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City of Tshwane availability of the Annual Financial Statements for the year ended 30 June 2022
THE CITY OF TSHWANE METROPOLITAN MUNICIPALITY
(A municipality as described in section 2 of the Local Government Municipal Systems Act, 2000, duly
established in terms of Notice No. 6770, promulgated in the Provincial Gazette Extraordinary of
1 October 2000 in terms of section 12(1) read with section 14(2) of the Local Government: Municipal
Structures Act, 1998, as amended)
(Issuer code: CTMM)
(“City of Tshwane” or the “Issuer”)
City of Tshwane availability of the Annual Financial Statements for the year ended
30 June 2022
The City of Tshwane advises noteholders it has released its audited annual financial statements for
the year ended 30 June 2022 ("AFS"). The auditors of City of Tshwane, Auditor-General South
Africa(“AGSA”), have issued an adverse audit report relating to the AFS.
The AFS contain various restatements for the year ended 30 June 2021 (“Prior Period”) relating to:
1. Contingencies
The municipality duplicated contingent liabilities, as a result the contingencies disclosure note in
the consolidated and separate financial statements was overstated by a net effect of
R3 937 436 159 (2021: R4 256 080 618). In addition, I was unable to obtain sufficient appropriate
audit evidence for the amounts disclosed as contingencies in the current year and the previous
year. I could not confirm contingencies by alternative means. Consequently, I was unable to
determine whether any further adjustments were necessary to contingencies disclosed in note 64
to the consolidated and separate financial statements, stated at R5 928 226 167
(2021: R5 980 611 713) and R5 935 226 167 (2021: R 5 980 611 713) respectively.
2. Unauthorised expenditure
The municipality did not correctly account for unauthorised expenditure incurred in the current year
as required by section 125(2)(d) of the MFMA. This was due to the municipality using the incorrect
financial information to calculate the unauthorised expenditure, resulting in an understatement of
R646 593 600. Since some of the misstatements in the basis of opinion paragraphs of this report
are included in the determination of unauthorised expenditure, I was unable to determine whether
any adjustments were necessary in the unauthorised expenditure disclosed in note 59 to the
consolidated and separate financial statements, stated at R4 835 451 623, as it was impracticable
to do so.
3. Irregular expenditure
The municipality did not have an adequate system for identifying and disclosing all irregular
expenditure incurred, as required by section 125 (2)(d) of the MFMA. In addition, I was unable to
obtain sufficient appropriate audit evidence that irregular expenditure for the current year had been
properly accounted for, due to the status of the accounting records. I was unable to confirm the
irregular expenditure by alternative means. Consequently, I was unable to determine the full extent
of the adjustment necessary to the balance of irregular expenditure disclosed in note 61 to the
consolidated and separate financial statements, stated at R10 455 255 414 and R10 455 255 414
respectively.
4. Fruitless and wasteful expenditure
The municipality did not record all fruitless and wasteful expenditure in note 60 to the consolidated
and separate financial statements, as required by section 125 (2)(d) of the MFMA. This resulted in
fruitless and wasteful expenditure being understated by R1 028 544 104.
5. Deviation from supply chain management regulations
The municipality did not disclose the deviation from supply chain management regulations in
accordance with municipal supply chain management regulation 36 (2). The recorded reasons to
dispense with the official procurement processes were not in accordance with municipal supply
chain management regulation 36 (1)(a) and municipal supply chain management regulation 36
(1)(b). This resulted in the deviation from supply chain management regulations disclosed in note
62 to the consolidated and separate financial statements being overstated by R490 421 254 and
R488 411 847 respectively.
6. Segment reporting
The municipality did not adequately prepare and disclose segment reporting as required by GRAP
18, Segment reporting. Material differences were noted in note 81 to the consolidated and separate
financial statements. There were multiple errors in the segment information reported. Due to the
extent of differences identified in the disclosure note, I could not determine the correct amounts that
should be processed as it was impracticable to do so.
7. Risk management
The municipality did not correctly disclose amounts in note 77 to the consolidated and separate
financial statements relating to capital risk management, interest risk rate, and interest rate swaps.
The disclosure note contained material differences and could not be substantiated nor reconciled
to the amounts reported in the separate financial statements. Due to the extent of difference
identified in the disclosure note, I could not determine the correct amounts that should be processed
as it was impracticable to do so.
8. Accumulated surplus
The municipality did not correctly disclose amounts stated in note 31 to the consolidated financial
statements relating to accumulated surplus. Material differences were noted between the sub
disclosure relating to ring-fenced internal funds and reserves within accumulated surplus - Group-
2022 stated at R302 561 682; and sub disclosure Ring-fenced internal funds and reserves within
accumulated surplus - Municipality – 2022 stated at R27 425 852 475. Due to the extent of
difference identified in the disclosure note, I could not determine the correct amounts that should
be processed as it was impracticable to do so.
Full details of the restatements are disclosed in Note 56 to the AFS.
In addition, the audit report contains emphasis of matters in relation to:
1. Material uncertainty relating to going concern.
With reference to note 53 to the financial statement, which indicates a constant position in liquidity
ratios, and a recent rating by Moody’s of a negative rating, which is unchanged compared to the
previous rating. The events or conditions, along with the other matters as set forth in note 53,
indicate that a material uncertainty exists that may cast significant doubt on the municipality’s ability
to continue as a going concern.
2. Material impairments
As disclosed in note 8 to the consolidated and separate financial statements, the consumer
receivables’ balance has been significantly impaired. The allowance for impairment of consumer
receivables’ amounts to R13 324 906 638 (2020-21: R10 568 459 224), which represents 71.9%
(2020-21: 62.2%) of the gross balance of consumer receivables.
3. Material losses- electricity losses
As disclosed in note 70 to the consolidated and separate financial statements, material electricity
losses of R2 136 888 813 (2020-21: R1 839 198 909) was incurred, which represents 19.44%
(2020-21: 19.24%) of total electricity purchased. Technical loss of R769 460 159(2020-
21: R669 296 298) were due to the electricity that was lost when it was distributed from the source
of generation through the transmission and distribution network to the consumers. Non-technical
losses of R1 367 428 654 (2020-21: R1 169 902 611) were due to administrative and technical
errors, high estimates, negligence, theft of electricity, tampering with meters and connections which
form part of illegal consumption.
4. Material losses- water losses
As disclosed in note 69 to the consolidated and separate financial statements, material water losses
of R1 083 402 391 (2020-21: R1 167 386 631) was incurred, which represents 32.6% (2020-
21: 34.6%) of total water purchased. Technical losses of R866 721 917 (2020-21: R933 909 305)
were due to the physical loss of water through the water distribution network. Non-technical losses
of R216 680 474 (2020-21: R233 477 326) were due to meter inaccuracies, meter estimations, non-
metering of water and unauthorised consumption.
The AGSA audit opinion is not modified in respect of these matters.
The AGSA further identified material irregularities and is in the process of evaluating further actions to
be taken to ensure resolution of the material irregularities:
Material irregularities
In accordance with the PAA and the material irregularity regulations, we have a responsibility to report
on material irregularities identified during the audit and on the status of material irregularities reported
in the previous year.
We have notified the accounting officer of material irregularities and suspected material irregularities
identified during the audit and the actions the AGSA will take with regard to these material irregularities.
We also assessed the progress made in resolving the material irregularities reported in the previous
year.
Except for the summary of material irregularities, the auditor’s report will include the following
summarised information:
Material irregularities identified during the audit -
1. Material loss caused by vandalism to the bulk water infrastructure (Refilwe Manor)
The municipality did not take all reasonable steps between December 2018 and January 2020 to
ensure that it has adequate system of internal controls for the purpose of safeguarding its assets,
as assets were stolen and vandalised resulting in non-compliance with section 63(2)(c) of the
MFMA.
The non-compliance is likely to result in a material financial loss of R4 970 982 if not recovered.
The amount is disclosed in note 74 as a comparative to the 2021/2020 annual financial statements.
The accounting officer was notified of the material irregularity on 30 November 2021 and invited to
make a written submission on the actions taken and that will be taken to address the matter.
The accounting officer has taken the following actions to address the material irregularity:
• appointed a security company through the contractor in December 2020; and
• the contractor acknowledged responsibility for the damages due to vandalism at Refilwe Manor
on 28 January 2021 and has since replaced some electrical and mechanical items and the
remaining items. The remaining electrical and mechanical items will be replaced by
28 February 2023.
We will follow up on the implementation of the planned actions during my next audit.
2. Pollution of water resource not prevented at Rooiwal Waste Water Treatment Works (WWTW)
The Rooiwal wastewater treatment works is operating over capacity with the necessary repairs and
maintenance being delayed or not done. This resulted in pollution of the environment, mainly due
to poor sludge management, effluent overflows, incidents of unregulated industry effluent and
release of inadequate effluent in the Apies River and Leeuwkraal Dam over a number of years. This
resulted in non-compliance with section 28(1) of the National Environmental Management Act.
The extent of the harm could however not be determined with absolute certainty.
The non-compliance is likely to result in substantial harm to the general public if appropriate actions
are not taken to address the cause of the pollution and prevent continued pollution of the Apies
River and Leeuwkraal Dam and/or minimise or rectify the impact of such pollution on the wider
community and environment dependent on the affected water resources.
The accounting officer was notified of the material irregularity on 15 December 2021 and in
response to the notification, the accounting officer committed to the following planned actions:
The accounting officer has taken the following actions to address the material irregularity:
• continuous repairs and maintenance of the machinery and equipment at the Rooiwal waste
water treatment works;
• appointed a contractor to contract phase I upgrade and refurbishment at the Rooiwal
wastewater treatment works, however the contractor’s contract was terminated in July 2022
due to poor performance. A consultant is currently performing verification of materials in order
to finalise the account, thereafter specifications for the appointment of a new contractor will be
drafted;
• the accounting officer committed to include the planning of Rooiwal phase II in the integrated
developmental plan of the municipality. The accounting officer has initiated section 33 of the
MFMA process and is expected to be finalised by 28 February 2023; and
• provision of water tanker services to Hammanskraal residents affected by the ongoing repairs
and maintenance work at the Rooiwal wastewater treatment works. Service providers were
appointed on 13 August 2021.
We will follow up on the implementation of the planned actions during my next audit.
The AFS of the Issuer are available on the City of Tshwane’s website at
https://www.tshwane.gov.za/wp-admin/admin-
ajax.php?juwpfisadmin=false&action=wpfd&task=file.download&wpfd_category_id=190&wpfd_file
_id=47508
and
https://www.tshwane.gov.za/wp-admin/admin-
ajax.php?juwpfisadmin=false&action=wpfd&task=file.download&wpfd_category_id=346&wpfd_file
_id=47516
and is available for inspection at Tshwane House, 320 Madiba Street, Pretoria, 0002, City of
Tshwane.
02 February 2023
Debt Sponsor
Absa Bank Limited (acting through its Corporate and Investment banking division)
Date: 02-02-2023 07:36:00
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