vision & mission - lgsetacdn.lgseta.co.za/resources/annual_report/lgseta annual report...

Vision & Mission

Vision

To establish the LGSETA as central to the success of enhanced skills development strategies and the developmentof the local government sector into efficient, frontline development agencies, integrating the activities of all spheresof government for the overall social and economic upliftment of communities through delivery of basic services inparticular water and sanitation, housing, a clean environment and all other basic human rights which the State hasan obligation to realise.

Mission

To bring about more effective co-ordination of capacity building and skills development initiatives betweengovernment departments, local government, water agencies and stakeholders and to create synergies betweendifferent elements of the development project.

To promote leadership, skills development programmes and other education interventions to enhance theefficiency and effectiveness of:

• Delivery of basic social services;• Governance and administrative, financial, planning and project management and to develop an ethos of public

service amongst all municipal and water institution staff in accordance with the principles of Batho Pele;• Combating of AIDS, Cholera and other health threats affecting our communities;• To support employment creation and retention, alleviation of poverty, public works programmes, promotion of

tourism, SMMEs and other economic growth sectors through local economic development initiatives;• To involve all the stakeholders in the sector in the development, implementation and annual evaluation of the

Sector Skills Plan;• To ensure the effective and efficient administration of the LGSETA.

LGSETA Annual Report 2006

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Table of Contents

Chairperson’s Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Chief Executive Officer’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

1. Sector Skills Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

2. Learnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

3. Education Training Quality Assurance (ETQA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

4. Organisational Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

5. Marketing & Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

6. Human Resource Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

7. Finances and Information Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Performance Information Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

Report of the Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Report of the Auditor-General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

Annual Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 - 52


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Chairperson’s Foreword

We have entered the second phase of the skills development revolution to supportthe key initiatives of government and to assist in building the capacity ofmunicipalities.

With effect from 1 April 2005 the Water Chamber has been transferred to theENERGY SETA. The recertification of the Local Government Sector Education andTraining Authority (LGSETA) for the period April 2006 to March 2010 includingthe misinterpretation of the transfer of the water chamber function has broughtabout a host of new challenges. The LGSETA has therefore embarked on amassive communication campaign to clarify any misinterpretation tomunicipalities as structures rendering water related services including all entitiesand utilities owned by municipalities.

The Minister of Labour, Minister Membathisi Madladlana, defined the scope of coverage of the Local Government SETA(LGSETA – SETA 14) in Government Gazette No. 27445, dated 31 March 2005, to include the following Standard IndustrialClassification (SIC) codes:

Bursaries for scarce skills, particularly in rural areas and in small municipalities, funded by discretionary grants have beenoffered to both employees and students to pursue studies in technical areas (electricity, water management) municipalfinance and administration etc, to provide and sustain the required scarce skills in affected areas.

The period under review has been a challenging period not only for the LGSETA but the entire local government. Despitethe trying circumstances much has been achieved and the LGSETA contributed to employment and enhancement ofservice delivery to communities. The highlight of our achievements was the graduation ceremonies that took placenationally for special projects like the Community Development Workers Learnership which resulted in over 750 learnersplaced in permanent employment after successfully completing the Learnership.

The LGSETA is currently in discussion with the Department of Provincial Local Government (DPLG) and National Treasurypertaining to various key Programmes within and outside Project Consolidate which includes inter alia the NationalGovernment’s initiative spearheaded by the DPLG to enhance capacity building in municipalities that are currentlyexperiencing critical skills shortages. A number of initiatives with various provincial departments are emerging rangingfrom Public Works, Sports, Arts and Culture albeit on an ad hoc basis.

At its strategic workshop held on 16 February 2006 the Accounting Authority of the LGSETA adopted the NSDS objectivesfor 2005-2010 which will enable the LGSETA to contribute positively to some of Government’s initiatives. Throughconsultations with various government departments and relevant SETAs, the LGSETA will be embarking on a joint ventureapproach in participating and achieving results in the following:

• ASGISA and JIPSA• Project Consolidate• Expanded Public Works Programme

The LGSETA is poised to be the first amongst the best in skills development in the period 2005- 2010.

M. SebezoChairperson

SIC CODE DESCRIPTION

50493Any utility or agency, wholly or partially owned by a municipality providing local government services undercontractors or municipality

91201All functions, services and facilities provided by a metropolitan council as determined by section 84(1) ;( 2) and (3)of the Local Government Municipal Structures Act of 1998 (Act 117 of 1998).

91202Category B municipalities: All functions, services and facilities provided by a local council as determined by section84(1), (2) and (3) of the Local Government Municipal Structures Act of 1998 (Act 117 of 1998).

91203All functions, services and facilities provided by a district council and district area management as determined bysection 84(1) ;( 2) and (3) of the Local Government Municipal Structures Act of 1998 (Act 117 of 1998).

91204Organised local government – any statutory or regulatory body assigned the function as per the Constitution ofthe RSA to deal with matters at executive level within local government.

Chief Executive Officer’s Report

For the LGSETA, the period under review has been a change of strategy in linewith the new NSDS 2005 - 2010 with more emphasis on the development andimplementation of short skills strategies within the sector. The LGSETA haspositioned itself as an important phenomenon on national driven projects such asASGISA and JIPSA within the sector largely in the training and developmentsphere.

Highlights

The LGSETA has accelerated implementation of its mandate and has seen some ofits initiatives turn into success stories that support the existence of the LGSETAwithin the sector. The entire LGSETA leaderships, management and staff hasembraced the responsibility to deal with challenges, obstacles and priorities andthe performance and achievements is evident through programmes and initiativesimplemented in the following departments.

1. Sector Skills Planning

In terms of the Skills Development Act each SETA is obliged to develop a Sector Skills Plan (SSP) and annual updatesfor submission to both Department of Provincial and Local Government (DPLG) and the Department of Labour(DoL). The SSP provides an analysis of the labour market within the sector and an annual listing of skillsrequirements.

The SSP review process for the 2005/2006 financial year was completed at the end of September 2005. Somesignificant findings of the review are:• Significantly high vacancy rates, coupled with high levels of staff turnover, within all categories of municipalities,

with some municipalities averaging 35% vacancy rates, and spending only 84% of their approved salarybudgets.

• There are disproportionately high rates of vacancies among less skilled, less specialised occupations i.e.elementary occupations and clerical. Significantly, these are occupational categories which should be lessaffected by internal organisational restructuring.

• High levels of vacancies in less skilled categories affect the efficiency of service delivery significantly particularlywith respect to technical services, waste management, water services and maintenance and municipal billing.

• The sector lacks guidelines on staffing, with respect to: minimum qualification requirements with respect toappointments in certain posts – particularly professional posts, guidelines on ratios of numbers of employees percategory (professionals to technicians and supervisors to general workers) employed as well as the number ofemployees to the number of households to be served.

Absolute shortages were identified in the following occupational areas:• Engineering: electrical and civil• Technicians and artisans: all types• Municipal planning: urban planners, development planners (including LED and IDP)• Environmental health• Emergency and disaster management (including fire and rescue)

Significant skills gaps were identified in the following areas:• strategic management and planning (including council);• project and contract management (all types);• financial management and basic financial systems (including property valuation);• administration;• human resources; and• basic literacy and numeracy.

The critical shortage of skills is illustrated in figures 1.1 -1.3 below


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Figure 1.1

Figure 1.2

Figure 1.3

1.1 Workplace Skills Plans (WSPs) submitted

The local government sector has a high compliance rate with the Skills Development Act and the SkillsDevelopment Levies Act, recording WSP submission rates of approximately 77%, and only 13municipalities failed to pay levies during the 2004/5 financial year.

There has however been a decline in submission rates of WSPs from 77% in the 2004/2005 financialyear to 62% in the 2005/2006 financial year. However, there are extensive provincial variations withthe Western Cape recording a 100% submission rate, Free State at 44% and KwaZulu Natal at 39%.Therefore the submission of WSPs by local authorities provides a considerable challenge to theLGSETA.

WSPs - Comparative Submissions

The table below, classified by province, represents the percentage of staff employed in localgovernment who received training during the period under review:

1.2 SSP Projects

Bursary Scheme

The SSP review identified an acute shortage of skills in engineering and municipal technical services.The LGSETA response to this has been to initiate a bursary scheme for municipal employees, currentlyin possession of a national technical diploma in engineering who wish to upgrade their qualificationto a B Tech degree in any of the engineering fields linked to municipal functions. Preference was givento historically disadvantaged individuals from smaller municipalities. The bursary scheme worthapproximately R 500 000 p.a is administered by the SA Institution for Civil Engineers on behalf of theLGSETA. The bursary scheme currently has 20 beneficiaries.

Internships

Provision has been made for 90 recently graduated civil engineering interns to be supported by meansof internship grants given to municipalities keen to receive such students. Placement is being done bythe SA Institution for Civil Engineers in conjunction with the Municipal Infrastructure directorate atDPLG.

Labour Intensive Construction: EPWP

The LGSETA, in support of the Expanded Public Works Programme led by the Department of PublicWorks and implemented through the Municipal Infrastructure Grants, is training some 2100 seniortechnical officials within municipalities in the design and implementation of labour intensiveconstruction processes. The labour intensive construction unit standards have been registered by theConstruction SETA which is assuming responsibility for the quality assurance of the training and the

Province % of staff trained

Limpopo 38% 3,047

Western Cape 35% 13,752

Northern Cape 32% 1,908

North West 30% 3,318

Eastern Cape 28% 5,380

KwaZulu Natal 22% 8,460

Free State 22% 3,304

Mpumalanga 20% 2,076

Gauteng 12% 5,840

Municipal Type 2004/2005 Percentage 2005/2006 Percentage

Metropolitan 6 100% 5 83%

District 37 78% 27 57%

Local 177 76% 145 62%

Total 220 177


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certification of the successful learners. It is an 18 month project with a value of approximately R 9, 6 million. Approximately 1100 learners have been trained on this programme to date.

ABET

The table below illustrates the number of learners employed within the local government sector,engaged in ABET programmes funded by the LGSETA discretionary grants.

Province Total No. of Learners

Gauteng 2,194

Limpopo 774

Mpumalanga 946

Kwa-Zulu Natal 3,296

Western Cape 801

North West 1,376

Northern Cape 651

Free State 1,283

Eastern Cape 2,074

Total 13,395

Labour Intensive Construction Skills Programmes NQF 5 andNQF 7 - in support of the Expanded Public Works Programme:

LEVEL 5 - LIC 2005

PROVINCE / STAKEHOLDER TRAINED

Eastern Cape 131

Free State 29

Gauteng 191

Kwa-Zulu Natal 140

Limpopo 102

Mpumalanga 75

Northern Cape 96

Western Cape 290

North West 45

Departmental Stakeholders 15

Other 28

GRAND TOTAL - Level 5 1,142

LEVEL 7 - LIC 2005

PROVINCE / STAKEHOLDER TRAINED

Eastern Cape 2

Free State 0

Gauteng 0

Kwa-Zulu Natal 0

Limpopo 3

Mpumalanga 1

Northern Cape 1

Western Cape 0

North West 0

Departmental Stakeholders 0

Other 3

GRAND TOTAL - Level 7 10

Equity in the labour market

The table below illustrates the percentages of employees, categorized by race and occupationalcategory. It should be noted that historically advantaged groups are relatively over representedamong senior officials and professionals. The sector is characterized by gender imbalances, withapproximately 28% of employees being women.

Percentage distributions of employees for all municipalities by occupation

2. Learnerships

2.1 Community Development Workers

The LGSETA proposal for funding from the National Skills Fund (NSF) for the amount of R70,1 millionto fund the implementation of the Community Development Workers Learnership was approved bythe National Skills Authority in November 2004. Of the total amount of R70,1 million, R41,7 million(59%) has been utilised of which R24,5m (35%) was spent on learner allowances, and R17,2 million(24%) on provider costs (see chart below). The programme is still running and the available balanceof R28,4 million will be utilised in the next financial year.

It is envisaged that the project will be completed by 31 August 2006, with he last graduationsscheduled for September 2006.

Total expenditure as at 31st March 2006

2.1.1 Progress and Graduations

Fifty seven (57) learners dropped out of the programme, due to employment opportunities ingovernment departments and municipalities nationally and health reasons.

Quarterly reports, including site visit reports, are submitted to the Department of Labour, theETQA/Learnership Policy Committee and the Executive Committee of the LGSETA.

Occupation % Race% A C I W

Leadership and governance 5.54 4.49 0.20 0.14 0.71

Senior officials and managers 3.35 1.42 0.19 0.16 1.58

Professionals 3.13 1.41 0.32 0.06 1.34

Technicians/associated professionals 8.25 3.56 1.07 0.60 3.02

Skilled agriculture and fishery workers 0.15 0.08 0.00 0.03 0.04

Clerks 11.93 6.46 1.30 0.97 3.20

Service workers 12.04 7.87 1.48 0.83 1.86

Craft and related workers 5.15 2.63 1.16 0.28 1.08

Plant, machine operators 6.61 4.90 0.65 0.09 0.97

Elementary occupations 43.85 40.96 2.02 0.21 0.66

Totals 100.00 73.78 8.39 3.37 14.46


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As at 31 March 2006, out of the total of 3 345 learners recruited and trained by the LGSETA, 762successfully completed training towards the end of November 2005 and graduated at variousinstitutions. All 762 learners were permanently employed in four provinces as listed below:• Northern Cape - 196 learners• Western Cape - 200 learners• Eastern Cape - 168 learners• Gauteng - 198 learners

The Programme is well on track with more graduations planned in the following provinces and it isenvisaged that 95% or more of the total number of learners in the programme will be employedpermanently by the end of the 2006/2007 financial year. This will be a phenomenal achievement onthe part of the LGSETA.• Mpumalanga - April 2006 - 300 learners• North West - May 2006 - 300 learners• Limpopo - May 2006 - 82 learners• Gauteng - July 2006 - 198 learners• Kwa-Zulu Natal - August 2006 - 400 learners• Western Cape - September 2006 - 250 learners

2.2 Municipal Finance

With the demand of the implementation of the Municipal Finance Management Act, the need for theMunicipal Finance Management Learnership Programme has increased and accordingly NationalTreasury has signed a MoU with the LGSETA to implement the Level 6 Learnership.

The LGSETA has invested R5, 7 million in the development, registration and implementation of theBasic Finance NQF Level 5, two year National Diploma Learnership Programme, which is aimed atlower level municipal employees.

A Basic Finance NQF Level 4 qualification has gone on public comment phase.

There are 291 learners currently in the Basic Finance NQF Level 5 Learnership Programme in thefollowing provinces:• Western Cape - 114 learners • Gauteng - 117 learners• Mpumalanga - 60 learners

The Basic Finance NQF Level 5 Learnership Programme commenced in 2004 and is nearingcompletion.

2.3 Traditional Leaders

The LGSETA is currently involved in discussions with both the Department of Provincial and LocalGovernment (DPLG) and the National House of Traditional Leaders (NHTL) for the development of aqualification framework for the training of traditional leaders. Traditional leaders are an important partof Local Government and the envisaged training will enhance their capacity and skills to play ameaningful role in local government.

2.4 Councilor Development & Ward Committee Training

Jointly with DPLG and SALGA the LGSETA has embarked on a process of developing Standards andQualifications for training of both Municipal Councillors and Ward Committee members. The trainingwill be rolled out in four phases over a period of two and a half years with SALGA championing theinduction program. An application for funding of this programme for R139 million has been submittedto the National Skills Fund.

2.5 Local Economic Development (LED)

A comprehensive qualifications framework for LED has been developed, covering:• NQF 4 - LED Officer• NQF 5 - LED Coordinator• NQF 6 - LED Manager

In August 2004 the implementation commenced with the NQF 4 LED Officer Learnership and a totalof 696 Learners have been enrolled nationally of which 270 Learners have completed the Learnership.

Currently 165 municipalities are participating in the training programme and it is anticipated that allmunicipalities will be participating in this programme by the end of the next financial year.

In July 2006 the LGSETA will commence with the introduction of the NQF 5 LED CoordinatorLearnership Programme.

3. Education Training Quality Assurance (ETQA) The LGSETA has once again been accredited by the South African Quality Authority (SAQA) on 27 September 2005to fulfill the functions as contemplated in section 9 of the ETQA Regulations (R 1127 of 1998), for the qualificationsand standards outlined in the letter of accreditation to perform the following quality assurance functions:• Report to the South African Qualifications Authority (SAQA) as required • Develop and register standards and qualification through the standards generating bodies (SGB)• Accredit providers and promote overall quality amongst the constituent’s providers• Support the emerging and BEE providers (especially rural)• Implementation of quality assurance of learner achievements or results by moderating and certifying all training

in the primary focus area of the LGSETA• Monitor and evaluate the quality of training and the impact thereof• Promote and implement the recognition of prior learning (RPL)• Continuous training and registration of assessors/mentors, moderators/verifiers, coaches and RPL advisors• Identifying and supporting centers of excellence

4. Organisational Framework

In fulfilling its mandate in terms of the Skills Development Act, 1998 (Act No. 97 of 1998) as amended (SDA) theLGSETA Accounting Authority is supported by the following committees:• Executive Committee• Human Resource Committee• Finance Tender Committee• Audit Committee (established in terms of the Public Finance Management Act)• Learnership\ETQA Committee• Provincial Committee• Management Committee responsible to execute the decisions of the Accounting Authority and Executive

Committee

4.1 Authority

In terms of the LGSETA Constitution, the Accounting Authority is the main governing body of theorganisation which consists of twenty members represented by ten members from the employercomponent and ten members from the labour component.

The primary functions of the Accounting Authority are summarised in terms of the relevant legislationand the LGSETA Constitution and include but are not limited to the following:• Development of the sector skills plan within the framework of the national skills development strategy• Promote learnerships by identifying workplaces for practical workplace experience• Report to the Director-General on its income and expenditure including the implementation of its sector

skills plan• Subject to section 7,9 and 10 of the Skills Development Levies Act, 1999 (Act No. 9 of 1999) as amended

(SDLA), collect the skills development levies and disburse grants to employers in the sector.


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The Accounting Authority meets twice per financial year in terms of the LGSETA Constitution. Duringthe period under review, two special Authority meetings were convened. The following table reflectsthe representation of constituencies in the Accounting Authority, their participation and the numberof meetings attended during the period under review.

4.2 Executive Committee

In terms of the LGSETA Constitution the Executive Committee consists of five members representingthe employer component and five members representing the labour component.

The functions of the Executive Committee include but are not limited to the following:• Supervise the proper management of all financial matters of the LGSETA• Coordinate and supervise the implementation of the policies of the Accounting Authority• Coordinate the functioning of any Provincial Committees and other committees of the Accounting

Authority• Perform any other function or duty delegated to it by the Accounting Authority

The Executive Committee is scheduled to meet four times per financial year with a proviso of havingtwo additional special meetings should the need arise. The following tables reflect the representationof constituencies in the Executive Committee, their participation and number of meetings attendedduring the period under review.

Representative Representing OrganisationMeetingsAttended

Gender Race

Ms B Mculu Employer DPLG 2 F African

Cllr R Matseke Employer SALGA 3 M African

Cllr Bazier Employer SALGA 2 F Coloured

Cllr H JenkinsVice-Chairperson

Employer SALGA 3 F Coloured

Mr G Lobelo Employer SALGA 2 M African

Mr S Mbatha Employer SALGA 4 M African

Mr M SebezoChairperson

Labour IMATU 5 M African

Mr D Carstens Labour IMATU 3 M White

Mr K Goodsell Labour IMATU 5 M African

Ms B Tilly Labour SAMWU 1 F Coloured

Mr S Maloka Labour SAMWU 4 M African

Mr M Collins Labour SAMWU 4 F Coloured

Representative Representing OrganisationMeetingsAttended

Gender Race

Ms B Mculu Employer DPLG 2 F African

Cllr Matseke Employer SALGA 3 M African

Cllr Bazier Employer SALGA 2 F Coloured

Cllr H JenkinsVice-Chairperson

Employer SALGA 2 F Coloured

Mr G Lobelo Employer SALGA 3 M African

Ms S Mbatha Employer SALGA 4 M African

Ms B Ally Employer SALGA 3 F African

Mr W Killian Labour IMATU 3 M White

Mr M SebezoChairperson

Labour IMATU 4 M African

Mr D Carstens Labour IMATU 2 M White

Mr K Goodsell Labour IMATU 4 M White

Mr S Nkosi Labour SAMWU 3 M African

Mr S Maloka Labour SAMWU 4 M African

Ms M Collins Labour SAMWU 4 F Coloured

Ms B Tilly Labour SAMWU 2 F Coloured

5. Marketing & Communications

Various marketing and communication tools are continuously being developed and improved. The followingactivities were the highlights of the Marketing and Communications Department during the period under review.

• Graduation Ceremonies took place in all provinces for Community Development Workers and most of thegraduates have been placed in permanent positions

• Skills Development Awards activities are currently taking place in various provinces recognising bothmunicipalities and skills development facilitators for active role played in promoting skills development withinthe sector

6. Human Resource Management

Staff Development

During the period under review an amount of ninety one thousand and ninety rand has been spent for the trainingand development of LGSETA staff. The following are some of the training priorities that were identified:• Project management• Financial management• Public awareness• Customer service• Quality assurance and various priorities identified that would enhance the required skills and capacity of staff to

perform their functions effectively.

Staff Profile

The following is a lean staff structure that currently renders services nationally to all clients androle players in the sector:

POSITIONS POSTSPOSTSFILLED

POSTSVACANT

AFRICAN WHITESM F M F

Executive Management 1 1 - 1 - - -

Senior Management 5 5 - 2 1 - 2

Provincial Management 6 6 - 4 2 - -

Senior Support Staff 4 2 2 1 1 - -

Support Staff 16 16 - 1 14 - 1

General Staff 1 1 - - 1 - -


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LGSETA Organogram


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7. Finances and Information Technology

The mandate of the Finance and Information Technology (IT) Department is to plan, execute and to efficientlymanage the finances of the LGSETA to ensure that assets are properly safeguarded, a fair and transparentprocurement system is implemented, that all revenue is accounted for and to ensure the development andimplementation of a fully functional integrated management information system (MIS), secure and stable networkand Information Technology (IT) environment in ensuring that the organisation delivers on its mandate.

The mission of the Finance and IT Department is to assist in making the organisation sustainable through thedevelopment, implementation and maintenance of an effective accounting system and administrative controls forrecord keeping and reporting, proper financial management policies and procedures in accordance with applicablelegislation and generally accepted accounting standards.

In order to streamline objectives in the day-to-day operations of the Finance and IT Department the Finance/TenderCommittee plays a key role in ensuring effective and transparent control over financial processes and procedureswhich have been implemented to ensure that the finances of the LGSETA are efficiently managed. The Committeehas met four times during the 2005/2006 financial year.

In accordance with the PFMA the Accounting Authority of a Public Entity must ensure that there are effective,efficient and transparent financial, risk management and internal control systems and an internal audit systemcontrolled by an Audit Committee.

The Audit Committee is accountable to the Accounting Authority of the LGSETA and must, inter alia, ensure thatthe LGSETA has taken appropriate steps to prevent irregular expenditure, fruitless and wasteful expenditure, theimplementation, evaluation and monitoring of policies and finance measures in compliance with GenerallyAccepted Accounting Principles (GAAP) including any interpretations of such Statements issued by the AccountingPractices Board, with the prescribed Standards of Generally Recognised Accounting Practices (GRAP) issued by theAccounting Standards Board, the Public Finance Management Act, 1999 (Act No. 1 of 1999) as amended (PFMA)and Treasury Regulations, which may be promulgated from time to time, are enforced.

A Business Risk Analysis workshop is scheduled in the early part of the next financial year which will form the basisfor the development of an internal audit operational plan, audit execution timetable and a detailed audit coverageplan for the 2006/2007 financial year. The following internal audits were completed during the year under review:• Finance and administration• Governance and Regulatory• Marketing and Communications• Human Resources• Procurement and Programmes• Information Technology and Systems

Reports of the independent Internal Auditors are submitted to the Audit Committee. The Audit Committee has metthree times during the 2005/2006 financial year and the interrogation of both internal and external audit reportswere dealt with accordingly at these meetings. Quarterly reports on the activities of the Audit Committee andrecommendations made are communicated to the Executive Committee.

The LGSETA Audit Committee consists of three non-executive independent members, Mr. Mveleli Booi, Chairpersonof the Audit Committee, Ms Busisiwe Dlamini and Mr. Titus Mchunu. In accordance with the terms of reference ofthe Audit Committee a fourth member should be appointed. The LGSETA has received an unqualified audit opinionfor the 2004/2005 financial year. Matters of Emphasis included in the Report of the Auditor-General on theFinancial Statements for the year ended 31 March 2005 are currently receiving highest priority.

On the IT side, an integrated Management Information System (DATANET), national database of employers,providers, moderators, verifiers, learnerships and registered learners in the sector and a secure and effective systemto track levies and disburse grants have been implemented. A stable and virus-free IT and network environment isbeing maintained.

Operational Budget / Levy / Grant Administration

Skills Development Levy Income and Expenditure

In terms of section 3(1) and 3(4) of the Skills Development Levies Act, 1999 (Act No 9 of 1999), registered membercompanies of the LGSETA pay a skills development levy of 1% of the total payroll cost to the South African RevenueServices (SARS), who collects the levies on behalf of the Department of Labour. The Department of Labour transfers


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80% of the total skills development levy paid by employers in the sector to the LGSETA and 20% to the National SkillsAuthority of which 2% is paid to SARS for collecting skills development levies. Member company levy payments forSkills Development levies are recognised in respect of Administration 10% (2005:10%), the Employer Grant Fund50% (2005: 60%) and the Discretionary Grant Fund 20% (2005: 10%).

There is a time lag of two (2) months between the time SARS receives the Skills Development Levies (SDL) paid bymember companies in the sector and when the cash and financial data is received by the SETA. Accordingly anaccrual has been raised for levies for February 2006 and March 2006 which have been paid by employers but havenot been received by the LGSETA by 31 March 2006. The total levies (100%) contributed by member companies inthe sector for Skills Development Levies for the 2005/2006 financial year is R185,6m excluding SARS adjustments,Inter-Seta transfers, interest and penalties.

The Water Chamber has been transferred to the Energy SETA with effect from 1 April 2005 and the Department ofLabour facilitated the transfer of relevant employers and SDL income during which process some employers havebeen transferred incorrectly. Provisions have been included in the Annual Financial Statements for incomereceivable / transferable as well as an estimate for income receivable due to retrospective adjustments made bySARS.

It should be noted that the LGSETA Database currently only makes provision for a demarcation code for employerswithin the local government sector and therefore “Other” in the charts below represents employers in the waterand waste management sector including employers which have been incorrectly registered with the LGSETA.

For the purpose of the charts in this report, the provisions for income receivable / transferable has been includedin “Other” due to the fact that the actual data is not available and could not be distributed by demarcation provinceor employer category. The total SDL Income (80%) for all levy years accounted for by the LGSETA for the 2005/2006financial year amounts to R152,3m.

Total skills development levy income (80%) paid by employers in the sector for levy year 2006 including incomereceived in the 2005/2006 financial year relating to prior levy years and actual Mandatory Grant disbursements bydemarcation province is illustrated in the chart below.

Skills Development Levy Operational Income and Expenditure

The LGSETA’s operational expenses are monitored to ensure that expenditure are within the prescribed limit of 10%and to prevent wasteful and fruitless expenditure. SETA’s have been deregistered as VAT Vendors with effect from1 April 2005. The total SDL income for administration (10%) received for the 2005/2006 financial year is R19,0m and operational expenditure incurred amounts to R15,9m.

Mandatory Grant Disbursements

Mandatory Grants disbursed during the 2005/2006 financial year for all levy years amounts to R175,7m. The actualMandatory Grant Income (50%) for the period under review is R95,5m and the Mandatory Grants disbursed for the2006 levy year amounts R75,6m. These grants have been distributed quarterly and have been transferred directlyinto employers’ bank accounts.

The chart below indicates the actual Mandatory Grants disbursed versus total actual Mandatory Grant Income forthe 2006 levy year by demarcation province. The chart is based on actual income including accruals raised for thelevy income for February 2006 and March 2006 respectively but excludes provisions made for levy incomereceivable from Inter-Seta transfers and SARS adjustments.

Mandatory Grant Income versus Mandatory Grant Disbursements for all levy years (2001 to 2006) by Employercategory is depicted in the chart below. The income included as unknown is employers which have been registeredincorrectly with the LGSETA and the Department of Labour has been requested to facilitate the transfer of theseemployers to the relevant SETA.


16


17

Discretionary Grant Income & Expenditure

The Discretionary Fund comprise of 20% (2005: 10%) Discretionary Grant income from the Skills Development Levy,interest and penalties paid by employers in the sector, interest accrued, unspent income for administration fromprevious years and unclaimed Mandatory Grant income which have been transferred to the Discretionary Fund andinterest accrued.

The Executive Committee have approved funding to be utilised during the 2005 – 2010 financial years from theDiscretionary Fund for Discretionary Grants and Special Projects with the aim of strengthening training activities inthe sector through support to learnerships, skills programmes and apprenticeships, to address the prioritiesidentified in the LGSETA Sector Skills Plan and to meet NSDS targets in accordance with the MOU with theDepartment of Labour.

An amount of R31,0m has been disbursed from Discretionary Funds during the current financial year. The projectswhich have not been completed during the 2005/2006 financial year will continue in the 2006/2007 financial year.Further sector priorities had been identified and funds have been allocated from the Discretionary Fund accordinglyto be utilised during the 2005-2010 financial year.

Conclusion

Notwithstanding the continuous challenges faced by the sector due to continuous restructuring of municipalstructures, necessitated by legislation and political changes, there is a now general sense of commitment bymunicipalities, to undertake qualitative Skills development initiatives. The DPLG’s Project Consolidate, the AFSproject undertaken jointly with the LGSETA and other stakeholders in the sector has strengthened the need forcloser cooperation in assisting municipalities to deliver on their legal and constitutional mandate.

L.S. MofokengActing Chief Executive Officer


18

NSD

S O

BJE

CT

IVE

S 2

00

5~

20

10

SYN

OP

SIS,

TA

RG

ET

S A

ND

PR

OG

RE

SS

NSD

SO

bje

ctiv

es2

00

5 -

20

10

NSD

S Su

cces

s In

dic

ato

rs,

Nat

ion

al T

arg

ets

and

Ou

tco

mes

20

05

- 2

01

0

LGSE

TA

Pla

n f

or

20

05

- 2

01

0F

ive

Yea

r T

arg

ets

and

Ou

tco

mes

LGSE

TA

Pla

n f

or

20

05

- 2

00

6 A

nn

ual

Tar

get

san

d O

utc

om

esA

chie

vem

ents

2

00

5 -

20

06

Co

mm

ents

1. P

riorit

isin

g a

nd

com

mun

icat

ing

crit

ical

ski

llsfo

r su

stai

nab

le g

row

th,

deve

lopm

ent a

nd

equi

ty

Indi

cato

r 1.

1

Ski

lls d

evel

opm

ent

supp

orts

nat

ion

al a

nd

sect

oral

gro

wth

,de

velo

pmen

t an

d eq

uity

prio

ritie

s.

PRO

JEC

T N

AM

ESc

arce

Ski

lls R

evie

w

Targ

et is

the

sam

e fo

r ea

ch y

ear

from

2005

to 2

010

as d

escr

ibed

un

der

An

nua

lTa

rget

Sam

e ac

tivity

eac

h y

ear

The

SSP

or A

nn

ual U

pdat

e is

sub

mitt

ed o

n ti

me

inac

cord

ance

with

DoL

gui

delin

es a

nd

sig

ned

off

by th

e:

a) D

irect

or-G

ener

al-

D P

L G

b) E

xecu

tive

Man

ager

-SE

TA S

uppo

rt

c) L

GSE

TA-

Ch

airp

erso

n

100%

The

SSP

was

app

rove

d as

bei

ng

inco

mpl

ian

ce w

ith D

oL g

uide

lines

an

dsu

bmitt

ed w

ithin

the

pres

crib

edtim

efra

me.

1. P

riorit

isin

g a

nd

com

mun

icat

ing

crit

ical

ski

llsfo

r su

stai

nab

le g

row

th,

deve

lopm

ent a

nd

equi

ty

Indi

cato

r 1.

2In

form

atio

n o

n c

ritic

al s

kills

wid

ely

avai

labl

e to

lear

ner

s.

PRO

JEC

T N

AM

EW

orkp

lace

ski

lls D

evel

opm

ent s

yste

ms

Targ

et is

the

sam

e fo

r ea

ch y

ear

from

2005

to 2

010

as d

escr

ibed

un

der

An

nua

lTa

rget

An

nua

l gui

de o

n c

ritic

al s

kills

nee

ds fo

r th

e se

ctor

deve

lope

d an

d av

aila

ble

to le

arn

ers.

250

SDFs

an

d 75

0Se

ctor

Spe

cial

ists

trai

ned

in s

ecto

r fo

rth

e ye

ar. (

Ass

esso

r, M

ento

rs, e

tc)

Trai

ned

304

SDFs

an

d88

8as

sess

ors/

men

tors

/ve

rifie

rs a

nd

coac

hes

The

targ

et o

f 100

0 w

as e

xcee

ded

by 1

92

The

LGSE

TA c

onve

nes

qua

rter

ly S

DF

Foru

ms

in e

ach

Pro

vin

ce, a

nd

con

ven

esan

nua

l pro

vin

cial

ly b

ased

sca

rce

skill

sw

orks

hop

s.

2. P

rom

otin

g a

nd

acce

lera

ting

qua

lity

trai

nin

gfo

r al

l in

the

wor

kpla

ce

Indi

cato

r 2.

1B

y M

arch

201

0 at

leas

t 80%

of l

arg

e fir

ms’

and

at le

ast 6

0% o

f med

ium

firm

s’em

ploy

men

t equ

ity ta

rget

s ar

e su

ppor

ted

by s

kills

dev

elop

men

t.

PRO

JEC

T N

AM

EW

orkp

lace

Ski

lls D

evel

opm

ent s

yste

ms

Targ

et is

set

for

each

yea

r fr

om 2

005

to20

10 a

s de

scrib

ed u

nde

r A

nn

ual T

arg

et.

The

targ

et fo

r la

rge

firm

s is

4 M

etro

Mun

icip

aliti

es

The

targ

et fo

r m

ediu

m fi

rms

is 5

Dis

tric

t Mun

icip

aliti

es a

nd

10la

rge

Loca

l Mun

icip

aliti

es

The

aver

age

of th

e tw

o pe

rcen

tag

es r

ecei

ved

will

be

the

actu

al r

esul

ts.

5M

etro

Mun

.27

Dis

tric

t Mun

.13

3Lo

cal M

un.

Exce

eded

targ

et a

s fo

llow

s:•

Met

ro M

un.

- 1

•D

istr

ict M

un.

- 2

2•

Loca

l Mun

.

- 123

2. P

rom

otin

g a

nd

acce

lera

ting

qua

lity

trai

nin

gfo

r al

l in

the

wor

kpla

ce

Indi

cato

r 2.

2B

y M

arch

201

0 sk

ills

deve

lopm

ent i

n a

tle

ast 4

0% o

f sm

all l

evy

payi

ng

firm

ssu

ppor

ted

and

the

impa

ct o

f th

e su

ppor

tm

easu

red.

Targ

et is

set

for

each

yea

r fr

om 2

005

to20

10 a

s de

scrib

ed u

nde

r A

nn

ual T

arg

et.

The

targ

et fo

r th

e di

ffere

nt n

umbe

r of

sm

all f

irms

is 1

0 i.e

.sm

all l

ocal

mun

icip

aliti

es

(With

ref

eren

ce to

num

ber

of s

mal

l firm

s af

ter

1st A

ugus

t20

05)

12sm

all l

ocal

Mun

icip

aliti

esTh

e ta

rget

for

smal

l loc

al m

unic

ipal

ities

was

exc

eede

d by

2

2. P

rom

otin

g a

nd

acce

lera

ting

qua

lity

trai

nin

gfo

r al

l in

the

wor

kpla

ce

Indi

cato

r 2.

3 B

y M

arch

201

0 at

leas

t 80%

gov

t dep

t spe

nd

at le

ast 1

% o

f per

son

nel

budg

et o

n tr

ain

ing

an

d im

pact

of t

rain

ing

on s

ervi

ce d

eliv

ery

mea

sure

d an

dre

port

ed o

n

On

e (1

) Gov

t dep

artm

ent (

DPL

G)

On

e (1

) Gov

t Dep

artm

ent (

DPL

G)

DPL

G s

ubm

itted

its

WSP

to P

SETA

an

d a

copy

toLG

SETA

MoU

dra

fted

Alth

oug

h t

he

MO

U h

as n

ot y

et b

een

sig

ned

by

DPL

G it

will

be

final

ised

in th

e20

06/0

7 fin

anci

al y

ear

2. P

rom

otin

g a

nd

acce

lera

ting

qua

lity

trai

nin

gfo

r al

l in

the

wor

kpla

ce

Indi

cato

r 2.

4B

y M

arch

201

0, a

t lea

st 5

00 e

nte

rpris

esac

hie

ve a

nat

ion

al s

tan

dard

of g

ood

prac

tice

in s

kills

dev

elop

men

t app

rove

dby

the

Min

iste

r of

Lab

our.

PRO

JEC

T N

AM

EH

uman

Dev

elop

men

t Sta

nda

rd (I

IP)

Targ

et fo

r th

e se

ctor

for

the

perio

d 20

05to

201

0 is

10

ente

rpris

es.

* D

ue to

gen

eral

lack

of c

apac

ity in

Mun

icip

aliti

es th

e n

umbe

r ta

rget

ed to

part

icip

ate

is o

nly

10

Targ

et fo

r th

e se

ctor

for

the

perio

d 20

05 to

200

6 is

1en

terp

rise.

Nil

Prep

arat

ory

wor

k w

as u

nde

rtak

en in

antic

ipat

ion

of t

he

appr

oval

of a

Sta

nda

rdbe

ing

pro

mul

gat

ed b

y th

e M

inis

ter

ofLa

bour

.


19

NSD

S O

BJE

CT

IVE

S 2

00

5~

20

10

SYN

OP

SIS,

TA

RG

ET

S A

ND

PR

OG

RE

SS

NSD

SO

bje

ctiv

es2

00

5 -

20

10

NSD

S Su

cces

s In

dic

ato

rs, N

atio

nal

Tar

get

san

d O

utc

om

es 2

00

5 -

20

10

LGSE

TA

Pla

n f

or

20

05

- 2

01

0F

ive

Yea

r T

arg

ets

and

Ou

tco

mes

LGSE

TA

Pla

n f

or

20

05

- 2

00

6A

nn

ual

Tar

get

s an

d O

utc

om

esA

chie

vem

ents

2

00

5 -

20

06

Co

mm

ents

2. P

rom

otin

g a

nd

acce

lera

ting

qua

lity

trai

nin

gfo

r al

l in

the

wor

kpla

ce

Indi

cato

r 2.

5A

nn

ually

incr

easi

ng

num

ber

of s

mal

l BEE

firm

s an

dB

EE c

o-op

erat

ives

sup

port

ed b

y sk

ills

deve

lopm

ent.

Prog

ress

mea

sure

d th

roug

h a

n a

nn

ual s

urve

y of

BEE

firm

s an

d B

EE c

o-op

erat

ives

with

in th

e se

ctor

from

the

seco

nd

year

on

war

ds.

PRO

JEC

T N

AM

EB

E E

sup

port

Targ

et fo

r th

e se

ctor

for

the

perio

d 20

06 –

2010

will

be

esta

blis

hed

aft

er c

ompl

etio

n o

ffir

st a

nn

ual s

urve

y.

Targ

et fo

r th

e se

ctor

for

the

perio

d 20

05 to

2006

is N

il.

An

nua

l tar

get

s w

ill o

nly

be

set f

rom

20

06 –

200

7 on

war

ds.

A r

esea

rch

pro

ject

unde

rtak

en a

s pa

rt o

f th

eSS

P re

view

to e

stab

lish

BEE

bas

elin

e in

the

sect

or

A r

esea

rch

was

com

mis

sion

ed to

est

ablis

hth

e B

EE fi

rms

and

Coo

pera

tives

in th

ese

ctor

with

a v

iew

of i

nco

rpor

atin

g th

eou

tcom

e w

ith L

GSE

TA L

ED p

rog

ram

.

2. P

rom

otin

g a

nd

acce

lera

ting

qua

lity

trai

nin

gfo

r al

l in

the

wor

kpla

ce

Indi

cato

r 2.

6 F

rom

Apr

il 20

05 to

Mar

ch 2

010

ther

e is

an a

nn

ual i

ncr

easi

ng

num

ber

of p

eopl

e w

ho

ben

efit

from

ince

ntiv

es e

.g. E

PWP

PRO

JEC

T N

AM

EEP

WP

LIC

1200

Mun

icip

al E

ng

inee

rs

600

(LG

SETA

ow

n T

arg

et)

1 10

0 m

unic

ipal

te

chn

ical

sta

ff

The

targ

et o

f 600

was

set

by

the

LGSE

TAan

d w

as e

xcee

ded

by 5

00

Labo

ur In

ten

sive

Con

stru

ctio

n tr

ain

ing

rolle

d ou

t at b

oth

NQ

F le

vels

5 a

nd

7 to

faci

litat

e th

e im

plem

enta

tion

of t

he

EPW

P

2. P

rom

otin

g a

nd

acce

lera

ting

qua

lity

trai

nin

gfo

r al

l in

the

wor

kpla

ce

Indi

cato

r 2.

7B

y M

arch

201

0 at

leas

t 700

000

wor

kers

hav

eac

hie

ved

at le

ast A

BET

Lev

el 4

.

PRO

JEC

T N

AM

EW

orkp

lace

AB

ET

Targ

et fo

r th

e se

ctor

for

the

perio

d 20

05 to

2010

is 1

5000

Lear

ner

s.

The

Targ

et o

f 84

127

prop

osed

by

DoL

was

un

real

istic

as

sect

or e

mpl

oys

220

000

peop

le o

nly

.

Targ

et fo

r th

e se

ctor

for

the

perio

d 20

05 to

2006

is 2

000

Lear

ner

s, h

ave

been

en

rolle

din

cus

tom

ised

AB

ET n

atio

nal

ly

1 10

0m

unic

ipal

te

chn

ical

sta

ffTh

e ta

rget

of 2

000

has

bee

n e

xcee

ded

by 8

00

2. P

rom

otin

g a

nd

acce

lera

ting

qua

lity

trai

nin

gfo

r al

l in

the

wor

kpla

ce

Indi

cato

r 2.

8B

y M

arch

201

0 at

leas

t 125

000

wor

kers

ass

iste

d to

ente

r an

d at

leas

t 50%

suc

cess

fully

com

plet

epr

ogra

mm

es,

Incl

udin

g L

earn

ersh

ips

and

appr

entic

esh

ips,

lead

ing

to b

asic

en

try,

inte

rmed

iate

an

d h

igh

leve

l sca

rce

skill

s. Im

pact

of a

ssis

tan

ce m

easu

red

PRO

JEC

T N

AM

EW

orkp

lace

Cap

acity

Bui

ldin

g

Targ

et fo

r th

e se

ctor

for

the

perio

d 20

05 to

2010

is 6

000

Lear

ner

s.

*Th

e ta

rget

of 3

546

prop

osed

by

the

DoL

was

un

real

istic

ally

low

an

d w

as a

ccor

din

gly

adju

sted

by

LGSE

TA to

600

0

Targ

et fo

r th

e se

ctor

for

the

perio

d 20

05 to

2006

is 1

200

Lear

ner

s.

2144

3 le

arn

ers

ente

red

stru

ctur

ed le

arn

ing

prog

ram

s

The

targ

et o

f 120

0h

as b

een

ex

ceed

ed b

y 20

243

.

Prom

otin

g e

mpl

oyab

ility

and

sust

ain

able

live

lihoo

dsth

roug

h s

kills

dev

elop

men

t

Indi

cato

r 3.

2B

y M

arch

201

0, a

t lea

st 2

000

non

-levy

pay

ing

ente

rpris

es, N

GO

s, C

BO

s, a

nd

com

mun

ity-b

ased

co-

oper

ativ

es s

uppo

rted

by

skill

s de

velo

pmen

t. Im

pact

of

supp

ort o

n s

usta

inab

ility

mea

sure

d w

ith a

targ

eted

75%

suc

cess

rat

e.

PRO

JEC

T N

AM

EN

GO

/CB

O S

uppo

rt P

rog

ram

me

Targ

et fo

r th

e se

ctor

for

the

perio

d 20

05 to

2010

is 5

7en

terp

rises

.

* D

oL ta

rget

57.

•C

o-op

s ac

tive

in L

. G S

ecto

r•

CB

O’s

act

ive

in L

. G S

ecto

r•

NG

O’s

act

ive

in L

. G S

ecto

r

Targ

et fo

r th

e se

ctor

for

the

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to E

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bod

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and

prov

ider

s


21

Report of the Audit Committee

We are pleased to present our report for the financial year ended 31 March 2006.

Audit Committee Members and Attendance

The terms of reference of the Audit Committee have been reviewed by the LGSETA Executive Committee and it wasresolved that the Audit Committee should consist of at least four members. Accordingly, the LGSETA still has toappoint a fourth member to serve on the Audit Committee. During the current financial year, the Audit Committeeconsisted of the three members listed below and three (3) meetings were held. Audit Committee meetings areattended by the Accounting Officer and the Finance Manager of the LGSETA, representatives of the Office of theAuditor-General, and the Internal Auditors.

The Chairperson of the Audit Committee, Mr. Booi was not able to attend the meeting held on 27 February 2006and appointed Mr. Mchunu as acting chairperson.

Name of Member Number of Meetings Attended

M. Booi (Chairperson) 2

T. Mchunu 3

B. Dlamini 3

Audit Committee Responsibility

The Audit Committee reports that it has adopted appropriate formal terms of reference as its audit committeecharter, has regulated its affairs in compliance with this charter and has discharged all its responsibilities ascontained therein.

The Effectiveness of Internal Control

The system of controls is designed to provide cost effective assurance that assets are safeguarded and that liabilitiesand working capital are efficiently managed. In line with the PFMA and the King II Report on Corporate Governancerequirements, Internal Audit provides the Audit Committee and management with assurance that the internalcontrols are appropriate and effective. This is achieved by means of the risk management process, as well as theidentification of corrective actions and suggested enhancements to the controls and processes. From the reports ofthe Internal Auditors, the Audit Report on the Annual Financial Statements, the matters of emphasis andmanagement letter of the Auditor-General/external auditors, it was noted that systems of internal control were notentirely effective for the year under review as compliance with prescribed policies and procedures were lacking incertain instances and control weaknesses have been reported by the Auditor-General under emphasis of matter andin the management letter.

The effect of these instances has been included in the annual financial statements and the report of the AccountingAuthority.

Evaluation of Annual Financial Statements

As a result of the unavailability of Mr. M Booi, Chairperson of the Audit Committee and the lack of a quorum, acombined meeting of the LGSETA Executive Committee and Audit Committee were held on 31 July 2006. TheExecutive Committee and the Audit Committee have• Reviewed and discussed the audited annual financial statements to be included in the annual report with the

Auditor-General, the Accounting Officer and the Executive Committee of the LGSETA;• Reviewed the Auditor-General’s management letter and management’s response thereto; and• Reviewed significant adjustments resulting from the audit.

The Audit Committee concurs and accepts the Auditor-General’s conclusions on the Annual Financial Statementsand is of the opinion that the Audited Annual Financial Statements be accepted and read together with the Reportof the Auditor-General.

T. MchunuMember of the Audit Committee31 July 2006


22

1. AUDIT ASSIGNMENT

The financial statements as set out on pages 26 to 52, for the year ended 31 March 2006, have been audited interms of section 188 of the Constitution of the Republic of South Africa, 1996, read with sections 4 and 20 of thePublic Audit Act, 2004 (Act No. 25 of 2004) (PAA) and section 14(6) of the Skills Development Act, 1998 (Act No.97 of 1998) (SDA). These financial statements, the maintenance of effective control measures and compliance withrelevant laws and regulations are the responsibility of the accounting authority. My responsibility is to express anopinion on these financial statements, based on the audit.

2. SCOPE

The audit was conducted in accordance with the International Standards on Auditing read with General Notice 544of 2006, issued in Government Gazette no. 28723 of 10 April 2006 and General Notice 808 of 2006, issued inGovernment Gazette no. 28954 of 23 June 2006. Those standards require that the audit is planned and performedto obtain reasonable assurance that the financial statements are free of material misstatement.

An audit includes:• examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements• assessing the accounting principles used and significant estimates made by management• evaluating the overall financial statement presentation.

I believe that the audit provides a reasonable basis for my opinion.

3. BASIS OF ACCOUNTING

The entity’s policy is to prepare financial statements on the basis of accounting determined by the National Treasury,as described in note 1 to the financial statements.

4. AUDIT OPINION

In my opinion, the financial statements present fairly, in all material respects, the financial position of the LocalGovernment Sector Education and Training Authority at 31 March 2006 and the results of its operations and its cashflows for the year then ended, in accordance with the basis of accounting determined by the National Treasury ofSouth Africa, as described in note 1 to the financial statements, and in the manner required by Public FinanceManagement Act, 1999 (Act No. 1 of 1999) as amended.

5. EMPHASIS OF MATTERS

Without qualifying the audit opinion, attention is drawn to the following matters:

5.1 Inadequate monitoring

Due to inadequate monitoring of the relevant laws and regulation, specific requirements were not complied with:• Treasury Regulation 27.3.1 – no chief financial officer appointed or written delegation of functions for the chief

financial officer.• Promotion to Access of Information Act, 2000 (Act No.2 of 2000) (PAIA) - LGSETA have not implemented and

complied with the PAIA as no manual has been compiled in terms of section 14 and no person has beendelegated the task of deputy information officer in terms of section 17. Reports have not been sent to theHuman Rights Commissioner in terms of section 32.

Report of the Auditor-General to Parliament on the Financial Statements of the Local

Government Sector Education and Training Authority (LGSETA) for

The Year Ended 31 March 2006


23

5.2 Supply chain management

Due to inadequate monitoring of the relevant laws and regulation, specific requirements were not complied with:• Treasury Regulation 16A – supply chain management framework have not been implemented. Management

did engage in steps to start with the development of the supply chain management framework by sending outtenders subsequent to year-end to assist in the implementation of the requirements.

5.3 Performance information

Due to inadequate controls implemented by LGSETA, the information disclosed with regards to performanceinformation in the annual reports could not be verified to supporting documentation.

6. APPRECIATION

The assistance rendered by the staff of the Local Government Sector Education and Training Authority during theaudit is sincerely appreciated.

N. Manik for Auditor-General

Pretoria

28 July 2006

Report of the Auditor-General to Parliament on the Financial Statements of the Local

Government Sector Education and Training Authority (LGSETA) for

The Year Ended 31 March 2006


24

Annual Financial Statementsfor the year ended 31 March 2006

Local Government Sector

Education and Training Authority


25

REPORT OF THE ACCOUNTING AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

STATEMENT OF FINANCIAL PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

STATEMENT OF FINANCIAL POSITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

STATEMENT OF CHANGES IN NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

CASH FLOW STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

NOTES TO THE ANNUAL FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 - 52

LOCAL GOVERNMENT SECTOR EDUCATION AND TRAINING AUTHORITYANNUAL FINANCIAL STATEMENTS31 MARCH 2006

CONTENTS

Report by the Chairperson of the Accounting Authority of the Local Government Sector Education and Training Authorityto the Executive Authority/Provincial Legislature and Parliament of the Republic of South Africa.

The Annual Financial Statements and Annual Report is submitted in terms of the Public Finance Management Act, 1999(No. 1 of 1999) as amended and the Skills Development Act, 1998 (Act No 97 of 1998) as amended. Information in theAnnual Report for the period under review is focussing on highlights as well as reporting difficulties and challenges facedby the LGSETA during the sixth year of its operation.

General review of the state of affairs

The Minister of Labour announced the new configuration of Sector Education Training Authorities (SETAs) at theNSDS Conference held on 3 – 4 March 2005. The name of the SETA has been changed to the Local GovernmentSector Education and Training Authority (LGSETA) and has been recertified for five (5) years with the exclusion ofthe Water Chamber. In accordance with the decision of the Minister of Labour and with the requirements publishedin Government Gazette No. 27445 the Water Chamber has been amalgamated with the Energy SETA with effectfrom 1 April 2005.

Recertification of the LGSETA by the Minister of Labour is a confirmation of confidence by the minister in the SETAand the sector in general and this brings a challenge for the Accounting Authority and staff to work harder in thedelivery of training and skills development within the sector.

The constitution of the LGSETA has been reviewed by the Accounting Authority and it has subsequently beenapproved by the Minister of Labour and published in Regulation Gazette No. 8394 Volume 488 date 3 February2006 Government Gazette Print No. 28457.

In the absence of the Service Level Agreement (SLA) with the Department of Labour (DoL), a Memorandum ofUnderstanding (MOU) was entered into with the DoL. Uncertainty pertaining to certain NSDS Objectives and theirrelevance to the Local Government sphere resulted in the Department of Labour not finalising the MOU timeouslyand the LGSETA could not commit discretionary funds to proposed projects. The MOU has only been signed off on31 January 2006 by the DoL.

Due to the delay in finalising the MOU only certain objectives in accordance with the NSDS indicators have beenmet and the majority of discretionary funds utilised during the period under review was to address sectoralinitiatives. Funding to the value of approximately R150 million has subsequently been allocated and approved bythe Accounting Authority in terms of the refined SLA and NSDS Objectives to cover multi year sectoral strategicpriorities aligned to JIPSA and ASGISA (Financial Viability, Expanded Public Works, Management and LeadershipDevelopment and Community Based) participation.

A synopsis indicating the LGSETA performance and achievements against predetermined objectives is included inthe Annual Report for the year ended 31 March 2006.

Statement of Responsibility

In terms of the PFMA, the Accounting Authority is required to keep full and proper records of the financial affairs ofthe Public Entity and to have appropriate internal controls to limit and detect material misstatements and losses. Itis the responsibility of the Accounting Authority to ensure that the Annual Financial Statements (AFS) fairly presentthe state of affairs of the entity, its business, its financial results and it is the Auditor-General’s responsibility toindependently audit and express an opinion on it.

The Annual Financial Statements for the year ended 31 March 2006 have been prepared on the going concern basis.

Corporate Governance

As a public entity, the LGSETA is governed by the provisions of the PFMA and is also committed to ensuring that therecommendations of the King II report on corporate governance are implemented and adhered to.

With the exception of the matters of emphasis in the Report of the Auditor-General, the Accounting Authority hascomplied with the appropriate legislation. In order to address the LGSETA's non-compliance with the requirementsof the PFMA included as matters of emphasis, the Accounting Authority has embarked on a restructuring processof the Finance Department and it is anticipated that a Chief Financial Officer will be appointed in due course. The


26

LOCAL GOVERNMENT SECTOR EDUCATION AND TRAINING AUTHORITYANNUAL FINANCIAL STATEMENTS

REPORT OF THE ACCOUNTING AUTHORITY FOR THE YEAR ENDED 31 MARCH 2006

Supply Chain Management Unit will be established in the Finance Department to ensure the successfulimplementation of the Supply Chain Management Framework in terms of Treasury Regulation 16A.

Comprehensive policies and procedures have been developed and implemented in accordance with the LGSETAconstitution. These policies and procedures contribute towards the effectiveness and corporate governancestrategies and are in line with the PFMA and King II Report.

As required by National Treasury Regulation 28.1.5 the LGSETA developed a Materiality and SignificanceFramework to articulate the meaning of the concepts "materiality" and "significance" for purposes of certain eventsas defined in the Treasury Regulations and the PFMA.

The former Chief Executive Officer, Mr. S.S.W. Nkosi was appointed on a two year employment contract and as theAccounting Authority preferred not to extend the employment contract, Mr. Nkosi's services were terminated on 31 December 2005. Mr. Sidwell Mofokeng (Learnership Manager of the LGSETA) has been appointed as the ActingCEO for a period not exceeding 6 (six) months.

Audit Committee

The re-appointment of Mr. Titus Mchunu for a further term of two years was confirmed by the Executive Committeeat its meeting held on 24 November 2005. The Executive Committee agreed to align the two year cycle and theterm of members of the Audit Committee to be extended to 31 July in order to conclude the audit for the period inwhich the members was involved with the business of the LGSETA.

Reports on the activities and the findings of the Audit Committee are submitted to the Executive Authority and thereis general consensus that the Audit Committee complies with the terms stated in its Terms of Reference. During theperiod under review, no matters of irregular nature have been raised by the Audit Committee.

The internal auditors have the responsibility to monitor and evaluate the implementation of prescribed proceduresand have direct access to the office of the CEO, the Audit Committee and management.

Internal Financial Control and Risk Management

Internal financial control focuses on critical risk areas identified by management, confirmed and reviewed by the AuditCommittee and accordingly evaluated by the internal auditors. The management of the financial affairs of the LGSETAis being overseen by the Finance/Tender Committee and quarterly reports are submitted to the Executive Committee.

Liabilities raised in the prior year are still included in Accounts Payable in the Annual Financial Statements forprovider costs which have not been paid as these matters are under investigation by the Accounting Authority andhave subsequently been referred to the LGSETA's attorneys.

Disclosure of Remuneration in accordance with Treasury Regulation 28.1, section 55 of the PFMA

No remuneration or allowances are paid to the members of the Accounting Authority or any of the sub-committeesof the Authority. Costs incurred for travel and accommodation are borne by the LGSETA when members attendofficial meetings or conduct business on behalf of the LGSETA. Members of the Audit Committee are paid anattendance allowance in accordance with the rates determined by National Treasury.

The remuneration of the Chief Executive Officer and Senior Management is included in the Accounting AuthorityReport in accordance with Treasury Regulation 28.1, section 55 of the PFMA and disclosed in the table below. TheLearnership Manager has been appointed as the Acting CEO with effect from 1 January 2006 and has been paidan acting allowance in accordance with the Human Resource Policy of the LGSETA. Comparatives are disclosed.

The LGSETA established a new provincial office for the Gauteng Region with effect from 1 January 2006 andappointed a provincial manager who will also be responsible for the North-west Region which was previouslyclustered with the Mpumalanga and Limpopo regions.


27



Table of Disclosure of Remuneration of Chief Executive Officer and Senior Management

Basic Travel Annual Performance Acting Med Prov Group Housing Total Total

Salary Allowance Payment Bonus Allowances Aid* Fund* Life* Allowance 2005/06 2004/05

R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000

Chief Executive Officer - 412 108 - 74 - - - - - 594 686Services terminated 31/12/05

Learnerships Manager - Acting CEO 281 74 23 47 58 18 56 10 - 567 435with effect from 1 January 2006

Finance Manager 281 79 23 47 - 14 56 10 - 510 436

HR & Corporate Affairs Manager 303 82 24 53 - 34 60 11 8 575 493

ETQA Manager 284 75 23 48 - 14 56 10 8 518 442

Skills Planning Manager 281 61 23 47 - 31 56 10 509 434

Water Chamber manager - Transferred - - - - - - - - - - 352to ESETA with effect from 1/4/2005

Provincial manager: Western Cape 242 63 19 63 - 24 48 9 8 476 390

Provincial manager: KwaZulu Natal 199 48 16 33 - 17 39 7 - 359 309

Provincial manager: Eastern Cape 220 60 17 37 - 13 45 8 - 400 348

Provincial manager: Pretoria (Cluster) - 54 17 - 50 - 4 7 1 - 133 347Services terminated on 30/06/2005

Provincial manager: Pretoria (Cluster) - 18 4 - - - - 4 1 - 27 -Appointed with effect from 1/03/2006

Provincial manager: Free State (Cluster) 219 72 - 25 - - 30 5 - 351 307

Provincial manager: Gauteng (Cluster) - 50 17 - - - 2 10 2 - 81 -Appointed with effect from 1/01/2006

TOTAL 2,844 760 168 524 58 171 467 84 24 5,100 4,979

* Company Contributions

Compliance with Laws and Regulations

The LGSETA has gone a mile in ensuring that objectives of the skills development strategy is being embraced in thesector and the LGSETA’s level of compliance to the Public Finance Management Act, 1999 (Act No. 1 of 1999) asamended (PFMA), Regulations issued by National Treasury, the Skills Development Act and the Skills DevelopmentLevies Act has increased.

Approval of Annual Financial Statements

The Annual Financial Statements have been prepared and approved by the Accounting Authority at its meetingheld on 29 May 2006 in terms of section 51(1) (f) of the Public Finance Management Act, 1999 (Act No. 1 of 1999)as amended (PFMA).

M. Sebezo L.S. MofokengChairperson Acting Chief Executive Officer


28



2005/06 2004/05Note R'000 R'000

Restated

REVENUE

Non-exchange revenue 192,280 157,172

Skills Development Levy: income 3 152,338 147,794

Skills Development Levy: penalties and interest 4 1,320 1,288

National Skills Fund, Government grants and donor funds 19 38,622 8,090

Exchange revenue

Investment income 5 16,348 15,038

Total revenue 208,628 172,210

EXPENSES

Non-exchange transactions (245,349) (109,232)

Employer grant and project expenses 6 (206,727) (101,142)

National Skills Fund, Government grants and donor fund expenses 19 (38,622) (8,090)

Exchangge transactions

Administration expenses 7 (15,948) (16,216)

Total expenses (261,297) (125,448)

NET (DEFICIT)/SURPLUS FOR THE YEAR (52,669) 46,762


29


STATEMENT OF FINANCIAL PERFORMANCEFOR THE YEAR ENDED 31 MARCH 2006

2005/06 2004/05Note R'000 R'000

Restated

ASSETS

Current assets 269,263 275,798

Prepayments and advances 11 70 -

Trade and other receivables from non-exchange transactions 12 28,912 24,856

Trade and other receivables from exchange transactions 13 2,555 828

VAT receivable 14 - 1,262

Cash and cash equivalents 15 237,726 248,852

Non-current assets 2,636 7,393

Property, plant and equipment 8 1,258 1,591

Intangible assets 9 404 690

Investments 10 974 5,112

Total assets 271,899 283,191

LIABILITIES

Current liabilities 68,028 26,651

Skills development grants payable 16 60,313 7,293

National Skills Fund received in advance 19 2,240 17,261

Trade and other payables from non-exchange transactions 17 2,111 -

Trade and other payables from exchange transactions 18 2,359 508

Provisions 20 1,005 1,589

Total liabilities 68,028 26,651

Net assets 203,871 256,540

NET ASSETS

Administration reserve 1,663 3,021

Employer grant reserve 1,401 180,968

Discretionary reserve 200,807 72,551

Total net assets 203,871 256,540


30


STATEMENT OF FINANCIAL POSITIONAS AT 31 MARCH 2006

Adm

inis

trat

ion

Empl

oyer

gra

nt

Dis

cret

ion

ary

Acc

umul

ated

Not

ere

serv

ere

serv

ere

serv

esu

rplu

s /

defic

itTo

tal

R'00

0R'

000

R'00

0R'

000

R'00

0

Bal

ance

at

1 A

pri

l 20

04

1,64

612

9,86

773

,541

-20

5,05

4

Erro

rs27

731

3,42

357

0-

4,72

4

Rest

ated

bal

ance

2,37

713

3,29

074

,111

- 20

9,77

8

Net

sur

plus

per

Sta

tem

ent o

f Fin

anci

al P

erfo

rman

ce-

--

46,7

6246

,762

As

prev

ious

ly s

tate

d-

--

43,8

35-

Erro

rs27

--

-2,

927

-

Allo

catio

n o

f acc

umul

ated

sur

plus

2

644

47,6

78(1

,560

)(4

6,76

2)-

Bal

ance

at

31

Mar

ch 2

00

53,

021

180,

968

72,5

51-

256,

540

Net

def

icit

per

Stat

emen

tof F

inan

cial

Per

form

ance

-

--

(52,

669)

(52,

669)

Allo

catio

n o

f acc

umul

ated

def

icit

23,

067

(80,

256)

24,5

2052

,669

-

Exce

ss r

eser

ves

tran

sfer

red

to d

icre

tion

ary

rese

rve

(4,4

25)

(99,

311)

103,

736

--

Bal

ance

at

31

Mar

ch 2

00

61,

663

1,40

120

0,80

7-

203,

871

The

disc

losu

re o

f allo

catio

n o

f net

def

icit

/ su

rplu

s to

rese

rves

is in

acc

orda

nce

with

acc

rual

acc

oun

ting

an

d n

ot o

n th

e ca

sh b

asis

as

per t

he

Skill

s D

evel

opm

ent A

ct,

1998

(Act

No.

97

of 1

998)

.


31


STATEMENT OF CHANGES IN NET ASSETSFOR THE YEAR ENDED 31 MARCH 2006


32


CASH FLOW STATEMENTFOR THE YEAR ENDED 31 MARCH 2006

2005/06 2004/05Note R'000 R'000

Restated

CASH FLOWS FROM OPERATING ACTIVITIES

Operating activities

Cash receipts from stakeholders 151,458 162,886

Levies, interest and penalties received 149,761 160,452

VAT received 1,697 2,434

Cash paid to stakeholders, suppliers and employees (204,380) (127,638)

Grants and project payments (154,291) (100,936)

Special projects (38,622) (8,090)

Compensation of employees (7,603) (8,828)

Payments to suppliers and others (3,429) (7,444)

VAT paid (435) (2,340)

Cash (utilised in)/generated from operations 21 (52,922) 35,248

Interest received 14,427 15,005

Net cash (outflow)/inflow from operating activities (38,495) 50,253

CASH FLOW FROM INVESTING ACTIVITIES

Purchase of property, plant and equipment 8 (346) (230)

Purchase of intangible assets 9 (346)

Proceeds from disposal of property, plant andequipment 9 -

Purchase of investments 10 - (414)

Proceeds from disposal of investments 4,105 250

Net cash inflow/(outflow) from investing activities 3,768 (740)

CASH FLOW FROM FINANCING ACTIVITIES

Grants, transfers and funds received 19 23,601 25,351

Net cash inflow from financing activities 23,601 25,351

Net (decrease)/increase in cash and cash equivalents (11,126) 74,864

Cash and cash equivalents at beginning of year 248,852 173,988

Cash and cash equivalents at end of year 15 237,726 248,852

1. ACCOUNTING POLICIES

The Annual Financial Statements have been prepared in accordance with the South African Statements of GeneralAccepted Accounting Practices (GAAP) including any interpretations of such Statements issued by the AccountingPractices Board, with the prescribed Standards of Generally Recognised Accounting Practices (GRAP) issued by theAccounting Standards Board Public Finance Management Act, 1999 (Act No. 1 of 1999) as amended. Theequivalent GAAP Statements are replaced as follows:

a. Terminology differences

Standard of GRAP Replaced Statement of GAAP

GRAP 1: Presentation of financial statements AC101: Presentation of financial statements

GRAP 2: Cash flow statements AC118: Cash flow statements

GRAP 3: Accounting policies, changes in AC103: Accounting policies, changes in

accounting estimates and errors accounting estimates and errors

The recognition and measurement principles in the above GRAP and GAAP Statements do not differ or result inmaterial differences in items presented and disclosed in the financial statements. The implementation of GRAP 1, 2& 3 has resulted in the following significant changes in the presentation of the financial statements:

Standard of GRAP Replaced Statement of GAAP

Statement of financial performance Income statement

Statement of financial position Balance sheet

Statement of changes in net assets Statement of changes in equity

Net assets Equity

Surplus/deficit for the period Profit/loss for the period

Accumulated surplus/deficit Retained earnings

Reporting date Balance sheet date

b. The cash flow statement can only be prepared in accordance with the direct method.

c. Specific information such as:

(i) Receivables from non-exchange transactions, including taxes and transfers;

(ii) Taxes and transfers payable;

(iii) Trade and other payables from non-exchange transactions;

must be presented separately on the statement of financial position.

d. The amount and nature of any restrictions on cash balances is required to be disclosed.

Paragraph 11 - 15 of GRAP has not been implemented as the budget reporting standard is in the process of beingdeveloped by the international and local standard setters. Although the inclusion of budget information wouldenhance the usefulness of the financial statements, non-disclosure will not affect fair presentation.

The principal accounting policies adopted in the preparation of these Annual Financial Statements are set out belowand are, in all material respects, consistent with those of the previous year, except as otherwise indicated.

1.1 Basis of preparation

The financial statements have been prepared on the historical cost basis except where amounts have been adjustedfor present/fair values as required by the respective accounting standards.

1.2 Currency

These financial statements are presented in South African Rands since that is the currency in which the majority ofthe entity transactions are denominated.


33


NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2006

1.3 Revenue recognition

Revenue is recognised when it is probable that future economic benefits will flow to the enterprise and thesebenefits can be measured reliably.

1.3.1 Levy income

In terms of section 3(1) and 3(4) of the Skills Development Levies Act, 1999 (Act No. 9 of 1999), asamended (SDLA), registered member companies of the LGSETA pay a skills development levy of 1% ofthe total payroll cost to the South African Revenue Services (SARS).

80% of skills development levies are paid over to the LGSETA (net of the 20% contribution to theNational Skills Fund).

Levy income is recognised on the accrual basis.

A net receivable/payable is recognised for levies accrued as well as estimated SARS adjustments. Anestimate due to retrospective adjustments by SARS and outstanding levies due at year-end is based onthe actual amounts received subsequent to year end and historical data. Changes to prior yearestimates are accounted for in revenue in the current year.

The LGSETA refunds amounts to employers in the form of grants, based on information from SARS.Where SARS retrospectively amends the information on levies collected, it may result in grants thathave been paid to certain employers that are in excess of the amount the LGSETA is permitted to havegranted to employers. A receivable relating to the overpayment to the employer in earlier periods israised at the amount of such grant over payment and recovered from future grants payable.

Revenue is adjusted for Interseta transfers due to employers changing SETAs. Such adjustments areseparately disclosed as Interseta transfers. The amount of the Interseta adjustment is calculatedaccording to the Standard Operating Procedure issued by the Department of Labour in June 2001.

When a new employer is transferred to the LGSETA, the levies transferred by the former SETA arerecognised as revenue in the current year and allocated to the respective category to maintain itsoriginal identity being administration, employer grant and discretionary income.

1.3.2 Interest and penalties

Interest and penalties on the Skills Development Levy is recognised when it accrues based on theamount received.

1.3.3 National Skills Fund, Government grants and donor funds

Funds transferred by the National Skills Fund (NSF) are accounted for in the financial statements of theLGSETA as a liability until the related eligible special project expenses are incurred, when the liabilityis extinguished and revenue recognised.

Conditional government grants and other conditional donor funding received are recorded asdeferred income when they become receivable and are then recognised as income on a systematicbasis over the period necessary to match the grants with the related costs which they are intended tocompensate. Unconditional grants received are recognised when the amounts have been received.

1.3.4 Investment income

Interest income is accrued on a time proportion basis, taking into account the principal outstandingand the effective interest rate over the period to maturity.

1.4. Grants and project expenditure

A registered company may recover a maximum of 70% of its total levy payment by complying with the grant criteriain accordance with the Skills Development Regulations issued in terms of the Skills Development Act 1998, (Act No.97 of 1998), as amended (SDA).

1.4.1 Mandatory grants

The Mandatory grant payable and the related expenditure are recognised when the employer hassubmitted an application for a Skills Planning grant in the prescribed form within the agreed upon cut-


34



off period. The mandatory grant is equivalent to 50% (2005: 15% (skills planning grant) and 45% (skillsimplementation grant)) of the total levies paid by the employer during the corresponding financialperiod.

1.4.2 Discretionary grants

A SETA may out of any surplus monies determine and allocate discretionary grants to employers,education and training providers and workers of the employers who have submitted an applicationfor a discretionary grant in the prescribed form within the agreed upon cut-off period. The grantpayable and the related expenditure are recognised when the application has been approved and theconditions have been met.

1.4.3 Project expenditure

Project expenditure comprises:• costs that relate directly to the specific contract; • costs that are attributable to contract activity in general and can be allocated to the project; and• such other costs as are specifically chargeable to the LGSETA under the terms of the contract.

Such costs are allocated using methods that are systematic and rational and are applied consistentlyto all costs having similar characteristics.

Project costs are recognised as expenses in the period in which they are incurred. A receivable isrecognised net of a provision for irrecoverable amounts for incentive and other payments made to theextent of expenses not yet incurred in terms of the contract.

1.5 Irregular and fruitless and wasteful expenditure

Irregular expenditure means expenditure incurred in contravention of, or not in accordance with, a requirement ofany applicable legislation, including the:• PFMA, • SDA, and• SDLA

Fruitless and wasteful expenditure means expenditure that was made in vain and would have been avoided hadreasonable care been exercised.

All irregular and fruitless and wasteful expenditure is charged against revenue in the period in which they areincurred against the related expenditure account and disclosed in a note when it has been identified.

1.6 Property, plant and equipment

Property, plant and equipment (owned and leased) are stated at cost less any subsequent accumulated depreciationand adjusted for any impairments. Depreciation is calculated on the straight-line method to write off the cost ofeach asset to estimated residual value over its estimated useful life as follows:• Computer equipment 3 - 5 years • Computer software 3 - 6 years • Office furniture and fittings 5 - 17 years • Office equipment 5 - 15 years

The estimated useful lives of the assets are limited to the remaining period of the licence issued to the SETA by theMinister of Labour. For the current year the remaining period is 4 years (2005: 5 years). Residual values and usefullife of assets are re-evaluated on an annual basis.

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written downimmediately to its recoverable amount (i.e. impairment losses are recognised.)

Gains and losses on disposal of property, plant and equipment are determined by reference to their carryingamount and are taken into account in determining operating profit.


35



1.7 Leasing

Finance leases as per the Treasury Regulations refers to a contract that transfers the risks, rewards, rights andobligations incident to ownership to the lessee and is recorded as a purchase of property, plant and equipment bymeans of long-term borrowing. All other leases are classified as operating leases.

1.7.1 The SETA as a lessee

Leases of assets under which all the risks and benefits of ownership are effectively retained by thelessor are classified as operating leases. Payments made under operating leases are charged to thestatement of financial performance on a straight-line basis over the period of lease. When anoperating lease is terminated before the lease period has expired, any payment required to be madeto the lessor by way of penalty is recognised as an expense in the period in which termination takesplace.

1.8 Retirement benefit costs

The LGSETA provides for retirement benefits for all its permanent employees through a defined contributionscheme that is subject to the Pension Funds Act, 1956 as amended. In terms of the Pension Funds Act, the fund isnot required to be actuarially valued. Contributions are at a rate of 27% of pensionable emoluments of whichmembers contribute 7%. The LGSETA’s contribution to the defined contribution plans is charged to the statementof financial performance in the year to which they relate.

Employer contributions to the fund are expensed when money is paid to the fund.

1.9 Provisions

Provisions are recognised when the LGSETA has a present obligation as a result of a past event and it is probablethat this will result in an outflow of economic benefits that can be estimated reliably. Long-term provisions arediscounted to net present value.

1.9.1 Provision for employee entitlements

The cost of other employee benefits is recognised during the period in which the employee rendersthe related service. Employee entitlements are recognised when they accrue to employees. Aprovision is made for the estimated liability as a result of services rendered by employees up to thereporting date. Provisions included in the statement of financial position are provisions for leave(based on the current salary rates) and bonuses.

No provision is made for post retirement benefits, as the LGSETA does not provide such benefits for itsemployees.

1.9.2 Provisions for grants

Grant payments

A provision is recognised for grant payments once the specific criteria set out in the regulations to theSkills Development Act has been complied with by member companies and the Workplace Skills Planhas been submitted within the cut-off period. The measurement of the obligation involves anestimate, based on the established pattern of past practice of approval for each type of grant.

Projects

No provision is made for projects approved at year-end, unless the service in terms of the contract hasbeen delivered or the contract is of an onerous nature. Where a project has been approved, but hasnot been accrued for or provided for, it is disclosed as commitments in the notes to the financialstatements.

1.10 Financial instruments

Recognition

Financial assets and financial liabilities are recognised on the Seta’s statement of financial position when the SETAbecomes a party to the contractual provisions of the instrument.

All “regular way” purchases and sales of financial assets are initially recognised using trade date accounting.


36



Measurement

Financial instruments are initially measured at fair value plus transaction costs directly attributable to the acquisitionor issue of the financial asset/liability. Subsequent to initial recognition these instruments are measured as set outbelow.

Financial assets

The LGSETA’s principle financial assets are accounts and other receivables, investments and cash and cashequivalents.

Investments and loans

The following categories of investments are measured at subsequent reporting dates at amortised cost by using theeffective interest rate method if they have a fixed maturity or at cost if there is no fixed maturity:• Loans and receivables originated by the LGSETA;• Held-to-maturity investments;• An investment that does not have a quoted market price in an active market and whose fair value cannot be

measured reliably.

Cost and amortised cost are inclusive of any impairment loss recognised to reflect irrecoverable amounts. Thefinancial assets are subject to review for impairment at each reporting date.

Investments other than those listed above are classified as available-for-sale investments or investments held-for-trading and are measured at subsequent reporting dates at fair value without any deduction for transaction coststhat may be incurred on sale or other disposal.

Accounts and other receivables

Accounts and other receivables are are measured at amortised cost, using the effective interest rate method, whereconsidered applicable. Impairment losses are recognised in an allowance account where the carrying value exceedsthe present value of estimated future cash flows discounted at the original effective interest rate.

Cash and cash equivalents

Cash and cash equivalents are measured at fair value.

Financial liabilities

The LGSETA's principal financial liabilities are accounts and other payables.

All financial liabilities are measured at amortised cost, comprising original debts less principle payments andamortisations, except for financial liabilities held-for trading which are subsequently measured at fair value.

Gains and losses on subsequent measurement

Gains and losses arising from a change in the fair value of financial instruments, other than available-for-salefinancial assets, are included in net profit or loss in the period in which it arises. Gains and losses arising from achange in the fair value of available-for-sale financial assets are recognised in net assets, until the investment isdisposed of or is determined to be impaired, at which time the net profit or loss is included in the net surplus ordeficit for the period.

Derecognition

A financial asset or a portion thereof is derecognised when the LGSETA realises the contractual rights to the benefitsspecified in the contract, the rights expire, and the LGSETA surrenders those rights or otherwise loses control of thecontractual rights that comprise the financial asset. On derecognition, the difference between the carrying amountof the financial asset and the sum of the proceeds receivable and any prior adjustment to reflect the fair value of theasset that had been reported in net assets is included in net surplus or deficit for the period.

A financial liability or a part thereof is derecognised when the obligation specified in the contract is discharged,cancelled, or expires. On derecognition, the difference between the carrying amount of the financial liability,including related unamortised costs, and the amount paid for it is included in net profit or loss for the period.


37



Fair value considerations

The fair values at which financial instruments are carried at the reporting date have been determined usingavailable market values. Where market values are not available, fair values have been calculated by discountingexpected future cash flows at prevailing interest rates. The fair values have been estimated using available marketinformation and appropriate valuation methodologies, but are not necessarily indicative of the amounts that theLGSETA could realise in the normal course of business. The carrying amounts of financial assets and financialliabilities with a maturity of less than one year are assumed to approximate their fair value due to the short-termtrading cycle of these items.

Offsetting

Financial assets and financial liabilities are offset if there is any intention to realise the asset and settle the liabilitysimultaneously and a legally enforceable right to set off exists.

1.11 Reserves

Net assets are sub-classified in the Statement of Financial Performance between the following funds and reserves:• Administration reserve • Employer grant reserve • Discretionary reserve • Accumulated surplus/deficit

This sub-classification is made based on the restrictions placed on the distribution of monies received in accordancewith the Regulations issued in terms of the Skills Development Act, 1998 (Act No. 97 of 1998).

Member employer company levy payments are set aside in terms of the Skills Development Levies Act and theregulations issued in terms of the Act, for the purpose of:

2005/06 2004/05% %

Administration costs of the LGSETA 10 10Employer Grant Fund Levy 50 60Mandatory Workplace Skills Planning Grant 50 15Mandatory Workplace Skills Implementation Grant - 45

Discretionary grants and projects 20 10

80 80

In addition, contributions received from public service employers in the national or provincial spheres ofgovernment may be used to pay for its administration costs.

Interest and penalties received from SARS as well as interest received on investments are utilised for discretionarygrants and projects. Other income received are utilised in accordance with the original source of the income.

The net surplus/deficit is allocated to the administration reserve, the mandatory grant reserve and the discretionaryfund reserve based on the above.

Surplus funds in excess of the net carrying value of fixed assets are moved to the discretionary fund reserve from theadministration reserve and unclaimed mandatory grant income from the mandatory grant reserve when aWorkplace Skills Plan has not been received within the cut-off period.

1.12 Comparative figures

Where necessary, comparative figures have been adjusted to conform to changes in presentation in the currentyear.


38




39



2.

ALL

OCA

TIO

N O

F N

ET S

UR

PLU

S/(D

EFIC

IT)

FOR

TH

E YE

AR

TO

RES

ERV

ES

Empl

oyer

gra

nts

res

erve

Dis

cret

ion

ary

rese

rve

NSF

Fun

ds2

00

5/0

6

R’0

00

Tota

lM

anda

tory

Man

dato

rype

r st

atem

ent

skill

ssk

ills

Tota

lSe

ctor

To

tal

of fi

nanc

ial

Adm

inis

trat

ion

plan

nin

gim

plem

enta

tion

man

dato

ryLe

arn

ersh

ips

Skill

sdi

scre

tion

ary

Spec

ial

perf

orm

ance

rese

rve

gra

nt

gra

nt

gra

nts

gra

nts

Prio

ritie

sg

ran

tspr

ojec

ts

Tota

l rev

enue

208,

628

19,0

15

95,4

56

- 95

,456

39

,187

16,3

48

55,5

35

38,6

22

Skill

s de

velo

pmen

t lev

y: in

com

e A

dmin

levy

inco

me

(10%

)19

,015

19,0

15

- -

- -

- -

- G

ran

t lev

y in

com

e (7

0%)

133,

323

-95

,456

-

95,4

56

37,8

67

- 37

,867

- Sk

ills

deve

lopm

ent l

evy:

pen

altie

s55

7-

- -

- 55

7 -

557

- Sk

ills

deve

lopm

ent l

evy:

inte

rest

763

- -

- -

763

- 76

3 -

Nat

ion

al S

kills

Fun

d, G

over

nm

ent G

ran

ts &

Don

or F

unds

38,6

22

- -

- -

- -

- 38

,622

In

vest

men

t in

com

e16

,348

-

- -

- -

16,3

48

16,3

48

-

Tota

l exp

ense

s26

1,29

7 15

,948

17

5,71

2 -

175,

712

16,9

90

14,0

25

31,0

15

38,6

22

Adm

inis

trat

ion

exp

ense

s15

,948

15

,948

-

- -

- -

- -

Nat

ion

al S

kills

Fun

d, G

over

nm

ent G

ran

ts &

Don

or F

und

expe

nse

s38

,622

- -

- -

- -

- 38

,622

Empl

oyer

gra

nts

an

d pr

ojec

t exp

ense

s20

6,72

7 -

175,

712

-17

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3. SKILLS DEVELOPMENT LEVY INCOME2005/06 2004/05

R'000 R'000

Levy income: Administration 19,015 16,860 Levies received 18,987 18,141

Levies received from SARS 18,800 17,357 Government levies received - 776 Interseta transfers in 457 8 Interseta transfers out (270) - Movement in levies accrued 28 (1,281)

Levy income: Employer Grants 95,456 112,199 Levies received 98,415 119,894

Levies received from SARS 97,488 119,841 Interseta transfers in 2,285 53 Interseta transfers out (1,358) - Movement in levies accrued (2,959) (7,695)

Levy income: Discretionary Grants 37,867 18,735 Levies received 34,552 19.973

Levies received from SARS 34,173 19,966 Interseta transfers in 914 7 Interseta transfers out (535) - Movement in levies accrued 3,315 (1,238)

152,338 147,794

4. PENALTIES AND INTEREST

Skills Development Levy: Penalties 557 726Skills Development Levy: Interest 763 562

1,320 1,288

5. INVESTMENT INCOME

Interest incomeInterest received 9,611 12,472Fair value adjustment 35 33Interest receivable 1,886 65Interest received on current bank accounts 4,816 2,468

16,348 15,038


40



6. EMPLOYER GRANT AND PROJECT EXPENSESNote 2005/06 2004/05

R'000 R'000

Restated

Mandatory grants 175,712 64,521 Disbursed 121,027 64,521 Movement in provisions and accruals 16 54,685 -

Discretionary grants 16,990 7,458 Disbursed 18,681 9,734 Movement in provisions and accruals 16 (1,691) (2,276)

Project expenditure 6.1 14,025 29,163 Disbursed 13,999 26,681 Movement in provisions and accruals 16 26 2,482

206,727 101,142

6.1 Project expenditure consist of:

Direct project costs 14,025 29,163

7. ADMINISTRATION EXPENSES

Depreciation 663 558 Amortisation 286 210 Loss on disposal of property, plant and equipment 7 49Loss on disposal of investments 68 -

Operating lease rentals 932 912 Buildings 932 912

Maintenance, repairs and running costs 598 451 Property and buildings 390 153 Machinery and equipment 208 298

Advertising, marketing and promotions, communication 2,145 1,886 Entertainment expenses 148 391 Consultancy and service provider fees 1,612 1,129 Legal fees 132 79 Cost of employment 7.1 7,603 8,828 Travel and subsistence 1,151 1,108 Staff training and development 91 129 Remuneration to members of the audit committee 55 61

External auditor's remuneration 260 172 Audit fees 260 172

Other 197 253 General Operational Expenses 113 108Internal Audit Fees 84 145

15,948 16,216


41



7.1 Cost of employment

2005/06 2004/05R'000 R'000

Salaries and wages 6,278 7,334Basic salaries 5,862 5,804 Performance awards - 533 Temporary staff - 231 Leave payments 416 766

Social contributions 1,325 1,494 Medical aid contributions 359 457 Pension contributions: defined contribution plans 940 1,010 UIF 26 27

Total 7,603 8,828

Average number of employees 32 34

Refer to the report of the Accounting Authority for disclosure concerning the emoluments of members of theAccounting Authority, the Chief Executive Officer and Senior Managers.

8. PROPERTY, PLANT AND EQUIPMENT

Accumulated Closingdepreciation/ carrying

Cost impairment amount

Year ended 31 March 2006 R'000 R'000 R'000

Computer equipment 1,543 (982) 561

Office furniture and fittings 1,106 (691) 415

Office equipment 590 (308) 282

Balance at end of year 3,239 (1,981) 1,258

Accumulated Closingdepreciation/ carrying

Cost impairment amount

Year ended 31 March 2005 R'000 R'000 R'000

Computer equipment 1,516 (642) 874

Office furniture and fittings 1,038 (497) 541

Office equipment 383 (207) 176

Balance at end of year 2,937 (1,346) 1,591


42




43



Opening Depreciation/ Accumulated Closingcarrying Amortisation Depreciation on carryingamount Additions Disposals charge disposals amount

R'000 R'000 R'000 R'000 R'000 R'000Movement summary 2006Computer equipment 874 77 (44) (374) 28 561Office furniture and fittings 541 68 - (194) - 415Office equipment 176 201 - (95) - 282

Balance at end of year 1,591 346 (44) (663) 28 1,258

Movement summary 2005Computer equipment 1,060 125 (666) (309) 664 874Office furniture and fittings 660 105 (144) (184) 104 541Office equipment 245 - (74) (65) 70 176

Balance at end of period 1,965 230 (884) (558) 838 1,591

9. INTANGIBLE ASSETSAccumulated Closingdepreciation/ carrying

Cost impairment amount2005/2006 R'000 R'000 R'000

Computer software 1,032 (628) 404

2004/2005

Computer software 1,032 (342) 690

Opening Depreciation/ Accumulated Closingcarrying Amortisation Depreciation on carryingamount Additions Disposals charge disposals amount

R'000 R'000 R'000 R'000 R'000 R'000

Movement summary 2006

Computer software 690 - - (286) - 404

Movement summary 2005

Computer software 559 346 (254) (210) 249 690

10. INVESTMENTS2005/06 2004/05

R'000 R'000

Open carrying amount 5,112 4,915 Additions - 414 Disposals (4,173) (250) Fair value adjustments 35 33

Closing carrying amount 974 5,112

The Skills Development Act Regulations states that a SETA may, if not otherwise specified by the Public FinanceManagement Act, invest the moneys in accordance with the investment policy approved by the relevant SETA.

11. PREPAYMENTS AND ADVANCESNote 2005/06 2004/05

R'000 R'000

Operating leases 70 -

12. TRADE AND OTHER RECEIVABLES FROM NON-EXCHANGE TRANSACTIONS

Skills development levy debtors 12.1 25,240 24,856Admin levy debtors 3,131 3,103 Employer grant levy debtors 15,648 18,607 Discretionary grant debtors 6,461 3,146

Interseta debtors 28 3,671 - Employer receivables 12.2 - -

Closing carrying amount 28,911 24,856

12.1 Retrospective amendments by SARS

Included in Skills Development Levy debtors is:

SARS receivables/(payables)Opening carrying amount 740 1,304 Estimated adjustments included in levies received 5,278 740 Net effect of SARS adjustments for the current year (3,376) (1,304)

Closing carrying amount 2,642 740

12.2 Employer receivable

Overpayment to employers 66 - -

Amounts written off (66) -

Net effect of SARS retrospective adjustments on affected employers - -

13. TRADE AND OTHER RECEIVABLES FROM EXCHANGE TRANSACTIONS

Sundry debtors 629 731 Deposits 20 13 Interest receivable 1,886 65 Staff Loans - Short term 20 19

Closing carrying amount 2,555 828

14 VALUE ADDED TAX

VAT receivable - 1,262

- 1,262

The LGSETA has been deregistered as a VAT Vendor with effect from 1 April 2005.


44



15. CASH AND CASH EQUIVALENTS2005/06 2004/05

R'000 R'000

Cash at bank and in hand 67,209 87,534Cash at bank 67,197 87,528 Cash on hand 12 6

Short term investments/instruments 170,517 161,318

Cash and cash equivalents at end of year 237,726 248,852

As required in Treasury Regulation 31.2, National Treasury approved the banks where the bank accounts are held.

Cash includes cash on hand and cash with banks. Cash equivalents are short term, highly liquid investments thatare held with registered banking institutions with maturities of three months or less and that are subject to aninsignificant risk of change in value.

For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at callwith banks, and investments in money market instruments.

16. SKILLS DEVELOPMENT GRANTS AVAILABLEDiscretionary

Mandatory Discretionary Grants -Grants Grants Projects 2005/06 2004/05

R'000 R'000 R'000 R'000 R'000Opening carrying amount - 3,161 4,132 7,293 7,088Amounts utilised - (3,161) (4,132) (7,293) (7,088)Change in estimate 54,685 1,470 4,158 60,313 7,293

Closing carrying amount 54,685 1,470 4,158 60,313 7,293

Current 54,685 1,470 4,158 60,313 7,293

Total 54,,685 1,470 4,158 60,313 7,293

17. TRADE AND OTHER PAYABLES FROM NON-EXCHANGE TRANSACTIONS

Note 2005/06 2004/05 R'000 R'000

Interseta payables 28 2,111 -

18. TRADE AND OTHER PAYABLES FROM EXCHANGE TRANSACTIONS

Service provider fees outstanding 689 508 Accruals 1,670 -

Cash and cash equivalents at end of year 2,359 508


45




46



19. NATIONAL SKILLS FUND: GOVERNMENT GRANTS AND DONOR FUNDING2005/06 2004/05

R'000 R'000National Skills FundOpening balance 17,261 -

Received during the year 23,601 25,080Community Development Workers Programme 22,889 24,717Interest received 712 363

Utilised and recognised as revenueConditions met:Community Development Workers Programme (38,622) (7,819)

Closing Balance 2,240 17,261

Department of LabourOpening balance - -Received during the year - 110Utilised and recognised as income conditions met

Training Assessors - (110)

Closing Balance - -

Australian Aid SAOpening balance - -Received during the year - 52Utilised and recognised as income conditions met

Training Programme - (52)

Closing Balance - -

GTZOpening balance - -Received during the year - 109Utilised and recognised as income conditions met

Development of training material for LED NQF4 Learnership - (109)

Closing Balance - -

Total 2,240 17,261

During the current year conditional funds of R22,889,000 were received from the National Skills Fund for thepurposes of the Community Development Programme. This amount was recognised as a liability until theconditions attached were met. Eligible project expenses of R38,622,000 were incurred and a correspondingamount was recognised as revenue. An amount of R712,163 for interest accrued has been included with thebalance of the NSF Fund. At year end, R2,240,000 continues to be accounted for as a liability until the remainingconditions attached have been met.

20. PROVISIONSEmployee Employee

leave bonus 2005/06 2004/05provision provision

R'000 R'000 R'000 R'000

Open carrying amount 937 652 1,589 446 Amounts utilised (476) (837) (1,313) (460) Change in estimate 416 313 729 1,603 Closing carrying amount 877 128 1,005 1,589

Current 877 128 1,005 1,589Total 877 128 1,005 1,589

The provisions for employee leave provision has resulted from services rendered by employees and are based onthe liability for leave due at 31 March 2006. The provision for R876,700.42 is calculated at undiscounted amountsbased on the current rate at reporting date.

Annual bonuses forms part of the total cost to company remuneration package and a provision of R127,610.36 hasbeen raised based on the amounts due to employees as at 31 March 2006.

21. RECONCILIATION OF NET CASH FLOW FROM OPERATING ACTIVITIES TO NET (DEFICIT)/SURPLUS

Note 2005/06 2004/05

R'000 R'000

Restated

Net (deficit)/surplus as per statement of financial performance (52,669) 46,762 Adjusted for non-cash items:

Depreciation 6/7 663 558 Amortisation 6/8 286 210 Loss on disposal of property, plant and equipment 6 7 49 Loss on disposal of investments 6 68 -

Increase in provisions relating to employment 20 (584) 1,142

Special project income recognised 19 (38,622) (8,090) Adjusted for items separately disclosed

Investment income 5 (16,348) (15,038) Adjusted for working capital changes:

Increase(decrease) in prepayments (70) - Increase(decrease) in receivables (3,897) 11,370 Increase in payables 56,982 (1,809) Movement in VAT 1,2262 94

Cash (utilised in)/generated from operations (52,922) 35,248

22. CONTINGENCIES

In the event that the former CEO wins his case against the LGSETA it is possible that the LGSETA may suffer anestimated loss of R690,000.

In terms of the PFMA, all surplus funds as at year-end may be forfeited to National Treasury.

Formal approval was received from National Treasury for the accumulation of surplus funds rolled over from the2004/2005 financial year.

A request for the accumulation of surplus funds has been submitted to National Treasury. At the time of compilingthe financial statements, no reply had been received from National Treasury to retain surplus funds.

23. COMMITMENTS

23.1 Employer grant reserve

As a result of the fact that employers could submit applications for Mandatory Grants for all prior yearsup to 30 September 2005, unclaimed levy grants were not swept to the Discretionary Reserve at theend of the 2004/2005-financial year and therefore discretionary funds could not be committed toproposed projects. At the end of the period under review. an amount of R99,311,000 has been sweptfrom the Employer Grant Reserve to the Discretionary Grant Reserve.

23.2 Discretionary Reserve

Of the balance of R203,871,000 available in the Discretionary Reserve at the end of March 2006, anamount of R57,607,000 has been allocated and approved by the Accounting Authority for projectsand skills priorities as set out below.


47




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49



23.3 Operating Leases

Total of future minimum lease payments under non-cancellable leases:

2005/06 2004/05R'000 R'000

Not later than one year 833 728 Later than one year and not later than five years 2,586 3,115Later than five years - 66

3,419 3,909

The operating lease relates to building premises used for office accommodation. Lease agreementsfor the LGSETA’s provincial offices have been entered into effective December 2003 for a period ofthree years, expiring in November 2006. The LGSETA Head Office lease was entered into effective 1May 2005, operational for a period of five years. New leases for provincial offices have beennegotiated for a period of three years. The rental for Head Office escalates annually with 8% andprovincial offices on average between 8 - 10%.

24. MATERIAL LOSSES THROUGH CRIMINAL CONDUCT, IRREGULAR, FRUITLESS & WASTEFUL EXPENDITURE

To the best of our knowledge, no material losses through criminal conduct, or irregular, fruitless and wastefulexpenditure was incurred during the year ended 31 March 2006.

25. EVENTS AFTER REPORTING DATE

There has been no events after the reporting date.

26. FINANCIAL INSTRUMENTS

In the course of the LGSETA operations it is exposed to interest rate, credit, liquidity and market risk. The LGSETAhas developed a comprehensive risk strategy in terms of TR 28.1 in order to monitor and control these risks. Therisk management process relating to each of these risks is discussed under the headings below.

Interest rate risk

The LGSETA manages its interest rate risk by investing funds with financial institutions approved by NationalTreasury. Funds are invested in medium term cash investments to ensure liquidity of funds and minimize the interestrate risk. Investments are influenced by the changes in market interest rates. The current long term investments ofthe LGSETA are guaranteed capital investments.

The LGSETA's exposure to interest rate risk and the effective interest rates on financial instruments at reporting dateare as follows:

Non-interest EffectiveFixed Floating bearing interest rate TOTAL

Amount Amount AmountYear ended 31 March 2006 R'000 R'000 R'000 R'000Assets

Investments 974 3.6% 974Cash - cash in bank 67,197 5.5% 67,197

Petty cash/cash on hand 12 12 Short term investments 170,517 7.1% 170,517

Accounts receivable 31,467 31,467

Total financial assets 170,517 68,171 31,479 270,167

LiabilitiesSKILLS Development Grants payable (60,313) (60,313)Accounts payable (4,470) (4,470)

Total financial liabilities (64,783) (64,783)

Net financial assets 170,517 68,171 (33,304) 205,384


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Non-interest EffectiveFixed Floating bearing interest rate TOTAL

Amount Amount AmountYear ended 31 March 2005 R'000 R'000 R'000 R'000

AssetsInvestments 5,112 8.4% 5,112Cash - cash in bank 87,528 2.8% 87,528

Petty cash/cash on hand 6 6 Short term investments 161,318 7.7% 161,318

Accounts receivable 26,946 26,946

Total financial assets 161,318 92,640 26,952 280,910

LiabilitiesSKILLS Development Grants payable (7,293) (7,293)Accounts payable (508) (508)

Total financial liabilities (7,801) (7,801)

Net financial assets 161,318 92,640 19,151 273,109

Credit risk

Financial assets, which potentially subject the LGSETA to the risk of non performance by counter parties and therebysubject to credit concentrations of credit risk, consist mainly of cash and cash equivalents, investments and accountsreceivable.

The LGSETA management limits its treasury counter-party exposure by only dealing with well-established financialinstitutions approved by National Treasury through the approval of their investment policy in terms of TreasuryRegulation 31. The LGSETA's exposure is continuously monitored by the Chief Executive Officer and the FinanceCommittee of the LGSETA.

Credit risk with respect to levy paying employers is limited due to the nature of the income received. The LGSETAdoes not have any material exposure to any individual or counter-party. The LGSETAs concentration of credit riskis limited to the local government sector in which the LGSETA operates. No events occurred in the localgovernment sector during the financial year that may have an impact on the accounts receivable that has not beenadequately provided for. Accounts receivable are presented net of allowance for doubtful debt.

Liquidity risk

The LGSETA manages liquidity risk through proper management of working capital, capital expenditure and actualvs. forecasted cash flows. Adequate reserves and liquid resources are also maintained.

Market risk

The LGSETA is exposed to fluctuations in the employment market for example sudden increases in unemploymentand changes in the wage rates. No significant events occurred during the year that the LGSETA are aware of.

Fair values

The LGSETA's financial instruments consist mainly of cash and cash equivalents, account and other receivables, andaccount and other payables. No financial instruments were carried at an amount in excess of its fair value and fairvalues could be reliably measured for all financial instruments.

The following methods and assumptions are used to determine the fair value of each class of financial instruments:

Cash and cash equivalents

The carrying amount of cash and cash equivalents approximates fair value due to the relatively short-term maturityof these financial assets.


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Accounts receivable

The carrying amount of accounts receivable, net of allowance for bad debt, approximates fair value due to therelatively short-term maturity of these financial assets.

Investments

The fair value of publicly traded investments is based on quoted market prices for those investments.

Accounts payable

The carrying amount of account and other payables approximates fair value due to the relatively short-term maturityof these financial liabilities.

27. ERRORS

The following errors occurred in the prior year and as a result the comparative figures have been restated:1. An error occurred in the prior annual financial statements as a result of the liability raised for Interseta transfers

for Skills Development Levy income received from employers which are incorrectly registered with the LGSETA.This liability should not have been raised but should have been recognised as revenue.

2. Carrying values of fixed assets have been understated in the prior financial years due to the lack of reviewingthe useful life of fixed assets.

The net effect of the transactions are as follows:

Administration Employer grant Discretionary2004/05 reserve reserve reserve Total

R'000 R'000 R'000 R'000Effect on net surplus

Levy income 334 1,974 383 2,691Depreciation 206 206Amortisation 30 30

Total 570 1,974 383 2,927

Effect on accumulated surplusDecrease in accounts payable 835 5,397 955 7,187Decrease in accumulated depreciation 399 399Decrease in accumulated amortisation 65 65

Total 1,299 5,397 955 7,651

Previous years

Effect on accumulated surplusLevy income 501 3,423 570 4,494Depreciation 253 253Amortisation (23) (23)

Total 731 3,423 570 4,724


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28. RELATED PARTY TRANSACTIONS

Transactions with other SETA’s

Inter-Seta transactions and balances arise due to the movement of employers from one SETA to another. No othertransactions occurred during the year with other SETA’s

The balances at year-end included in receivables and payables are:

Note 2005/06 2004/05R'000 R'000

Amount AmountTransfers in/(out) receivable/ Transfers in/(out) receivable/during the year (payable) during the year (payable)

Receivables 12 3,671 3,671 68 -ENERGY SETA 3,671 3,671 68 -

Payables 17 2,166 2,111 2,692 -ENERGY SETA 2,111 2,111 2,692 -CHIETA 8 - - -AGRI SETA 47 - - -

Total 1,505 1,560 (2,624) -

Transactions with other related parties

During the year members of the accounting authority and employees were required to disclose their interest in anycontracts that the LGSETA is entering into with an outside party. As a result the LGSETA entered into the followingtransactions with related parties:

2005/06 2004/06R'000 R'000

Related party Nature of relationship Transaction type Amount of the Amount oof thetransaction transaction

Cllr. H Jenkins Councillor - Pixley Ka Seme Municipality LED Learnership 260 -

Cllr. G Lobelo Councillor - Bophirima Municipality LED Learnership 39 -

Mr. K Goodsell IMATU Representative - Ethekwini Municipality LED Learnership 85 70

Ms. B Tilly SAMWU Representative - Lekwa Municipality LED Learnership 53 -

Mr. M Sebezo SALGA Representative - Cape Town Municipality LED Learnership - 175

Mr. K Goodsell IMATU Representative - Ethekwini Municipality Municipal Finance 1,500 1,500 Learnership Grant

Cllr. H Jenkins Councillor - Pixley Ka Seme Municipality ABET Grant 34 -

Cllr. G Lobelo Councillor - Bophirima Municipality ABET Grant 72 -

Ms. B Tilly SAMWU Representative - Lekwa Municipality ABET Grant 81

Mr. K Goodsell IMATU Representative - Ethekwini Municipality ABET Grant - 468

Mr. W Killian IMATU Representative - Ekurhuleni Municipality ABET Grant 108 36

Ms. T Voight SAAWU Representative - Johannesburg Water Sanitation Learnership 278 -

Total 2,510 2,249

The above transactions occurred under terms that were no less favourable than those available in similar arm'slength dealings.

29. TAXATION

No provision has been made for taxation as the LGSETA is exempt from income tax in terms of Section 10 of theIncome Tax Act.

ACKNOWLEDGEMENTS

Grateful thanks to our Authority, EXCO, Chairperson, CEO and

representatives from the Department of Labour and all other Government departments

with whom we have interfaced during the year under review. A special word of thanks to our

staff members who compiled this annual report and to our client base for their support and encouragement.

vision & mission - lgsetacdn.lgseta.co.za/resources/annual_report/lgseta annual report...

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