalities still need to be capacitated to deal with the treatment. Provincial Treasury – Accounting Service’s role will be to pro-actively assist municipalities with capacity building by means of training and also issues procedure manuals to address the implementation process.

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Chapter 2: Analyses and Interpretation of Annual Financial Statements

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Analyses and Interpretation of Annual Financial Statements

The Annual Financial Statements (AFS) only become meaningful once the information has been analysed and interpreted. Consequently, the objective of this chapter is to provide an analysis of the financial position, performance and cash flows of municipalities. Different analyses are performed such as trend analysis and ratio analysis. Trend analysis is aimed at establishing trends for the particular municipality under review and comparing the results and trends revealed by the analysis with those other similar municipalities. Ratio analysis is also used to assess the financial strength of each municipality.

These ratios, as applied, provide interpretation methodologies that will add significant value when benchmarked against similar municipalities of other provinces in the future. The application of the ratios to the financial results of the Western Cape Government must be seen as a step in developing the analysis and interpretation of AFS that could be refined along with future improvement in financial reporting.

It should be noted that in analysing and interpreting the AFS, the assumption was made that the AFS was properly compiled in accordance with the basis of presentation as set out in the accounting policies of the municipalities. Therefore, if there are inaccuracies contained in the AFS, the analysis and interpretation of the AFS as is contained in this document might be inaccurate.

The purpose of this section is to provide a financial analysis of the municipalities in the Western Cape Province in the following categories:

Category A: Revenue and Expenditure management

Category B: Asset management

Category C: Debt (Liability) management

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Category A: Revenue and Expenditure

Ratio 1: Actual Revenue versus Budgeted Revenue Purpose: The purpose of this ratio is to identify deviations between actual and budgeted revenue and to ascertain reasons for the deviations.

Formula: (Actual Revenue - Budgeted Revenue)/Budgeted Revenue

These figures are found in Appendix D/E(1) to the AFS.

Table 1(a): Actual revenue versus Budgeted Revenue: Districts

Actual Revenue Budgeted Revenue Variance

2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 District

Rʹ000 Rʹ000 Rʹ000 Rʹ000 Rʹ000 Rʹ000 % %

West Coast District (medium capacity) 174 407 110 929 184 135 189 246 (9 728) (78 317) (5.28) (41.38)

Overberg District (medium capacity) 51 415 50 646 56 338 51 664 (4 923) (1 018) (8.74) (1.97)

Central Karoo District (medium capacity) 65 478 67 113 62 373 62 961 3 105 4 152 4.98 6.59

Eden District (medium capacity) 116 426 92 350 149 243 71 500 (32 817) 20 850 (21.99) 29.16

Cape Winelands District (medium capacity) 257 555 226 763 277 473 242 351 (19 918) (15 588) (7.18) (6.43)

TOTAL 665 281 547 801 729 562 617 722 (64 281) (69 921) (8.81) (11.32)

AVERAGE 133 056 109 560 145 912 123 544 (12 856) (13 984) (8.81) (11.32)

Analysis The table provides an analysis for actual revenue versus budgeted revenue for district municipalities:

• The district municipalities are struggling to meet revenue targets:

2004/05: Three of the five (60%) district municipalities did not meet their revenue targets.

2005/06: Four of the five (80%) district municipalities did not meet their revenue targets.

• The acceptable norm is that the actual revenue for a financial year must equal the approved budget for the financial year. Any variation per line item in excess of 10 per cent should be explained. Line items will include service charges, rental of facilities and equipment, interest earned (investment and debtors), dividends received, fines, licences and permits, income for agency services, government grants and subsidies, other income, public contributions and donations and gains on disposal of property, plant and equipment.

• District Municipalities are heavily dependent on grants and subsidies and also agency fees. The small District Municipal Areas, which are under the control of the district municipalities, cannot truly be regarded as a revenue base as in most cases it is a very small area with indigent community.

• The Actual Revenue figures for 2005/06 financial year cannot be compared to the Actual Revenue figures for 2004/05 as all the district municipalities, except Overberg DM, converted from IMFO to GRAP this financial year. The 2004/05 figures are the IMFO figures as per the 2004/05 AFS and not the restated GRAP figures as per the 2005/06 AFS.

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• The consequences of not meeting revenue targets are that much-needed projects cannot be completed since the expected revenue is not available.

• Central Karoo District Municipality is the only DM to exceed revenue targets in both financial years, although Actual Revenue declined from 2004/05 to 2005/06 by R1 635 000. The restated 2004/05 Actual Revenue is R67 113 000.

• West Coast District Municipality: The DM is in a recovery process and the 2005/06 percentage difference is much smaller than the 2004/05 percentage difference, which is an improvement.

• West Coast District Municipality and Central Karoo District Municipality budgeted less for 2005/06 for revenue due to the discontinuation of RSC levies.

Table 1(b): Actual revenue versus Budgeted Revenue: Metro


2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 METRO

R’000 R’000 R’000 R’000 R’000 R’000 % %

City of Cape Town (high capacity) 9 636 685 8 828 462 9 944 536 9 178 442 (307 851) (349 980) (3.10) (3.81)

Analysis The City of Cape Town Actual Revenue has increased by 9.2 per cent as compared to previous financial year, which is an improvement.

The acceptable norm is that the actual revenue for a financial year must equal the approved budget for the financial year. Any variation per line item in excess of 10 per cent should be explained.

Although there was under-recovery in both years, the under-recovery was slightly smaller in 2005/06 (R307 851 000 or 3.10%) compared to 2004/05, which is an improvement.

Table 1(c): Actual revenue versus Budgeted Revenue: IMFO


2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 Municipalities that prepared AFS in terms

of IMFO principles Rʹ000 Rʹ000 Rʹ000 Rʹ000 Rʹ000 Rʹ000 % %

Matzikama (medium capacity) 74 897 59 609 77 991 58 769 (3 094) 840 (3.97) 1.43

Bergrivier (medium capacity) 69 328 61 191 68 615 61 362 713 (171) 1.04 (0.28)

Breede River/Winelands (medium capacity) 166 249 144 372 157 850 139 800 8 399 4 572 5.32 3.27

Theewaterskloof (medium capacity) 183 147 154 848 188 112 162 733 (4 965) (7 885) (2.64) (4.85)

Kannaland (medium capacity) 37 403 34 241 37 975 33 145 (572) 1 096 (1.51) 3.31

Oudtshoorn (medium capacity) 139 699 125 333 138 253 125 925 1 446 (592) 1.05 (0.47)

Bitou (medium capacity) 140 091 116 187 119 250 109 005 20 841 7 182 17.48 6.59

Knysna (medium capacity) 219 629 191 271 216 769 191 518 2 860 (247) 1.32 (0.13)

Laingsburg (medium capacity) 13 752 9 033 13 587 10 911 165 (1 878) 1.21 (17.21)

Prince Albert (medium capacity) 9 912 9 319 9 863 8 999 49 320 0.5 3.56

Beaufort West (medium capacity) 62 022 57 051 57 713 53 879 4 309 3 172 7.47 5.89

Cederberg (low capacity) 54 899 48 091 56 995 51 508 (2 096) (3 417) (3.68) (6.63)

Witzenberg (low capacity) 133 401 123 015 130 806 132 472 2 595 (9 457) 1.98 (7.14)

Cape Agulhas (low capacity) 72 108 63 539 73 718 62 607 (1 610) 932 (2.18) 1.49

Swellendam (low capacity) 49 012 42 178 47 019 41 189 1 999 989 4.25 2.4

TOTAL 1 425 549 1 239 278 1 394 516 1 243 822 31 033 (4 544) 2.23 (0.37)

AVERAGE 95 037 82 619 92 968 82 921 2 069 (303) 2.23 (0.37)

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Analysis The table provides an analysis for actual revenue versus budgeted revenue for municipalities that have prepared their financial statements in accordance with IMFO standards:

• The acceptable norm is that the actual revenue for a financial year must equal the approved budget for the financial year. Any variation per line item in excess of 10 per cent should be explained.

• There was an overall improvement in revenue management.

2004/05: 7 of the 15 municipalities are short of revenue targets, 3 of the 7 municipalities are more than 5 per cent short of revenue targets.

2005/06: only 5 of the 15 municipalities short of revenue targets and all of these 5 municipalities are less than 4 per cent short of revenue targets.

• Of the 10 municipalities that exceeded 2005/06 revenue targets, 5 had very slight deviations from target (exceeded targets by less than 2%), which could indicate that the budget process was spot on.

• Bitou Municipality exceeded their revenue target by 17.48 per cent (R20 841 000) due to the fact that more building and development took place than initially estimated and therefore more rates revenue generated than initially estimated.

Table 1(d): Actual revenue versus Budgeted Revenue: GAMAP/GRAP


2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 Municipalities that prepared

AFS in terms of GAMAP/GRAP principles

Rʹ000 Rʹ000 Rʹ000 Rʹ000 Rʹ000 Rʹ000 % %

Mossel Bay (high capacity) 319 844 228 678 257 504 204 270 62 340 24 408 24.21 11.95

Saldanha Bay (high capacity) 303 705 268 307 255 528 225 236 48 177 43 071 19.12 0.58

Stellenbosch (high capacity) 434 474 381 390 390 037 347 829 44 437 33 561 11.39 9.65

George (high capacity) 504 104 413 292 442 406 391 291 61 698 22 001 13.95 5.62

Drakenstein (high capacity) 546 117 498 560 516 170 484 934 29 947 13 626 5.8 2.81

Breede Valley (high capacity) 309 629 259 511 299 219 294 470 10 410 (34 959) 3.48 (11.87)

Overstrand (high capacity) 280 030 266 382 259 648 218 084 20 382 48 298 7.85 22.15

Swartland (medium capacity) 193 742 170 618 173 386 168 336 20 356 2 282 11.74 1.36

Langeberg/Hessequa (medium capacity) 139 900 105 010 96 323 88 104 43 577 16 906 45.24 19.19

TOTAL 3 031 545 2 591 748 2 690 221 2 422 554 341 324 169 194 12.69 6.98

AVERAGE 336 838 287 972 298 913 269 173 37 925 18 799 12.69 6.98

Analysis The table provides an analysis for actual revenue versus budgeted revenue for municipalities that have prepared their financial statements in accordance with GAMAP/GRAP.

• The acceptable norm is that the actual revenue for a financial year must equal the approved budget for the financial year. Any variation per line item in excess of 10 per cent should be explained.

• Mossel Bay, Saldanha Bay, Stellenbosch, George, Swartland and Hessequa Municipalities exceeded their revenue targets by more than 10 per cent in the 2005/06 financial year.

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• Hessequa Municipality exceeded the revenue targets by 45.24 per cent (R43 577 000) for the 2005/06 financial year. This is the result of government grants and subsidies and also surplus on sale of assets that were not included in the budgeted amounts.

• Stellenbosch Municipality exceeded the revenue targets by 11.39 per cent (R44 437 000) for the 2005/06 year that is due to a significant increase in the intergovernmental transfers.

• Breede Valley Municipality showed a substantial improvement in revenue management by exceeding the revenue budget by 3.48 per cent compared to an 11.87 under-recovery in 2004/05.

• Mossel Bay and Saldanha Bay converted to GRAP in the 2005/06 financial year therefore the 2004/05 and 2005/06 figures cannot be compared.

Ratio 2: Level of Reliance on Government Grants Purpose: The purpose of this ratio is to determine what percentage of the municipality’s revenue is made up of government grants to determine the level of reliance on government funding by the municipality.

Formula: Grants and Subsidies/Total Revenue

These figures are found in Appendix D/E(1) to the AFS.

Table 2(a): Level of Reliance on Government Grants: Districts

Grants and Subsidies Total Revenue Grants & Subsidies/Total Revenue

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04District Municipality

R’000 R’000 R’000 R’000 R’000 R’000 % % %

West Coast District (medium capacity) 18 393 21 431 105 174 407 110 929 115 459 10.55 19.32 0.09

Overberg District (medium capacity) 10 960 13 785 10 637 51 415 50 646 44 414 21.32 27.22 23.95

Central Karoo District (medium capacity) 33 442 37 278 5 523 65 478 67 113 38 720 51.07 55.55 14.26

Eden District (medium capacity) 16 410 11 400 10 338 116 426 92 350 79 921 14.09 12.34 12.94

Cape Winelands District (medium capacity) 91 793 86 739 114 350 257 555 226 763 237 276 35.64 38.25 48.19

TOTAL 170 998 170 633 140 953 665 281 547 801 515 790 25.7 31.15 27.33

AVERAGE 34 200 34 127 28 191 133 056 109 560 103 158 25.7 31.15 27.33

Analysis The table provides an analysis of the level of reliance on government grants for district municipalities:

• Generally, district municipalities are more reliant on grants and subsidies than the Metros and Local -municipalities this can be seen from the higher averages. This is due to the fact that the district municipalities do not have an adequate revenue base as well as the discontinuation of RSC levies.

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• West Coast, Central Karoo, Eden, and Cape Winelands district municipalities have converted to GRAP in the 2005/06 financial year, therefore the 2004/05 and 2005/06 figures cannot be compared. The disclosure of Grants and Subsidies differs substantially from IMFO to GRAP.

• Overberg DM, Central Karoo DM and Cape Winelands DM indicate high reliance in excess of 20 per cent of total revenue for the 2005/06 financial year.

Table 2(b): Level of Reliance on Government Grants: Metro

Grants and Subsidies Total Revenue Grants & Subsidies/Total Revenue

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04METRO

R’000 R’000 R’000 R’000 R’000 R’000 % % %

City of Cape Town (high capacity) 1 018 808 631 906 562 423 9 636 685 8 828 462 8 710 113 10.57 7.16 6.46

Analysis As can be seen from Table 2(b) above, Grants and subsidies as a percentage of the City’s total revenue is increasing year-on-year.

The increase in the ratio is the result of the increase in the MIG projects, Metropolitan Transport Advisory Board and Provincial projects allocated to the municipality.

Table 2(c): Level of Reliance on Government Grants: IMFO

Grants and Subsidies Total Revenue Grants & Subsidies/Total

Revenue

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 Municipalities that prepared AFS

in terms of IMFO principles

R’000 R’000 R’000 R’000 R’000 R’000 % % %

Matzikama (medium capacity) 9 531 6 845 754 74 897 59 609 50 050 12.73 11.48 1.51

Bergrivier (medium capacity) 6 088 3 806 3 359 69 328 61 191 55 465 8.78 6.22 6.06

Breede River /Winelands (medium capacity) 14 330 9 779 10 907 166 249 144 373 139 381 8.62 6.77 7.83

Theewaterskloof (medium capacity) 49 255 40 633 22 025 183 147 154 848 109 934 26.89 26.24 20.03

Kannaland (medium capacity) 8 511 797 4 791 37 403 34 241 26 386 22.75 2.33 18.16

Oudtshoorn (medium capacity) 6 529 5 767 2 297 139 699 125 333 109 233 4.67 4.6 2.1

Bitou (medium capacity) 10 472 3 331 3 224 140 090 116 187 104 454 7.48 2.87 3.09

Knysna (medium capacity) 20 034 8 202 8 498 219 629 191 270 184 760 9.12 4.29 4.6

Laingsburg (medium capacity) 0 0 0 13 752 9 033 8 011 0 0 0

Prince Albert (medium capacity) 0 0 0 9 912 9 319 8 217 0 0 0

Beaufort West (medium capacity) 7 341 5 070 4 074 62 022 57 051 50 790 11.84 8.89 8.02

Cederberg (low capacity) 8 051 6 130 3 820 54 899 48 091 44 508 14.67 12.75 8.58

Witzenberg (low capacity) 14 148 8 791 8 020 133 401 123 015 110 270 10.61 7.15 7.27

Cape Agulhas (low capacity) 4 512 3 274 2 133 72 108 63 539 53 863 6.26 5.15 3.96

Swellendam (low capacity) 9 786 4 072 3 911 49 012 42 178 41 060 19.97 9.65 9.53

TOTAL 168 588 106 497 77 813 1 425 549 1 239 278 1 096 382 11.83 8.59 7.1

AVERAGE 11 239 7 100 5 188 95 037 82 619 73 092 11.83 8.59 7.1

15


Analysis The table provides an analysis of the level of reliance on government grants for municipalities preparing their financial in accordance with IMFO standards:

• Government grants and subsidies as a percentage of total revenue is increasing year-on-year indicating that more grants are received to finance capital projects or municipalities are more reliant on grants and subsidies to support their income base.

• Laingsburg and Prince Albert do not disclose government grants and subsidies separately as a line item either in the income statement or on Annexure D.

• Of the 13 municipalities that disclosed grants and subsidies, 7 municipalities reported reliance on government grants in excess of 10 per cent for the 2005/06 financial year.

Table 2(d): Level of Reliance on Government Grants: GAMAP/GRAP

Grants and Subsidies Total Revenue Grants & Subsidies/Total

Revenue

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04

Municipalities that prepared AFS in terms of

GAMAP/GRAP principles R’000 R’000 R’000 R’000 R’000 R’000 % % %

Mossel Bay (high capacity) 45 711 7 380 2 405 319 844 228 678 199 600 14.29 3.23 1.2

Saldanha Bay (high capacity) 18 047 30 907 7 121 303 705 268 307 205 005 5.94 11.52 3.47

Stellenbosch (high capacity) 52 800 37 669 32 784 434 474 381 390 347 370 12.15 9.88 9.44

George (high capacity) 57 970 32 146 9 720 504 104 413 292 325 480 11.5 7.78 2.99

Drakenstein (high capacity) 72 010 49 369 27 675 546 117 498 560 442 574 13.19 9.9 6.25

Breede Valley (high capacity) 76 690 46 748 29 632 309 629 259 511 232 228 24.77 18.01 12.76

Overstrand (high capacity) 20 699 24 624 12 837 280 030 266 382 225 701 7.39 9.24 5.69

Swartland (medium capacity) 31 981 11 376 11 837 193 742 170 618 138 870 16.51 6.67 8.52

Langeberg/Hessequa (medium capacity) 32 262 15 858 4 723 139 900 105 010 82 027 23.06 15.1 5.76

TOTAL 408 170 256 077 138 734 3 031 545 2 591 748 2 198 855 13.46 9.88 6.31

AVERAGE 45 352 28 453 15 415 336 838 287 972 244 317 13.46 9.88 6.31

Analysis The table provides an analysis of the level of reliance on government grants for municipalities preparing their financial in accordance with GAMAP/GRAP:

• Government grants and subsidies as a percentage of total revenue are increasing year-on-year indicating that more grants are received to finance capital projects or municipalities are more reliant on grants and subsidies to support their income base.

• Saldanha Bay and Overstrand indicate less than 10 per cent dependency on government grants for the 2005/06 financial year.

• Seven of the municipalities indicate reliance in excess of 10 per cent on government grants. This is the result of an increase in grants allocated to the above municipalities in respect of MIG funding, Equitable share, FMG and also Provincial grants such as Housing and Local Economic Development projects. The funding might be earmarked for specific projects.

16


Saldanha Bay and Mossel Bay converted to GRAP in 2005/06 and the 2004/05 and 2005/06 figures cannot be compared as disclosure differs from IMFO to GRAP.

Ratio 3: Actual Expenditure versus Budgeted Expenditure Purpose: The purpose of this ratio is to identify deviations between actual and budgeted expenditure and to ascertain reasons for the deviations.

Formula: (Actual expenditure - Budgeted expenditure)/Budgeted Expenditure)

Table 3(a): Actual Expenditure versus Budgeted Expenditure: Districts

Actual ExpenditureBudgeted

Expenditure Variance

2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 District

R’000 R’000 R’000 R’000 R’000 R’000 % %


Overberg District (medium capacity) 51 415 47 988 56 338 51 664 (4 923) (3 676) (8.74) (7.12)

Central Karoo District (medium capacity) 64 164 68 285 62 994 62 961 1 170 5 324 1.86 8.46

Eden District (medium capacity) 125 875 92 893 179 927 70 989 (54 052) 21 904 (30.04) 30.86

Cape Winelands District (medium capacity) 231 822 202 348 277 473 239 240 (45 651) (36 892) (16.45) (15.42)

TOTAL 622 140 505 750 760 867 614 100 (138 727) (108 350) (18.23) (17.64)

AVERAGE 124 428 101 150 152 173 122 820 (27 745) (21 670) (18.23) (17.64)

Analysis The table above provides an analysis of actual expenditure versus budgeted expenditure for the 2005/06 financial years on District Municipalities. The analysis further indicates that most District Municipalities under-spent on this ratio and the reasons are provided below:

• West Coast District Municipality (WCDM) has under-spent its budget by 19.15 per cent (R35 271 000) in the 2005/06 financial year. There is however an improvement of 31 percentage points compared to the 2004/05 financial year. Although there is an improvement, the level of under spending is still higher than the 10 per cent norm as per National Treasury guidelines. Among other, these are some of the line items where under-spending occurred: Employee-related costs – R9.8 million is represented by 22.51 per cent, Repairs and maintenance – R1.36 million is represented by 23.32 per cent, Interest R885 970 paid is represented by 29.04 per cent, Bulk purchases R1.55 million is represented by 44.05 per cent, General expenses R22 million is represented by 21.2 per cent.

• Cape Winelands District Municipality (CWDM) has an under spending of 16.45 per cent for the 2005/06 financial year which equates to R45.6 million, compared to an under spending of 15.42 per cent in the 2004/05 financial year. This indicates that the trend of spending levels is not improving. Line items where under-spending occurred were: Employee related cost under-spent R11.6 million which is represented by 14.57 per cent of budget which is the result of budgeting for full staff establishment. Among other reasons are: Bad debts R1.1 million which is represented by 320.25 per cent.

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• Eden District Municipality (EDM) has the highest under-spending levels of all districts during the 2005/06 year (30.04 per cent or R54 052 000); the district overspent their budget by 30.86 per cent or R21 094 000 during the 2004/05 financial year. There is an abnormal deviation of 61 per cent compared to 2004/05 financial year. This indicates that the trend of the municipality deviating significantly from its budgets is not improving. The line items where under-spending occurred during 2005/06 financial year are: Repairs and maintenance less than budget by 44 per cent due to pro-active plans put in place to reduce maintenance, contracted services less than budget by 19 per cent due to projects not completed which were carried over to next financial year and general expenses less than budget by 37 per cent due to local municipalities not claiming expenses for priority projects.

Table 3(b): Actual Expenditure versus Budgeted Expenditure: Metro

Actual Budget Variance

2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 METRO

R’000 R’000 R’000 R’000 R’000 R’000 % %

City of Cape Town (high capacity) 9 634 712 8 329 155 9 862 338 8 589 410 (227 626) (260 255) (2.31) (3.03)

Analysis The table above provides an analysis of actual expenditure against budgeted expenditure for the metro for the 2005/06 financial years.

The (CoCT) spending levels for 2005/06 financial years is acceptable. The trends also improved by 0.72 percentage points compared to 2004/05.

Table 3(c): Actual Expenditure versus Budgeted Expenditure: IMFO

Actual Expenditure Budgeted Expenditure

Variance

2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05

Municipalities that prepared AFS in terms of IMFO

principles

R’000 R’000 R’000 R’000 R’000 R’000 % %

Matzikama (medium capacity) 83 827 62 379 77 940 58 768 5 887 3 611 (7.55) 6.14

Bergrivier (medium capacity) 73 212 60 523 68 603 61 350 4 609 (827) (6.72) (1.35)

Breede River/Winelands (medium capacity) 155 486 147 424 173 811 153 572 (18 325) (6 148) (10.54) (4.00)


Kannaland (medium capacity) 35 314 35 512 37 975 33 145 (2 661) 2 367 (7.01) 7.14

Oudtshoorn (medium capacity) 129 613 117 113 140 298 127 385 (10 685) (10 272) (7.62) (8.06)

Bitou (medium capacity) 132 404 115 496 131 354 120 994 1 050 (5 498) 0.80 (4.54)

Knysna (medium capacity) 210 441 196 408 223 727 199 637 (13 286) (3 229) (5.94) (1.62)

Laingsburg (medium capacity) 12 752 8 787 13 579 10 858 (827) (2 071) (6.09) (19.07)

Prince Albert (medium capacity) 9 819 9 296 9 830 8 993 (11) 303 (0.11) 3.37

Beaufort West (medium capacity) 61 734 54 369 57 697 53 876 4 037 493 7.00 0.92

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Actual Expenditure Budgeted Expenditure

Variance

2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05


principles

R’000 R’000 R’000 R’000 R’000 R’000 % %

Cederberg (low capacity) 51 645 50 401 54 550 52 529 (2 905) (2 128) (5.33) (4.05)

Witzenberg (low capacity) 143 843 137 314 146 972 149 038 (3 129) (11 724) (2.13) (7.87)

Cape Agulhas (low capacity) 69 620 59 477 73 718 62 116 (4 098) (2 639) (5.56) (4.25)

Swellendam (low capacity) 49 255 44 711 50 333 44 356 (1 078) 355 (2.14) 0.80

TOTAL 1 398 592 1 251 564 1 448 499 1 299 350 (49 907) (47 786) (3.45) (3.68)

AVERAGE 93 239 83 438 96 567 86 623 (3 328) (3 185) (3.45) (3.68)

Analysis The table above provides an analysis of actual expenditure against budgeted expenditure from a consolidated provincial average perspective and per municipality for the 2004/05 and 2005/06 financial years based on IMFO.

The table further indicates that certain municipalities who prepared the Annual Financial Statements on IMFO have under and overspent on their expenditure and municipalities reported the following reasons:

• Kannaland Municipality (KM) under-spent by 7.01 per cent during the 2005/06 financial year. The trend indicates an improvement of 14 per cent as it can be seen that the municipality overspent its budget in the year 2004/05 financial year. The reason for the under-expenditure in 2005/06 financial year was due to capital cost under-spent by 40.36. The municipality has cashflow problems i.e. interest on loans were only paid in 2006/07 for 2005/06, other expenditure under-spent by 21.30 and Contributions.

• Oudtshoorn Municipality (OM) in overall under spent by 7.62 per cent on its budget for the 2005/06 financial year. The under spending trend as indicated in the above table has improved by 0.44 percentage point compared to 2004/05. There are however line items where under-expenditure of budget were more than 10 per cent namely: Repairs and maintenance by 12.34 per cent, capital cost by 19.97 per cent and contributions to fixed assets by 10.32 per cent. The reasons for the variances could not be supplied due to the dysfunctional processes in the administration of the municipality. However it needs to be emphasised that the overall under-expenditure is less than 10 per cent and is within NT guidelines.

• Laingsburg Municipality (LM) under spent by 6.09 per cent in its budget for the 2005/06 financial year. There is an improvement on spending levels of 12.98 percentage points. There was under-expenditure in all line items.

• Witzenberg Municipality (WM) under spent by 2.13 per cent in its budget for the 2005/06 financial year. The trend indicates an improvement of 5.74 percentage points if compared to the 2004/05 financial year.

• Beaufort West Municipality (BWM) overspent its budget by 7 per cent. There is an increase of 6.08 percentage points compared to 2004/05. Items where over-expenditure occurred are, General Expenses: Actual exceeds budget by 12.76 per cent (R3.132 million), Contribution to capital: Actual less than budget by 47.1 per cent (R610 000), Contributions: Actual less than budget by 92.44 per cent (R1.1 million).

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Table 3(d): Actual Expenditure versus Budgeted Expenditure: GAMAP/GRAP

Actual Expenditure Budgeted Expenditure Variance

2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 Municipalities that prepared AFS in

terms of GAMPAP/GRAP principles

R’000 R’000 R’000 R’000 R’000 R’000 % %

Stellenbosch (high capacity) 386 868 330 003 390 037 347 829 (3 169) (17 826) (0.81) (5.12)

George (high capacity) 468 564 420 555 438 720 452 907 29 844 (32 352) 6.80 (7.14)

Saldanha Bay (high capacity) 219 073 216 477 226 838 225 230 (7 765) (8 753) (3.42) (3.89)

Drakenstein (high capacity) 481 784 458 442 516 170 484 934 (34 386) (26 492) (6.66) (5.46)

Mossel Bay (high capacity) 249 194 210 621 240 425 177 795 8 769 32 826 3.65 18.46

Breede Valley (high capacity) 245 424 242 898 256 514 233 985 (11 090) 8 913 (4.32) 3.81

Overstrand (high capacity) 251 291 224 675 256 278 222 956 (4 987) 1 719 (1.95) 0.77

Swartland (medium capacity) 171 409 171 037 173 387 152 677 (1 978) 18 360 (1.14) 12.03

Langeberg/Hessequa (medium capacity) 114 285 90 183 94 449 85 918 19 836 4 265 21.00 4.96

TOTAL 2 587 892 2 364 891 2 592 818 2 384 231 (4 926) (19 340) (0.19) (0.81)

AVERAGE 287 543 262 766 288 090 264 915 (547) (2 149) (0.19) (0.81)

Analysis The table above provides an analysis of actual expenditure against budgeted expenditure from a consolidated provincial average perspective and per municipality for the 2004/05 and 2005/06 financial years based on GRAP/GAMAP.

The table further indicates that certain municipalities who prepared the Annual Financial Statements on GAMAP/GRAP have under/overspent on their expenditure and municipalities reported the following reasons:

• George Municipality (GM) overspent by 6.80 per cent and this can be attributed to the following reasons: Road transport more than budget by 27.18 per cent. There was also a change in the spending nature of 13.94 per cent from under-expenditure in 2004/05 to over-expenditure in 2005/06 financial years.

• Swartland Municipality (SWAM)’s under-spent by 1.14 per cent during the 2005/06 financial year. The trend indicates that the ratio improved from being an over-expenditure in 2004/05 of 12.03 per cent to an under-expenditure in 2005/06.The change was brought about by tight budgetary control measures that were implemented to avoid a repeat of the overspending that occurred in the 2004/05 financial year.

• Mossel Bay Municipality (MBM) over spent by 3.65 per cent during the 2005/06 year. There is an improvement in the overspending trend by 14.81 percentage points compared to the 2004/05 year. The reasons for the over-expenditure compared to budget for the 2005/06 year were: Councillors Remuneration by 19.05 due to the increase in Councillors remuneration during the year which were not budgeted for, Bad debts by 30.23 due to contribution to reserve fund more than budgeted for, Collection costs by 67.86 due to increased visits to indigent cases and cases handed to Debt-Pack which resulted into increased collection costs, Repairs and maintenance by 33.08 due to some items that was initially capex but transferred to opex, General expenses by 18.05 but no reason was supplied and Loss on disposal of PPE by 100 due to item not budgeted at all.

20


• Hessequa Municipality (HM) over spent its budget by 21 per cent. The trend indicates an increase in the over-expenditure of 16.04 percentage points compared to 2004/05 year. The factors that contribute towards an over-expenditure when compared to budget for the 2005/06 year were: Council remuneration by 20.95 due to increase in remuneration with effect from March 2006, Working Capital Reserve by 371.68 per cent due to the increase in the provision for bad debts, Depreciation by 140.22 per cent and General expenses by 65.16 per cent due to non-capital projects ex were grants transferred from capital budget, e.g. Housing R10.4 million.

Ratio 4: Personnel Expenditure as a percentage of Total Expenditure Purpose: The purpose of this ratio is to indicate what percentage of total expenditure is attributable to personnel costs.

Formula: Salaries, wages and allowances/Total Expenditure

Table 4(a): Personnel costs to Total expenditure: District Municipalities

Personnel costs Total Expenditure Personal Costs/Total Expenditure

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 District

R’000 R’000 R’000 R’000 R’000 R’000 % % %

West Coast District (medium capacity) 36 520 26 431 21594 148 864 94 236 91 020 24.53 28.05 23.72





TOTAL 189 984 173 135 125 026 622 140 505 750 383 322 30.54 34.23 33.62

AVERAGE 37 996 34 627 25 005 124 428 101 150 76 664 30.54 34.23 33.62

Analysis The table above provides an analysis of personnel costs against total operating expenditure from a consolidated provincial average perspective and per municipality for the 2003/04, 2004/05 and 2005/06 financial years on District Municipalities:

• West Coast District Municipality’s (WCDM) ratio for 2005/2006 has decreased by 3.52 percentage points as compared to 2004/05. The ratio is below the consolidated provincial average.

• Overberg District Municipality’s (ODM) ratio has increased by 7.42 percentage points as compared to 2004/05. The ratio is above the consolidated provincial average due to salaries that are paid according to prescribed scales by the Bargaining Council.

• Central Karoo District Municipality’s (CKDM) ratio has increased by 1.06 percentage points as compared to 2004/05 but is still below the consolidated provincial average for district municipalities. The trend is fluctuating; one of the reasons for this is as the result of conversion from IMFO to GRAP.

21


• Eden District Municipality’s (EDM) has decreased by 5.09 percentage points as compared to 2004/05 year but is above the consolidated provincial average for district municipalities. The decrease can be partly attributed to the general increase in total expenditure that was higher than the increase in salaries.

• Cape Winelands District Municipality’s (CWDM) ratio decreased by 7.74 percentage points as compared to 2004/05 financial year. Management did not provide the reasons for the decrease. However the ratio of 30.96 per cent is within the consolidated provincial average for district municipalities.

Table 4(b): Personnel costs to Total expenditure: Metro

Personnel Cost Total Expenditure Personal Costs/Total Expenditure

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 METRO

R’000 R’000 R’000 R’000 R’000 R’000 % % %

City of Cape Town (high capacity) 2 791 801 2 724 198 2 916 361 9 634 712 8 329 155 8 601 070 28.98 32.71 33.91

Analysis The table above provides an analysis of personnel costs against total expenditure for the metro for the 2003/04, 2004/05 and 2005/06 financial years.

The COCT ratio has decreased by 3.73 percentage points for the 2005/06 financial year as compared to previous financial year. The comparison with other metros has not yet been done due to the unavailability of the information. The reason for the decrease is due to the restructuring that is taking place in the City of Cape Town.

Table 4(c): Personnel costs to Total Expenditure: IMFO

Personnel Costs Total Expenditure Personal Costs/Total Expenditure

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04


principles R’000 R’000 R’000 R’000 R’000 R’000 % % %

Matzikama (medium capacity) 27 513 23 892 22 793 83 827 68 576 54 653 32.82 34.84 41.70


Breede River/Winelands (medium capacity) 50 588 46 095 43 003 155 486 147 424 147 143 32.54 31.27 29.23


Kannaland (medium capacity) 10 296 10 871 11 671 35 314 35 512 29 450 29.16 30.61 39.63




Laingsburg (medium capacity) 4 796 3 297 2 867 12 752 8 787 7 715 37.61 37.52 37.16

Prince Albert (medium capacity) 4 446 4 069 3 940 9 819 9 296 8 195 45.28 43.77 48.08



22


Personnel Costs Total Expenditure Personal Costs/Total

Expenditure

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04


principles R’000 R’000 R’000 R’000 R’000 R’000 % % %




TOTAL 469 873 422 280 389 102 1 398 592 1 262 851 1 138 985 33.60 33.44 34.16

AVERAGE 31 325 28 152 25 940 93 239 84 190 75 932 33.60 33.44 34.16

Analysis The table above provides an analysis of personnel expenditure against total expenditure for the 2003/04, 2004/05 and 2005/06 financial years based on IMFO. The analysis indicates which municipalities are above the National Treasury guideline of 35 – 38 per cent:

• Bergrivier Municipality’s (BM) ratio increased by 0.57 percentage points compared to 2004/05 financial years and the trend is not improving. The municipality is just outside the National Treasury’s guidelines by 1.82 percentage points.

• Oudtshoorn Municipality’s (OM) ratio increased by 1.09 percentage points as compared to the 2004/05 financial year. The table indicates that the trend is not improving year on year. The reason for this is due to payment of salaries to official that are no longer employed by the municipality. This is witnessed by the high vacancy rate especially in the key management positions.

• Prince Albert Municipality’s (PAM) ratio increased by 1.51 percentage points as compared to 2004/05 financial year, and the trend is fluctuating over the comparative years. The ratio as indicated above of 45.25 per cent (2005/06) is the highest in the group analysis and no reasons were supplied for the high ratio.

• Beaufort West Municipality’s (BWM) ratio decreased by 0.03 percentage points as compared to 2004/05 financial year but the ratio of 41.28 per cent is still high. The management reported that: The municipality is obliged to implement the annual salary increase as agreed upon between SALGA and the unions. It is anticipated that this ratio may even further increase due to vacancies that exist within various departments. The municipality is however currently in process of investigating a shared service centre in an attempt to reduce staff costs.

• Knysna Municipality’s (KM) ratio decreased by 0.30 percentage points compared to 2004/05 financial year. The management reported that the decrease is due to an increase in the bottom line of the operating budget (grants and other GRAP items).

• Matzikama Municipality’s (MM) ratio decreased by 2.02 percentage points compared to 2004/05 financial year. The trend indicates a continuous decrease year on year. The ratio of 32.28 per cent is outside the National Treasury’s guidelines.

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Table 4(d): Personnel costs to Total expenditure: GAMAP/GRAP

Personnel Costs Total Expenditure Personal Costs/Total Expenditure

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04



Stellenbosch (high capacity) 127,443 111,096 117,410 386,868 330,003 307,818 32.94 33.67 38.14

George (high capacity) 117,110 106,561 93,395 468,564 420,555 381,393 24.99 25.34 24.49

Drakenstein (high capacity) 158,041 155,428 138,389 481,784 458,442 423,839 32.80 33.90 32.65

Mossel Bay (high capacity) 80,892 73,220 65,114 249,194 210,621 203,027 32.46 34.76 32.07

Breede Valley (high capacity) 87,814 82,295 76,134 245,424 242,898 197,544 35.78 33.88 38.54


Overstrand (high capacity) 82,742 76,144 63,548 251,291 224,675 163,111 32.93 33.89 38.96

Swartland (medium capacity) 56,243 51,527 44,321 171,409 167,602 125,637 32.81 30.74 35.28

Langeberg/Hessequa (medium capacity) 40,240 42,949 33,522 114,284 90,183 70,930 35.21 47.62 47.26

TOTAL 827 698 771 465 693 936 2 587 891 2 349 623 2 067 846 31.98 32.83 33.56

AVERAGE 91 966 85 718 77 104 287 544 261 069 229 761 31.98 32.83 33.56

Analysis The table above provides an analysis of personnel expenditure against total expenditure for the 2003/04, 2004/05 and 2005/2006 financial years based on GRAP/GAMAP. It should be noted that not all the municipalities have accounted for Post Retirement Benefits in terms of IAS 19 and this negatively influences the comparability of municipalities with each other. The analysis further indicates municipality that have a high and also municipality with a low ratio:

• Stellenbosch Municipality’s (SM) ratio decreased by 0.73 percentage points compared to 2004/05 financial years and the trend indicates that the ratio decreases year on year. The municipality is outside National Treasury’s guidelines; the decrease in the ratio is the result of Councillors vacancies not filled.

• George Municipality’s (GM) ratio has decreased by 0.35 percentage points compared to 2004/05 financial years. The reason for the decrease can be attributed to the general increase in the total expenditure by 11 per cent while the personnel expenditure increased by only 9.90 per cent. The municipality is outside National Treasury’s guidelines; staff structure needs to be investigated.

• Overstrand Municipality’s (OM) ratio decreased by 0.96 percentage points compared to 2004/05 financial years and the trend indicates that the ratio decreases year on year. The municipality is slightly outside National Treasury’s guidelines.

• Hessequa/Langeberg Municipality’s (H/LM) ratio has improved substantially (decreased) by 12.41 percentage points as compared to 2004/05 financial year and the reasons provided are: The municipality has fulfilled its promise towards reducing the personnel cost to be within the acceptable level. The reasons for the decrease were not specifically stated in the response from the municipality.

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Ratio 5: Interest as a percentage of Total Expenditure Purpose: This ratio indicates the percentage of total expenditure that is attributable to interest costs.

Formula: (External Interest paid/Total expenditure)

Table 5(a): External Interest Paid as a percentage of total expenditure: Districts

External Interest Paid Total Expenditure External Interest Paid/Total Expenditure

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 District

R’000 R’000 R’000 R’000 R’000 R’000 % % %

West Coast District municipality (medium capacity) 3 937 3 442 3 299 148 864 94 236 91 020 2.64 3.65 3.62

Overberg District municipality (medium capacity) 1 586 1 333 1 294 51 415 47 988 41 535 3.08 2.78 3.12

Central Karoo District municipality (medium capacity) 0 40 4 64 164 68 285 12 087 0 0.06 0.03

Eden District municipality (medium capacity) 943 768 892 125 875 92 893 57 710 0.75 0.83 1.55

Cape Winelands District municipality (medium capacity) 1 194 179 0 231 822 202 348 180 970 0.52 0.09 0

TOTAL 7 660 5 762 5 489 622 140 505 750 383 322 1.23 1.14 1.43

AVERAGE 1 532 1 152 1 098 124 428 101 150 76 664 1.23 1.14 1.43

Analysis The table above provides an analysis of external interest paid versus total expenditure for the 2003/04, 2004/05 and 2005/06 financial years on District Municipalities.

The analysis further indicates that all the District Municipalities have a low ratio, which is the indication that they are all less dependent on external borrowings.

Table 5(b): External Interest Paid as a percentage of total expenditure: Metro

External Interest Total Expenditure External Interest Paid/Total Expenditure

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 METRO

R’000 R’000 R’000 R’000 R’000 R’000 % % %

City of Cape Town (high capacity) 349 325 346 827 347 402 9 634 712 8 329 155 8 601 070 3.63 4.16 4.04

Analysis The table above provides an analysis of external interest paid against total expenditure for the metro for the 2003/04, 2004/05 and 2005/06 financial years.

The CoCT ratio has improved by 0.53 percentage points as compared to 2004/05 financial years; the comparison with other metros has not yet been done due to the unavailability of the information.

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Table 5(c): External interest Paid as a percentage of total expenditure: IMFO

External Interest Paid Total Expenditure External Interest Paid/Total Expenditure

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04Municipalities that prepared AFS in

terms of IMFO principles

R’000 R’000 R’000 R’000 R’000 R’000 % % %









Laingsburg (medium capacity) 0 0 0 12 752 8 787 7 715 0 0 0

Prince Albert (medium capacity) 0 0 0 9 819 9 296 8 195 0 0 0




Cape Agulhas (low capacity) 706 865 1 065 69 620 59 477 50 987 1.01 1.45 2.09

Swellendam (low capacity) 1 339 1 113 861 49 255 44 711 39 774 2.72 2.49 2.16

TOTAL 56 293 55 110 58 821 1 398 592 1 262 881 1 138 988 4.02 4.36 5.16

AVERAGE 3 753 3 674 3 921 93 239 84 192 75 933 4.02 4.36 5.16

Analysis The table above provides an analysis of external interest paid against total expenditure from a consolidated provincial average perspective and per municipality for 2003/04, 2004/05 and 2005/06 financial years based on IMFO. The table further indicates that certain municipalities who prepared the Annual Financial Statements on IMFO have a high ratio, and the management of municipalities reported the following reasons:

• Kannaland Municipality’s (KM) ratio has improved by 4.62 percentage points as compared to 2004/05 financial years and is within the consolidated provincial average. The reasons for such an improvement were not available.

• Knysna Municipality’s (KNM) ratio improved by 0.36 percentage points but is still higher than the consolidated provincial average. The management reported that the municipality has more dams and pumping stations than other municipalities. In the late 90s and early 2000 Knysna Municipality was badly managed. It borrowed at high interest rates, the effects of which are being felt now. The early loan redemptions made by Knysna Municipality, both (DBSA) and INCA have included large penalty clauses for early redemption in all loan documents nationally.

• Witzenberg Municipality’s (WM) ratio has improved by 1 percentage point but is still higher than the consolidated provincial average. The municipality reported that 98.8 per cent of the interest paid is for the servicing of Long Term Liabilities of Koekedouw Dam. Most other municipalities pay for bulk water supply whilst the interest and redemption can be seen as the bulk purchase cost of water for the municipality. The municipality will strive to lower this ratio due to the fact that the cost of bulk water is high and is not in

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relation to, or based on, consumption. The ratio is way above the provincial consolidated average.

• Oudtshoorn Municipality’s (OM) has increased by 1.06 percentage points compared to 2004/05 financial year. The increase in the external interest paid compared to 2004/05 is attributed to the Annuity Loan amounting to R21.4 million which was taken up during the 2005/06 financial year. It is also noted that the municipality made a repayment of R3 million during the year towards the balance of loan. This repayment only constitutes 5.38 per cent of the loan balance at beginning of the year. This indicates that the repayment of loan is very slow and consequently the interest paid will always be high. The ratio is way above the provincial consolidated average.

• Cederberg Municipality’s (CM) has increased by 2.63 percentage points in the 2005/06 financial year compared to the 2004/05 financial year. The interest costs are high in relation to total expenditure if compared to the consolidated provincial average. Although management stated that the municipality does not have much capacity to borrow but there was an increase in loans in the current year. The ratio is above the provincial consolidated average.

Table 5(d): External Interest Paid as a percentage of total expenditure: GAMAP/GRAP

External Interest Total Expenditure External Interest

Paid/Total Expenditure

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04

Municipalities that prepared AFS in terms

of GAMAP/GRAP principles

R’000 R’000 R’000 R’000 R’000 R’000 % % %






Mossel Bay (high capacity) 274 332 1 752 249 194 210 621 203 027 0.11 0.16 0.86




TOTAL 56 076 52 849 49 313 2 587 892 2 349 623 2 067 846 2.17 2.25 2.38

AVERAGE 6 230 5 872 5479 287 543 261 069 229 761 2.17 2.25 2.38

Analysis The table above provides an analysis of external interest paid versus total expenditure for the 2003/04 and 2004/05 financial years based on GRAP/GAMAP.

The analysis further indicates that all municipalities have a low ratio, which is the indication that the municipalities are less dependent on external borrowings.

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Ratio 6: Repairs and Maintenance to Total Expenditure Purpose: The purpose of this ratio is to determine whether municipalities are spending adequate amounts on repairs and maintenance of Property Plant and Equipment in order to maintain the useful life of these assets.

Formula: Repairs and Maintenance/Total Expenditure

Table 6(a): Repairs and maintenance to total expenditure – Districts

Repairs and maintenance Total expenditure Repairs and

Maintenance/Total Expenditure

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04District

R’000 R’000 R’000 R’000 R’000 R’000 % % %

West Coast District municipality (medium capacity) 4 484 3 986 4 474 148 864 94 236 91 020 3.01 4.23 4.92

Overberg District municipality (medium capacity) 1 892 1 804 1 258 51 415 47 988 41 535 3.68 3.76 3.03

Central Karoo District municipality (medium capacity) 250 284 197 64 164 68 285 12 087 0.39 0.42 1.63

Eden District municipality (medium capacity) 2 566 2 327 2 912 125 875 92 893 57 710 2.04 2.51 5.05

Cape Winelands District municipality (medium capacity) 52 122 48 110 33 895 231 822 202 348 180 970 22.48 23.78 18.73

TOTAL 61 314 56 511 42 736 622 140 505 750 383 322 9.86 11.17 11.15

AVERAGE 12 262 11 302 8 547 124 428 101 150 76 664 9.86 11.17 11.15

Analysis The table above provides an analysis of repairs and maintenance against total expenditure from a consolidated provincial average perspective and per municipality for the 2003/04, 2004/05 and 2005/06 financial years for District Municipalities.

The table above further shows that only Cape Winelands District Municipality has a high ratio, and all other District municipalities have low ratios and the following reasons and the corrective measure for each municipality are provided below:

• West Coast District Municipality’s (WCDM) ratio decreased by 1.22 percentage points as compared to 2004/05 financial year. The ratio is decreasing year on year and this raises concern regarding the general maintenance of PPE. The ratio is even below the provincial consolidated average.

• Central Karoo District Municipality’s (CKDM) ratio is very low also and is decreasing on a year on year basis. The municipality indicated that the available funding restricts the district municipality from adequately maintaining assets and most of the MIG projects were for the upgrading of networks.

• Overberg District Municipality (ODM), the low ratio is the result of spending the amount budgeted for repairs and maintenance to fund increased personnel costs that are prescribed by Bargaining Council.

• Eden District Municipality (EDM) ratio is decreasing on a year on year basis. This municipality’s ratio is also less than the consolidated provincial average.

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• Cape Winelands District Municipality’s (CWDM) ratio has decreased by 1.3 percentage points compared to 2004/05 financial year but the ratio is still high. This ratio indicates that excessive resources are being utilised to maintain existing assets, especially when taking the carrying value of PPE into consideration. The high ratio indicates that assets are being maintained beyond their useful life. This need to be addressed and corrective action implemented to alleviate the concern.

Table 6 (b): Repairs and maintenance to total expenditure: Metro



2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 METRO

R’000 R’000 R’000 R’000 R’000 R’000 % % %

City of Cape Town (high capacity) 803 972 679 956 560 864 9 634 712 8 329 155 8 601 070 8.34 8.16 6.52

Analysis The table above provides an analysis of repairs and maintenance against total expenditure for the metro for the 2003/04, 2004/05 and 2005/06 financial years.

The CoCT ratio has increased by 0.18 percentage points as compared to 2004/05 financial year; the comparison with other metros has not yet been done due to the unavailability of the information.

Table 6(c): Repairs and maintenance to total expenditure: IMFO



2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04


of IMFO principles

R’000 R’000 R’000 R’000 R’000 R’000 % % %



Breede River//Winelands (medium capacity) 6 800 6 378 5 197 155 486 147 424 147 143 4.37 4.33 3.53






Laingsburg (medium capacity) 468 429 408 12 752 8 787 7 715 3.67 4.88 5.29

Prince Albert (medium capacity) 260 261 165 9 819 9 296 8 195 2.65 2.81 2.01



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2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04


of IMFO principles

R’000 R’000 R’000 R’000 R’000 R’000 % % %




TOTAL 85 575 69 071 61 116 1 398 592 1 262 881 1 138 988 6.12 5.47 5.37

AVERAGE 5 705 4 605 4 074 93 239 84 192 75 933 6.12 5.47 5.37

Analysis The table above provides an analysis of repairs and maintenance against total expenditure for the 2003/04 and 2004/05 financial years based on IMFO. It is noted also that the provincial average is 6.1 per cent but the analysis will be based on 5 per cent as the base and reasons are provided below:

• Oudtshoorn Municipality’s (OM) ratio increased by 1 percentage point as compared to 2004/05 financial year. The contributing factors towards the low spending on repairs and maintenance can be due to the lack of staff that is suppose to look after the PPE maintenance. The Minister of Local Government and Housing put the municipality under administration. Currently the funds spent on repairing assets are low and it is noted that the budget for repairs and maintenance was under-spent by 12.34 per cent in 2005/06 financial year.

• Bergrivier Municipality’s (BM) ratio increased by 0.21 percentage points compared to the 2004/05 financial year. There are no reasons provided for the low spending on repairs and maintenance. It must be noted that if the low spending trend continues to fluctuate as shown on the table above, the useful lives of PPE will be impacted negatively.

• Breede River/Winelands Municipality’s (BRWM) ratio increased by 0.04 percentage points compared to 2004/05 financial year. Although the ratio appears to be improving year on year, the level of spending is still low. There are no further reasons provided by management regarding the low spending.

• Laingsburg Municipality’s (LM) ratio has decreased by 1.21 compared to 2004/05 financial year. The CFO explained that the available funding restricts the municipality from adequately maintaining assets. The continuous low spending on repairs and maintenance can present a negative impact by shortening the lifespan of assets.

• Prince Albert Municipality’s (PAM) ratio has decreased by 0.16 as compared to the 2004/05 financial year and is low and the management reported that due to the small revenue base.

• Kannaland Municipality’s (KM) ratio has decreased by 2.54 percentage points compared to 2004/05 financial year. No reasons were provided for the drastic decrease on the spending levels on repairs and maintenance. The trend as seen in the table above indicates that the ratio decreases year on year.

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Table 6(d): Repairs and maintenance to total expenditure: GAMAP/GRAP

Repairs and maintenance Total expenditure Repairs and Maintenance/Total Expenditure

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04












TOTAL 210 922 201 139 160 738 2 587 892 2 349 623 2 067 846 8.15 8.56 7.77

AVERAGE 23 436 22 349 17 860 287 543 261 069 229 761 8.15 8.56 7.77

Analysis The table above provides an analysis of repairs and maintenance against total expenditure from a consolidated provincial average perspective and per municipality for the 2003/04, 2004/05 and 2005/06 financial years based on GRAP/GAMAP.

The following municipalities have a low ratio and the following reasons and corrective measures are provided below:

• Swartland Municipality’s (SWAM) ratio has improved by 1.87 percentage points as compared to 2004/05 financial year. The management did not provide reasons regarding the low spending on repairs and maintenance. The ratio is still below the provincial consolidated average.

• Hessequa Municipality’s (H/LM) ratio has decreased by 0.34 percentage points as compared to 2004/05 financial year. The management reported that in terms of GAMAP a repair and maintenance plan is a requirement for Council assets. However the plan is in the process of being drawn up. The ratio is below the consolidated provincial average.

• Stellenbosch Municipality’s (SM) ratio increased by 0.17 percentage points compared to 2004/05 financial year. Although the ratio has improved it is still below the provincial consolidated average. Management did not provide the reasons for the low spending.

• Mossel Bay Municipality’s (MM) ratio has increased by 3.07 percentage point compared to 2004/05 financial year. This is a material improvement but the ratio is still below the provincial consolidated average. This ratio according to the management will increase to 8.2 per cent in 2006/07 financial year.

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Category B: Asset Management

Ratio 7: Acquisition of Property, Plant and Equipment - Actual versus Capital Budget

Purpose: The purpose of this ratio is to identify per class of asset whether a municipality has a variance of more than 5 per cent when actual and budgeted Property, Plant, and Equipment (PPE) acquisitions are compared.

Formula: (Actual PPE Acquisitions - Budgeted Acquisitions)/Budgeted PPE Acquisitions

These figures are found in the Appendix C in IMFO AFS & in GRAP AFS Appendix E(2).

Table 7(a): Actual Acquisition of Property, Plant and Equipment - versus Capital Budget: Districts


2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 District

R’000 R’000 R’000 R’000 R’000 R’000 % %


Overberg District (medium capacity) 4 805 4 487 5 750 4 975 (945) (488) (16.43) (9.81)

Central Karoo District (medium capacity) 5 189 5 549 6 648 4 900 (1 459) 649 (21.95) 13.24

Eden District (medium capacity) 10 637 1 518 13 543 4 164 (2 906) (2 646) (21.46) (63.54)

Cape Winelands District (medium capacity) 6 602 8 029 11 826 0 (5 224) 8 029 (44.17) 0

TOTAL 50 197 24 703 65 391 31 860 (15 194) (7 157) (23.24) (22.46)

AVERAGE 10 039 4 941 13 078 6 372 (3 039) (1 431) (23.24) (22.46)

Analysis The table above provides an analysis of actual property, plant and equipment expenditure against capital budgets from a consolidated provincial average perspective and per municipality for the 2004/05 and 2005/06 financial years.

• The analysis further indicates that all 5 District Municipalities has a variance of more than 5 per cent when actual and budgeted PPE acquisition are compared. This indicates that spending levels on capital projects appears to be of concern for all district municipalities and this directly impacts of on service delivery outcomes.

• The total expenditure of all District Municipalities in 2005/06 was R50.2 million (2004/05; R24.7 million) which represent an increase of R25.5 million over 12 month period, though spending levels are below the budget.

• The acquisition of PPE has not been taking place as is intended during the budget process and the District Municipalities provided the following reasons for under spending:

o West Coast District Municipality’s ratio has improved by 54.4 percentage points. However, the ratio of actual to budgeted capital expenses for 2005/06 when compared to the previous financial year is still below spending levels

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as prescribed by National Treasury. Under spending is indicative of budget process that is not in compliance with GAMAP/GRAP requirements.

o Overberg and Central Karoo District municipalities’ ratios increased when compared to the previous year and it was indicated that certain Capital projects were delayed and have to be carried over to the 2006/07 financial year.

o Eden District Municipality’s ratio improved by 42.1 percentage points in 2005/06 when compared to the 2004/05 financial year, however the ratio for the 2005/06 financial year is still high at 21.46 per cent. The municipality indicated that upgrade on buildings was not completed, planning and development will be completed in 2006/07 and Health Services were transferred to the PGWC.

o Cape Winelands District Municipality’s capital budget variance for the 2005/06 financial year is 44.15 per cent, and the under spending was the result of a disaster management centre that was not build and a GPS system that was not bought. Also the fire brigade building was not upgraded that resulted in an under spending in office furniture because buildings were not completed.

Table 7(b): Actual Acquisition of Property, Plant and Equipment - versus Budget: Metro


2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 METRO

R’000 R’000 R’000 R’000 R’000 R’000 % %

City of Cape Town (high capacity) 1 520 642 951 452 2 129 970 1 505 740 (609 328) (554 288) (28.61) (36.81)

Analysis The table above provides an analysis of actual property, plant and equipment against budget for the metro for the 2004/05 financial years.

The actual spending level on PPE in financial year 2005/06 was R1 520 642 billion (2004/05: R951 452 billion) that represents an increase of R569 190 in 2005/06 when compared to 2004/05 financial years.

The City of Cape Town (CoCT) under spent by 28.61 per cent in 2005/06, which is an improvement when compared to the 2004/05 financial year, but is still higher than NT’s (5 per cent) guideline. The municipality provided the following reasons for under spending:

• The municipality reported that the reason for such variances is the increase in the reclassification of the capitalisation threshold from R1 000 to R5 000 which resulted in the operating budget being over spent and capital budget under spent.

• Road transport was under spent by 43.88 per cent due to the external funding which was not received.

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Table 7(c): Actual Acquisition of Property, Plant and Equipment- versus Budget: IMFO


2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 Municipalities that prepared

AFS in terms of IMFO principles R’000 R’000 R’000 R’000 R’000 R’000 % %

Matzikama (medium capacity) 14 231 25 563 44 991 30 935 (30 760) (5 372) (68.37) (17.37)

Bergrivier (medium capacity) 11 492 10 950 22 014 98 884 (10 522) (87 934) (47.79) (88.93)

Breede River/Winelands (medium capacity) 40 785 13 275 48 687 33 206 (7 902) (19 931) (16.23) (60.02)


Kannaland (medium capacity) 1 572 789 8 264 2 361 (6 692) (1 572) (80.98) (66.58)

Oudtshoorn (medium capacity) 46 110 24 110 57 518 40 612 (11 408) (16 502) (19.83) (40.63)

Bitou (medium capacity) 29 509 31 665 89 886 38 620 (60 377) (6 955) (67.17) (18.01)

Knysna (medium capacity) 65 529 45 074 78 651 56 454 (13 122) (11 380) (16.68) (20.16)

Laingsburg (medium capacity) 7 324 12 898 8 854 13 718 (1 530) (820) (17.28) (5.98)

Prince Albert (medium capacity) 5 155 425 10 179 6 065 (5 024) (5 640) (49.36) (92.99)

Beaufort West (medium capacity) 20 403 25 073 32 361 57 094 (11 958) (32 021) (36.95) (56.08)

Cederberg (low capacity) 10 852 7 333 20 657 6 990 (9 805) 343 (47.47) 4.91

Witzenberg (low capacity) 9 420 12 072 19 138 11 758 (9 718) 314 (50.78) 2.67

Cape Agulhas (low capacity) 68 529 16 624 11 408 10 758 57 121 5 866 500.71) 54.53

Swellendam (low capacity) 9 241 7 759 13 813 67 079 (4 572) (59 320) (33.1) (88.43)

TOTAL 361 875 244 267 493 161 488 431 (131 286) (244 164) (26.62) (50)

AVERAGE 24 125 16 284 32 877 32 562 (8752) (16 278) (26.62) (50)

Analysis The table above provides an analysis of actual Property, Plant and Equipment against capital budget per municipality for the 2004/05 and 2005/06 financial years.

The table indicates that all municipalities who prepared the Annual Financial Statements on IMFO under spent on their PPE except Cape Agulhas Municipality, which overspent with variance of 500.71 per cent in 2005/06 financial years.

The total expenditure of all Municipalities in 2005/06 was R361.875 million (2004/05; R244 267 million) that represent an increase of R117 608 million over 12 month period, though spending levels are below the budget for both financial years.

Municipalities indicated that under spending on capital projects was the result of the following:

• The lack of implementation of capital projects in the municipality as a result of scarcity in qualified technical staff, which adversely impact on municipalities’ abilities to develop its infrastructure.

• Some capital projects have to be carried over to 2006/07 financial years, as the funding was not approved. This proves that capital expenditure and financing are not well planned and controlled.

• Delays in environmental studies.

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The excessive variance on Cape Agulhas Municipality in the 2005/06 financial years is the result of Land, which was acquired during the year and not budgeted for, with a value of R59.3 million.

The lack and implementation of service delivery budget and implementation plans (SDBIP) and the monthly monitoring associated with the SDBIP process.

The under spending on PPE could adversely impact on service delivery outcomes.

Table 7(d): Actual Acquisition of Property, Plant, and Equipment - versus Budget: GAMAP/GRAP


2005/2006 2004/2005 2005/2006 2004/2005 2005/2006 2004/2005 2005/2006 2004/2005Municipalities that prepared AFS in terms

of GAMAP/GRAP principles R’000 R’000 R’000 R’000 R’000 R’000 % %

Stellenbosch (high capacity) 102 581 71 404 164 227 105 728 (61 646) (34 324) (37.54) (32.46)

George (high capacity) 141 006 111 493 148 199 0 (7 193) 111 493 (4.85) 0

Drakenstein (high capacity) 124 480 54 317 144 871 67 124 (20 391) (12 807) (14.08) (19.08)

Breede Valley 78 809 49 096 80 220 106 187 (1 411) (57 091) (1.76) (53.76)

Mossel Bay (high capacity) 57 687 42 543 116 814 103 441 (59 127) (60 898) (50.62) (58.87)

Saldanha Bay (high capacity) 58 836 45 419 65 410 56 902 (6 574) (11 483) (10.05) (20.18)

Overstrand (high capacity) 38 300 36 389 44 338 36 460 (6 038) (71) (13.62) (0.19)

Swartland (medium capacity) 41 868 30 563 45 223 47 516 (3 355) (16 953) (7.42) (35.68)

Langeberg/Hessequa (medium capacity) 18 214 18 189 24 996 21 723 (6 782) (3 534) (27.13) (16.27)

TOTAL 661 781 459 413 834 298 545 081 (172 517) (85 668) (20.68) (15.72)

AVERAGE 73 531 51 046 92 700 60 565 (19 169) (9 519) (20.68) (15.72)

Analysis The table above provides an analysis of actual property, plant and equipment against the capital budget for all municipalities that prepares financials on GAMAP/GRAP for the 2004/05 and 2005/06 financial years.

The total expenditure for all municipalities in 2005/06 was R661 781 million (2004/05 R459 413 million) that represents an increase of R202.368 million, though spending levels are below the budget for both years.

All municipalities under spent on PPE George and Breede Valley also under spent, although minimal and municipalities with the variance above 10 per cent reported the following reasons for under spending:

• Mossel Bay Municipality has the highest variance of 50.62 per cent when compared with other municipalities. This is the result of DORA allocation for the housing projects that was not received; certain capital expenditures on roads were transferred to normal repairs and maintenance due to GAMAP 17 requirements.

• Stellenbosh Municipality has a variance of 37.54 per cent in 2005/06. This is due to some ad hoc capital projects that were not implemented as a result of external funding, that have been budgeted for but which did not realise. Budgets are therefore not properly funded and lack credibility.

Hessequa Municipality has a variance of 27.13 per cent, the increase in variance is the result of the following: Some capital projects such as outfall sewerage and pumps were procured at

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lower cost than budgeted, MIG funds allocated were not fully spent and also budget on Housing projects was transferred to operating expenditure.

The under spending on the following municipalities: Overstrand, Swartland and Drakenstein Municipalities is the result of the capital budget, which was not aligned to GAMAP/GRAP principles.

Ratio 8: Debtors Collection Period Purpose: The purpose of this ratio is to calculate the debtors’ collection period of the municipality by comparing the year-end balance of certain consumer debtors with the revenue earned from those debtors during the financial year.

Formula: Consumer debtors before deducting provision for bad debts * 365/Service Revenue.

These figures are found in the statement of financial performance and in note 15 to the AFS.

Table 8(a): Debtors Collection Period: Districts

Consumer Debtors Service Revenue Period

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 District

R’000 R’000 R’000 R’000 R’000 R’000 Days Days Days

West Coast District (medium capacity) 4 899 4 309 4 878 95 200 79 365 82 224 19 20 22

Overberg District (medium capacity) 1 584 1 553 1 428 24 647 23 613 20 927 23 24 25

Central Karoo District (medium capacity) 3 923 3 795 3 449 32 036 29 835 2 315 45 46 544

Eden District (medium capacity) 5 525 5 809 6 725 79 919 70 496 65 429 25 30 38

Cape Winelands District (medium capacity) 23 290 19 651 16 880 131 592 115 985 106 436 65 62 58

TOTAL 39 221 35 117 33 360 363 394 319 294 277 331 39 40 44

AVERAGE 7 844 7 023 6 672 72 679 63 859 55 466 39 40 44

Analysis The table above provides an analysis of debtor’s collection period based on consumer debtors and against service revenue per municipality for the 2003/04, 2004/05 and 2005/06 financial years.

Total consumer debtors for the all district municipalities were R39.2 million in 2005/06 (R35.1 million in 2004/05) which represent an increase of R4.1 million over a year.

West Coast, Eden and Overberg District Municipalities the debtors’ collection period is below 42 days, which is the indication of a good credit policy.

Central Karoo and Cape Winelands District Municipalities the debtors’ collection period is above 42 days (accepted norm); this gives the indication that these district municipalities are unable to collect all outstanding debts if compared to the average collection period of 35 days for the Province.

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Table 8(b): Debtor’s Collection Period: Metro


2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04METRO


City of Cape Town (high capacity) 4 757 539 4 225 962 3 580 909 7 879 672 7 746 213 7 299 740 220 199 179

Analysis The table above provides an analysis of debtor’s collection period based on consumer debtors and against service revenue for the metro for the 2003/04, 2004/05 and 2005/06 financial years.

The total for consumer debtors was R4.8 billion (2004/05: R4.2 billion) that represents an increase of R5.3million and the following reason was provided:

The increase in the collection period is the result of debtors that are more than 180 days not written off. The City is in a process of finalising a write-off policy and once approved will write off all the relevant debtors.

Table 8(c): Debtor’s collection period: IMFO


2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04Municipalities that prepared AFS in terms of IMFO principles


Matzikama (medium capacity) 13 430 10 503 9 222 65 366 52 764 49 296 75 73 68

Bergrivier (medium capacity) 17 424 14 713 12 521 61 015 56 078 51 153 104 96 89

Breede River/Winelands (medium capacity) 36 291 23 821 49 794 151 919 134 593 128 474 87 65 141

Theewaterskloof (medium capacity) 56 007 45 821 38 764 79 169 68 542 65 703 258 244 215

Kannaland (medium capacity) 22 272 18 170 13 838 26 666 26 185 20 650 305 253 245

Oudtshoorn (medium capacity) 50 795 44 686 39 595 133 170 119 566 106 936 139 136 135

Bitou (medium capacity) 26 436 27 619 22 748 116 001 112 856 101 229 83 89 82

Knysna (medium capacity) 41 730 36 611 40 184 199 596 165 260 169 589 76 81 86

Laingsburg (medium capacity) 1 423 5 113 2 652 13 752 9 033 8 011 38 207 121

Prince Albert (medium capacity) 1 772 1 899 1 480 9 912 9 296 8 217 65 75 66

Beaufort West (medium capacity) 31 719 36 513 30 738 62 022 57 051 50 790 187 234 221

Cederberg (low capacity) 31 120 21 234 20 347 46 849 37 979 35 293 242 204 210

Witzenberg (low capacity) 39 805 36 769 34 341 119 253 114 224 102 251 122 117 123

Cape Agulhas (low capacity) 10 252 9 348 8 462 66 538 59 440 51 268 56 57 60

Swellendam (low capacity) 23 146 20 330 19 060 49 012 42 178 37 149 172 176 187

TOTAL 403 622 353 150 343 746 1 200 240 1 065 045 986 009 123 121 127

AVERAGE 26 908 23 543 22 916 80 016 71 003 65 734 123 121 127

Analysis The table above provides an analysis of debtor’s collection period based on consumer debtor and against service revenue from a consolidated provincial average perspective and per municipality for the 2003/04, 2004/05 and 2005/06 financial years.

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The table further indicates that the debtor’s collection period for most municipalities is above the norm of 42 days, except for Laingsburg Municipality. The total consumer debtor for 15 municipalities was R403.6 million in 2005/06 (R353.2 million in 2004/05) that represents an increase of R50.5 million over a year.

The debtors collection period for Laingsburg Municipality has improved drastically to an acceptable norm, but in reference to Auditor-General Report of 2005/06 par. 5.1.1 emphasised the fact that the consumer debtors balance according to the general ledger differed from the consumer debtors balances according to the consumer debtors register, therefore the results of the ratio cannot be relied upon.

Other municipality has a collection period that ranges from 56 days to a maximum of 305 days. Municipalities indicated that the collection period has increased due to the following reasons:

Kannaland Municipality‘s debtor’s collection period increased year on year. The consumer debtors increased at a rate that is higher than the increase in operating income and this indicates ineffective collection of cash from debtors. The Auditor-General qualified the municipality on the recoverability of service debtors outstanding for more than 90 days and suspense accounts amounting to R1.1 million that were included in other debtors.

Theewaterskloof Municipality’s trend analysis shows that the municipality’s collection period has worsened year on year. This resulted from old debts over twenty years from Grabouw Municipality, and the municipality is in the process of writing off these debts.

Cederberg Municipality’s ratio fluctuates year on year and it’s up by 15.22 per cent over three years. The increase is due to credit control policies that are not properly enforced.

Swellendam Municipality is well outside the norm. The Auditor-General’s Report reflects that the Credit Policy has not been developed and implemented.

Beaufort West municipality collection period is very high and it’s placing a strain on the finances of the municipality-affecting economic growth and service delivery. The Auditor-General emphasised in paragraph 6.1 of the 2005/06 Audit reports, the fact that the long outstanding debtors are the main contributor to the poor financial position of the municipality.

Table 8(d): Debtor’s collection period: GAMAP/GRAP


2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04


of GAMAP/GRAP principles R’000 R’000 R’000 R’000 R’000 R’000 Days Days Days

Stellenbosch (high capacity) 70 025 70 584 57 168 305 038 267 080 239 066 84 96 87

George (high capacity) 71 303 79 735 111 928 367 583 302 562 315 761 71 96 129

Mossel Bay (high capacity) 52 882 46 336 55 068 214 689 190 514 197 195 90 89 102

Saldanha Bay (high capacity) 75 973 63 543 59 592 271 488 230 523 152 897 102 101 142

Drakenstein (high capacity) 93 394 99 122 133559 430 975 404 346 376 789 79 89 129

Breede Valley (high capacity) 95 230 103 396 119 674 219 349 196 582 175 239 158 192 249

Overstrand (high capacity) 36 200 38 545 47 965 220 622 202 714 180 339 60 69 97

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2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04


of GAMAP/GRAP principles R’000 R’000 R’000 R’000 R’000 R’000 Days Days Days

Swartland (medium capacity) 17 075 15 923 16 472 123 820 111 685 105 417 50 52 57

Langeberg/Hessequa (medium capacity) 26 299 25 604 21 276 84 307 76 388 63 587 114 122 122

TOTAL 538 381 542 788 622 702 2 237 871 1 982 394 1 806 290 88 100 126

AVERAGE 59 820 60 310 69 189 248 652 220 266 200 699 88 100 126

Analysis The table above provides an analysis of debtor’s collection period based on consumer debtor against service revenue from a consolidated provincial average perspective and per municipality for the 2003/04, 2004/05 and 2005/06 financial years.

The consumer debtors for all municipalities were R538.4 million in 2005/06 (2004/05: R542.8 million) which indicate a decrease of R4.4 million over 12 months. The table above further indicates that all municipalities who prepared AFS on GAMAP/GRAP have outstanding debtors in excess of 42 days, which is an indication that these municipalities are encountering problems with debt collection.

The consolidated provincial average of collection of outstanding debtors improved continuously over three years but is still high at 90 days in 2005/06 financial years. The high debtors collection period is the result of the following:

There is a lack of implementing proper credit policies;

Debtors which are older than 120 days and unlikely to be collectable are not written off, and

Debtor’s collections are of paramount importance in improving the municipality’s financial position and also increasing the capacity for capital expenditure that is necessary to eradicate infrastructure backlogs.

Category C: Debt/Liability Management

Ratio 9: Acid test ratio Purpose: The purpose of this ratio is to provide an indication of the ability of the municipality to meet its short-term obligation (current liabilities) with short-term liquid assets (current assets less liabilities).

Formula: Current assets less Inventory/Current Liabilities and the acceptable norm for this ratio is 1.5:1.

These figures are found in the Statement of Financial Position of the AFS.

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Table 9(a): Acid test ratio: Districts

Current Assets less inventory Current Liabilities Current Assets less Inventory/ Current

Liabilities

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04District Municipalities

R’000 R’000 R’000 R’000 R’000 R’000 Ratio Ratio Ratio

West Coast District (medium capacity) 21 702 23 652 19 747 58 420 60 191 48 986 0.37:1 0.39:1 0.40:1

Overberg District (medium capacity) 34 297 38 644 31 508 18 786 15 744 14 040 1.83:1 2.45:1 2.24:1

Central Karoo District (medium capacity) 11 819 14 857 15 557 9 454 10 800 6 759 1.25:1 1.38:1 2.3:1

Eden District (medium capacity) 79 718 79 399 118 246 28 762 20 748 52 241 2.77:1 3.83:1 2.26:1

Cape Winelands District (medium capacity) 230 631 200 334 164 138 31 299 39 155 24 336 7.37:1 5.12:1 6.74:1

TOTAL 378 167 356 886 349 196 146 721 146 638 146 362 2.58:1 2.43:1 2.39:1

AVERAGE 75 633 71 377 69 839 29 344 29 328 29 272 2.58:1 2.43:1 2.39:1

Analysis The table above provides an analysis of acid test ratio using current assets less inventory against current liabilities method from a consolidated provincial average perspective and per municipality for the 2003/04, 2004/05 and 2005/06 financial years.

The table above shows that three Districts have been below the consolidated provincial average for the three consecutive years. The municipalities provided the following reasons for the decreased ratio:

• The West Coast District Municipality’ current assets less inventory increased by 19.78 per cent from 2003/04 to 2004/05 and decreased by 8.25 per cent from 2004/05 to 2005/06 while current liabilities increased by 22.87 per cent from 2003/04 to 2004/05 and then decreased by 2.94 per cent from 2004/05 to 2005/06 and is still below the consolidated provincial average and also below the norm of 1.5:1 for this ratio. The municipality is in a negative liquidity position and may be unable to settle its short-term obligations. This scenario needs to be remedied.

• The Overberg District Municipality current assets less inventory increased by 22.65 per cent from 2003/04 to 2004/05 and decreased by 11.25 per cent from 2004/05 to 2005/06 while current liabilities increased by 12.14 per cent from 2003/04 to 2004/05 and then increased by 19.32 per cent from 2004/05 to 2005/06. The decrease in the ratio has caused the ratio to be less than the consolidated average, but still more than the norm for this ratio. This is mainly due to a decrease in debtors with debtors over 90 days constitute 26.2 per cent of Total debtors.

• The Central Karoo District Municipality’s current assets less inventory decreased by 4.50 per cent from 2003/04 to 2004/05 and continues to decrease by 20.45 per cent from 2004/05 to 2005/06, while current liabilities increased by 59.79 per cent from 2003/04 to 2004/05 and then decreased by 12.46 per cent from 2004/05 to 2005/06. The municipality should improve its liquidity position.

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Table 9(b): Acid test ratio: Metro

Current Assets less inventory Current Liabilities Current Assets less Inventory/ Current Liabilities

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 METRO

R’000 R’000 R’000 R’000 R’000 R’000 Ratio Ratio Ratio

City of Cape Town (high capacity) 4 056 181 4 002 646 3 394 842 3 241 624 2 998 858 2 613 988 1.25:1 1.33:1 1.30:1

Analysis The table above provides an analysis of the acid test ratio using current assets less inventory against current liabilities method for the metro for the 2003/04, 2004/05 and 2005/06 financial years.

The City of Cape Town Municipality’s current assets less inventory increased by 17.90 per cent from 2003/04 to 2004/05 and continues to increase by 1.34 per cent from 2004/05 to 2005/06, while current liabilities increased by 14.72 per cent from 2003/04 to 2004/05 and continuously increased by 8.1 per cent from 2004/05 to 2005/06, the ratio is still below the 1.5:1 norm. The low ratio is due to the high provision for bad debts and also the increase in creditors. The municipality indicated that the increase in creditors is offset by an increase in cash equivalents.

Table 9(c): Acid test ratio: IMFO

Current Assets less inventory Current Liabilities Current Assets less Inventory/

Current Liabilities 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04


principles R’000 R’000 R’000 R’000 R’000 R’000 Ratio Ratio Ratio Matzikama (medium capacity) 32 423 28 166 30 160 7 791 7 578 6 796 4.16:1 3.72:1 4.44:1Bergrivier (medium capacity) 41 897 35 168 15 864 9 060 13 784 3 596 4.62:1 2.55:1 4.41:1Breede River/Winelands (medium capacity) 94 517 62 483 71 414 28 751 23 593 25 097 3.29:1 2.65:1 2.85:1Theewaterskloof (medium capacity) 31 576 35 673 31 994 20 681 21 789 23 912 1.53:1 1.64:1 1.34:1Kannaland (medium capacity) 30 225 24 843 17 570 12 969 16 478 17 931 2.33:1 1.51:1 0.98:1Oudtshoorn (medium capacity) 78 201 67 621 70 363 23 204 23 867 33 227 3.37:1 2.83:1 2.12:1Bitou (medium capacity) 46 730 33 129 29 785 13 203 25 361 14 677 3.54:1 1.31:1 2.03:1Knysna (medium capacity) 80 427 70 866 87 665 37 448 35 183 32 590 2.15:1 2.01:1 2.69:1Laingsburg (medium capacity) 13 460 15 880 14 824 3 402 900 662 3.96:1 17.7:1 22.4:1Prince Albert (medium capacity) 17 354 15 696 10 949 2 150 1 648 1 112 8.07:1 9.52:1 9.85:1Beaufort West (medium capacity) 34 717 48 513 38 715 25 182 19 549 15 426 1.38:1 2.48:1 2.5:1Cederberg (low capacity) 39 238 24 496 21 426 23 402 10 795 11 896 1.68:1 2.27:1 1.8:1Witzenberg (low capacity) 38 408 12 679 33 620 46 144 20 400 25 218 0.83:1 0.62:1 1.33:1Cape Agulhas (low capacity) 63 070 52 660 44 729 6 865 7 377 5 788 9.19:1 7.14:1 7.73:1Swellendam (low capacity) 25 944 20 344 19 549 3 181 4 166 3 673 8.16:1 4.88:1 5.32:1TOTAL 668 187 548 217 538 627 263 433 232 468 221 601 2.54:1 2.36:1 2.43:1

AVERAGE 44 546 36 548 35 908 17 562 15 498 14 773 2.54:1 2.36:1 2.43:1

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Analysis The table above provides an analysis of acid test ratio using Current Assets less Inventory against Current Liabilities method from a consolidated provincial average perspective and per municipality for the 2003/04, 2004/05 and 2005/06 financial years.

The acid test ratios for the following municipalities have decreased when compared to the previous year and some are below 1.5 and the reasons are provided below:

The acid test ratio for Theewaterskloof Municipality fluctuates each year. The ratio for 2005/06 has decreased when compared to the previous year, as the result of the decrease in current assets less inventory by 11.48 per cent from 2004/05 to 2005/06 while current liabilities decreased by 5.1 per cent from 2004/05 to 2005/06. The municipality indicated that the decrease in the ratio is due to unspent conditional grants, which is also cash backed by short term investments.

The Beaufort West Municipality’s current assets less inventory increased by 25.30 per cent from 2003/04 to 2004/05 but decreased by 28.44 per cent from 2004/05 to 2005/06, while current liabilities continuously increased by 26.73 per cent from 2003/04 to 2004/05 and by 28.81 per cent from 2004/05 to 2005/06, the ratio is weakening year on year and for 2005/06 the ratio is below the 1.5:1 norm. According to the Auditor–General’s report of 2005/06 par. 4.1 the municipality was qualified for unallocated deposits of the R2.2 million which are included in creditors and represents income that should have been allocated to the income statement, due to this error the creditors are overstated and the surplus is understated.

The Witzenberg Municipality’s current assets less inventory decreased by 62.29 per cent from 2003/04 to 2004/05 but increased by 202.93 per cent from 2004/05 to 2005/06, while current liabilities decreased by 19.11 per cent from 2003/04 to 2004/05 and increased by 126.20 per cent from 2004/05 to 2005/06. The ratio is far below the 1.5:1 norm. The Auditor-General’s report for 2005/06 pointed out that inventory was overstated by R255 009. The liquidity position of the municipality is weak and is affected by the recovery of debt and the related provision for bad debt.

The deterioration in the acid test ratio for the above municipalities is the result of non-payment of municipal services that is reflected by high collection period of debtors, which in turn negatively affects the cash flow of the municipality and could seriously affect short-term obligations.

Table 9(d): Acid test ratio: GAMAP/GRAP

Current Assets less inventory Current Liabilities Current Assets less Inventory/ Current Liabilities

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04


GAMAP/GRAP principles R’000 R’000 R’000 R’000 R’000 R’000 Ratio Ratio Ratio

Stellenbosch (high capacity) 179 682 167 320 170 765 75 596 65 523 74 780 2.38:1 2.55:1 2.28:1

George (high capacity) 323 742 251 269 212 122 101 631 87 658 66 454 3.19:1 2.87:1 3.19:1

Mossel Bay (high capacity) 187 023 142 210 112 065 55 955 55 109 41 238 3.34:1 2.58:1 2.72:1

Saldanha Bay (high capacity) 222 903 193 130 148 880 69 446 43 424 24 090 3.21:1 4.45:1 6.18:1

Drakenstein (high capacity) 197 960 214 668 195 527 120 548 89 926 88 308 1.64:1 2.39:1 2.21:1

Breede Valley (high capacity) 72 386 60 155 75 893 39 958 38 721 41 137 1.81:1 1.55:1 1.84:1

Overstrand (high capacity) 158 737 117 610 92 104 102 294 80 926 69 369 1.55:1 1.45:1 1.33:1

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Current Assets less inventory Current Liabilities Current Assets less Inventory/

Current Liabilities

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04


GAMAP/GRAP principles R’000 R’000 R’000 R’000 R’000 R’000 Ratio Ratio Ratio

Swartland (medium capacity) 37 659 30 711 31 234 53 070 22 613 21 766 0.71:1 1.36:1 1.43:1

Langeberg/Hessequa (medium capacity) 56 791 48 480 31 449 25 946 25 838 16 310 2.19:1 1.88:1 1.93:1

TOTAL 1 436 883 1 225 553 1 070 039 644 444 509 738 443 452 2.23:1 2.40:1 2.41:1

AVERAGE 159 654 136 173 118 893 71 605 56 638 49 272 2.23:1 2.40:1 2.41:1

Analysis The table above provides an analysis of acid test ratio using current assets less inventory against current liabilities method from a consolidated provincial average perspective and per municipality for the 2003/04, 2004/05 and 2005/06 financial years.

All the municipalities reflect an acid test ratio that is above 1.5:1 norm except for Swartland Municipality.

Swartland Municipality’s ratio continued to weaken each year, the current assets less inventory decreased by 1.67 per cent from 2003/04 to 2004/05 but increased by 22.62 per cent from 2004/05 to 2005/06, while current liabilities continuously increased by 3.89 per cent and 134.69 per cent respectively. The liquidity position of the municipality has continuously deteriorated as a result of slow collection of outstanding debtors, which negatively affects cash flow management. (It must be noted that while this ratio indicates that the municipality is showing signs of liquidity problems, this is due to the fact that the Post Retirement Benefit Liability is incorrectly classified as a current liability, whilst current investments is disclosed as long term investments.)

The table also indicates that Drakenstein, Breede Valley and Overstrand Municipalities are above the norm 1.5:1 but they are below the consolidated provincial average of 2.1:1. The low ratio is the result of the increase is the slow improvement on the municipal debtors’ collection period. It must be noted that municipalities should continuously improve this ratio to ensure that quality service delivery can be affected.

Ratio 10: Total Liabilities as a percentage of Total Assets Purpose: This ratio gives an indication of the level to which the assets of the municipality have already been utilised in the past, to take up or incur debt.

Formula: Total Liabilities/Total assets

These figures are found in the Statement of Financial Position of the AFS.

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Table 10(a): Total Liabilities as a percentage of Total Assets: Districts

Total Liabilities Total Assets Total Liabilities/Total Assets

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 District Municipalities

R’000 R’000 R’000 R’000 R’000 R’000 % % %

West Coast District (medium capacity) 62 122 64 951 54 651 281 950 256 998 240 884 22.03 25.27 22.69





TOTAL 208 999 201 305 193 040 879 997 691 209 653 091 23.75 29.12 29.56

AVERAGE 41 800 40 261 38 608 175 999 138 242 130 618 23.75 29.12 29.56

Analysis The table above provides an analysis of total liabilities against total assets from a consolidated provincial average perspective and per district municipality for the 2003/04, 2004/05 and 2005/06 financial years.

The table further indicates that all district municipalities are within the consolidated provincial average except for Overberg District Municipality. The ratio for Overberg Municipality has deteriorated by 2.65 and 2.54 percentage points in the 2004/05 and 2005/06 years respectively. An increase in this ratio will have a negative effect on the solvency of the municipality.

The municipality should ensure that they have adequate financial assets to cover their financial liabilities.

Table 10(b): Total Liabilities as a percentage of Total Assets: Metro


2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 METRO

R’000 R’000 R’000 R’000 R’000 R’000 % % %


Analysis The table above provides an analysis of total liabilities against total assets for the metro for the 2003/04, 2004/05 and 2005/06 financial years.

The ratio has improved by 1.26 and weakened by 3.45 percentage points in the 2004/05 and 2005/06 years respectively. For the 2005/06 financial year the total liabilities increased by 14.81 per cent while total assets increased by 7.11 per cent.

The assets increased at a lower rate than liabilities and the municipality indicated that in order to comply with the framework of GAAP it was necessary to provide for future liabilities such as Rehabilitation of landfill sites and Post-retirement medical aid contributions due to GAMAP 19 requirements.

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Table 10(c): Total Liabilities as a percentage of Total Assets: IMFO


2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04Municipalities that prepared AFS in

terms of IMFO principles

R’000 R’000 R’000 R’000 R’000 R’000 % % %

Matzikama (medium capacity) 28 632 26 063 23 060 65 799 60 996 60 686 43.51 42.73 38




Kannaland (medium capacity) 39 420 33 869 35 009 41 377 37 458 32 056 95.27 90.42 109.21




Laingsburg (medium capacity) 3 582 1 068 819 14 235 16 751 15 653 25.16 6.38 5.23

Prince Albert (medium capacity) 2 360 6 883 3 967 18 946 17 684 13 254 12.46 38.92 29.93






TOTAL 875 746 775 644 752 956 1 773 880 1 560 663 1 459 098 49.37 49.70 51.60

AVERAGE 58 383 51 710 50 197 118 259 104 044 97 273 49.37 49.70 51.60

Analysis The table above provides an analysis of total liabilities against total assets from a consolidated provincial average perspective and per municipality for the 2003/04, 2004/05 and 2005/06 financial years.

The table further shows that the ratios vary from 12.46 per cent to 95.27 per cent and the consolidated provincial average for 2005/06 financial year is 49.46 per cent.

The following municipalities have a high ratio that is above the consolidated provincial average: Theewaterskloof, Kannaland, Oudtshoorn, Knysna, Beaufort West, Cederberg and Witzenberg. The table also shows that the increase in these ratios is caused by the increase in total liabilities without material increase in total assets.

The municipalities with the highest ratios are Kannaland and then Witzenberg municipalities, and both these municipalities are qualified by the Auditor-General as indicated in their report of 2005/06 and the following issues were raised:

• The ratio for Kannaland municipality increased by 4.85 percentage points when comparing 2005/06 with 2004/05 financial years, the ratio also shows that in 2005/06 financial year total assets increased by 10.46 per cent though total liabilities increased by 16.39 per cent which shows that liabilities are increasing at a higher rate than assets. The A-G report par. 4.7.2 and 4.7.4 qualifies the municipality due to the unavailability of proper documentation for an amount of inventory could not be determined. This could result in inventory being disclosed incorrectly in the financial statements. Furthermore, no supporting documentation submitted in respect of R1.5 million for capital expenses, consequently, the validity, existence and accuracy of fixed assets account balance

45


amounting to R9.2 million could not be determined. The qualifications included in the A-G Report will affect the results of the ratio.

• The ratio for Witzenberg Municipality increased by 4.93 percentage points when comparing 2005/06 with 2004/05 financial years. The ratio also shows that in 2005/06 financial year total assets increased by 14.28 per cent though total liabilities increased by 21.03 per cent which shows that liabilities are increasing at a higher rate than assets. The A-G report par. 4.2.2 reported that long-term liabilities differed by R418 522 from the balance of the net fixed assets as at 30 June 2006. This possibly resulted from incorrect accounting entries and it could not determine whether fixed assets or long-term liabilities are incorrectly stated.

Table 10(d): Total Liabilities as a percentage of Total Assets: GAMAP/GRAP

Total Liabilities Total Assets Total Liabilities/Total Assets2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04

Municipalities that prepared AFS in terms of GAMAP/GRAP principles

R’000 R’000 R’000 R’000 R’000 R’000 % % %

Stellenbosch (high capacity) 124 827 86 950 97 041 1 117 774 1 034 898 977 619 11.17 8.4 9.93George (high capacity) 240 964 156 645 86 886 785 772 602 286 473 447 30.67 26.01 18.35







Langeberg/Hessequa (medium capacity) 51 869 54 168 40 309 129 357 108 001 79 390 40.10 50.16 50.77TOTAL 1 203 950 990 131 873 370 4 916 731 4 229 288 3 510 667 24.49 23.41 24.88AVERAGE 133 772 110 015 97 041 546 303 469 921 390 074 24.49 23.41 24.88

Analysis The table above provides an analysis of total liabilities against total assets from a consolidated provincial average perspective and per municipality for the 2003/04, 2004/05 and 2005/06 financial years based on GAMAP/GRAP Financial Statements.


The following municipalities have a high ratio that is above the consolidated provincial average: George, Saldana Bay, Breede Valley, Overstrand and Langeberg/Hessequa. The table also shows that the increase in these ratios is caused by the increase in total liabilities without material increase in total assets.

The table also shows that the ratio for Breede Valley, Overstrand and Langeberg/Hessequa has improved when compared with previous years, the improvement in these ratios is because of the effective management of the municipal borrowings, and the material increase in total assets.

Ratio 11: Provision for bad debts compared to total debtors Purpose: The purpose of this ratio is to express the provision for non-recoverable debt as a percentage of the total debt. This is an indication of the municipality’s ability to recover outstanding debts. The higher the percentage provision in relation to total debtors, the less likely the municipality will be able to recover the debt.

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Formula: Provision for bad debts/Total Debtors

The figures are found on the Notes to the Financial Statements

Table 11(a): Provision for bad debts compared to Total debt of the municipality: Districts

Provision for Bad Debts Total Debtors Provision for Bad Debts/Total Debtors

2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 District Municipalities

R’000 R’000 R’000 R’000 R’000 R’000 % % %

West Coast District (medium capacity) 1 959 2 989 2 875 4 899 4 309 4 878 39.99 69.37 58.94

Overberg District (medium capacity) 668 715 500 8 976 7 585 6 612 7.44 9.43 7.56

Central Karoo District (medium capacity) 3 488 1 868 948 3 923 3 795 3 449 88.91 49.22 27.49

Eden District (medium capacity) 12 152 2 194 400 27 760 7 438 8 027 43.78 29.5 4.98


TOTAL 38 641 26 630 19 202 79 620 55 605 58 455 48.53 47.89 32.84

AVERAGE 7 728 5 326 3 840 15 924 11 121 11 691 48.53 47.89 32.84

Analysis The table above provides an analysis of provision for bad debts compared to total debtors of the District municipalities from a consolidated provincial average perspective and per district municipality for the 2003/04, 2004/05 and 2005/06 financial years.


The following municipalities are above the consolidated provincial average:

• Cape Winelands District Municipality’s ratio has increased by 17.28 and 1.73 percentage points in 2004/05 and 2005/06 years respectively. The ratio also shows that in 2005/06 financial year total provision for bad debts increased by 8 per cent and the total debtors also increased by 8.5 per cent which indicates that as the debtor increases the municipality make provision for bad debtors at the same rate as the increasing in debtors.

• Central Karoo District municipality’s ratio has been increasing by 21.73 and 39.69 percentage points in the 2004/05 and 2005/06 years respectively. The ratio also shows that in 2005/06 financial year total provision for bad debts increased by 86.72 per cent and the total debtors also increased by 3.37 per cent which indicates that the municipality is providing more for debtors which is in response to the 2004/05 audit qualification on insufficient provision for doubtful debts.

Table 11(b): Provision for bad debt compared to Total debt of the municipality: Metro


2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 METRO

R’000 R’000 R’000 R’000 R’000 R’000 % % %


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Analysis The table above provides an analysis of provision for bad debts compared to total debtors of the metro municipality for the 2003/04, 2004/05 and 2005/06 financial years.

The ratio has increased by 3.81 and 10.72 percentage points in the 2004/05 and 2005/06 years respectively. The Auditor-General’s Report of 2005/06 par. 5.2 emphasised the concern with the increase in the long outstanding debtors and the increase in provision for debtors, which could lead to the conclusion that the municipality is rendering services to the community without full financial recovery. This ratio is excessive and indicates that a large portion is irrecoverable. The municipality should therefore consider writing off the debts in order to bring it to an acceptable level.

Table 11(c): Provision for bad debts compared to Total debtors of the municipality: IMFO


2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 Municipalities that prepared AFS

in terms of IMFO principles

R’000 R’000 R’000 R’000 R’000 R’000 % % % Matzikama (medium capacity) 6 000 4 000 4 500 19 408 18 709 16 145 30.92 21.38 27.87

Bergrivier (medium capacity) 4 091 2 490 2 093 19 713 15 937 13 559 20.75 15.62 15.44Breede River/Winelands (medium capacity) 15 179 6 153 2 479 43 278 30 807 56 781 35.07 19.97 4.37Theewaterskloof (medium capacity) 38 910 24 769 21 744 62 464 52 872 44 593 62.29 46.85 48.76



Bitou (medium capacity) 13 932 4 478 3 805 26 436 27 619 22 748 52.7 16.21 16.73Knysna (medium capacity) 19 231 16 900 17 651 51 332 49 506 56 146 37.46 34.14 31.44

Laingsburg (medium capacity) 0 0 0 1 423 5 113 2 652 0 0 0Prince Albert (medium capacity) 0 0 0 1 772 1 899 1 480 0 0 0

Beaufort West (medium capacity) 12 973 469 414 31 719 36 513 30 738 40.9 1.28 1.35

Cederberg (low capacity) 0 0 0 31 120 21 234 20 347 - 0 0


Cape Agulhas (low capacity) 3 105 2 725 2 639 10 252 9 348 8 462 30.29 29.15 31.19Swellendam (low capacity) 1 332 1 132 932 23 146 20 330 19 060 5.75 5.57 4.89TOTAL 185 906 124 556 70 093 447 798 392 791 394 718 41.52 31.71 17.76AVERAGE 12 394 8 304 4 673 29 853 26 186 26 315 41.52 31.71 17.76

Analysis The table above provides an analysis of provision for bad debts compared to total debtors of the municipality from a consolidated provincial average perspective and per municipality for the 2003/04, 2004/05 and 2005/06 financial years based on IMFO Financial Statements.


Laingsburg and Prince Albert Municipalities showed no provision for bad debts on their Balance sheet and this would be investigated.


• Theewaterskloof Municipality‘s ratio has improved by 1.91 and deteriorated by 15.44 percentage points in the 2004/05 and 2005/06 years respectively. The movement in the financial year 2005/06 increased the ratio above the consolidated provincial average,

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because of the year-to-year increase in the debtors’ collection period, which has impacted negatively on cash flow as well.

• Oudtshoorn Municipality’s ratio has increased by 50.77 and 3.23 percentage points in the 2004/05 and 2005/06 years respectively. This ratio has been higher than the consolidated provincial average for the past three years. An increase in this ratio in 2005/06 is as the result of a substantial amount of debtors that are outstanding for a long period.

• Bitou Municipality’s ratio has increased by 36.49 percentage points in 2005/06 year and that has caused the ratio to be higher than the consolidated provincial average. The provision for bad debts has increased at a higher rate than the debtors and this is an indication that there is a high chance of non-recovery of debt.

• Witzenberg Municipality’s ratio has increased by 51.98 and decreased by 7.67 percentage points in the 2004/05 and 2005/06 financial years respectively. The high ratio is indicative of irrecoverable debts.

• The high ratio increases the probability that the debts will not be recovered; therefore the municipality should enforce credit control policies and should write-off the debts that are seen to be non-recoverable.

Table 11(d): Provision for bad debts compared to total debt of the municipality: GAMAP/GRAP


2005/06 2004/05 2003/04 2005/06 2004/05 2003/04 2005/06 2004/05 2003/04




George (high capacity) 63 609 77 922 73 673 115 162 126 107 122 617 55.23 61.79 60.08Mossel Bay (high capacity) 33 495 29 137 29 909 52 882 46 336 55 068 63.34 62.88 54.31

Saldanha Bay (high capacity) 56 682 17 321 0 75 973 63 543 0 74.61 27.26 0


Overstrand (high capacity 16 028 19 769 0 36 200 39 229 0 44.28 50.39 0

Swartland (medium capacity) 3 702 2 711 0 17 075 15 923 0 21.68 17.03 0Langeberg/Hessequa (medium capacity) 17 316 11 478 10 861 26 300 25 604 21 276 65.84 44.83 51.05


TOTAL 398 588 329 093 292 347 700 590 644 701 550 886 56.89 51.05 53.07

AVERAGE 44 288 36 566 32 483 77 843 644 701 550 886 56.89 51.05 53.07

Analysis The table above provides an analysis of provision for bad debts compared to total debtors of the municipality from a consolidated provincial average perspective and per municipality for the 2003/04, 2004/05 and 2005/06 financial years based on GRAP financial statements.



The ratio for George Municipality increased by 1.71 and decreased by 6.56 percentage points in 2004/05 and 2005/06 years respectively. Despite the decrease the ratio is still more than the consolidated provincial average. The improvement in the ratio is the result of decrease in the debtor’s collection period. This is a reflection of a good debt management strategy implemented by this municipality.

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The Mossel Bay Municipality’s ratio has increased by 8.57 and 0.46 percentage points in 2004/05 and 2005/06 years respectively and this ratio has been consistently higher than the consolidated provincial average. There has been a substantial increase in the amount of debtors that are long outstanding in 2005/06 financial years. According to the Auditor-General’s report the municipality did not comply with GRAP 9 requirements on recognition of revenue.

The ratio for Breede Valley’s Municipality has increased by 7.8 percentage points in 2004/05 and decreased by 3.95 percentage points in 2005/06 year. The improvement in the ratio is not material, as the ratio is still more than the consolidated provincial average. A large portion of outstanding debtors is made up debtors older than 90 days. The municipality should enforce credit control policies and should write off the irrecoverable debtors. The municipality indicated that the accounting policy for debtors will be profiled per ward as from 30 June 2007 and the doubtful debt provision will be adjusted accordingly.

Langeberg/Hessequa ratio has decreased by 6.22 percentage points in 2004/05 and increased by 21.01 percentage points in 2005/06 year, the ratio is above the consolidated average. The Auditor-General for 2005/06 qualified this municipality, due to no provision for doubtful debts being made on housing loans amounting to R1.2 million. The A-G also emphasised that the municipality is not calculating the provision for doubtful debts in accordance with IAS 39 prescripts.

The ratio for the Saldanha Bay Municipality has increased by 47.35 percentage points as compared to the previous financial year; this increase has caused the ratio to be almost double the consolidated provincial average. The reason for this increase in the ratio is because of the weak municipal debtors’ collection period of 102 days that may place a strain on the revenue stream.

The non-payment of municipal services is a challenge for most municipalities in the Western Cape, which result in bad debts; therefore each municipality should enforce strict credit control policies to ensure that the recoverability of debtors in general improves.

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Chapter 3: Way Forward

3

Way Forward

Municipalities are currently faced with many challenges and most important from an accounting perspective is the migration from the existing accounting system to GRAP. National Treasury‘s Circular No. 44 dated 25 July 2007 extends the phase in period for application of accounting standards to the annual financial statements by the notice in the Government Gazette No. 30013, dated 29 June 2007. The High and Medium Capacity Municipalities should comply with GRAP by 2008/09 and Low Capacity Municipalities by 2009/10. This Circular must be read in conjunction with MFMA Circular 18 dated 23 June 2005 and MFMA Circular 36 dated 11 July 2006.

Municipalities must apply for any deviations from Government Gazette No. 30013 by 31 July 2007 and must prepare a detailed implementation plan setting out its intended course of action towards complying with the exemptions or deviations. PT will monitor all implementation plans as submitted by municipalities to ensure the full implementation of GRAP by 2009/10. The fact that all municipalities in South Africa now have to prepare their financial statements according to GRAP by 2009/10, this will ensure that the information of different municipalities will be comparable.

The areas of concerns arising from the assessment of 2005/06 financial statements of municipalities are highlighted as follows and require further attention:

• The consumer debt of 20 out of 30 municipalities increased over a year, emphasising the general perception that consumers are defaulting on their payments. Total debtors increased by R582 million from 2004/05 (R5.157 billion) to 2005/06 (R5.739 billion) that represents an increase of 11.3 per cent. The provision for total debtors also increased which is an indication that municipalities will be less likely to recover debts, as the large amount of these debtors are long outstanding.

• The consolidated liquidity average has deteriorated from 1,6:1 in 2004/05 to 1,5:1 in 2005/06 financial year, which indicates a decrease when compared to previous year. The deterioration in liquidity is the result of non-payment of municipal services as stated in the preceding paragraph, which negatively affect the cash flow of the municipality and which could seriously have an effect on the ability of municipalities to service their short-term obligations in the future.

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• The overall spending for the 2005/06 financial years on Property, Plant and Equipment in the consolidated results shows a variance of 26.4 per cent in the budget versus actual. The survey conducted on municipalities in respect of under spending on capital projects reveals that capital expenditure and financing are not well planned and controlled.

It is important that municipalities address the aforementioned areas of concern as it could impact on their service delivery imperatives. This will require the stepping up of technical support from provincial government in the form of training and capacity building.

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References

References

Republic of South Africa Local Government: Municipal Finance Management Act. No 56 of 2003

Republic of South Africa: The Constitution, Act 108 of 1996

Republic of South Africa: The Constitution, Act 216 of 1996

National Treasury: MFMA Circular 18 of 23 June 2005

National Treasury: MFMA Circular 36 of 11 July 2006

National Treasury: MFMA Circular 44 of 25 July 2007

Government Gazette No. 30013, MFMA Exemptions 29 June 2007

Annual Financial Statements: Republic of South Africa Local Government: Western Cape Municipalities

Republic of South Africa: Audit Reports, Auditor-General

Journal of the Institute of Municipal Finance Officers

Fourie, M and Opperman, L. 2006. Municipal Finance and Accounting. Van Shaik Publishers

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