ACCUMULATED SURPLUS

8 MUNICIPAL FINANCIAL VIABILITY AND MANAGEMENT

2) ACCUMULATED SURPLUS

Disclosure of accumulated surplus/deficit Implications of GRAP 3

• There are no longer appropriation accounts. Current practise of processing transactions as

“prior year adjustments” no longer permitted

A statement of changes in net assets must be included in the Annual Financial Statements that will disclose:

the effect of changes in accounting policies and correction of errors

the balance of retained earnings at the beginning of the period and at the balance sheet date, and the changes during the period; and

Reconciliation between the carrying amount of each class of reserves at the beginning and the end of the period.

Since fund accounting is not allowed in terms of GRAP, internal funds and reserves should form part of Accumulated Surplus and should not be disclosed on the face of the Statement of Changes in Net Asset. Municipalities can however disclose in a note to the financial statements the internal funds and reserves that are ring-fenced within the accumulated surplus.

CONCLUSIONS

The Seme Local Municipality recognises that there are Seme residents who, for various reasons, are enduring financial hardship, temporarily or over an extended period of time. As a service to its residents, the Council has committed itself, to launch a campaign that is aimed at determining the extent of the problem, analysing the situation and implementing a Scheme which will alleviate the financial hardship being endured by those members of the community who ultimately comply with the criteria prescribed by the Scheme, but also within the limit of funds received within the central Fescues and provisions made within the budget.

It is therefore necessary that a database to be controlled by the Chief Financial Officer be drawn up in respect of those members of the community who meet the criteria laid down by the Scheme and therefore qualifies for relief concerning the payment of municipal rates and service charges. It is of critical importance that the database provides information, which will enable the Council to assess each application for relief in a fair and consistent manner. The database need to be designed in a way that relief / assistance given to members of the community is carefully monitored and is not abused in any way. It is also essential that the Scheme provide mechanisms whereby members of the community are either encouraged or given incentives to maximise.

8.3 I

NDIGENT

P

OLICY

(2011/2012)

The purpose of this Policy is to provide subsidized services to the indigent household in Dr Pixley Ka Isaka Seme Local Municipality and thus give effect to constitutional and statutory requirements of our country. Such households are those that are unemployed, poverty stricken, living below the subsistence level or whose income is below the amount defined in this Policy.

This Policy will ensure that these households have an access to at least basic Municipal services.

8.3.1 Basis of the Indigent Policy

This Policy is based on section 152(1) (b) of the Constitution of the Republic of South Africa and section 73(1) (c) of the Municipal Systems Act.

8.3.2 POLICY GUIDELINES

• This Policy is applicable in Dr Pixley Ka Isaka Seme Local Municipal area.

• That each qualifying household will be subsidized for 6kl of water, 50Kw of electricity and refuse removal, sewerage and rates to a maximum of R210.00 per month.

• That the account holder may be registered with the ITC/Credit Bureau.

8.3.3 PROCEDURES

Qualifying households:

• A household, which has a total income of all occupants over 18 years of age excluding scholars, of R3 000 or smaller (three thousand rands only);

• Child headed families, places of care, orphanage homes;

• For a household to qualify for a subsidy on rates, the registered indigent must be both the owner and an occupant of the property concerned;

• An Affidavit be required from the SAPS.

• The Indigent relief shall apply for a period not exceeding twelve consecutive months;

• The approved indigent household will have to reapply every year, two months before the end of the approved period of twelve months;

• Only the households where the accountholder/property owner/hirer has registered as an indigent and whose registration has been approved shall qualify for the concessions mentioned under policy guidelines 3;

• To register as an indigent, the relevant applicant or account holder must complete and sign the registration form.

This policy is due to be amended on an annual basis in order to ensure its alignment to the municipal annual budget.

8.4 C

REDIT

C

ONTROL

P

OLICY

The objective of a credit control policy is to encourage payment and to prevent the need for enforcement.

The following policy is submitted for consideration:

1. All service accounts are payable on or before the 15 th of every month. If an account is not paid by the due date, interest at a rate of 15% per annum is raised on the account.

2. If the overdue portion of the account is still unpaid when the next account is rendered, the services shall be suspended without further notice.

3. In the event of resuming the water supply, the consumer shall pay a reconnection fee together with any arrears which may be due. To be received from time to time.

4. After services have been disconnected and a consumer has not reacted and no tampering has taken place, a 14 day letter is sent to the consumer informing him/her of intended legal action to recover outstanding monies.

5. In the event of no reaction on the 14 day letter, the account will be handed over to Council's attorneys. If the consumer is handed over, all legal and collection cost will be for the account of the consumer. (Not applicable to Indigent consumers)

6. Tampering with the metering system would result in:]

- The system being completely removed - A fine is charged

- The full outstanding amount is payable

7. If a consumer defaults more than 3 times within 12 month period and this consumer is not indigent, a Talbot valve should be installed at the consumers cost.

8. No Indigent consumer is allowed to fall into arrears. If the account is more than R70-00 outstanding, the services will be disconnected.

9. Assessment rates

The major source of local taxation is property tax (rates). The owners of properties in municipal arrears have to pay a tax based on valuation of their properties in order to finance municipal services.

Assessment rates and Sundry accounts

If the account is in arrears, a 14 day letter is sent to the consumer. If no reaction is received, the account will be handed over to the attorneys for collection. Indigent accounts will be referred to Council for a directive.

EXTENDED PAYMENT PERIOD

The credit control process automatically continues as determined in the credit control measures.

If after continuation the debtor applies for an arrangement, this may be considered by the

Manager Financial Services or his/her delegate.

However, if services have been discontinued or restricted, such further arrangement will exclude the continuation of the service until the municipality has received full payment.

Arrangements will automatically include the condition that any future monthly accounts are paid by the standard due date.

All negotiated repayments/scheduled arrangements with customers, should be standardized and documented.

POSTPONEMENTS

A postponement will be allowed if a consumer's account has been timeously paid during the previous six (6) months.

No postponements will be allowed if:

It is a new account then no postponement is allowed for a period of 3 months. If a person has not paid regularly during the previous 6 months. People who qualify for Indigent are not allowed postponements.

If a person has been on the cut off list, then he/she may also not arrange to have postponement of payment for the following 6 months. Any person who issued a "Return to Drawer" cheque may not be given postponement. If a person has made a payment arrangement as per Council Resolution, and does not meet the payment, then they will not be allowed to arrange for any further postponement.

If a consumer's account has been handed over to the lawyers for collection, he/she may not arrange for postponement.

DEPOSITS

Deposits must be calculated on an overall average of 2 month's service account. Every year on the 1^st of July the deposit amounts increases with 5%.

No postponements for the paying of connection deposits are allowed, unless ordered by the Financial Manager or Assistant Manager Financial Services.

8.5 S

UPPLY

C

HAIN

M

ANAGEMENT

The supply Chain management policy is put place to ensure that the implementation of the Service Delivery budget implementation plan is implemented as the guidelines set by National Treasury, the MFMA and the regulation of services delivered to the community

(1) All officials and other role players in the supply chain management system of the municipality, must implement this Policy in a way that –

(a) Gives effect to –

(i) Section 217 of the Constitution; and

(ii) Part 1 of Chapter 11 and other applicable provisions of the Act;

(b) is fair, equitable, transparent, competitive and cost effective;

(c) Complies with –

(i) The Regulations; and

(ii) Any minimum norms and standards that may be prescribed in terms of section 168 of the Act;

(d) is consistent with other applicable legislation;

(e) Does not undermine the objective for uniformity in supply chain management systems between organs of state in all spheres; and

(f) is consistent with national economic policy concerning the promotion of investments and doing business with the public sector.

(3) This Policy applies when the municipality (a) procures goods or services;

(b) Disposes goods no longer needed;

(c) Selects contractors to provide assistance in the provision of municipal services otherwise than in circumstances where Chapter 8 of the Municipal Systems Act applies

(4) This Policy, except where provided otherwise, does not apply in respect of the procurement of goods and services contemplated in section 110(2) of the Act, including –

(a) Water from the Department of Water Affairs or a public entity, another municipality or a municipal entity; and

(b) Electricity from Eskom or another public entity, another municipality or a municipal entity.

Amendment of the supply chain management policy

3. (1) The accounting officer must –

(a) at least annually review the implementation of this Policy; and

(b) When the accounting officer considers it necessary, submit proposals for the amendment of this Policy to the council

(2) If the accounting officer submits proposed amendments to the council that differs from the Supply Chain Regulations, Gazette no 27636 issued by the National Treasury, the accounting officer must –

(a) ensure that such proposed amendments comply with the Supply Chain Regulations, Gazette no 27636; and

(b) Report any deviation from the Supply Chain Regulations Gazette no 27636, to the National Treasury and the relevant provincial treasury.

(3) When amending this supply chain management policy the need for uniformity in supply chain practices, procedures and forms, particularly to promote

accessibility of supply chain management systems for small businesses must be taken into account.

Delegation of supply chain management powers and duties

9 (1) The council hereby delegates all powers and duties to the accounting officer which are necessary to enable the accounting officer

(a) To discharge the supply chain management responsibilities conferred on accounting officers in terms of –

(i) Chapter 8 or 10 of the Act; and (ii) This Policy;

(b) to maximise administrative and operational efficiency in the implementation of this Policy;

(c) to enforce reasonable cost-effective measures for the prevention of fraud, corruption, favouritism and unfair and irregular practices in the

implementation of this Policy; and

(d) To comply with his or her responsibilities in terms of section 115 and other applicable provisions of the Act.

(2) Sections 79 and 106 of the Act apply to the sub delegation of powers and duties delegated to an accounting officer in terms of subparagraph (1).

8.6 T

ARIFF

P

OLICY

Introduction

In terms of the White Paper on Local Government municipalities generally need to have access to adequate sources of revenue – either own resources or intergovernmental transfers – to enable them to carry out the functions that have been assigned to them. Municipalities should be encouraged to fully exploit these sources of revenue to meet their developmental objectives. Financial sustainability requires that municipalities ensure that their budgets are balanced (income should cover expenditure).

Given revenue constrains, this involves ensuring that services are provided at levels which are affordable, and that municipalities are able to recover the costs of service delivery. No bailout will be provided to a municipality that overspends its budget and/or fails to put in place proper financial management controls. It is the responsibility of the political leaders to ensure that they set realistic budgets. However, there is a need for subsidization to ensure that poor households, who are unable to pay even a proportion of service costs, have access to basic services.

The Municipality adopts this Policy in order to ensure that it achieves the objectives set out in the White Paper.

Statutory framework

In terms of section 75A of the Local Government: Municipal Systems Act 2000 (Act No.32 of 2000) the Municipality may levy and recover fees, charges or tariffs in respect of any function or service of the Municipality and recover collection charges and interest on any outstanding amount. Once the Council has levied a fee, charge or tariff, notice must be given that the Council has passed in resolution in this regard and the resolution must be made available for inspection.

In terms of section 74 of the Systems Act, the Council must adopt and implement a tariff policy on the levying of fees for municipal services provided by or on behalf of the Municipality. Such a tariff policy must reflect at least the following principles, namely that:

(a) Consumers of municipal services should be treated equitably in the application of tariffs;

(b) The amount individual consumers pay for services should generally be in proportion to their consumption of the service concerned;

(c) Poor households must have access to at least basic services through tariffs that cover only operating and maintenance costs, special tariffs or life line tariffs for low levels of use or consumption of services or for basic levels of service or any other direct or indirect method of subsidization of tariffs for poor households;

(d) Tariffs must reflect the costs reasonably associated with rendering the service, including capital, operating, maintenance, administration and replacement costs, and interest charges;

(e) Tariffs must be set at levels that facilitate the financial sustainability of the service, taking into account subsidization from sources other than the service concerned;

(f) Provision may be made in appropriate circumstances for a surcharge on the tariff for a service;

(g) Provision may be made for the promotion of local economic development through special tariffs for categories of commercial and industrial users;

(h) The economical, efficient and effective use of resources, the recycling of waste and other appropriate environmental objectives must be encouraged;

(i) The extent of subsidization of tariffs for poor households and other categories of users should be fully disclosed.

PRINCIPLES

In setting its annual tariffs the Council shall take into account:

(a) The tariffs applicable for the same or comparable standard of service elsewhere in the economic region; and

(b) Sewerage and refuse removal (solid waste) services shall be set in such a manner that the municipality, as far as possible, covers the cost of rendering the service.

The Municipality shall ensure that its tariffs are fairly applied throughout the Municipality.

Tariffs for the provision of-

(a) Water and electricity shall be set in such a manner that the Municipality realizes a net trading surplus of approximately 10% in each financial year; and

(b) Sewerage and refuse removal (solid waste) services shall be set in such a manner that the Municipality as far as possible covers the cost of rendering the service.

The tariff which a particular consumer pays in respect of water, electricity, sewerage and solid waste services shall therefore be directly related to the standard of service received and the quantity of the particular service consumed.

A trading surplus realized in respect of any service shall be applied (a) In relief of property rates; and

(b) For the partial financing of general services; or

(c) For the future capital expansion of the service concerned; or

(d) Both the partial financing of general services and future capital expansion of the service concerned.

The extent to which these are cross-subsidisation between categories of consumers shall be evident to all consumers of the service in question.

The tariff structure for services shall, in appropriate cases, consists of two parts, namely-

(a) A fixed cost charge, which is an availability levy that is payable regardless of whether or the volume of service that is consumed and which is payable for the availability of the relevant service; and

(b) A variable cost charge, which a charge is directly related to the volume of the service consumed.

Below is the Tariff schedule for the financial year 2012/2013.

Table 36 – Tariff Schedule

DR PIXLEY KA ISAKA SEME MUNICIPALITY