38 Capital Commitments
Commitments in respect of capital expenditure
Expenditure approved and not yet contracted: 41 395 872 12 098 528
Infrastructure 41 395 872 12 098 528
Intangible assets - -
The expenditure will be financed from:
Government Grants 41 395 872 12 098 528
Karoo Hoogland Municipality
Notes to the Financial Statements for the year ended 30 June 2015
The municipality has confirmed the above deviations as identified by the external audit process and is currently investigating all expenditure in order to quantify the full extent of the deviations.
2015 2014
R R
39 Retirement Benefit Information
The Cape Joint Pension Fund is a multi- employer plan. This means that there are multiple local authorities that participate in the fund. In terms of GRAP 25, multi-employer plans are defined benefit plans. GRAP 25 also states that when sufficient information is not available to apply defined benefit accounting for a multi-employer plan, an entity will account for the plan as a defined contribution plan.
The Municipality requested detailed employee and pensioner information as well as information on the Municipality's share of the Fund's assets from the Fund administrator. The Fund administrator confirmed that the assets of the Fund are not split per participating employer. Therefore, the Municipality is unable to determine the value of the plan assets as defined in GRAP 25.
As part of the Municipality's process to value the defined benefit liability, the Municipality requested pensioner data from the Fund administrator. The Fund administrator claims that the pensioner data is confidential and was not willing to share the information with the Municipality. Therefore the Municipality was unable to calculate a reliable estimate of the accrued liability.
Cape Joint Pension Fund
The contribution rate payable is 9% by members and 18% by Council. The last acturial valuation performed for the year ended 30 June 2015 revealed that the Fund is in sound financial position.
Defined Contribution Funds
Council contribute SALA Pension Fund and SAMWU National Provident Fund which are defined contribution funds. Current contributions by Council are charged against expenditure on the basis of current service cost.
40 Financial Risk Management
The activities of the municipality expose it to a variety of financial risks, including market risk (comprising fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Municipality's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the municipality's financial performance.
(a) Foreign exchange currency risk
The Municipality does not engage in foreign currency transactions.
(b) Price risk
The municipality is not exposed to price risk.
Karoo Hoogland Municipality
Notes to the Financial Statements for the year ended 30 June 2015
40 Financial Risk Management continued (c) Interest rate risk
As the municipality has significant interest bearing liabilities, the entity's income and operating cash flows are substantially dependent on changes in market interest rates.
The Municipality analyses its potential exposure to interest rate changes on a continuous basis. Different scenarios are simulated which include refinancing, renewal of current positions, alternative financing and hedging. Based on these scenarios, the entity calculates the impact that a change in interest rates will have on the surplus/deficit for the year.
These scenarios are only simulated for liabilities which constitute the majority interest bearing liabilities.
The Municipality did not hedge against any interest rate risk during the current year.
The potential impact on the entity's surplus/deficit for the year due to 2015 2014
changes in interest rates were as follows: R R
1% (2014 - 1%) Increase in interest rate (63 728) (44 598)
0.50% (2014 - 0.50%) Decrease in interest rate 31 864 22 299 (d) Credit risk
Credit risk is the risk that a counter party to a financial or
non-financial asset will fail to discharge an obligation and cause the Municipality to incur a financial loss.
Credit risk consist mainly of cash deposits, cash equivalents, trade and other receivables and unpaid conditional grants and subsidies.
Receivables are disclosed net after provisions are made for impairment and bad debt. Trade debtors comprise of a large number of ratepayers dispersed across different sectors and geographical areas. On-going credit evaluations are performed on the financial condition of these debtors.
Credit risk pertaining to trade and other debtors is considered to be moderate due to the diversified nature of debtors and immaterial nature of individual balances. In the case of consumer debtors the municipality effectively has the right to terminate services to customers but in practice this is difficult to apply.
All rates and services are payable within 30 days from invoice date. Refer to notes 15 and 16 for all balances outstanding longer than 30 days. These balances represent all debtors at year end which defaulted on their credit terms.
Karoo Hoogland Municipality
Notes to the Financial Statements for the year ended 30 June 2015
2015 2014
R R
40 Financial Risk Management continued (d) Credit risk continued
Receivables are pledged as security for financial liabilities.
Financial assets exposed to credit risk at year end are as follows:
Long term receivables 3 474 691 3 342 514
Receivables from exchange transactions 5 175 731 4 739 099
Receivables from non-exchange transactions 1 220 788 1 156 924
Cash and Cash Equivalents 2 918 473 3 149 182
Due to the short term nature of receivables the carrying value disclosed in note 15 and 16 of the financial statements is an approximation of its fair value. Interest on overdue balances are included at prime lending rates plus 1% where applicable.
2015 2015 2014 2014
% R % R
The provision for bad debts could be allocated between the different classes of debtors as follows:
Non-exchange receivables
Rates 19.78 (2 227 620) 23.89 (2 271 747) Exchange receivables
Service charges 80.22 (9 034 571) 76.11 (7 237 794) (11 262 191)
(9 509 541)
Exchange receivables
Service charges - -
The entity only deposits cash with major banks with high quality credit standing. No cash and cash equivalents were pledged as security for financial liabilities and no restrictions were placed on the use of any cash and cash equivalents for the period under review. Although the credit risk pertaining to cash and cash equivalents are considered to be low, the maximum exposures are disclosed below.
The risk pertaining to unpaid conditional grants and subsidies are considered to be very low. Amounts are receivable from national and provincial government and there are no expectations of counter party default.
Long term receivables, Receivables from exchange transactions and Receivables from non-exchange transactions are individually evaluated annually at year end for impairment.
Karoo Hoogland Municipality
Notes to the Financial Statements for the year ended 30 June 2015
2015 2014 40 Financial Risk Management continued
R R
Financial assets exposed to credit risk at year end are as follows:
Long term receivables 3 474 691 3 342 514
Receivables from exchange transactions 5 175 731 4 739 099
Receivables from non-exchange transactions 1 220 788 1 156 924
Cash and cash equivalents 2 918 473 3 149 182
12 789 682
12 387 719 Credit quality of financial assets not past due or impaired:
Long term receivables and trade receivables
Cash and cash equivalents
Credit ratings:
Credit rating
AA 2 918 473 3 149 181
The credit quality of cash at bank and short term deposits, excluding cash on hand that are neither past due nor impaired can
be assessed by reference to external credit ratings (if available) or historical information about counterparty default rates:
Karoo Hoogland Municipality
Notes to the Financial Statements for the year ended 30 June 2015
Trade and other receivables are amounts owing by consumers, and are presented net of impairment losses. The Municipality has a credit risk policy in place, and the exposure to credit risk is monitored on an on-going basis. The Municipality is compelled in terms of its constitutional mandate to provide all its residents with basic minimum services, without recourse to an assessment of creditworthiness, subsequently the Municipality has no control over the approval of new customers who acquire properties in the designated area and consequently incur rates, water and electricity debts.
The credit quality of consumer debtors that are neither past nor due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates.
Referto notes 13, 15 and 16 for the cateforisation of debtors.
The municipality limits its counterparty exposures from its short-term investments (financial assets that are neither past due nor impaired) by only dealing with well-established financial institutions short term credit rating of BBB and long-term credit rating of AA- and higher at an International accredited credit rating agency. The Municipality's exposure is continuously monitored and the aggregate value of transactions concluded is spread amongst different types of approved investments and institutions, in accordance with it's investment policy. Consequently, the Entity does not consider there to be any significant exposure to credit risk.
2015 2014 (e) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities. Due to the dynamic nature of the underlying business, the treasury maintains flexibility in funding by maintaining availability under the credit lines.
The entity's risk to liquidity is a result of the funds available to cover future commitments. The Municipality manages liquidity risk through an on-going review of future commitments and credit facilities.
The table below analyses the entity's financial liabilities into relevant maturity groupings based on the remaining period at the financial year end to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.
2015
Less than 1 year
Between 1