Celebrating 15. years of Spatial Transformation ANNUAL REPORT 2013/14

Transcription

1 BDEMARCATION MUNICIPAL OARD beyond boundaries ANNUAL REPORT 2013/14 Celebrating 15 years of Spatial Transformation

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3 TABLE OF CONTENTS PART A: GENERAL INFORMATION 4 1 ADMINISTRATION AND CORPORATE INFORMATION 4 2 LIST OF ABBREVIATIONS/ACRONYMS 4 3 STRATEGIC OVERVIEW 5 Vision 5 Mission 5 Values 5 Strategic outcome orientated goals 5 4 LEGISLATIVE AND OTHER MANDATES 6 5 ORGANISATIONAL STRUCTURE MEMBERS OF THE BOARD 6 FOREWORD BY THE CHAIRPERSON 11 7 CHIEF EXECUTIVE OFFICER S OVERVIEW 13 PART B: DEMARCATION REPORT 15 1 FIFTEEN YEARS OF SPATIAL TRANSFORMATION 16 2 MUNICIPAL BOUNDARY DEMARCATION PROCESS 16 3 PRE-LEGAL AND LEGAL PROCESSES IN THE 17 REDETERMINATION OF MUNICIPALITIES 4 TYPOLOGY OF CASES RECEIVED BY THE MUNICIPAL 18 DEMARCATION BOARD 4.1 Type A - Technical and minor boundary 18 redeterminations 4.2 Type B Consolidation and annexation Type C Amalgamation and re-categorization HIGHLIGHTS AND ACHIEVEMENTS Rationalization of the total number of municipalities Deepening democracy through delimitation of municipal 22 wards 5.3 Creating conditions necessary for improved performance 23 through municipal capacity assessments 5.4 Assisting government departments in aligning their 24 service delivery boundaries 5.5 Ongoing compliance with relevant legislative and regulatory requirements PART D: GOVERNANCE INTRODUCTION PORTFOLIO COMMITTEE THE BOARD RISK MANAGEMENT INTERNAL CONTROL UNIT INTERNAL AUDIT AND AUDIT COMMITTEE COMPLIANCE WITH LAWS AND REGULATIONS FRAUD AND CORRUPTION MINIMISING CONFLICT OF INTEREST CODE OF CONDUCT BOARD SECRETARY 42 AUDIT AND RISK COMMITTEE REPORT 43 PART E: HUMAN RESOURCE MANAGEMENT 45 INTRODUCTION 46 HUMAN RESOURCES OVERSIGHT STATISTICS 46 PART F: FINANCIAL INFORMATION STATEMENT OF RESPONSIBILITY REPORT OF THE CHIEF EXECUTIVE OFFICER REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE MUNICIPAL DEMARCATION BOARD 55 PART G: ANNUAL FINANCIAL STATEMENTS 58 PART H: our team 83 PART C: PERFORMANCE INFORMATION STATEMENT OF RESPONSIBILITY FOR PERFORMANCE 26 INFORMATION 7. OVERVIEW OF PERFORMANCE Service Delivery environment Organisational environment Strategic Outcome Orientated Goals PERFORMANCE INFORMATION BY PROGRAMME Programme 1: Operations and Research Programme 2: Financial Management Programme 3: Corporate Services SUMMARY OF FINANCIAL INFORMATION Revenue Collection Programme Expenditure 35 3

4 PART A: GENERAL INFORMATION 1. ADMINISTRATION AND CORPORATE INFORMATION Registered Name The Municipal Demarcation Board Registered Address Eco Origins Office Park Block C1 349 Witch-Hazel Street Highveld 0157 Postal Address Private Bag x123 Centurion 0046 South Africa The 2013/14 MDB Annual Report is also available on Website External Auditors Auditor-General of South Africa Bankers ABSA Bank Limited Head: Legal & Secretariat Unit Ms Regina Masesi Koto Telephone: Facsimile: LIST OF ABBREVIATIONS/ACRONYMS AGSA MDB IEC MEC CEO CFO PFMA TR MTEF AFS SCM Auditor-General of South Africa Municipal Demarcation Board Independent Electoral Commission Member of Executive Council Chief Executive Officer Chief Financial Officer Public Finance Management Act Treasury Regulations Medium Term Expenditure Framework Annual Financial Statements Supply Chain Management 4

5 3. STRATEGIC OVERVIEW Vision The Board s vision is the progressive realisation of ideal structures of local government that are spatially integrated, institutionally sound, functionally viable and developmental in orientation. Mission To perform its functions and to exercise its powers in such a manner as to empower municipalities to fulfil their constitutional obligations, primarily the provision of democratic and accountable local government, and effective, efficient and sustainable service delivery within sound boundaries. Values Accountability Dedication Effectiveness Impartiality Integrity Professionalism Strategic outcome orientated goals To determine and re-determine boundaries of local, district and metropolitan municipalities. Delimitation of wards for all local and metropolitan municipalities for the 2016 local elections. Assessment of the capacity of metropolitan, district and local municipalities. Ensuring good governance and sound financial management. Board supported by effective and efficient organisation, organisational processes, systems and practices. Stakeholder relations. 5

6 4. LEGISLATIVE AND OTHER MANDATES Local Government: Municipal Demarcation Act, 1998 (Act No 27 of 1998) Section 3 provides that the Board is a juristic person, is independent and must be impartial and must perform its function without fear, favour or prejudice. Section 4 provides that the Board must determine municipal boundaries in accordance with this Act and other appropriate legislation enacted in terms of Chapter 7 of the Constitution, and must render an advisory service in respect of matters provided for in this Act and other appropriate legislation. Local Government: Municipal Structures Act, 1998 (Act No 108 of 1998) Delimit wards in compliance with Schedule 1 of the Act. In terms of section 85, the Board must consider the capacity of district and local municipalities to perform their function and to exercise their powers, and provide advice to Members of the Executive Council (MECs) responsible for local government. Section 6 empowers the Board to declare district management areas, and to withdraw such declarations. Cabinet resolutions In 1998, Cabinet resolved that departmental service delivery boundaries must be aligned to constitutional boundaries (national, provincial and local) and should be finalised by departments in consultation with the Municipal Demarcation Board. The Constitution of the Republic of South Africa, 1996 (Act No 108 of 1996) Policy mandates Assistance to government departments to align their service delivery boundaries to municipal boundaries. Court rulings Although there have been several court rulings with respect to the decisions of the Board, none of these rulings have had any impact on operations or service delivery obligations. Reference to the relevant legislation and regulations governing the Board s operations The following legislation and regulations are applicable: Local Government: Municipal Demarcation Act No 27 of 1998, as amended Local Government: Municipal Structures Act No 117 of 1998 Local Government: Municipal Systems Act No 32 of 2000 Generally Recognised Accepted Practice Income Tax Act No 58 of 1962 Value-Added Tax Act No 89 of 1991 Public Finance Management Act No 1 of 1999, as amended Treasury Regulations, March 2005, issued in terms of the PFMA Preferential Procurement Policy Framework Act No 5 of 2000 All practice notes on Supply Chain Management Act Employment Equity Act No 55 of 1998 Basic Conditions of Employment Act No 75 of 1997 Labour Relations Act No 88 of 1998 Promotion of Administrative Justice Act No 1 of 2000 Promotion of Access to Information Act No 2 of 2000 Name of controlling entity The Municipal Demarcation Board is an independent institution and is accountable to Parliament. The Board is mandated in terms of sections 155(3) (b) and 157(4)(a) to determine municipal boundaries, and to delimit wards independently. 6

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8 Receptionist Database Administrator Head: GIS & Database Management Specialist: GIS x2 Specialist: GIS x1 Snr Finance Officer: Financial Accounting & Reporting Finance Officer: Financial Accounting & Reporting Head: Research Research Specialist x1 Snr Finance Officer: Financial Management Snr Supply Chain Management Specialist IT Specialist Finance Officer: Financial Management Supply Chain Management Specialist Jnr IT Specialist Head: Legal & Secretariat Research Specialist x1 Assistant Board Secretary Human Resource Specialist Human Resource Co-ordinator (HRIS) Head: Admin & HR Auxilliary Service Officer Admin Officer Junior Admin Officer Head: Stakeholder Management & Communication Stakeholder Management & Media Relations Specialist 5. ORGANISATIONAL STRUCTURE Executive: Operations & Research Division: Admin Assistant Chairperson: Municipal Demarcation Board PA to Chairperson Chief Executive Officer PA to CEO Chief Financial Officer Division: Admin Assistant Executive: Corporate Services Division: Admin Assistant 8 Head: Determinations & Delimitations Specialist: Determinations & Delimitations x2 Specialist: Determinations & Delimitations x2

9 MEMBERS OF THE BOARD Ms Jane J Thupana (Chairperson) Mr Ashraf M Adam (Deputy Chairperson) Ms Nompumelelo ZH Mpofu Mr Maruping M Wildebees Prof Isobel E Konyn Mr Simphiwe Dzengwa Ms Shivon D Wiggins Mr Lebina D Tsotetsi Ms Mmatsie S Mooki 9

10 MS JANE THUPANA CHAIRPERSON MUNICIPAL DEMARCATION BOARD 10

11 FOREWORD BY THE CHAIRPERSON Determination, re-determination and re-categorization of municipal outer boundaries formally closed in October 2013, culminating in a reduction of municipalities by 11 and creation of a new metropolitan municipality in Gauteng. I present herein my first Annual Report, based mainly on exceptional work that commenced during my predecessor s term of office. During the last quarter, the President of the Republic of South Africa appointed a new team of dynamic Board members, who have accepted their responsibility with zeal to spearhead the spatial transformation agenda for the next five years effective from the 20 th of February Determination, re-determination and re-categorization of municipal outer boundaries formally closed in October 2013, culminating in a reduction of municipalities by 11 and the creation of a new metropolitan municipality in Gauteng. This brings the total number of metropolitan municipalities to 9. This is a noteworthy milestone towards consolidation of the Gauteng City Region, a central principle underpinning spatial planning, economic development and social integration in South Africa s richest and most populous province. While the new re-determinations will take effect from the date of the next local government election in 2016, KwaZulu-Natal and Gauteng, being the most affected provinces, have made great strides with transitional arrangements towards sustainable take off for the new entities. understanding of its scope and mandate through sharing of good practices, particularly in the area of public consultations on electoral boundary reviews. Partnerships have been established with the Local Government Boundary Commissions of Wales and Scotland. Together with the MDB, these Boundary Commissions have committed themselves to a process towards the possible establishment of a Commonwealth Boundary Forum, a collaboration platform for institutions charged with the mandate of municipal and electoral boundary reviews. The Board looks forward to joining hands with all key players in the local government fraternity to establish a sustainable local government sector. To this end, we have adopted a reflective approach to assess the viability of existing municipalities, bring stability into the sector by avoiding frequent alterations of outer boundaries where this can be avoided, strengthen stakeholder engagement and contribute towards deepening of democracy through extensive public participation processes. The year 2013 has ushered a new era of robust public engagements in the fifteen years of the Board s existence. Public feedback mainly in the form of objections, have been a good signal for a maturing democracy that our country is. The Board has also extracted from some of the inputs and objections, lessons that will inform a review of the overall outer boundary re-determination process. MS JANE THUPANA CHAIRPERSON MUNICIPAL DEMARCATION BOARD 30 JUNE 2014 Interactions and engagements with international bodies, through conferences and study tours, have enriched the organization s 11

12 MR DZIVHULUWANI K N LIGEGE ACTING CHIEF EXECUTIVE OFFICER MUNICIPAL DEMARCATION BOARD 12

13 CHIEF EXECUTIVE OFFICER S OVERVIEW As the country celebrates two decades of democracy, the Municipal Demarcation Board is concomitantly celebrating its 15 th anniversary. We are proud to state that since its establishment, the MDB has been instrumental and at the forefront of spatial transformation and deepening the country s local democracy. I am honoured to present the Annual Report and activities of the Municipal Demarcation Board for the 2013/14 financial year. The year 2014 marks 20 years since the dawn of democracy in the Republic of South Africa. As the country celebrates two decades of democracy, the Municipal Demarcation Board is concomitantly celebrating its 15 th anniversary. We are proud to state that since its establishment, the MDB has been instrumental and at the forefront of spatial transformation and deepening the country s local democracy. The Board achieved this, through rationalisation of the total number of municipalities and delimitation of ward boundaries over the past three local elections held in 2000, 2006 and and conducting formal investigations and public meetings before reaching final decisions. In recognition of the need for sustainable municipalities, formal investigations included in-depth financial viability assessments, where necessary. This entire process culminated in 152 municipal boundary redeterminations made by the Board. As a result of these municipal re-determinations, the municipal landscape in the country is set to change in The total number of municipalities will reduce from 278 to 267. These changes will mainly affect the Gauteng and KwaZulu-Natal provinces. Financial management Performance results In terms of the MDB s five-year broad timeframes, the period 2011 to 2013 was earmarked for outer municipal boundary redeterminations, whereas 2013 to 2015 is for delimitation of wards in preparation for the 2016 local government elections. The first phase, which predominantly deals with boundary redeterminations, was finalised during the year under review in October Operations and Research Compared to the previous cycle, municipal boundary requests for re-determination of municipal boundaries increased exponentially from 119 to The Board considered these cases whereafter 204 cases were published in terms of section 26 of the Municipal Demarcation Act inviting views and representation from the public, We are encouraged by the continuous improvement of the institution s audit outcomes. The institution has achieved an unqualified audit opinion. Although we had targeted a clean audit, the Auditor-General raised emphasis of matter relating to incidences of irregular expenditure. This is a noteworthy improvement from prior financial as evidenced by: 95% reduction of the value and incidents of irregular expenditure from R2.6 million in 2012/13 to R during the period under review; Improvement in the management of performance information, reporting and financial management, thereby avoiding material underspending on its budget; The institution achieving more than 80% of its performance targets, and thus no material findings on pre-determined objectives. 13

14 Corporate Services Institutional Challenges The programme on corporate services provides administrative and corporate services, through three sub-programmes. These are Administration and Human Resources, Legal and Secretariat and Stakeholder Management and Communication. This programme gives effect to the institution s strategic objectives by: Ensuring good governance; Attaining optimal performance and a servicefocused culture; and Enhancing stakeholder relations and communication. I am pleased to report that the Legal and Secretariat unit has been fully capacitated so as to ensure that legal services and provision of secretariat services to the Board are optimised. The filling of vacancies within the Stakeholder management unit has also been prioritised and will be achieved at the beginning of the next financial year. Notwithstanding these vacancies, the Board ensured that in discharging its function of re-determination of municipal boundaries, public participation becomes a focal point when consultation takes place. Public meetings were used as an instrument to give effect to public participation. The Board viewed these meetings as an essential and valuable opportunity to advance the democratic principles of transparency and openness in the demarcation process. In this respect, 22 public meetings were held across four provinces where the Board intended to re-determine municipal boundaries. These meetings reached approximately people residing in those affected areas. We are humbled by the interest shown by members of our communities in demarcation matters, and wish to express our gratitude to those who not only attended our forums but participated through submission of their views, making representations and raising objections in relation to proposed municipal boundary re-determinations. Increasingly, the institution is dependent on outsourcing its research activities due to lack of capacity within its core functions. In order to address this gap, recruitment drive has been commenced so as to capacitate the research sub-programme with at least two researchers and a manager. This will allows for gradual reduction in use of consultants on research programmes and outputs. Future plans Our immediate priority is the delimitation of wards in preparation for the 2016 local elections. This process will involve intensive public participation activities through outreach programmes and educational awareness campaigns. appreciation The performance results achieved during the year would not have been possible without the support, oversight and guidance from the leadership, past and present members of the Board. I also wish to thank all employees of the Municipal Demarcation Board, whose dedication and determination have made it possible to serve our country and contribute towards our vision of a sustainable system of local government. I thank you. MR DZIVHULUWANI K N LIGEGE ACTING CHIEF EXECUTIVE OFFICER MUNICIPAL DEMARCATION BOARD 31 JULY

15 PART B DEMARCATION REPORT 15

16 PART B: DEMARCATION REPORT 1. FIFTEEN YEARS OF SPATIAL TRANSFORMATION In the past fifteen years, the Municipal Demarcation Board became the key independent entity in the spatial transformation of the government local structures in South Africa. Prior to 1994, the spatial arrangement of South Africa was characterised by fragmented communities along racial, social and economic lines. This fragmentation of the communities had deleterious effects on the social cohesion and service access levels across the landscape of the country. The promulgation of the Municipal Demarcation Act No. 27 of 1998, and the subsequent establishment of the Municipal Demarcation Board in 1999 were essential interventions in transforming the spatial configuration of the local government environments of South Africa. The mandate of the Municipal Demarcation Board involved the following processes: by the objectives of the Municipal Demarcation Board, which include the following: to reverse the apartheid spatial planning by making the municipalities inclusive to the communities that were previously disadvantaged; to enhance the spatial transformation and spatial justice, which imply that poor communities in informal settlements are delimited together with nearby suburbs to improve integration, and promote equitable and sustainable service delivery to all communities; to enhance integration through wall-to-wall municipalities, thus ensuring that all communities including remote rural areas are part of a municipality and benefits through access to services and representation offered by its council; and to realize the gradual growth of a developmental local government, which sought to look beyond the technical demarcation of boundaries towards a focus on shared services, growth and economic development opportunities between and across municipalities. (i) (ii) demarcation of municipal boundaries, provided for in the Municipal Demarcation Act No. 27 of 1998; and delimitation of municipal wards, provided for in the Municipal Structures Act No. 117 of The determination of the outer municipal boundaries is invariably followed by the configuration of wards that are enclosed within the municipalities. The ward serves as a basic unit for electoral purposes, and it ensures that communities are fairly represented in municipal councils. The function of carrying out the demarcation process is underpinned 2. MUNICIPAL BOUNDARY DEMARCATION PROCESS In terms of the Municipal Demarcation Act 27 of 1998, the Municipal Demarcation Board is responsible for the determination of municipal boundaries of South Africa. Thus, the Board has continued with the programme for municipal boundary redeterminations, which started in 2011/2012 (Figure 1). The review of the municipal boundary has been completed in October 2013 (as shown in Figure 1), which preceded the ward delimitation process to be carried out in preparation for the 2016 local government elections. BROAD PROCESS AND TIMEFRAMES WITHIN THE CURRENT LEGAL FRAMEWORK: Redetermination of municipal boundaries Delimitation of municipal wards Preparation for 2016 local elections Consultation and legal process June 2011 October 2013 Consultation and legal process November June 2015 IEC process July April Figure 1: Municipal boundary demarcation process and timeframes from 2011 to 2016

17 After the redetermination of outer boundaries for municipalities, the subsequent step is to delimit the wards within the municipalities. Delimitation of wards refers to the process of determining the boundaries of areas within which citizens may exercise their constitutional right to vote for their representatives in municipal councils. In this case, the Municipal Demarcation Board is responsible for the delimitation of wards according to the criteria described in Schedule 1 of the Municipal Structures Act No. 117 of The criteria for delimitation of wards are outlined hereunder: Determining the norm for the number of voters in a ward. The norm is obtained by dividing the number of voters for the whole municipality by the number of wards. The number of voters in each ward may not vary by more than 15% upwards or downwards from the norm. The need to avoid as far as possible the fragmentation of communities. To fulfil the objective of a ward as an instrument to enhance participatory democracy in local government. According to the programme in Figure 1, the completed wards will be handed over to the Independent Electoral Commission (IEC) in 2015, as they prepare for local government elections in PRE-LEGAL AND LEGAL PROCESSES IN THE REDETERMINATION OF MUNICIPALITIES In the period under review, the process of redetermination of the municipal boundaries was divided into two main stages, namely the pre-legal (or pre-section 26) and the legal process. The processes of redetermination of municipal boundaries stretched from 2011 to 2013, and they followed the sequence as illustrated in Figure 2 below. Municipal boundary proposals Municipal Demarcation Board, IEC Statistics SA, other stakeholders Section 21(5) Publish final determinations Consultation on proposed boundaries Section 27 and Section 28 Consideration by Board to conduct Investigations and/or public meetings Section 21 Publish Board determinations for objections Pre-section 26 Investigation reports on feasibility of redeterminations Section 26 Legal process Figure 2: The process flow of the municipal redetermination 17

18 The pre-section 26 processes are activities pertaining to re-determination of municipal boundaries prior to the publication of a legal notice (according to section 26 of Municipal Demarcation Act No. 27 of 1998), which notifies the public about the intention of the Board to consider the matter, and inviting written representations and views from the public within a specified period. The pre-section 26 activities include the proposals on changing municipal boundaries from different interested organizations such as Municipal Demarcation Board, Independent Electoral Commission, Statistics South Africa, and affected communities. The Municipal Demarcation Board then considers the proposals and initiates consultations with different stakeholders to record their views. In addition, the Municipal Demarcation Board carries out investigations on the feasibility of some of the proposals on municipal boundary redeterminations. The legal processes are any activities that start with the section 26 notification of determination of municipal boundaries (Municipal Demarcation Act 27 of 1998). According to section 26, the Municipal Demarcation Board publishes a notice in the newspaper circulating in the area affected by the proposed municipal boundary re-determination. Other media, such as radio are also used for the broadcasting of the notice, and further consultation with the MEC for local government, and other interested and affected parties. Thereafter, the process continues to sections 27 and 28 with the Municipal Demarcation Board conducting formal investigations and holding public meetings to clarify and consider views of the public about the proposed redetermination of municipal boundaries. Ultimately, the municipal boundary redeterminations are published by the Board in the relevant Provincial Gazette to solicit objections, in line with section 21 of the Municipal Demarcation Act. The objections are made in writing to the Board within 30 days of publication of the redeterminations and after consideration by the Board, then final redeterminations are published in the relevant Provincial Gazette [section 21(5) of Municipal Demarcation Act 27 of 1998]. The period under review saw Municipal Demarcation Board receiving 558 requests for boundary changes. These requests were presented to local and district municipalities during the visits that took place between August and September The requests were received from local stakeholders in municipalities, while a significant number mostly technical in nature were initiated by the Municipal Demarcation Board in cooperation with stakeholders, such as the IEC and Statistics SA. Statistics SA identified a number of municipal boundaries which required technical alignment to other boundaries or natural features. Municipalities, local communities and other stakeholders were requested to consider these cases as soon as possible, and to forward written representations and views to the Board in relation to affected municipalities. In addition, the MDB invited stakeholders to submit new proposals for boundary changes by not later than 15 December 2011, which was later extended to 20 January In response, additional 470 requests for boundary changes were received by the end of the deadline. These were then discussed with communities, municipalities and other affected stakeholders in the second round of visits between May and July The total number of proposals received for consideration by the Municipal Demarcation Board was These included both minor technical adjustments and significant changes to municipal boundaries. 4. TYPOLOGY OF CASES RECEIVED BY THE MUNICIPAL DEMARCATION BOARD The MDB developed a classification system which differentiates between types of redetermination requests received. These included proposals for the technical and minor boundary redetermination (Type A), consolidation and annexation redetermination (Type B), and amalgamation and re-categorization re-determination (Type C). 4.1 Type A - Technical and minor boundary redeterminations This re-determination entails a small-scale boundary adjustment and/or alignment, which will have: (i) (ii) a minor impact on the geographical area, a negligible or no impact on the number of voters, no impact on the capacity of the affected municipalities. 18

19 The outcome of this redetermination is the correction and/ or alignment of a municipal boundary with physical or natural features, namely: (i) roads, (ii) rivers and mountains, (iii) cadastral boundaries (parent farm boundaries), or (iv) a combination of the three. Alignment to cadastre may be necessary where, for purposes of property valuations and rates, a property has to be under the jurisdiction of one municipality rather than being split between two or more municipal areas. 4.2 Type B Consolidation and annexation This is a medium-scale boundary re-determination that may impact on a sizeable geographic area and on the number of voters in one or all of the municipalities affected. This type of re-determination may impact on ward arrangements, but will not materially impact on the capacity of the affected municipalities to deliver services to communities. The outcome of this type of boundary adjustment is the correction of boundary anomalies that affect service delivery, and to promote integrated communities and economies. 4.3 Type C Amalgamation and re-categorization This type of re-determination entails a major and large-scale municipal boundary redetermination, which has a significant impact on the geographic area, the number of voters and the capacity of the affected municipalities. The redetermination includes the merging of adjacent municipalities or the splitting of municipal areas to create new municipal areas. This type of boundary redetermination requires the MEC responsible for local government to disestablish an existing municipality or municipalities, and establish a new municipality or municipalities. It also includes the declaration of new metropolitan municipalities with or without boundary changes. The re-categorization of a local municipality into a metropolitan municipality must satisfy section 2 of the Municipal Structures Act 117 of 1998 and sections 24 and 25 of the Municipal Demarcation Act 27 of 1998, and may be declared only after consultation with the National Minister for local government, the MEC for local government and the SA Local Government Association (SALGA). Proposals for this type of redetermination must be accompanied by extensive motivation and a significant amount of supporting evidence. During this review period, the total number of proposals were received by the Municipal Demarcation Board, and Table 1 below indicates the number of cases considered by the Municipal Demarcation Board, broken down by province and type of redetermination. Table 1: Total number of cases received by Municipal Demarcation Board, broken down by province and type of redetermination Province Total number of cases Type A Type B Type C Eastern Cape Free State Gauteng KwaZulu-Natal Limpopo Mpumalanga North West Northern Cape Western Cape Total HIGHLIGHTS AND ACHIEVEMENTS 5.1 Rationalization of the total number of municipalities As part of empowering municipalities in carrying out their functions, the Municipal Demarcation Board was involved in the rationalization of municipalities to increase integration and efficiency across the country. During the period of 2004 to 2009, the Board further rationalized the number of municipalities by reducing the total number of municipalities from 283 to 278,, with Mangaung and Buffalo City declared as new metropolitan (Category A) municipalities. This resulted in eight metropolitan areas, 44 district municipalities, and 226 local municipalities during this period. 19

20 During the period 2009 to 2014, the Board determined that an additional Category A municipality be created comprising of Midvaal and Emfuleni local municipalities, bringing the total number of Metropolitan municipalities to nine. The Board also sought to reduce district municipalities from 44 to 43 and local municipalities from 226 to 216. This will result in 267 municipalities in total. The majority of boundary changes will come into effect on the date of the next local government elections in Table 2 below shows the municipalities per province, which were determined during 2006, 2011, and Table 2: Municipalities per province determined during 2006, 2011 and Province Local District Metro Local District Metro Local District Metro Eastern Cape Free State Gauteng KwaZulu-Natal Limpopo Mpumalanga Northern Cape North West Western Cape Totals Grand Totals During the 2013/2014 financial year, the Municipal Demarcation Board carried out the final stages of redetermining municipal boundaries, which involved conducting formal investigations, conducting public meetings, receiving objections, and culminating in the publication of the municipal boundaries in the Government Gazette. The final municipal boundaries were handed over to Independent Electoral Commission (IEC) during November 2013, to allow the Commission to commence its preparations for the local government elections in community, or confirmation of a particular stakeholder s view of the proposed boundary change. The Municipal Demarcation Board ensured that meetings held during April and May 2013 chaired by Board members complied fully with the legal requirements in terms of section 28 of the Municipal Demarcation Act. Public meetings were viewed by the Board as an essential opportunity to advance the democratic principles of transparency and openness in the process of boundary demarcation. Notices of meetings and invitations to attend them were published in the media, and through posters, radio advertisements, and follow-up confirmations were sent to major stakeholders. Starting from April 2013, the formal investigations or public meetings were conducted for some proposals in which communities sought clarity about precise geographic references or exact location of a The value of these public meetings was accentuated by the large number of attendees that they attracted. Table 3 shows the number of public meetings and the approximate number of attendees. 20

21 Table 3: Number of public meetings and the approximate number of attendees Province Re-determination cases that required public meetings Public meetings Approximate attendance Free State Gauteng KwaZulu-Natal Mpumalanga Total During August 2013, the Municipal Demarcation Board re-determined municipalities for a total number of 157 proposals, which resulted in section 21 notices being published in the relevant provincial gazettes. Thereafter, a 39-day period was given for the lodging of objections. At the expiry of objection period, the Board considered all the objections received. Table 4 below shows the number of objections received per province. Table 4: Number of objections received per province Province Number of cases Number of objections Eastern Cape Free State 6 0 Gauteng Mpumalanga 2 4 KwaZulu-Natal Limpopo 7 1 North West 20 0 Northern Cape 21 2 Western Cape 35 1 Total After considering all the objections received, the Board resolved to confirm, withdraw or vary its determinations published on 8 August Table 5 below shows the decisions of the Board on all the cases of redeterminations. Table 5: Cases confirmed, withdrawn and varied by the Municipal Demarcation Board Province Cases Cases Cases confirmed withdrawn varied Eastern Cape Free State Gauteng Mpumalanga KwaZulu-Natal Limpopo North West Northern Cape Western Cape Total In September 2013, the Board finalized the boundary redetermination in terms of section 21(5) of the Municipal Demarcation Act 27 of 1998, and a Circular 3 of 2013 was sent to all stakeholders and published in provincial gazettes. 21

22 5.2 Deepening democracy through delimitation of municipal wards legislative processes that govern the delimitation of wards are denoted in Figure 3 as follows: In preparation for the 2016 Local Government Elections, the Municipal Demarcation Board has started the process of delimiting the municipal wards. The Municipal Demarcation Board has the authority (in terms of Municipal Structures Act No. 117 of 1998) to delimit wards within metropolitan and local municipalities all established as municipalities with sub-councils and/or ward committees. The wards are established to serve as the basic units to afford the citizens of this country the democratic right to vote and be fairly represented at the local government level. The publishing the municipal segment of the national common voter s roll by the Independent Electoral Commission (Electoral Act 73 of 1998), as the basis for determining the number of councillors and subsequently deriving the number of wards; determining the formula for calculating the number of councillors in each municipality by the Minister of Cooperative Governance and Traditional Affairs (COGTA), as provided for in section 20 of Municipal Structures Act 117 of 1998; undertaking the delimitation of municipal wards by applying the criteria outlined in Schedule 1(4) of Municipal Structures Act 117 of 1998; and submitting municipal ward boundaries by Municipal Demarcation Board to Independent Electoral Commission in preparation for the 2016 Local Government Election. IEC provides the municipal segment of the national common Voter s Roll Elections Act 73 of 1998 Ward Delimitation Process in terms of the Municipal Structures Act Minister of COGTA determines formula for number of councillors for metros, districts and local municipalities MSA, Sections 20(1) and (2) Step 1 MECs may deviate from the number of councillors for a municipality MSA, Sections 20(3), (4) and (5) Step 2 Municipal Demarcation Board undertakes the delimitation of ward boundaries MSA, Schedule 1 (Sections 2-5) Step 3 MDB submits ward boundaries to IEC for local government elections Figure 3: Ward delimitation process 22

23 The Municipal Demarcation Board has developed a plan to carry out the ward delimitation during 2013/2014 and 2014/2015 financial years. As depicted in Figure 3, the actual ward delimitation is exclusively dependent on the actions of other participants, namely Independent Electoral Commission, COGTA and the provincial MECs. Currently, the certified common voters roll has been released by the IEC in February 2014, and the Minister of COGTA is expected to publish the formula for determining the number of councillors in June 2014, then the provincial MECs may deviate from the number of councillors determined by the formula (Municipal Structures Act 117 of 1998) before making a publication in the provincial gazette. underlying issues that affect the performance of local government can be identified as follows: (i) the socio-geographic and legacy factors in which the municipality finds itself, for instance a rurally disposed municipality without any economic activities may have its performance constrained; (ii) the capacity that it employs, including resources such as staffing and financial resources, skills and competencies, systems and processes; and (iii) the leadership behaviours of councillors and heads of the executive may be critical in determining the ability of a municipality to perform well. Henceforth, the Municipal Demarcation Board will use the published number of councillors to determine the wards per municipality, and delimit the wards in each municipality according to the norm. As wards in a municipal area are expected to have an equal number of voters, an average number called the norm has to be determined. The norm is derived by dividing the total registered voters for the municipality by the number of wards. During the fourth quarter of the 2013/2014 season, the Municipal Demarcation Board conducted a preliminary ward analysis, using the certified national common voters roll published in February 2014 and the existing formula for determining number of councillors by the Minister of COGTA. The analysis showed that due to an increase in the number of voters countrywide, the number of councillors will probably increase, thus resulting in a rise in the number of wards in some municipalities. This situation implies that there will be a need for spatial reconfiguration of wards (i.e. changing boundaries) in municipalities in order to comply to the norm, i.e. spread equal number of voters in each ward. The analysis served as a precursor to the actual ward delimitation, and it helped the Municipal Demarcation Board in scoping the project in terms of human resources and time required to complete it. 5.3 Creating conditions necessary for improved performance through municipal capacity assessments More than a decade into the implementation of the system of developmental local government, there exists the need to better understand the performance of municipalities in South Africa. The The Municipal Demarcation Board has been conducting municipal capacity assessments annually since 2001/2002. This process was primarily designed to allow the MDB to fulfil the role as outlined in the Municipal Structures Act of 1998 to make recommendations on the adjustment of appropriate functions to the provincial MEC empowered to make such adjustments between district and local municipalities. While the merits of this process with regard to the role of the MDB and that of MEC adjustments can be debated, the municipal capacity assessments have increasingly become a nationally important strategic information resource on capacity in local government. In 2010, the Municipal Demarcation Board commissioned an evaluation and review of the approach and model used by the MDB for capacity assessments since Specifically, the evaluation sought to provide a review and assessment of the following: current municipal capacity assessment model as employed by the MDB; its appropriateness and usefulness in contributing to the effectiveness of developmental local government in South Africa; contents of the reports as produced by the Board, their appropriateness and usefulness in contributing to the effectiveness of developmental local government in South Africa; and how the Board s capacity assessment model and its reports are received and perceived by major stakeholders who have an interest in supporting and improving the efficiency and effectiveness of local government, such as national and provincial departments of local government, National Treasury and relevant parastatals. 23

24 The evaluation was undertaken so as to formulate recommendations for an alternate model, as well as to improve the content of the assessment reports. The result of the change in the assessment model can be seen in the most recent capacity assessment reports reflecting assessment for the 2010/11 municipal financial year. During 2013/2014 financial year, the Municipal Demarcation Board was in the process of commissioning of the next municipal capacity assessment project. 5.4 Assisting government departments in aligning their service delivery boundaries The Municipal Demarcation Board is mandated to serve as an advisory body to service delivery departments, such as the Departments of Justice and Constitutional Development, Health, Education, Home Affairs and the South African Police Services in the alignment of their boundaries to municipal boundaries. resulted in several magisterial district boundaries transgressing provincial boundaries. The Municipal Demarcation Board assisted the department in consulting their affected internal stakeholders and redrawing the affected magisterial districts to align to the provincial boundaries. This was done for the magisterial districts affected by the Limpopo/Mpumalanga provincial boundary. Apart from the Department of Justice and Constitutional Development and the South African Police Services, all other service delivery departments have aligned their boundaries to municipal boundaries. National service delivery departments represented on the Municipal Demarcation Boards Boundaries, Powers and Functions Committee, and are kept abreast of developments around the re-determination of municipal boundaries. 5.5 Ongoing compliance with relevant legislative and regulatory requirements Compliance to legal provisions remains the cornerstone of the Board as an organ of the state. Throughout the year, the Board and its committees provided oversight into compliance with laws and regulations. During 2013/2014, the Department of Justice and Constitutional Development, with the assistance of the Municipal Demarcation Board, produced a set of draft magisterial district boundaries aligned to municipal boundaries for Gauteng and North West Province. These draft boundaries were circulated to all their internal stakeholders to solicit their views. The Municipal Demarcation Board accompanied the department on some consultation meetings with various internal stakeholders and was instrumental in the technical amendment of the draft boundaries and maps in line with input received. The 17 magisterial districts for Gauteng comprising of 17 main seats and 18 sub-districts and the 18 magisterial districts for North-West Province comprising of 18 main seats and 12 sub districts are in the final stage of consultation with an intention to proclaim them by August The Constitution Twelfth Amendment Act 2006 and Constitution Sixteenth Amendment Act 2009, which changed some provincial boundaries in the country, 24

25 PART C PERFORMANCE INFORMATION 25

26 PART C: PERFORMANCE INFORMATION 6. STATEMENT OF RESPONSIBILITY FOR PERFORMANCE INFORMATION Statement of responsibility of Performance Information for the year ended 31 March 2014 The Chief Executive Officer is responsible for the preparation of the Municipal Demarcation Board s performance information and for the judgements made in this information. The Chief Executive Officer is responsible for establishing and implementing a system of internal control designed to provide reasonable assurance as to the integrity and reliability of performance information. In my opinion, the performance information fairly reflects the actual achievements against planned objectives, indicators and targets as per the strategic and annual performance plan of the Municipal Demarcation Board for the financial year ended 31 March The performance information of the institution set out on page 27 to page 35 was approved by the acting accounting officer. MR DZIVHULUWANI K N LIGEGE ACTING CHIEF EXECUTIVE OFFICER MUNICIPAL DEMARCATION BOARD DATE: 31 MAY OVERVIEW OF PERFORMANCE 7.1 Service Delivery environment The primary areas of performance for the period were: A. Municipal Boundary Review The Municipal Demarcation Board continued with the municipal boundary re-determinations process. In April 2014, the Board commenced with formal investigations. The investigation process was completed in September In the period commencing in April to May 2013, the Board also went on an extensive public consultation process. Public meetings or hearings were conducted to advance the democratic principles of transparency and openness in the process of boundary demarcation. These meetings gave communities the opportunity to make their views on proposals that affected them and their environment, and further enabled the Board to provide additional clarity and information where required and to correct misperceptions about the demarcation process. The value of these public meetings was amply demonstrated by the enthusiastic and full-house attendances which they attracted. A total of 152 redeterminations were finalised and published in the provincial Gazettes in terms of section 21(5) of the Act. These determinations resulted in changes on the number of municipal boundaries of KwaZulu-Natal and Gauteng Provinces. In 2011, KwaZulu-Natal had 50 local municipalities and according to the latest redeterminations the province will have 43 local municipalities in Gauteng had seven local municipalities in 2011 and according to the latest redeterminations Gauteng will have three local municipalities. Gauteng will now have an extra metropolitan municipality to a total of four. In 2011, Gauteng province had two district municipalities and there will be only one district municipality in

27 B. Municipal Ward Delimitation Preparatory work on the ward delimitation process was begun after a national stakeholder workshop was held in November Provincial officials from departments responsible for local government, SALGA, Statistics South Africa, COGTA, etc. attended the workshop. A draft ward delimitation plan was also finalised and consulted and shared with stakeholders. 8. PERFORMANCE INFORMATION BY PROGRAMME 8.1 Programme 1: Operations and Research Provides management of all processes in pursuit of the legislative mandate of the Municipal Demarcation Board, and includes: C. Municipal Capacity Assessments The project did not commence during the 2013/14 financial year. 7.2 Organisational environment The Board has started the process of re-organization of the institutional administrative structures, which involve changing the way things are done in a number of core work areas. The Board s intention is to fully implement a new organizational structure and the process of recruiting mission critical positions is underway. 7.3 Strategic Outcome Orientated Goals Determination and re-determination of municipal boundaries, Appropriate categorisation of municipalities, Advisory service on the alignment of service delivery boundaries to municipal boundaries, Declaration and withdrawal of declaration of district management areas, Delimitation of municipal wards for local government elections, Oversee the process to assess the capacity of municipalities to perform their functions, and render advise to MECs to adjust powers and functions between districts and local municipalities. To determine and re-determine boundaries of local, district and metropolitan municipalities. Delimitation of wards for all local and metropolitan municipalities for the 2016 local elections. Assessment of the capacity of metropolitan, district and local municipalities. Ensuring Good Governance and sound financial management. Board supported by effective and efficient organisation, organisational processes, systems and practices. Stakeholder relations. 27

28 28 Key Performance indicators, planned targets and actual achievements Strategic Objective: To determine and re-determine boundaries of local, district and metropolitan municipalities Comment on deviations Deviation from planned target to Actual achievement for 2013/14 Actual achievement 2013/14 Status Planned target 2013/14 Actual achievements 2012/13 Performance Indicator Achieved N/A N/A N/A 30 September 2013 Formal investigations reports were completed 1.1 Date of completion by 15 July of formal investigations Twenty-two Section 28 public meetings were for Local, District conducted, reports written and tabled with the and Metropolitan Board. All formal investigations reports were municipalities considered by the Board on 30 July Turnaround time N/A Publish section 21 notices All nine provincial section 21 notices gazettes Achieved N/A N/A were published on 08 August 2013, eight days in provincial gazettes for all for administrative after the Board decided to re-determine in cases approved by Board purposes terms of section 21. by end of August Percentage N/A Consider and process 100% The Board considered and process 100% of Achieved N/A N/A objections received, amounting to of objections to section of objections 21 notices by end of considered Objections were considered by the Board on 25 September 2013 September Turnaround time N/A Publish section 21(5) notice Section 21(5) notices were prepared and Achieved One month after The target was missed by a couple of days, due to for administrative in Provincial Gazettes for all competed in September the target date of the volume of cases under consideration. September 2013 cases approved by Board purposes The delay had no impact on the IEC processes Provincial gazetted appeared in October by end of September 2013 in preparation for 2014 National and Provincial elections.

29 Strategic Objective: To determine and re-determine boundaries of local, district and metropolitan municipalities Performance Indicator Actual achievements 2012/13 Planned target 2013/14 Actual achievement 2013/14 Status Deviation from planned target to Actual achievement for 2013/ Date of handover of N/A Provide IEC with national Provincial municipal data sets were completed Achieved N/A N/A national municipal municipal dataset by 30 and handed over to LETC by September dataset September Number of N/A Two discussion papers Produced two discussions papers on: Achieved N/A N/A discussion papers published published by the Board Ward delimitation process; and Impact of registered voters on number of municipal ward for Analysis and alignment of the data to our GIS was conducted. This is part of a larger project embarked upon between the MDB and the COGTA. As a first step in the project, a status quo report listing all the traditional councils and the municipalities in which they are located, was prepared. 1.8 Development and N/A Implementation Plan Ward delimitation plan and Ward delimitation Achieved N/A N/A adoption of a policy approved by Board policy were developed and approved by the document Board in January Comment on deviations 29

30 Strategic Objective: Assessment of the capacity of metropolitan, district and local municipalities Performance Indicator Actual achievements 2012/13 Planned target 2013/14 Actual achievement 2013/14 Status 1.9 Number of municipalities where data has been collected N/A 278 municipalities in SA Tendering processes were concluded in the 4 th quarter. No work was commissioned. Not Achieved 1.11 Number of comparative reports per Local, District and Metropolitan Municipality N/A 278 municipalities Tendering processes were concluded in the 4 th quarter. No work was commissioned Not Achieved 1.12 A national report on trends of municipal capacity N/A 1 National Report Tendering processes were concluded in the 4 th quarter. No work was commissioned Not Achieved Deviation from planned target to Actual achievement for 2013/14 Municipal data has not been collected Comparative reports were not completed National report on trend of municipal capacity was not completed Comment on deviations The project is outsourced due to lack of internal capacity within the Research unit. Due to delays in tendering processes, there was no service provider in place to carry out the project. The project will be commissioned during the next financial year. The project is outsourced due to lack of internal capacity within the Research unit. Due to delays in tendering processes, there was no service provider in place to carry out the project. The project will be commissioned during the next financial year. The project is outsourced due to lack of internal capacity within the Research unit. Due to delays in tendering processes, there was no service provider in place to carry out the project. The project will be commissioned during the next financial year. 30

31 Strategy to overcome areas of under performance The primary root causes for under performance is lack of capacity within the Operations and Research division. This is as a result of 100% vacancy rate within the Research unit. This unit is responsible for research and assessment of municipal capacity. For the period under review, this unit did not have a Head and two research specialists. In order to address under performance in certain the areas, the following corrective measures are underway: Recruitment of Head of Research unit and 2 research specialists is underway, and it expected that by August 2014, the entire unit will have personnel; Development of Standard Operating Procedures for the Municipal Boundary re-determination and ward delimitation processes; Concluding memoranda of understanding (MoUs) with mission critical institutions such as the Independent Electoral Commission (IEC) and the Financial and Fiscal Commission (FFC); g. Deleted sub-programme 1.10: Number of qualitative indepth assessment reports completed per district. h. Added sub-programme 1.11: Number of comparative reports per Local, District and Metropolitan Municipality. i. Added sub-programme 1.12: A national report on trends of municipal capacity. j. Revised sub-programme 1.8 by extending completion date from 3 rd quarter to 4 th quarter, and by expanding target to Finalise the review of policy, guidelines & implementation plan. k. Revised sub-programme 1.10 by extending completion date from 3 rd quarter to 4 th quarter. Changes to planned targets Revisions of targets based on performance, financial and nonfinancial resources available were as follows: a. Revised sub-programme 1.2 from 15 days turnaround time to completion date of publishing of section 21 notices. b. Revised sub-programme 1.3 by re-wording of the target to Consider and process 100% of objections by end of September c. Revised sub-programme 1.5 to Provide IEC with national municipal data set by 30 September d. Deleted sub-programme 1.6: Model for categorisation of metropolitan municipalities is developed and approved by target date e. Revised sub-programme 1.9 by extending completion date from 2 nd quarter to 3 rd quarter. f. Revised sub-programme 1.10 by extending completion date from 3 rd quarter to 4 th quarter and increased the number of reports from 22 to 44 district reports. 31

32 Programme 2: Financial Management Provides policy leadership, advice and core support services, including: Financial management, Financial Reporting, Supply chain management, Risk Management. Key performance indicators, planned targets and actual achievements Strategic Objective: Ensuring sound financial management Comment on deviations Deviation from planned target to Actual achievement for 2013/14 Status Actual achievement 2013/14 Planned target 2013/14 Actual achievements 2012/13 Performance Indicator 2.1 Current ratio Current ratio of 10:1 2:1 5:1 Achieved None None 2.2 Annual and mid-term budget 100% Mid-term review completed Mid-term reviews compiled Achieved None None reviews completed by deadline as per National Treasury guidelines and instructions MTEF and ENE submitted to National Treasury by deadline, 100% accurate, current and complete 2.3 Monthly Financial Reports N/A 100% Monthly financial Monthly financial reports Achieved None None are compiled in accordance reports are accurate, were prepared and submitted with related legislation and complete, and reliable & to relevant governance submitted to business units/ submitted within deadline. structures. stakeholders on time. 2.4 Goods and services are N/A 100% no irregular Irregular expenditure incurred Not 5 (Five) transactions were identified as irregular A register of deviations has been procured within the related expenditure. during the current financial achieved expenditure due to lack of approval of deviations put in place to ensure monitoring legislative year, amounting to R from SCM procedures and Treasury regulations. of deviations by management and Audit and Risk Committee 2.5 Internal Audit rating 2.6 average internal 2 Achieved 2.4 average internal Partially 5 (Five) internal audits were performed, of which 3 An audit register and audit rating audit rating achieved (three) audit outcomes achieved the target rating implementation of audit of 2, whereas 2 (two) other audits achieved an audit recommendation is in place to outcome of 3. ensure continuous improvement in internal controls There has been an overall improvement of internal controls across programmes. 2.6 Actual expenditure to revenue 82% actual Within 5% variance Achieved 3.6% variance of Achieved None None received expenditure to actual expenditure to revenue revenue received. received.

33 Strategic Objective: Good Governance Comment on deviations Performance Indicator Actual achievements 2012/13 Planned target 2013/ Audit Opinion by the AG Unqualified Unqualified with no emphasis of matter Deviation from planned target to Actual achievement for 2013/14 Status Actual achievement 2013/14 Implementation of internal controls within the SCM unit, resulted in 95% or R2.5 million reduction of irregular expenditure compared to prior year. Emphasis of matter was reported by the Auditor General as a result of irregular expenditure and noncompliance % compliance with all relevant legislative, regulatory and policy requirements Unqualified audit opinion Partially achieved Implementation of internal controls within the SCM unit, resulted in 95% or R2.5 million reduction of irregular expenditure compared to prior year. Irregular expenditure incurred during the year. N/A 100% compliance with all relevant legislative, regulatory and policy requirements Partially achieved Incidences of non-compliance were reported by the Auditor General, as a result of irregular expenditure only. Achieved None None Risk register is in place and updated on a quarterly basis 2.9 Risk Register N/A Compilations of a consolidated risk register for the Board Strategy to overcome areas of underperformance Although there has been an improvement on certain areas of under-performance such as Supply Chain Management and overall internal controls within the institution, the following corrective measures are under way for implementation during the next financial year: An audit register and implementation of audit recommendation is in place to ensure continuous improvement in internal controls; SCM policy has been amended, deviation register developed and checklist put in place to avoid non-compliance to treasury regulations. Changes to planned targets Revisions of targets based on performance, financial and nonfinancial resources available were as follows: a. Revised wording for sub-programme 2.10 to Update Quarterly Risk register for Q2 and Q4 targets. 33

34 8.3 Programme 3: Corporate Services Human resources and administration, Legal and Board secretariat Information and management services, including IT Communication and stakeholder management Corporate planning Project management Key performance indicators, planned targets and actual achievements Strategic Objective: Board supported by effective and efficient processes, systems and practices Performance Indicator Actual achievements 2012/ Employee Assistance programme 3.2 Percentage of employees assessed 3.3 Conduct employee satisfaction surveys Planned target 2013/14 Actual achievement 2013/14 N/A Four EAP interventions Four EAP programmes concluded. 100% 100% of employees assessed Deviation from planned target to Status Actual achievement for 2013/14 Achieved None None 100% of employees assessed Achieved None None Two surveys conducted during the year. One survey One survey conducted Achieved None None 3.4 Training and development 67% 100% of employees to attend training 3.5 HRM Information systems N/A 100% of reliable and accurate information retrieved from information systems 3.6 Compliance with employment equity legislation 3.7 Maintain an internship programme 3.8 Stakeholder relations strategy in place 3.9 Implement stakeholder engagement plan 3.10 Communication strategy in place All employees participated in training initiatives Achieved 100% of reliable and accurate information retrieved from information systems N/A 100% Achieved 92.50% employment equity N/A 100% of objectives designated for interns to be achieved Stakeholder relations strategy, engagement plan and communication strategy was implemented successfully throughout the year. 75% - various meetings/ engagements with stakeholders attended by Chairperson, Deputy Chairperson, Board members and/or CEO Stakeholder relations strategy, engagement plan and communication strategy was implemented successfully throughout the year. Stakeholder relations strategy in place Engagement with stakeholders Develop communication strategy Achieved 100% of internship objectives Stakeholder relations strategy approved by Board. 33 public meetings held. Various stakeholder engagements held None Not achieved Achieved None None Achieved None None Achieved None None Achieved None None Achieved None None Achieved None None Communications strategy not developed Comment on deviations The strategy was not put in place due to vacancy rate within the unit 34

35 Strategy to overcome areas of under performance Changes to planned targets In order to address under performance in certain the areas, the following corrective measures are underway: Revisions of targets based on performance, financial and nonfinancial resources available were as follows: Recruitment of Head of Stakeholder management and Communication and is underway, and it expected that by August 2014, the entire unit will have personnel; a. Revised sub-programme 3.8 by replacing Implement strategy with conduct awareness campaign for ward delimitation b. Revised sub-programme 3.10, Annual target by replacing Engagement with communication stakeholders with Develop communication strategy 9. SUMMARY OF FINANCIAL INFORMATION 9.1 Revenue Collection 2013/ /13 Sources of revenue Estimate Actual collected (Over)/ Under collection Estimate Actual collected (Over)/ Under collection R 000 R 000 R 000 R 000 R 000 R 000 Grants and subsidies Sale of goods (16) Interest received Other Income Total Programme Expenditure 2013/ /13 Programme Budget Actual expenditure (Over)/ Under expenditure Budget Actual expenditure (Over)/ Under expenditure R 000 R 000 R 000 R 000 R 000 R 000 Programme 1: Operations & Research Programme 2: Financial Management Programme 3: Corporate Services (503) Total

36 PART D GOVERNANCE 36

37 PART D: GOVERNANCE 1. INTRODUCTION The Municipal Demarcation Board ( the Board ) is an independent institution whose members are appointed for a term of five years. Members of the Board, and the Chairperson and Deputy Chairperson are appointed by the President of the Republic of South Africa, after a selection process which is laid out in section 8 of the Municipal Demarcation Act No 27 of 1998, for a term. The functions and general powers of the Board are outlined in detail in the Local Government: Municipal Demarcation Act (Act 27 of 1998). In terms of section 55 of the Constitution, the Local Government: Municipal Demarcation Act, 1998 and the Local Government: Municipal Structures Act, 1998, and independent authority responsible for: The determination and re-determination of municipal boundaries The delimitation of wards for local elections The declaration of district management areas, and the withdrawal of such declarations The assessment of the capacity of district and local municipalities to perform their functions The rendering of an advisory service in respect of matters provided for in the applicable legislation. In addition, Cabinet mandated the Board to assist government departments to align their service delivery boundaries to municipal boundaries. The Municipal Demarcation Board accepts that good corporate governance is essential to support the interests of its stakeholders. The Board therefore always aspires to conduct its business with integrity, and is committed to applying and enforcing appropriate corporate governance principles, policies and practices, in accordance with the guidelines of the King Report on Corporate Governance, PORTFOLIO COMMITTEE In terms of Section 39 of the Local Government: Municipal Demarcation Act, 1998 the Municipal Demarcation Board is accountable to Parliament, and must annually submit to both Houses of Parliament a written report on the activities of the Board. This report must be submitted within six months after the end of the financial year, and must include audited financial statements. The Municipal Demarcation Board was invited and briefed the Portfolio Committee on Co-operative Governance and Traditional Affairs on two occasions during the year under review. 3. THE BOARD Members of the Board, and the Chairperson and Deputy Chairperson are appointed by the President of the Republic of South Africa, after a selection process which is laid out in section 8 of the Municipal Demarcation Act No 27 of 1998, for a term. There is no limit to the number of terms a member of the Board may serve, but any reappointment of a member of the Board is subject to the conditions and procedures set out in section 8 of the Local Government: Municipal Demarcation Act, No 27 of 1998 ( Demarcation Act ). The Board must be impartial and perform its function without fear, favour or prejudice. The Board operates either as a full Board, through its Chairperson, or through a number of its committees. Board Charter The Board is the focal point of the MDB s corporate governance system and remains ultimately accountable and responsible for the performance and affairs of the MDB. The Board is therefore committed to upholding good corporate governance in all of its business dealings with regards to its shareholder, regulatory authorities and other relevant stakeholders. To this end, the Board adopted the Board Charter. The purpose of the Board Charter is to regulate how business is to be conducted by the Board in accordance with the principles of good corporate governance. The Board Charter sets out the specific responsibilities to be discharged by the Board members collectively, and the individual roles expected from them. The Board recognises that with regards to corporate governance, it is critical that substance prevails over form, and in applying the principles contained in this Board Charter, the Board will be guided by the principles and recommendations contained in the King lll Report and established standards of best governance practice. 37

38 Composition of the Board Membership of the Municipal Demarcation Board for the five year term spanning the period 20 February 2009 to 19 February 2014 was as follows: Name Designation Appointed Date Resigned/ term ended Other Committees Number of Board meetings attended 2013/14 Landiwe J Mahlangu Board Chairperson 20 February February 2014 Executive Committee 9 Nondumiso Gwayi Deputy Board Chairperson 20 February February 2014 Executive Committee; Boundaries, Powers & Functions Committee. 9 Nicolaas C Steytler Board member 20 February February 2014 Remuneration and Human Capital Committee. 6 Khosi TJ Ramovha Board member 20 February February 2014 Executive Committee; Audit and Risk Committee Remuneration and Human Capital Committee. 4 Lebina D Tsotetsi Board member 20 February February 2014 Audit and Risk Committee Remuneration and Human Capital Committee. 9 Sumaya GS Castle* Board member 20 February 2009 May 2013 Audit and Risk Committee; Boundaries, Powers & Functions Committee. 0 Wendy L Ovens Board member 20 February February 2014 Audit and Risk Committee; Boundaries, Powers & Functions Committee. 7 Lynelle K John Board member 20 February 2009 August 2012 Audit and Risk Committee; Remuneration and Human Capital Committee; Boundaries, Powers & Functions Committee. 0 Ashraf M Adam Board member 20 February February 2014 Audit and Risk Committee; Boundaries, Powers & Functions Committee. 5 Vuyo Mlokoti Board member 20 February 2009 November 2009 Boundaries, Powers & Functions Committee. 0 * During the financial year the Municipal Demarcation Board endured the unfortunate passing of Ms Sumaya GS Castle in April

39 The following Municipal Demarcation Board assumed office on 20 February 2014, and will remain in office until 19 February Membership is as follows: Name Jane J Thupana Ashraf M Adam Designation Board Chairperson Deputy Board Chairperson Appointed Date Resigned/ term ended Other Committees Number of Board meetings attended 20 February 2014 Executive Committee 1 20 February 2014 Executive Committee; Boundaries, Powers & Functions Committee. Isobel E Konyn Board member 20 February 2014 Remuneration and Human Capital Committee. Lebina D Tsotetsi Board member 20 February 2014 Audit and Risk Committee; Boundaries, Powers & Functions Committee. Nompumelelo ZH Board member 20 February 2014 Remuneration and Human Capital Mpofu Committee; Boundaries, Powers & Functions Committee. Simphiwe Board member 20 February 2014 Audit and Risk Committee; Boundaries, Dzengwa Powers & Functions Committee. Shivon D Wiggins Board member 20 February 2014 Remuneration and Human Capital Committee; Boundaries, Powers & Functions Committee. Maruping M Board member 20 February 2014 Audit and Risk Committee; Remuneration Wildebees and Human Capital Committee. Mmatsie S Mooki Board member 20 February 2014 Audit and Risk Committee; Boundaries, Powers & Functions Committee. Makhosi B Khoza Board member 20 February 2014 Audit and Risk Committee; Boundaries, Powers & Functions Committee For the period under review, ten Board meetings were held, of which nine were held by the Board whose term ended in February 2014 and one held by the Board appointed on 20 February

40 Committees For the Municipal Demarcation Board for the five year term spanning the period 20 February 2009 to 19 February 2014, the following information for committee meetings are presented. Committee No of meetings held No of members Name of members Executive Committee 9 3 Landiwe J Mahlangu; Nondumiso Gwayi; Khosi TJ Ramovha. Audit and Risk Committee 5 5 Seth M Radebe; Khosi TJ Ramovha; Wendy L Ovens; Lebina D Tsotetsi; Sumaya GS Castle; Ashraf M Adam. Remuneration and Human Capital Committee 6 4 Khosi TJ Ramovha; Nicolaas C Steytler; Lebina D Tsotetsi; Lynelle K John. Boundaries, Powers & Functions Committee 6 5 Nondumiso Gwayi; Sumaya GS Castle; Wendy L Ovens; Lynelle K John; Ashraf M Adam. For the Municipal Demarcation Board which assumed office on 20 February 2014, the following information for committee meetings are presented. Committee No of meetings held No of members Name of members Executive Committee 0 3 Jane J Thupana; Ashraf M Adam; Nompumelelo ZH Mpofu. Audit and Risk Committee 0 6 Seth M Radebe; Maruping M Wildebees; Makhosi B Khoza; Lebina D Tsotetsi; Simphiwe Dzengwa; Mmatsie S Mooki. Remuneration and Human Capital Committee 0 5 Nompumelelo ZH Mpofu; Shivon D Wiggins; Isobel E Konyn; Maruping M Wildebees; Simphiwe Dzengwa. Boundaries, Powers & Functions Committee 0 7 Ashraf M Adam; Makhosi B Khoza; Nompumelelo ZH Mpofu; Lebina D Tsotetsi; Simphiwe Dzengwa; Mmatsie S Mooki; Shivon D Wiggins. 4. RISK MANAGEMENT In line with best practice, the Board has instituted a robust Enterprise Risk Management (ERM) process, founded on a framework that is, organizationally embedded, supported and assured, and reviewed on a continuous basis. ERM is the application of risk management throughout the Board rather than only in selected business areas or disciplines. Accordingly, risk management at the Board is decentralised with every Division of the Board being responsible for risk management. The Board s Risk Management Framework lays out guiding principles for the Board s management of risk. This framework comprises the totality of all the structures, policies, strategies and procedures within the Board that deal with risk management at the strategic or operational level. An assessment of the risks is undertaken annually. This process strives to achieve the identification of the critical risks the entity may face to enable the Board to formulate appropriate risk strategies and action plans to mitigate and address these risks where necessary. 40

41 5. INTERNAL CONTROL UNIT The internal control systems were introduced at the Board to provide management and the Board with comfort regarding the financial position of the Board, safeguarding of assets (including information) and compliance with related laws and regulations. Our internal auditors monitor the functioning of the internal control systems and make recommendations to management and to the Audit and Risk committee of the Board. The Auditor-General has considered our internal control systems as part of his audit and identified some deficiencies. All internal control systems do, however, have inherent shortcomings, including the possibility of human error and the evasion or flouting of control measures. Even the best internal control system may provide only partial assurance. The Board s internal control and systems were designed to provide reasonable, and not absolute, assurance as to the integrity and reliability of the financial statements; to safeguard, verify and maintain accountability of its assets and to detect fraud, potential liability, loss and material misstatement, while complying with applicable laws and regulations. The Board evaluated its internal control systems as at 31 March 2014 with specific regard to financial reporting and safeguarding of assets against unauthorised purchases or use. During the period under review, the internal control system found no material shortcomings which led to a material loss that should be reflected in the financial statements or the external report. 6. INTERNAL AUDIT AND AUDIT COMMITTEE The Chairperson of the Audit and Risk Committee is Mr Seth M Radebe, and outside person, and a practising Accountant and Auditor. The table below discloses relevant information on the Audit and Risk Committee members: Name Internal or external If Internal, position in the public entity Appointed Resigned/ Term ended Number of meetings attended Seth M Radebe External Independent 01 February Khosi TJ Ramovha Internal Board member 20 February February Lebina D Tsotetsi Internal Board member 20 February February Sumaya GS Castle Internal Board member 20 February 2009 May Wendy L Ovens Internal Board member 20 February February Ashraf M Adam Internal Board member 20 February February The internal audit function is an independent appraisal mechanism which evaluates the Board s procedures and systems (including internal control, disclosure procedures and information system), ensuring that these are functioning effectively. During the year under review, the internal audit function carried out its audits in terms of an approved internal audit plan. 7. COMPLIANCE WITH LAWS AND REGULATIONS The following legislations are applicable: Local Government: Municipal Demarcation Act No 27 of 1998, as amended Local Government: Municipal Structures Act No 117 of 1998 Local Government: Municipal Systems Act No 32 of 2000 Generally Recognised Accepted Practice Income Tax Act No 58 of 1962 Value-Added Tax Act No 89 of 1991 Public Finance Management Act No 1 of 1999, as amended Treasury Regulations, March 2005, issued in terms of the PFMA Preferential Procurement Policy Framework Act No 5 of 2000 All practice notes on Supply Chain Management Act Employment Equity Act No 55 of 1998 Basic Conditions of Employment Act No 75 of 1997 Labour Relations Act No 88 of 1998 Promotion of Administrative Justice Act No 1 of 2000 Promotion of Access to Information Act No 2 of

42 8. FRAUD AND CORRUPTION 10. CODE OF CONDUCT The Board irrevocably binds itself to combat all forms of fraud and corruption and to remain proactive in the fight against fraud and other white collar crime. During the year, the Fraud Prevention Policy and the Fraud Prevention Plan were reviewed. The Fraud Prevention Policy provides for a system of internal controls to prevent and detect fraud and corruption. The system of internal controls include amongst others, creating awareness, policies and procedures, segregation of duties, internal audit, ongoing risk assessment and mechanism for reporting and monitoring allegations. In this regard, the Board through the Audit and Risk Committee, monitors and reviews business risk relating to fraud and corruption. Moreover, the Board makes use of the Public Service Commission s National Anti-Corruption Hotline as a reporting channel. The Board has in place an approved code of corporate practice conduct. This code is based upon principles of honesty and integrity. It serves as a guide to Board members, management and employees as to what is expected of them from an ethical point of view, both in their individual conduct and in their relations with others. Relations include those with stakeholders such as the legislature, the public and fellow employees and other organs of state. 11. BOARD SECRETARY The Board Secretary is located within the Corporate Services Division. The Board Secretary is responsible for the operations of the Board including secretarial and administrative support to the Board. In compliance with good corporate governance, the Board Secretary also facilitates the self-assessment of the Board and the Committees of the Board as well as financial disclosures by the Board. During the year, there were no allegations of fraudulent activities reported. 9. MINIMISING CONFLICT OF INTEREST The Board has developed procedures to prevent and minimise conflict of interest. On an annual basis, Board members and Board employees are required to disclose their financial interest, including those of close family members. Such disclosure ensures that there is no conflict of interest when decisions are made by any of its governance structure. Furthermore, meeting procedures of the Board provide for recusal of a member of the Board or an employee if there is a perceived or actual conflict of interest. 42

43 AUDIT AND RISK COMMITTEE REPORT We are pleased to present our report for the financial year ended 31 March The effectiveness of the Audit and Risk Committee and its individual members are assessed on an annual basis. 3. Role and responsibilities The Audit and Risk Committee is an independent sub-committee of the Board. Further duties are delegated to the Audit and Risk Committee by the Board and these activities and duties were effectively discharged during the year. This report includes both these sets of duties and responsibilities. 1. Audit and Risk Committee Charter The Audit and Risk Committee has adopted a formal Audit and Risk Committee Charter that has been approved by the Board. The Committee has conducted its affairs in compliance with its Charter and has discharged its responsibilities contained therein. The Audit and Risk Committee Charter is available on request. 2. Audit and Risk committee members, meeting attendance and assessment The Committee met five times during the 2013/2014 financial year, in line with the approved Audit and Risk Committee Charter, and it consists of the members listed below: Member Term of office Mr Seth M Radebe: Committee Chairperson Khosi Tshililo J Ramovha Term ended 19 February 2014 Mr Ashraf M Adam Term ended 19 February 2014 Ms Wendy L Ovens Term ended 19 February 2014 Mr Lebina D Tsotetsi Term ended 19 February 2014, reappointed 14 March 2014 Mr Maruping M Wildebees Appointed 14 March 2014 Ms Mmatsie Mooki Appointed 14 March 2014 Mr Simphiwe Dzengwa Appointed 14 March 2014 Number of meetings attended Statutory duties The Committee reports that it has operated and performed its oversight responsibilities in compliance with Section 51(1) (a) of the PFMA and Treasury Regulations The Audit and Risk Committee is an advisory Committee of the organisation, operating with an independent and objective stance. Evaluation of Annual Financial Statements The Audit and Risk Committee has: reviewed and discussed with the Auditor-General and the Accounting Authority the audited annual financial statements to be included in the Annual Report; reviewed the Auditor-General s audit report, the management letter and management responses thereto; and reviewed accounting policies and practices. The Committee concurs and accepts the conclusions of the Auditor-General on the annual financial statements and is of the opinion that the audited financial statements be accepted. The Committee agrees that the adoption of the going concern premise is appropriate in preparing the annual financial statements. The Audit and Risk Committee has satisfied itself that the external auditor, Auditor-General (AGSA), was independent of the organisation which includes consideration to the extent of other work undertaken by the AGSA and compliance with criteria relating to independence or conflicts of interest as prescribed by the Independent Regulatory Board for Auditors. The Committee, in consultation with the Accounting Officer, agreed to the engagement letter, terms, strategic audit plan and recommended the budgeted audit fees for the 2013/2014 financial year to the Accounting Officer. The Committee confirms that there were no non-audit services provided by the external auditor for the period under review. Effectiveness of internal controls The Audit and Risk Committee has overseen a process by which internal audit performed a written assessment of the effectiveness of the institution s system of internal control and risk management. This written assessment by internal audit formed the basis for the Audit and Risk Committee s recommendation in this regard to the Board. 43

44 In line with the PFMA and the Treasury Regulations, Internal Audit provides the Committee and management with the assurance that internal controls are appropriate and effective. This is achieved by means of the risk management process, as well as the identification of corrective actions and suggested enhancements to the controls and processes. A formal risk assessment was undertaken by the institution during the financial year. Consequently, internal audit used this data to prepare the three year rolling strategic plan and the annual audit plan. Management is committed to address the issues raised by internal and external auditors, and this is reviewed by the Committee during its meetings. Accordingly, the Committee can report that the system of internal control over financial reporting for the period under review was efficient and effective. Whistle blowing The Audit and Risk Committee receives and deals with any concern or complaints, whether from within or outside the organisation. During the year, there were no matters that came to the attention of the Committee Duties assigned by the Board In addition to the statutory duties of the Audit and Risk Committee, as reported above, the Board has determined further functions for the Audit and Risk Committee to perform, as set out in the Audit and Risk Committee s Charter. These functions include the following: In year management and quarterly reports in terms of the Public Finance Management Act The Audit and Risk Committee is satisfied that during the year, the content and quality of quarterly reports prepared and issued by management were proper and in compliance with the PFMA. Internal audit The Audit and Risk Committee is responsible for ensuring that the organisation s internal audit function is independent and has the necessary resources, standing and authority within the institution to enable it to discharge its duties. Furthermore, the Committee oversees cooperation between the internal and external auditors, and serves as a link between the Board and these functions. The Committee considered and approved the Internal Audit Charter and is satisfied that the internal audit plan was executed accordingly. The internal audit function reports centrally with responsibility for reviewing and providing assurance on the adequacy of the internal control environment across all of the organisations operations. The Chief Audit Executive is responsible for reporting the findings of the internal audit work against the agreed internal audit plan to the Audit and Risk Committee on a regular basis. The Chief Audit Executive has direct access to the Audit and Risk Committee, primarily through its Chairperson. The Audit and Risk Committee is satisfied that the internal audit function is operating effectively, and that it has addressed the risks pertinent to the institution in its audits. The Committee believes that internal audit has contributed to the improvement of internal controls within the institution. On behalf of the Audit and Risk Committee. Corporate Governance The Audit and Risk Committee is of the opinion that the institution complies with the sound principles of corporate governance. Governance of risk The Audit and Risk Committee fulfils an oversight role regarding risk management process within the institution. The Committee monitored the significant risks faced by the institution, and it is satisfied that these risks were managed effectively. The organization implements a risk management strategy which includes a fraud prevention plan. MR SETH M RADEBE CA (SA) CHAIRPERSON: AUDIT AND RISK COMMITTEE 28 JULY

45 PART E HUMAN RESOURCE MANAGEMENT 45

46 PART E: HUMAN RESOURCE MANAGEMENT INTRODUCTION The Human Resource and Administration Unit is a component of the Corporate Services Division which provides strategic HR management and administrative support to the Board and its staff. The Unit maintains and implements the organisation s strategic objectives and goals for the period under review, aiming to create a productive and creative working environment that enhances the organisation s effectiveness through its workforce. It is imperative that a comprehensive HR Plan incorporating an overview of Human Resources matters, Human Resources priorities and their projected impact, workforce planning framework, a summary of the performance management process and Employee Wellness programmes, be compiled. The overview will include a gap analysis to reflect current Human Resources status quo and the projected resource requirements. HR priorities will include areas of concern as well as areas on which emphasis and focus should be placed. In particular, the areas of organisational culture, organisational leadership and team cohesion must be emphasised. Employee Wellness Programme One intervention per quarter was held in the 2013/14 financial year. Interventions held in terms of addressing wellness included Emotional Intelligence, Anger Management, Employee Medical Health screening and Business and Professional Ethics. The challenges experienced included unavailability of designated course participants due to unexpected work commitments. Noncompatibility of course content with the objectives required in terms of employee wellness interventions proved to be a challenge. Staff The Municipal Demarcation Board s organisational structure is not capacitated adequately to render the required services in terms of the mandate. The core units and the support units need to be capacitated in order to discharge the mandate effectively. The MDB is constrained in terms of both financial and human capital. This results in extreme work pressure in the various Divisions to reach designated work targets within the prescribed time period. The current organisational structure comprises forty-two (42) approved positions, which includes the Chairperson and the Chief Executive Officer. The current staff complement consists of: Twenty-seven (27) permanent employees, six (6) contract employees and seven (7) interns. The ten (10) vacant positions will be filled in the 2014/15 financial year. HUMAN RESOURCES OVERSIGHT STATISTICS Personnel cost by Programme Programme Total Expenditure for the entity Personnel Expenditure Personnel expenditure as a % of total expenditure No of employees Average personnel cost per employee R 000 R 000 R 000 Operations and Research % Finance % Corporate Services % TOTAL %

47 Personnel cost by salary band Level Personnel Expenditure % of personnel expenditure to total personnel cost No of employees Average personnel cost per employee R R R Top Management % Senior Management % Professionally qualified % Skilled % subtotal permanent employees % Fixed term Contract employees % Internship programme % subtotal contract employees % GRAND TOTAL % Performance rewards Level Performance rewards Personnel expenditure % of performance rewards to total personnel cost R R % Top Management % Senior Management % Professional qualified % Skilled % TOTAL % Training Costs Division Personnel expenditure Training expenditure Training expenditure as a % of personnel cost No of employees trained Average training cost per employee R R R Operations and Research % Finance % Corporate services % TOTAL %

48 Employment and vacancies Programme 2012/13 Number of employees 2013/14 Approved posts 2013/14 Number of employees 2013/14 Vacancies % of vacancies Operations and Research % Finance % Corporate Services % TOTAL % Level 2012/13 Number of employees 2013/14 Approved posts 2013/14 Number of employees 2013/14 Vacancies % of vacancies Top Management % Senior Management % Professionally qualified % Skilled % subtotal permanent employees % Fixed term Contract employees 4 n/a 5 n/a n/a Internship programme 1 n/a 7 n/a n/a subtotal contract employees 5 n/a 12 n/a n/a Grand total % Employment changes Level Employment at beginning of period Appointments Terminations Employment at end of the period Top Management 4 1 (1) 4 Senior Management Professionally qualified Skilled subtotal permanent employees 26 5 (1) 30 Fixed term Contract employees Internship programme 1 7 (1) 7 subtotal contract employees 5 8 (1) 12 Grand total (2) 42 Reasons for staff leaving Reason Number % of total number of staff leaving Death 0 - Resignation 0 - Dismissal 0 - Retirement 0 - Ill Health 0 - Expiry of contract 1 3% Other 1 3% TOTAL 2 6% Labour Relations: Misconduct and disciplinary action Nature of disciplinary action Number Verbal warning - Written warning 4 Final written warning 1 Precautionary suspensions * 2 Dismissal - 48

49 * Two officials were placed on precautionary suspension pending investigations into allegations of misconduct. The suspensions are with respect to the Chief Executive Officer and an official of the Municipal Demarcation Board. The CEO and the official were placed on suspension on 12 February 2014 and 3 March 2014, respectively. These incidences are unrelated. The official was dismissed on 23 May 2014 following a disciplinary enquiry, whereas the matter relating to the Chief Executive Officer is still under investigation. The official has referred the matter to the Commission for Conciliation, Mediation and Arbitration. Equity Target and Employment Equity Status MALE Level African Coloured Indian White Current Target Current Target Current Target Current Target Top Management Senior Management Professional qualified Skilled TOTAL FEMALE Level African Coloured Indian White Current Target Current Target Current Target Current Target Top Management Senior Management Professional qualified Skilled TOTAL Staff with disabilities Level Male Female Current Target Current Target Top Management Senior Management Professional qualified Skilled TOTAL

50 Financial Statements for the year ended 31 March 2014 PART F FINANCIAL INFORMATION 50 50

51 Financial Statements for the year ended 31 March 2014 PART F: FINANCIAL INFORMATION 1. STATEMENT OF RESPONSIBILITY Statement of Responsibility for the Annual Financial Statements for the year ended 31 March 2014 The Accounting Authority is responsible for the preparation of the public entity s Annual Financial Statements and for the judgements made in this information. The Accounting Authority is responsible for establishing, and implementing a system of internal control designed to provide reasonable assurance as to the integrity and reliability of the Annual Financial Statements. In my opinion the financial statements fairly reflect the operations of the public entity for the financial year ended 31 March The external auditors are engaged to express an independent opinion of the AFS of the Municipal Demarcation Board. The Annual Financial Statements of the Municipal Demarcation Board is set out on Part G have been approved. MS MPHO RATYA ACTING CHIEF FINANCIAL OFFICER MUNICIPAL DEMARCATION BOARD DATE: 31 MAY 2014 MR DZIVHULUWANI LIGEGE ACTING CHIEF EXECUTIVE OFFICER MUNICIPAL DEMARCATION BOARD DATE: 31 MAY

52 Financial Statements for the year ended 31 March REPORT OF THE CHIEF EXECUTIVE OFFICER General financial review The Board received government grants and subsidies for the year amounting to R Income generated from sale of maps, interest earned from investments, and other income amounted to R The total revenue for the current financial year is R compared to R in 2012/13 representing a year on year growth of 4%. The total expenditure for the year amounted to R resulting in a deficit of R The deficit has been funded through accumulated surpluses. Spending trends The table below presents year on year change in expenditure and income trends: Year on year expenditure trends R'000 % R'000 % R'000 % R'000 % R'000 % Income % % % % % Voted funds % % % % % Other income % 692-5% 641-7% % 948 2% Expenditure % % % % % Board members' remuneration % % % % % Salaries % % % % % Project expenses % % % % % Lease payments % % % % % Publications, Notices and Gazettes % % % % % Audit fees % 923-8% % 819 3% % Travelling costs % % % % % Other operating expenses % % % % % Surplus/(Deficit) (1 582) 52

53 Financial Statements for the year ended 31 March 2014 Capacity constraints and challenges During the next three financial years, expenditure will exceed voted funds. Expenditure is expected to be above allocated funds due to the following activities: Delimitation of wards for the 2016 Local elections Intensive public participation will be undertaken in preparation for the local election in Expenditure associated with this activity include amongst others, communication costs through media and government gazettes, travel and accommodation. Implementation of an expanded organisational structure The Board approved a new organisational structure which is currently under implementation. Units that will be capacitated include research and stakeholder management. Discontinued activities/activities to be discontinued None. New activities There are a number of new activities that are envisaged by the Board that are critical in its delivery of the mandate, namely the Research unit to focus on the research component of the Board s work including the municipal capacity assessment, the Stakeholder Engagement and Public Participation unit to enhance the public engagement with various partners and stakeholder and finally the communications unit. These units are critical for the effective discharge of the mandate as outlined in the Act. Supply Chain Management (SCM) Concluded unsolicited bid proposal for the year under review None. SCM processes and systems in place The institution has a supply chain management unit located within the Finance Division, in accordance with the revised organisational structure. The SCM unit has been capacitated during the year, with an additional supply chain management officer. During the year under review, the Procurement Policy was reviewed so as to strengthen the internal controls with respect to the acquisition of goods and services, competitive bidding and deviations from treasury regulations. Procurement activities are supported by three committees, viz.the Bid Specification Committee, Bid Evaluation Committee and Bid Adjudication Committee. An Annual Procurement Plan is in place to guide the activities of the unit. Challenges experienced and resolved The SCM unit has improved significantly from the previous year s performance. Irregular expenditure was reduced by 95% from R2.6 million in 2012/2013 to R in the period under review. 53

54 Financial Statements for the year ended 31 March 2014 Audit report matters in the previous year In his 2012/13 Report, the Auditor-General raised certain matters of emphasis. During the year, management implemented controls to address the weaknesses identified. Management actions to resolve the matter raised by the Auditor-General are addressed below: Other matters: Matters raised by the Auditor General in Material underspending of the budget Predetermined objectives achievement of targets was below 80% Compliance with laws and regulations Expenditure management resulting in irregular expenditure Management action implemented Monthly financial statements and quarterly budget reports were prepared in order to give effect to budgetary control and efficient use of funds. Budget reports were also linked to divisional performance reports. Effective management of programme performance information was addressed through the implementation of operational plans which are aligned to the Annual Performance Plan. At each quarter, performance information was reported and overseen by the Board, resulting in achievement of 83% of predetermined targets. Stricter controls were put in place to reduce number of deviations from SCM prescripts. In this regard, deviation register was implemented so as to monitor extent of deviations during the year. This resulted in 95% reduction of irregular expenditure Status (Resolved, Partially resolved or Unresolved) Resolved Resolved Partially resolved Economic viability The financial statements have been prepared on the going concern basis, since there is every reason to believe that the Board has adequate resources to continue in operation for the foreseeable future. MR DZIVHULUWANI K N LIGEGE ACTING CHIEF EXECUTIVE OFFICER MUNICIPAL DEMARCATION BOARD 31 July

55 Financial Statements for the year ended 31 March REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE MUNICIPAL DEMARCATION BOARD 3.1 REPORT ON THE FINANCIAL STATEMENTS Introduction I have audited the financial statements of the Municipal Demarcation Board set out on pages 58 to 81, which comprise the statement of financial position as at 31 March 2014 the statement of financial performance, statement of changes in net assets and cash flow statement and the statement of comparison of budget and actual amounts for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of Accounting officer s responsibility for the financial statements The accounting officer is responsible for the preparation and fair presentation of these financial statements in accordance with the South African Standards of Generally Recognised Accounting Practice (SA Standards of GRAP) and the requirements of the Public Finance Management Act of South Africa,1999 (Act No.1 of 1999), and for such internal control as the accounting officer determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error Auditor-general s responsibility My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the general notice issued in terms thereof and International accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion Opinion In my opinion, the financial statements present fairly, in all material respects, the financial position of the Municipal Demarcation Board as at 31 March 2014 and its financial performance and cash flows for the year then ended, in accordance with SA standards of GRAP and the requirements of the PFMA Emphasis of matters I draw attention to the matters below. My opinion is not modified in respect of these matter: Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 55

56 Financial Statements for the year ended 31 March Significant uncertainties With reference to note 22 of the financial statements, the entity is a defendant to various lawsuits involving the Midvaal Municipality and the re-determination of boundaries affecting the said municipality. The ultimate outcome of this matter cannot presently be determined and no provision for any liability that may result has been made in the annual financial statements REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In accordance with the PAA and the general notice issued in terms thereof, I report the following findings on the reported performance information against predetermined objectives for selected programmes presented in the annual performance report, non-compliance with legislation as well as internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters Predetermined objectives I performed procedures to obtain evidence about the usefulness and reliability of the reported performance information for the following selected programmes presented in the annual performance report of the constitutional Institution for the year ended 31 March 2014: Programme 1: Operations and Research on pages 27 to 31 Programme 2: Financial Management on pages 32 to 33 Programme 3 : Corporate Services on pages 34 to 35 I evaluated the reported performance information against the overall criteria of usefulness and reliability. I evaluated the usefulness of the reported performance information to determine whether it was presented in accordance with the National Treasury s annual reporting principles and whether the reported performance was consistent with the planned programmes. I further performed tests to determine whether indicators and targets were well defined, verifiable, specific, measurable, time bound and relevant, as required by the National Treasury s Framework for managing programme performance information (FMPPI). I assessed the reliability of the reported performance information to determine whether it was valid, accurate and complete. I did not raise any material findings on the usefulness and reliability of the reported performance information for the selected programmes Compliance with legislation I performed procedures to obtain evidence that the constitutional institution had complied with applicable legislation regarding financial matters, financial management and other related matters. My findings on material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA, are as follows: Procurement and contract management Goods and services with a transaction value below R were procured without obtaining the required price quotations, as required by Treasury Regulation 16A Expenditure Management Effective steps were not taken to prevent irregular and fruitless and wasteful expenditure, as required by section 38(1)(c)(ii) of the Public Finance Management Act and Treasury Regulation

57 Financial Statements for the year ended 31 March Internal control I considered internal control relevant to my audit of the financial statements, performance report and compliance with legislation. The matters reported below are limited to the significant internal control deficiencies that resulted in the basis for opinion, the findings on the non-compliance with legislation included in this report Leadership The leadership did not exercise oversight responsibility regarding financial and performance reporting and compliance with laws and regulations and related internal controls Financial and performance management Management did not review and monitor compliance with applicable legislation OTHER REPORTS Investigations An investigation was conducted by an independent legal firm regarding a disciplinary process involving senior management of the Board. The matter was still in progress as at the date of this report. Pretoria 31 July 2014 A U D I T O R - G E N E R A L S O U T H A F R I C A Auditing to build public confidence 57

58 Financial Statements for the year ended 31 March 2014 PART G ANNUAL FINANCIAL STATEMENTS 58 58

59 Financial Statements for the year ended 31 March 2014 Financial Table of Contents Index Page Statement of Financial Position Statement of Financial Performance Statement of Changes in Net Assets Cash Flow Statement Statement of Comparison of Budget and Actual Amounts Accounting Policies Notes to the Financial Statements

60 Financial Statements for the year ended 31 March 2014 Statement of Financial Position as at 31 March 2014 Note(s) 2014 R R 000 Assets Current Assets Inventories Receivables from exchange transactions Cash and cash equivalents Non-Current Assets Property, plant and equipment Intangible assets Total Assets Liabilities Current Liabilities Operating lease liability Payables from exchange transactions Provisions Total Liabilities Net Assets Accumulated surplus

61 Financial Statements for the year ended 31 March 2014 Statement of Financial Performance Note(s) 2014 R R 000 Revenue Revenue from exchange transactions Sale of goods 11 9 Other exchange revenue Interest received - investment Total revenue from exchange transactions Revenue from non-exchange transactions Transfer revenue Government grants Other non-exchange revenue Total revenue from non-exchange transactions Total revenue Expenditure Employee Costs 12 (17 991) (13 073) Audit Fees 13 (923) (819) Depreciation and amortisation 14 (1 118) (1 190) Project Expenses 15 (3 759) (3 280) Other operating expenses 16 (6 143) (5 769) Administrative Costs 17 (14 782) (10 064) Total expenditure (44 716) (34 195) Gain/ (loss) on disposal of assets 18 4 (156) (Deficit)/surplus for the year (1 582)

62 Financial Statements for the year ended 31 March 2014 Statement of Changes in Net Assets Accumulated surplus R 000 Total net assets R 000 Opening balance as previously reported Adjustments Correction of errors (8) (8) Balance at 01 April Surplus for the year Total changes Balance at 01 April Changes in net assets Deficit for the year (1 582) (1 582) Total changes (1 582) (1 582) Balance at 31 March

63 Financial Statements for the year ended 31 March 2014 Cash Flow Statement Note(s) 2014 R R 000 Cash flows from operating activities Receipts Revenue from exchange transactions Revenue from non-exchange transactions Payments Employee benefit costs (17 155) (13 465) Suppliers (23 298) (20 406) (40 453) (33 871) Net cash flows from operating activities Cash flows from investing activities Purchase of property, plant and equipment 6 (327) (1 165) Proceeds from sale of property, plant and equipment Purchase of intangible assets 7 (362) (419) Proceeds from sale of intangible assets Net cash flows from investing activities (609) (1 539) Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year

64 Financial Statements for the year ended 31 March 2014 Statement of Comparison of Budget and Actual Amounts Budget on Cash Basis Actual Difference amounts between Approved Adjustments Final Budget on final budget comparable budget and basis actual R 000 R 000 R 000 R 000 R 000 Statement of Financial Performance Revenue Revenue from exchange transactions Sale of goods (16) Other exchange revenue Interest received - investment Total revenue from exchange transactions Revenue from non-exchange transactions Transfer revenue Government grants & subsidies Total revenue Expenditure Employee costs (20 107) - (20 107) (17 991) Administration (800) - (800) (923) (123) Depreciation and amortisation (1 118) (1 118) Project expenses (5 699) - (5 699) (3 759) Other operating expenses (6 668) - (6 668) (6 143) 525 Administrative costs (13 326) - (13 326) (14 782) (1 456) Total expenditure (46 600) - (46 600) (44 716) Operating deficit (3 667) - (3 667) (1 586) Gain on disposal of assets Surplus/(deficit) (3 667) - (3 667) (1 582) Actual Amount on Comparable (3 667) - (3 667) (1 582) Basis as Presented in the Budget and Actual Comparative Statement 64

65 Financial Statements for the year ended 31 March 2014 Accounting Policies 1. Presentation of Financial Statements The financial statements have been prepared in accordance with the Standards of Generally Recognised Accounting Practice (GRAP), issued by the Accounting Standards Board including any interpretations, guidelines and directives issued by the Accounting Standard Board. These financial statements have been prepared on an accrual basis of accounting and are in accordance with historical cost convention as the basis of measurement, unless specified otherwise. A summary of the significant accounting policies, which have been consistently applied in the preparation of these financial statements, are disclosed below. These accounting policies are consistent with the previous period. The details of any changes in accounting policies are explained in the relevant note. 1.1 Presentation currency These financial statements are presented in South African Rand and are rounded to the nearest thousand (R 000). 1.2 Critical Accounting Estimates and Judgements in Applying Accounting Policies The Board makes estimates and assumptions that affect the reported amounts of assets and liabilities within the current and subsequent financial years. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. There does, however, not appear to be a significant risk that these assumptions will cause significant adjustments to the carrying amount of assets and liabilities within the subsequent financial years. Significant judgements include: Fair value estimation The carrying value of trade receivables and payables are assumed to approximate their fair values. Impairment testing The recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value-in-use calculations and fair values less costs to sell. These calculations require the use of estimates and assumptions. The entity reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount not be recoverable. Contingent liability Contingent liabilities are disclosed when the Board has a possible obligation that arose from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Board. Useful lives of property, plant and equipment and intangible assets The Board re-assesses the useful lives and residual lives of property, plant and equipment and intangible assets on an annual basis. In reassessing the useful lives and residual values of property, plant and equipment management considers the condition and use of the individual assets, to determine the remaining period over which the asset can and will be used. 1.3 Property, plant and equipment Property, plant and equipment are tangible non-current assets (including infrastructure assets) that are held for use in the production or supply of goods or services, rental to others, or for administrative purposes, and are expected to be used during more than one period. 65

66 Financial Statements for the year ended 31 March 2014 Accounting Policies The cost of an item of property, plant and equipment is recognised as an asset when: it is probable that future economic benefits or service potential associated with the item will flow to the entity; and the cost of the item can be measured reliably. Property, plant and equipment is initially measured at cost. The cost of an item of property, plant and equipment is the purchase price and other costs attributable to bring the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Trade discounts and rebates are deducted in arriving at the cost. Property, plant and equipment is carried at cost less accumulated depreciation and any impairment losses. Property, plant and equipment are depreciated on the straight line basis over their expected useful lives to their estimated residual value. The useful lives of items of property, plant and equipment have been assessed as follows: Item Furniture and fixtures Motor vehicles Office equipment IT equipment Leasehold improvements Average useful life years 5-10 years 5-12 years 3-9 years 5 years 66 The residual value, and the useful life and depreciation method of each asset are reviewed at the end of each reporting date. If the expectations differ from previous estimates, the change is accounted for as a change in accounting estimate. Reviewing the useful life of an asset on an annual basis does not require the entity to amend the previous estimate unless expectations differ from the previous estimate. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. The depreciation charge for each period is recognised in surplus or deficit unless it is included in the carrying amount of another asset. Items of property, plant and equipment are derecognised when the asset is disposed of or when there are no further economic benefits or service potential expected from the use of the asset. The gain or loss arising from the derecognition of an item of property, plant and equipment is included in surplus or deficit when the item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item. 1.4 Intangible assets An asset is identifiable if it either: is separable, i.e. is capable of being separated or divided from an entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable assets or liability, regardless of whether the entity intends to do so; or arises from binding arrangements (including rights from contracts), regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.

67 Financial Statements for the year ended 31 March 2014 Accounting Policies An intangible asset is recognised when: it is probable that the expected future economic benefits or service potential that are attributable to the asset will flow to the entity; and the cost or fair value of the asset can be measured reliably. Intangible assets are carried at cost less any accumulated amortisation and any impairment losses. The amortisation period and the amortisation method for intangible assets are reviewed at each reporting date. Amortisation is provided to write down the intangible assets, on a straight line basis, to their residual values as follows: Item Computer software Useful life 3-9 years Intangible assets are derecognised: on disposal; or when no future economic benefits or service potential are expected from its use or disposal. The gain or loss is the difference btetween the net disposal proceeds, if any, and the carrying amount. It is recognised insurplus or deficit when the asset is derecognised. 1.5 Related parties Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions or if the related party entity and another party are subject to common control. Related parties include individuals who have significant influence over the Board, such as members of the Board and key management personnel. 1.6 Going Concern These financial statements have been prepared on the basis of accounting policies applicable to a going concern. The basis presumes that funds will be available to finance future operations and that the realisation of the assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business. The ability of the Board to continue as a going concern is dependent upon further funding from Parliament. 1.7 Budget information Entities are typically subject to budgetary limits in the form of appropriations or budget authorisations (or equivalent), which is given effect through authorising legislation, appropriation or similar. General purpose financial reporting by the Board shall provide information on whether resources were obtained and used in accordance with the legally adopted budget. The approved budget is prepared on a accrual basis and presented by functional classification linked to performance outcome objectives. The approved budget covers the fiscal period from 1 April 2013 to 31 March The financial statements and the budget are on the same basis of accounting therefore a comparison with the budgeted amounts for the reporting period have been included in the Statement of comparison of budget and actual amounts. 67

68 Financial Statements for the year ended 31 March 2014 Accounting Policies 1.8 Financial instruments Classification The Board s principal financial instruments are receivables, cash and cash equivalents and payables. Classification depends on the purpose for which the financial instruments were obtained / incurred and takes place at initial recognition. Classification is re-assessed on an annual basis, except for derivatives and financial assets designated as at fair value through surplus or deficit, which shall not be classified out of the fair value through surplus or deficit category. Initial recognition and measurement Financial instruments are recognised initially when the Board becomes a party to the contractual provisions of the instruments. The Board classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial instruments are measured initially at fair value, except for equity investments for which a fair value is not determinable, which are measured at cost and are classified as available-for-sale financial assets. Subsequent measurement Impairment of financial assets At each end of the reporting period the entity assesses all financial assets, other than those at fair value through surplus or deficit, to determine whether there is objective evidence that a financial asset or group of financial assets has been impaired. Impairment losses are recognised in surplus or deficit. Impairment losses are reversed when an increase in the financial asset s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the financial asset at the date that the impairment is reversed shall not exceed what the carrying amount would have been had the impairment not been recognised. Reversals of impairment losses are recognised in surplus or deficit except for equity investments classified as available-forsale. Receivables from exchange transactions Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in surplus or deficit when there is objective evidence that the asset is impaired. Trade and other receivables are classified as loans and receivables. Payables from exchange transactions Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at fair value. 68

69 Financial Statements for the year ended 31 March 2014 Accounting Policies For the purpose of the Cash Flow Statement, as well as Statement of Financial Position, cash and cash equivalents comprise cash on hand and other short-term investments. 1.9 Leases A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. Operating leases - lessee Operating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference between the amounts recognised as an expense and the contractual payments are recognised as an operating lease liability Inventories Inventories are initially measured at cost except where inventories are acquired through a non-exchange transaction, then their costs are their fair value as at the date of acquisition. Subsequently inventories are measured at the lower of cost and net realisable value. Inventories are measured at the lower of cost and current replacement cost where they are held for: distribution at no charge or for a nominal charge; or consumption in the production process of goods to be distributed at no charge or for a nominal charge. Net realisable value is the estimated selling price in the ordinary course of operations less the estimated costs of completion and the estimated costs necessary to make the sale, exchange or distribution. Current replacement cost is the cost the entity incurs to acquire the asset on the reporting date. The cost of inventories comprises of all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The cost of inventories is assigned using the weighted average cost formula. The same cost formula is used for all inventories having a similar nature and use to the entity. When inventories are sold, the carrying amounts of those inventories are recognised as an expense in the period in which the related revenue is recognised. If there is no related revenue, the expenses are recognised when the goods are distributed, or related services are rendered. The amount of any write-down of inventories to net realisable value or current replacement cost and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any writedown of inventories, arising from an increase in net realisable value or current replacement cost, are recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs Employee benefits Short-term employee benefits The cost of short-term employee benefits, (those payable within 12 months after the service is rendered, such as paid vacation leave and sick leave, bonuses, and non-monetary benefits such as medical care), are recognised in the period in which the service is rendered and are not discounted. 69

70 Financial Statements for the year ended 31 March 2014 Accounting Policies The expected cost of performance bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance. Accruals for leave pay and performance bonuses are recognised as a liability in the financial statements, after deducting any amount already paid 1.12 Provisions and contingencies Provisions are recognised when: the entity has a present obligation as a result of a past event; it is probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation; and a reliable estimate can be made of the obligation. The amount of a provision is the best estimate of the expenditure expected to be required to settle the present obligation at the reporting date. Where the effect of time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation. The discount rate is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. Provisions are reversed if it is no longer probable that an outflow of resources embodying economic benefits or service potential will be required, to settle the obligation. Where discounting is used, the carrying amount of a provision increases in each period to reflect the passage of time. This increase is recognised as an interest expense. A provision is used only for expenditures for which the provision was originally recognised. Contingent assets and contingent liabilities are not recognised. Contingencies are disclosed in note Revenue from exchange transactions Exchange transactions are transactions in which one entity receives assets or services, or has liabilities extinguished, and directly gives approximately equal value to another entity in exchange. Measurement Revenue is measured at the fair value of the consideration received or receivable, net of trade discounts and volume rebates. Sale of goods Revenue from the sale of goods is recognised when all the following conditions have been satisfied: the entity has transferred to the purchaser the significant risks and rewards of ownership of the goods; the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits or service potential associated with the transaction will flow to the entity; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. 70

71 Financial Statements for the year ended 31 March 2014 Accounting Policies Interest, royalties and dividends Revenue arising from the use by others of entity assets yielding interest, royalties and dividends is recognised when: It is probable that the economic benefits or service potential associated with the transaction will flow to the entity,and The amount of the revenue can be measured reliably. Interest is recognised, in surplus or deficit, using the effective interest rate method Revenue from non-exchange transactions Non-exchange transactions are defined as transactions where the Board receives value from another entity without directly giving approximately equal value in exchange. Recognition An inflow of resources from a non-exchange transaction recognised as an asset is recognised as revenue, except to the extent that a liability is also recognised for the same inflow. Measurement Revenue is measured at the fair value of the consideration received or receivable, net of trade discounts and volume rebates Comparative figures Where necessary, comparative figures have been reclassified to conform to changes in presentation in the current year Fruitless and wasteful expenditure Fruitless expenditure means expenditure which was made in vain and would have been avoided had reasonable care been exercised. All expenditure relating to fruitless and wasteful expenditure is recognised as an expense in the statement of financial performance in the year that the expenditure was incurred. The expenditure is classified in accordance with the nature of the expense, and where recovered, it is subsequently accounted for as revenue in the statement of financial performance Irregular expenditure Irregular expenditure as defined in section 1 of the PFMA is expenditure other than unauthorised expenditure, incurred in contravention of or that is not in accordance with a requirement of any applicable legislation, including - (a) this Act; or (b) the State Tender Board Act, 1968 (Act No. 86 of 1968), or any regulations made in terms of the Act; or (c) any provincial legislation providing for procurement procedures in that provincial government. Irregular expenditure that was incurred and identified during the current financial and which was condoned before year end and/or before finalisation of the financial statements is recorded appropriately in the irregular expenditure register. In such an instance, no further action is also required with the exception of updating the note to the financial statements. Irregular expenditure that was incurred and identified during the current financial year and for which condonement is being awaited at year end is recorded in the irregular expenditure register. No further action is required with the exception of updating the note to the financial statements. Where irregular expenditure was incurred in the previous financial year and is only condoned in the following financial year, the register and the disclosure note to the financial statements is updated with the amount condoned. 71

72 Financial Statements for the year ended 31 March 2014 Accounting Policies Irregular expenditure that was incurred and identified during the current financial year and which was not condoned by the National Treasury or the relevant authority is recorded appropriately in the irregular expenditure register. If liability for the irregular expenditure can be attributed to a person, a debt account is created if such a person is liable in law. Immediate steps are thereafter taken to recover the amount from the person concerned. If recovery is not possible, the accounting officer or accounting authority may write off the amount as debt impairment and disclose such in the relevant note to the financial statements. The irregular expenditure register is also updated accordingly. If the irregular expenditure has not been condoned and no person is liable in law, the expenditure related thereto remains against the relevant programme/expenditure item, is disclosed as such in the note to the financial statements and updated accordingly in the irregular expenditure register. 2. New standards and interpretations 2.1 Standards and interpretations effective and adopted in the current year In the current year, the entity has adopted the following standards and interpretations that are effective for the current financial year and that are relevant to its operations: Standard/ Interpretation: Effective date: Years beginning on or after GRAP 25: Employee benefits 01 April 2013 GRAP 1 (as revised 2012): Presentation of Financial Statements 01 April 2013 GRAP 3 (as revised 2012): Accounting Policies, Change in Accounting Estimates and Errors 01 April 2013 GRAP 9 (as revised 2012): Revenue from Exchange Transactions 01 April 2013 GRAP 12 (as revised 2012): Inventories 01 April 2013 GRAP 13 (as revised 2012): Leases 01 April 2013 GRAP 16 (as revised 2012): Investment Property 01 April 2013 GRAP 17 (as revised 2012): Property, Plant and Equipment 01 April 2013 GRAP 27 (as revised 2012): Agriculture (Replaces GRAP101) 01 April 2013 GRAP 31 (as revised 2012): Intangible Assets (Replaces GRAP 102) 01 April 2013 IGRAP16: Intangible assets website costs 01 April 2013 IGRAP1 (as revised 2012):Applying the probability test on initial recognition of revenue 01 April Standards and interpretations issued, but not yet effective The entity has not applied the following standards and interpretations, which have been published and are mandatory for the entity s accounting periods beginning on or after 01 April 2014 or later periods: Standard/ Interpretation: Effective date: Years beginning on or after GRAP 18: Segment Reporting 01 April 2016 GRAP 105: Transfers of functions between entities under common control 01 April 2014 GRAP 106: Transfers of functions between entities not under common control 01 April 2014 GRAP 107: Mergers 01 April 2014 GRAP 20: Related parties 01 April 2014 IGRAP 11: Consolidation Special purpose entities 01 April 2014 IGRAP 12: Jointly controlled entities Non-monetary contributions by ventures 01 April 2014 GRAP 6 (as revised 2010): Consolidated and Separate Financial Statements 01 April 2014 GRAP 7 (as revised 2010): Investments in Associates 01 April 2014 GRAP 8 (as revised 2010): Interests in Joint Ventures 01 April 2014 GRAP32: Service Concession Arrangements: Grantor 01 April 2015 GRAP108: Statutory Receivables 01 April 2015 IGRAP17: Service Concession Arrangements where a Grantor Controls a Significant Residual Interest in an Asset 01 April

73 Financial Statements for the year ended 31 March 2014 Notes to the Financial Statements 2014 R R Inventories Consumable stores Opening balance Additions for the year Utilized for the year (111) (211) Receivables from exchange transactions Trade debtors - 29 Employee costs in advance 1 (1) Deposits Interest income accrued Cash and cash equivalents Cash and cash equivalents consist of: Cash on hand - 1 Bank balances Short-term deposits There are no restrictions to cash held with banks 6. Property, plant and equipment Cost / Valuation Accumulated depreciation Carrying value Cost / Valuation Accumulated depreciation Carrying value and accumulated impairment and accumulated impairment Furniture and fixtures (654) (577) 948 Motor vehicles 562 (273) (195) 367 Office equipment (575) (364) 819 IT equipment (1 059) (1 128) 517 Leasehold improvements 853 (581) (404) 426 Total (3 142) (2 668) Reconciliation of property, plant and equipment Opening balance Additions Disposals Depreciation Total Furniture and fixtures (141) 807 Motor vehicles (78) 289 Office equipment (5) (224) 623 IT equipment (62) (336) 390 Leasehold improvements (177) (67) (956)

74 Financial Statements for the year ended 31 March 2014 Notes to the Financial Statements 2014 R R Property, plant and equipment (continued) Reconciliation of property, plant and equipment Opening balance Additions Disposals Depreciation Total Furniture and fixtures (136) 948 Motor vehicles (77) 367 Office equipment (136) (264) 819 IT equipment (58) (444) 517 Leasehold improvements (147) (194) (1 068) Intangible assets Accumulated Accumulated amortisation amortisation Cost / Carrying Cost / Carrying and and Valuation value Valuation value accumulated accumulated impairment impairment Computer software (528) (365) 825 Reconciliation of intangible assets Opening balance Additions Disposals Amortisation Total Computer software (9) (165) Reconciliation of intangible assets Opening Additions Disposals Amortisation Total balance Computer software (4) (121) Payables from exchange transactions Trade payables Other payables

75 Financial Statements for the year ended 31 March 2014 Notes to the Financial Statements 2014 R R Provisions Reconciliation of provisions Utilised Opening Additions during Balance the year Total Legal proceedings Leave pay (1 509) Performance bonuses (244) (1 753) Reconciliation of provisions Utilised Opening Additions during Balance the year Total Leave pay (1 228) 880 Performance bonuses (671) (1 899) Government grants National Department of Cooperative Governance and Traditional Affairs Local Government SETA Revenue Sale of goods 11 9 Other exchange revenue Interest received - investment Government grants & subsidies Other non-exchange revenue The amount included in revenue arising from exchanges of goods or services are as follows: Sale of goods 11 9 Other exchange revenue Interest received - investment The amount included in revenue arising from non-exchange transactions is as follows: Transfer revenue Government grants & subsidies Other non-exchange revenue

76 Financial Statements for the year ended 31 March 2014 Notes to the Financial Statements 2014 R R Employee benefit costs Basic Other Non pensionable allowance Temporary staff allowance Leave payments Overtime payments Bonus 930 (57) Full Time member s emoluments UIF SDL Insurance cover Travel, motor car, accommodation, subsistence and other allowances Leave Expenses Other salary related costs Audit Fees Audit Fees Depreciation and amortisation Furniture and fixtures Motor vehicles Office equipment IT equipment Leasehold improvements Computer software Project Expenses Capacity assessment Consulting Fees Other Operating Expenses License renewal Travel and accomodation Courier and delivery charges Data acquisitions Consumables Rental of building Rental of plant, machinery and equipment Repairs and maintenance

77 Financial Statements for the year ended 31 March 2014 Notes to the Financial Statements 2014 R R Administrative expenses Advertising Bank charges Consulting and professional fees Insurance Conferences and seminars Publications notices and gazettes Printing & Photocopying Telephone and fax Training Assets expensed 9 22 Internal Audit Fees Members Allowance Stationery Recruitment Costs 2 - Employee Assistance Programme Other expenses Gain/(Loss) on disposal of assets Proceeds from disposal of assets Net book value of assets (76) (198) 4 (156) 19. Investment revenue Interest revenue Bank Cash generated from operations (Deficit)/surplus (1 582) Adjustments for: Depreciation and amortisation Gain/(Loss) on sale of assets (4) 156 Movements in operating lease assets and accruals (439) (189) Movements in provisions (381) Changes in working capital: Inventories (15) 74 Receivables from exchange transactions (7) (13) Payables from exchange transactions (357)

78 Financial Statements for the year ended 31 March 2014 Notes to the Financial Statements 2014 R R Commitments 21.1 Operating leases - the Board as lessee Minimum lease payments due - within one year in second to fifth year inclusive later than five years The Board leases its office premises from a commercial property service provider for a period of 5 years, effective from 1 May Lease payments escalate by 10 % annually and payable monthly in advance. Upon termination of the lease any improvements made to the premises by the entity shall belong to the lessor. The current lease term ends on 30 June 2014 and will not be renewed. The Board has entered into a lease agreement with another service provider for a period of 5 years, effective from 1 July Lease payments will escalate by 9 % annually and payable monthly in advance. No contingent rent is payable Other commitments Approved but not yet contracted Approved and contracted: Other operational expenditure Approved and contracted: Capital expenditure Total future commitments Contingent liabilities Contingent liability - Midvaal high court application During April 2014, the Midvaal Local Municipality instituted legal proceedings against the Board to set aside its decision to redetermine the municipal boundaries affecting the said municipality. The matter relates to a re-determination of municipal boundaries of Emfuleni Local Municipality (GT421), Midvaal Local Municipality (GT422), Lesedi Local Municipality (GT423), Sedibeng District Municipality (DC42) and Ekurhuleni Metropolitan Municipality (EKU), by excluding Emfuleni Local Municipality (GT421) and Midvaal Local Municipality (GT422) from the municipal area of Sedibeng District Municipality (DC42), and by amalgamating them into a new single Category A Metropolitan Municipality, and excluding Lesedi Local Municipality (GT423) from the municipal area of Sedibeng District Municipality (DC42), and by including it into the municipal area of Ekurhuleni Metropolitan Municipality (EKU). The information usually required by the applicable GRAP standards has not been disclosed on the grounds that it can be expected to prejudice seriously the outcome of the case. 78

79 Financial Statements for the year ended 31 March 2014 Notes to the Financial Statements 2014 R R Related parties Executive members 2014 Emoluments Total Mr LJ Mahlangu (Chairperson) (Term ended 19 February 2014) Ms GC Gumbi-Masilela (CEO) (Appointed 01 August 2012) Mr DKN Ligege (CFO) (Appointed 01 January 2013) Ms MJJ Thupana (Appointed 20 February 2014) Emoluments Total Mr LJ Mahlangu (Chairperson) (Term ended 19 February 2014) Ms GC Gumbi-Masilela (CEO) (Appointed 01 August 2012) Mr DKN Ligege (CFO) (Appointed 01 January 2013) Ms MJJ Thupana (Appointed 20 February 2014) Non-executive members 2014 Members fees Other fees** Total Ms N Gwayi (Deputy Chairperson) (Term ended 19 February 2014) Prof NC Steytler (Term end 19 February 2014) Khosi TJ Ramovha (Term ended 19 February 2014) Mr LD Tsotetsi (Re-appointed 20 February 2014) Ms SGS Castle (Term ended) 4-4 Ms WL Ovens (Term ended 19 February 2014) Mr AM Adam (Deputy Chairperson) (Re-appointed February 2014) Mr SM Radebe (Chairperson: Audit and Risk Committee) Prof IE Konyn (Appointed 20 February 2014) Mr MM Wildebees (Appointed 20 February 2014) Mr S Dzengwa (Appointed 20 February 2014) Ms SD Wiggins (Appointed 20 February 2014) Ms NZH Mpofu (Appointed 20 February 2014) Ms MS Mooki (Appointed 20 February 2014) Dr MB Khoza (Appointed 20 February 2014) Members fees Other fees** Total Ms N Gwayi (Deputy Chairperson) Prof NC Steytler Khosi TJ Ramovha Mr LD Tsotetsi Ms SGS Castle Ms WL Ovens Ms LK John (Resigned 29 August 2012) Mr AM Adam Mr SM Radebe (Chairperson: Audit and Risk Committee)

80 Financial Statements for the year ended 31 March 2014 Notes to the Financial Statements 2014 R R Related parties (continued) Remuneration of Board members is determined by the Minister of Cooperative Governance and Traditional Affairs in consultation with the Minister of Finance. Remuneration of management is determined by the Board. Remuneration of independent member(s) of the Audit and Risk Committee is determined by the Board in accordance with Treasury Regulations 3.1.6, after taking into account tariffs determined by the South African Institute of Chartered Accountants and the Auditor General, where applicable. **In terms of the Board Charter, Chairpersons of Board committees are required to report back at each meeting of the Board as a general principle of transparency and full disclosure. The Chairperson of the Audit and Risk Committee also attends meetings of Executive Committee on invitation by the committee. The Charter further provides that the Audit and Risk Committee is responsible for undertaking such other duties or functions as may be assigned by the Board which are relevant to audit investigations. Other fees remunerated to the Chairperson of Audit and Risk Committee relates to work commissioned by the Chairperson of the Board. Full disclosure of meetings attended by the Chairperson of Audit and Risk Committee during the financial year is reflected on PART D of the Annual Report. 24. Change in estimates Property, plant and equipment Changes in the estimated useful lives of some items of property, plant and equipment has resulted in the following change in depreciation for the year: Depreciation:PPE -According to intial estimated useful life (31) (98) -According to re-estimated useful life Risk management Financial risk management The entity s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. Management regularly reviews the Board s going concern. This includes reviewing the effectiveness of working capital management and budgetary control. The following table indicates the maturity analysis for financial liabilities showing the remaining earliest contractual maturities. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant. Carrying Due within 1 Due between 2014 amount year 1 and 5 years Payables from exchange transactions Payables from exchange transactions

81 Financial Statements for the year ended 31 March 2014 Notes to the Financial Statements 2014 R R Risk management (continued) Interest rate risk The Board is exposed to interest rate changes in respect of returns its investments with financial institutions. The Board s exposure to interest rate risk is managed by investing, on a short term basis, in current accounts. Credit risk Credit risk consists mainly of cash deposits, cash equivalents, derivative financial instruments and trade debtors. The entity only deposits cash with major banks with high quality credit standing and limits exposure to any counter-party. Financial assets exposed to credit risk at year end were as follows: Cash and cash equivalent Receivables from exchange transactions Going concern The financial statements have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business. 27. Events after the reporting date During January and February 2014, offers of employment were extended to 3 (three) candidates, notwithstanding an earlier decision of the Board not to appoint the candidates. Upon discovery, the Board resolved that the 3 (three) offers of employment should be retracted and invalidated. Civil litigation to set aside the contracts of employment was eventually abandoned and settlement was reached between the Board and the three parties in May 2014, amounting to R collectively. 28. Fruitless and wasteful expenditure Fruitless and wasteful expenditure: current year Fruitless and wasteful expenditure relates to out of court settlement reached between the institution and three candidates whowere offered employment. Details of this incident have been disclosed in note 27, Events after the reporting date. The incident is under investigation so as to ascertain the liability of responsible official(s). The outcome of this process will determine whether the expenditure could be recovered from official(s) concerned. 29. Irregular expenditure In 2013/14, the Board incurred expenditure amounting to R , without obtaining 3 (three) quotations, reasons for deviating from supply chain management processes and regulations were not documented and approved by the accounting officer. The contractor satisfied contractual obligations, as a result there was no loss to the entity. Opening balance Add: Irregular Expenditure - prior year Add: Irregular Expenditure - current year Less: Amounts condoned - (2 657)

82 Financial Statements for the year ended 31 March

83 Financial Statements for the year ended 31 March 2014 PART H OUR TEAM 83

84 Office of the Chairperson Acting CEO Operations and Research From left to right: Mr Lighty Malatji, Chairperson: Ms Jane Thupana, Ms Bongiwe Baloyi Acting CEO: Mr Nick Ligege From left to right: Mr Aluwani Ramagadza and Ms Tebogo Mazwi Determinations and Delimitations GIS and Database Management From left to right: Mr Kamal Khadua, Ms Ayanda Monkhe, Mr Thabiso Plank, Mr Sizwe Shongwe and Mr Fazel Hoosen From left to right: Ms Naomi Ramokgopa, Mr Smiso Dlamini, Ms Hester Marais, Mr Daniel Sebake, Ms Liz Mazibuko and Mr Mthobisi Manzini 84

85 Legal and Secretariat Administration and Human Resources From left to right: Ms Masesi Koto, Ms Zeone Adams and Mr David Rambau Front Row: Ms Nalini Zoller and Ms Maria Khabeni, Middle Row: Ms Vanie Naidoo, Ms Andile Mhlongo and Ms Maggie Somanje, Back Row: Mr Godfrey Maluleka, Mr Tiisetso Mashamaite and Mr Karl Konar Finance Stakeholder Management and Communication Front Row Seated: Ms Mandy Masango and Ms Maureen Ramatlapeng Middle Row: Mr Mteteleli Gqalane, Ms Matankiso Mahlangu, Ms Mpho Ratya, Ms Nontokozo Malinga and Ms Pikkie Saunders Back Row: Mr Jonathan Robson, Mr Dumsani Khoza and Mr Shandukani Mathivha From left to right: Mr Jabu Mthembu and Ms Nangomso Jacobs 85

86 86 Notes:

87 87

88 MUNICIPAL DEMARCATION BOARD Physical Address: Eco Origins - Block C1, 349 Witch-Hazel Street, Centurion, Pretoria, 0157, South Africa Postal Address: Private Bag x123, Centurion, 0046, South Africa Telephone: Facsimile: Website: RP183/2014 ISBN: