Lekwa Local Municipality 2013/14 - Co-operative Governance and ...

7.24 ANNUAL BUDGET FOR THE FINANCIAL YEAR 2013/2014BackgroundThe municipality is currently experiencing severe cash flow challenges as a result of the past performance and pastpoor planning. The challenges include the municipality not been able to pay its Eskom Account, Water Affairs andLicensing amongst other creditors. These was further evident on the municipality’s inability to repair its aginginfrastructures such as, sewer treatment plant, water pump-station, roads amongst others. In an effort to combatthis practice, during the 2012-13 Adjustment budget the expenditure was reduced to meet the current availablerevenue as the municipality was spending at a rate high than its ability to generate income which resulted in somevotes exceeding their available budget. The municipality further adopted principles which will be used to prepareand implement the 2013-14 budgetDiscussionThe following budget principles & assumptions were taken into consideration when the 2013-14MTREF wasprepared.Section 53 of the MFMA requires the Mayor of the municipality to provide general political guidance in the budgetprocess and the setting of priorities that must guide the preparation of the budget. In addition Chapter 2 of theMunicipal Budget and Reporting Regulations states that the Mayor of the municipality must establish a BudgetSteering Committee to provide technical assistance to the Mayor in discharging the responsibilities set out insection 53 of the Act.The Budget Steering Committee consists of the Municipal Manager and senior officials of the municipality meetingunder the chairpersonship of the Council Committee for Finance.The primary aim of the Budget Steering Committee is to ensure: that the process followed to compile the budget complies with legislation and good budget practices; that there is proper alignment between the policy and service delivery priorities set out in Lekwa LocalMunicipality’s IDP and the budget, taking into account the need to protect the financial sustainability ofmunicipality; that the municipality’s revenue and tariff setting strategies ensure that the cash resources needed todeliver services are available; and that the various spending priorities of the different municipal departments are properly evaluated andprioritised in the allocation of resources.Budget Principles OverviewIn terms of section 18 of the MFMA the municipality may only fund its budget from realistically anticipatedrevenue to be collected as well as cash-backed surpluses. Therefore the municipality must provide for expenditurein line with the revenue that can be collected and don’t overstate the revenue as this will result in cash flowchallenges. The current collection rate is 70% and with the current programmes in place such as debt managementand electricity loss control is estimated that the revenue will grow with an additional 10% therefore the revenuecollected can only fund the expenditure up to 80% as a result none essential expenditures had to be reduced.The budget has to be cash-backed in order for the municipality to be able to implements its Service DeliveryBudget Implementation Plans, therefore the municipality should not have a budget that reflect a cash deficit. Dueto the implementation of the GRAP 17 Standard it is permissible for the municipality to a deficit that is equivalentto its depreciation amount as this is a none-cash item. But it should further be noted that the municipality shouldhave in its reserves an amount equivalent to its depreciation in order for the municipality to have sufficient funds236 | P a g e