FINANCIAL SERVICES

DEPARTMENT OF FINANCIAL SERVICES INTRODUCTION

The annual report will deal with different aspects as well as certain achievements and problems that were experienced during this year. The Financial Statements for the 2001/2002 financial year will be covered in the report as well as the activities of the Financial Department from 1 July 2001 to 30 June 2002.

The Responsibility of managing the Financial Department was delegated to the following people:

I.J. Haarhoff (Manager Finance)
M. Suliman (Member of the Mayoral Committee Finance)
L. Sebuasengwe (Member of the Mayoral Committee Debt Collection)
A financial department is in essence supporting departments and is therefore evaluated in a different manner than the other functional departments. It is important to understand this concept and to realize that the main duty of a financial department is to provide other departments and decision makers with accurate and up-to-date information about the financial situation of a council. Another very important responsibility of a financial department is to advise council and its departments on financial issues.

MANAGEMENT ISSUES:
The following issues are more related to management than to individual operational sections within the department:

It is important to reflect again on the progress that has taken place since amalgamation of the Klerksdorp, Orkney, Stilfontein and Hartbeesfontein units.
Although some progress was made in the previous reporting period, the process was completed to large extent in this reporting period. The placement of staff, the centralization of activities and the purchase of a bigger computer system were identified in the previous report as still outstanding.
It is with great pleasure that one can report that the placement of staff has been completed and that only a few objections are still under view.
The centralization of the activities in the Financial Department has been completed as far as currently possible - the vacancies that are currently experienced taken into due consideration, however. The new bigger computer was installed and Council decided to opt for a service centre agreement, rather than purchasing its own computer. Most of the staff has been moved to the main office in Klerksdorp and all functional division is now centralized. This will enhance management and will make the operations much easier.

FINANCIAL BUDGETING AND PLANNING:
Klerksdorp was elected as one of 30 pilot sites throughout the country, to be used to transform the budget process and the method of calculating and to present their budget in future.

The budget was presented to Council during June 2002 after a whole process of negotiation and input seeking from the public and other role players. The Integrated Development Plan (IDP) was also approved in April 2002 and revised April 2003. The financial implications of the IDP were taken into calculation with the compilation of the budget for the 2003/2004-budget year.

The following achievements can be recorded on the reform process for Klerksdorp:

Multi-year budget was done;
Budget was IDP Driven;
Capital was linked to IDP;
Cost structure developed in terms of current norms;
Operational plans were submitted for every individual Department;
New format of budget an certain changes to the cost centers were implemented;
Budget Office was established (February 2003) and although not fully staffed at his stage, they are functioning very well;
Tariff policy was developed;
Credit control and debt management policy was developed; and
The budget was presented to Council before the cut-off date of end of May. Council approved the budget during the first week of June.

OPERATIONAL BUDGET FOR THE NEXT THREE YEARS
The Operational budget for the 2003/4 financial year sets a new record of R 447,9 million in comparison with the R393.5 million of the previous year. The following two years are estimated at R488.2 million and R532.1 million. The money will be utilized for Staff expenses (37,3%). Capital loan repayment (9%). Maintenance and repair (3,4%) Purchase of bulk service (28,9%). Contributions to reserves (4%) and General expenses (17,5%)

An amount of R13 million was set aside for subsidy to the indigent consumers and R 10 million for free water (6kl per household). Provision was made for a R13,9 million contributions towards the provision for bad debts. Free electricity has not been catered for in the 2003/2004 budget.

A capital budget for R35.9 million of which R21 million will be used for IDP-related projects.

FINANCIAL STATEMENTS:

Completion
The financial statements for the 2001/2002 financial year were finalized during the year under review. These statements represent the financial position of the new Klerksdorp (KOSH). Although the financial statements were not completed and submitted for audit in time, there were reasons for this. During the discussion with the Office of the Auditor General, it was explained that major differences were discovered after amalgamation with the other units. Some of which would have a material effect on the presentation of the financial statements. The functioning of the four units on different computer system aggravated the situation and before a proper evaluation of the data could be done, it would not be possible to submit a reliable set of statements for audit purposes. It was the agreed with the Office of the Audit General that the discrepancies be corrected and that the 2001/2002 financial statements only be submitted with the 2002/2003 statements at the end of September 2003. The 2001/2002 statements have since been completed are ready for audit purposes. All indications are that the 2002/2003 financial statements will be completed before the end of September 2003. which will again put this aspect back on track.

GAMAP
The financial statements are still in the okt format and will only by compliant to the new format and principles once it is a requirement from the office of the Auditor-General. GAMAP are a set of new principles that will apply to the accounting standards of municipal reporting. A number of staff has been trained in this regard, but further training will need to be done on these changes. The biggest changes that will be made to the current system is the presentation in the financial statements in respect to assets and the reserves and trust funds that will be linked to available cash in the bank. If reserve funds are not backed by a cash deposit in the bank it will not be reflected in the accounts records in future. As far as assets are concerned, they will be depreciated in future over the expected economical life of the asset. In the past, assets of local government were not depreciated The accounting structure is in the process of being adjusted to GAMAP and 2003/2004 is envisaged to be the first year in which GAMAP will be implemented.

AUDITOR REPORTS:

Internal Audit Reports
Internal audit reports were considered regularly by the Audit Committee, which chaired by Cllr.J. Douw. A number of councilors have been appointed to the audit committee and all other councilors are welcome to attend meetings of the Audit Committee at any time.
Although it is still the opinion of the External auditors that they cannot put any reliance on the internal audit section, it is the opinion of this department that reliance can be placed on the function that are provided by the internal audit section. The scope and emphasis of the work that is done by the external auditors differ substantially from that of the internal auditors. A number of training workshops have been attended by the internal audit section also spends a lot of time working together with the external auditors, in an effort to improve their own skills.
The Internal Audit section was re-allocated and reported directly to the Municipal Manager now.

External Audit Reports
The audit report for the 2001/2002 financial year has been received and will be presented to Council soon. The report was previously disqualified because of the non-submission of the financial statements in time. The reason was discussed earlier in the report. Statements have since then been finalized and are ready for audit purposes. This incident must be seen as a result of amalgamation and associated problem

DEBT COLLECTION:
The escalation of the outstanding debtors is of great concern. Council decided to outsource the collection of outstanding debt older than 60 days. Tender were invited and a number of tenders were received. Council decided to appoint the firm TAF Business Solutions. The Contract of TAF has since been terminated and new options are investigated.

The involvement of Council in debt collection is restricted to the disconnection of electricity and the restriction of water supply to non-payers.

STAFF ISSUES
The finance department is currently functioning at 39% under staff capacity. This result of the moratorium that was placed on the filling of vacancies over number of years. Council decided not to fill any position since it became apparent that the amalgamation of the four towns would be inevitable. Since the amalgamation, the placement of staff and the filling of the vacancies were not completed. The shortage of staff has a very negative effect on the functioning of the finance department. It is becoming impossible to cope with the normal activities of the department. The processing of financial information is behind for most of the time, which make it impossible to supply Council with up-to-date information on its financial position.
The shortage of staff is best reflected by indicating the number of staff vacancies. There are currently 74 vacancies in a staff component of 205.

CAPACITY BUILDING:
Staff was trained internally as much as possible. Unfortunately the shortage of staff also played a role in this regard, as people were so busy coping with their workload that there was not enough time to attend training courses. This creates negativity, as the individual feel that no career development is done by Council.
The department did however establish an Internal Training Committee that is having regular meeting. Every section has a training leader that represents a certain group of people within the department. This person assists in the development of each and every person within his group. A logbook is developed, that can eventually be used as a reference to certain competencies that an eventually by used a reference to certain competencies that can individual has developed over a period of time.

ASSET MANAGEMENT:
The identification of assets is nearly completed and values are being attached to the different items. The asset register will be completed in the following reporting period. A team consisting of a private company as well as internal staff is busy with these projects.

FINANCIAL ANALYSIS
The financial situation of Council as 30 June 2003 is still positive, but certain danger sign are starting to emerge and will soon have to receive attention. If not, Council can find itself in very serious financial difficulty very soon. The outstanding debtors will have to be reduced so that more money can be provided for real service provision.
The involvement of the community in the decision making process and an increase in their understanding of the issues at hand is still an enormous task that lies ahead, but it is something that has to be to let people participate and buy-in to the mater of their town.
The latest financial statement (30 June 2002) also indicate that Klerksdorp City Council can Still be evaluated as a going concern. The following extract is provided and can be compared to the previous financial period.

Some of the financial result needs to be highlighted. In general, the increase in the value of funds and reserves was a result of increase that was accrued to them. Contributions of R4 million were done from the operating account and expenditure to the value of R5,5 million was made. The main expenditure was for housing projects. An amount of R4,3 million was spent in this regard from the statutory fund.
The increase in the retained surplus for the year is purely important as a book entry and cannot be interpreted as cash available. The reason being, that accrual basis of accounting is used and does not reflect the effect of non-payment of services accounts.
The huge reduction of R14 million in the long term liabilities is as a rest of the long term loans that will be repaid during the following accounting term. An amount of R13 million was transferred to short-term portion of long term loans.
Fixed assets to the value of R32,5 million were either purchased or developed during the year under review. The net value of fixed assets in the balance statement only increased by R3 million as a result of depreciation.
Cash and investment reduced from R60,2 million to R 59,6 million. If certain non-payments of creditors by the previous units that were in financial difficulty is taken into account, the reduction is not as bad as what would be the case if amalgamation did not take place.
Increase in debtors is the most negative aspect in the financial report. It is that it will have a serious effect on the future sustainability of Council if it cannot be stopped in time. Debtors escalated by R77 million to a figure of R364 million. Provision of R39 million for bad debts was made, which brought the total provision for bad debt to R105,5 million. It is obvious that it has a negative effect on the cash flow situation in general and results in a situation where reserves are used to finance operating expenses. The long-term effect of this will have a serious effect on the operations of this Council. It will also have a huge effect on the lives of the people who are staying in the City.