Integrated Annual Report 2015/16

Transcription

1 Integrated Annual Report 2015/16

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3 JOHANNESBURG WATER (SOC) LIMITED Registration No: 2000/029271/07 INTEGRATED ANNUAL REPORT 2015/16 (In terms of Section 121 of the Municipal Finance Management Act, 2003 and Section 46 of the Municipal Systems Act, 2000) Approved by the Board on 29 November Integrated Annual Report 2015/16

4 Part A SOC Limited Company information as at date of signature of this report Country of incorporation and domicile Nature of business and principal activities Directors Registered address South Africa Supply of water and sanitation services as defined in the Water Services Act, 1997 Getty Simelane (Chairperson) Lungile Dhlamini (Managing Director) Busisiwe Shongwe (Financial Director) Zanele Hlatshwayo Simphiwe Khondlo Charles Motau Honey Mateya Maselaganye Matji Khanyisa Mdutshane Neo Motlabane Gugu Moloi 17 Harrison Street Marshalltown Johannesburg 2107 Postal address PO Box Marshalltown Johannesburg 2107 Telephone number (011) Website Bankers Auditors Company Secretary Standard Bank of South Africa The Auditor-General of South Africa Graham Luden Company registration number 2000/029271/07 Vision Mission s vision is to be a world-class African water and sanitation utility To provide all CoJ citizens with quality water and sanitation services 2 Integrated Annual Report 2015/16

5 Abbreviations AET AGSA AIDS ARV ATR BBBEE BMI Capex CBD CO2 CIA CPI CIDB CSA CJPF CoJ COGTA COSO CSR DIFR the dti DWS DPSA DR ECSA EE EME EPWP ERM EISD EWSETA EY FY GDARD GDS GETC GRAP HCT HR HIV HOW IAD ICT IDP Adult Education Training Auditor-General of South Africa Acquired Immune Deficiency Syndrome Antiretroviral Annual Training Report Broad-Based Black Economic Empowerment Body Mass Index Capital Expenditure Central Business District Carbon Dioxide Chief Internal Auditor Consumer Price Index Construction Industry Development Board Capacity Support Agent City of Johannesburg Pension Fund City of Johannesburg Cooperative Governance and Traditional Affairs Committee of Sponsoring Organizations of the Treadway Commission Corporate Social Responsibility Disabling Injury Frequency Rate Department of Trade and Industry Department of Water and Sanitation Department of Public Service and Administration Disaster Recovery Engineering Council of South Africa Employment Equity Exempted Micro-Enterprise Extended Public Works Programme Enterprise Risk Management Environment and Infrastructure Services Department Energy and Water Sector Education Authority Ernest and Young Financial Year Gauteng Department of Agriculture and Rural Development Growth and Development Strategy General Education and Training Certificate Generally Recognised Accounting Practices Haematocrit Human Resources Human Immunodeficiency Virus Head of Works Internal Audit Department Information and Communication Technology Integrated Development Plan 3 Integrated Annual Report 2015/16

6 IT Information Technology IVRS Integrated Vaal River System KAP Knowledge, Attitude and Practice Km Kilometres JW Kw Kilowatt MFMA Municipal Finance Management Act, 2003 MIG Municipal Infrastructure Grant MSA Municipal Systems Act, 2000 MTEF Medium-Term Expenditure Framework MMC Member of the Mayoral Committee Mw Megawatt NQF National Qualification Framework NRW Non-Revenue Water OECD Organisation for Economic Cooperation and Development OHSAS Occupational Health and Safety Advisory Services PC Partially Compliant PFMA Public Finance Management Act, 1999 PRV Pressure Reducing Valve PWC PricewaterhouseCoopers PMB Prescribed Minimum Benefit QSE Qualifying Micro-Enterprise RFQ Request for Quotation RPL Recognition of Prior Learning SANS South African National Standard SDA Service Delivery Agreement SDBIP Service Delivery Budget Implementation Plan SDG Sustainable Development Goals SLA Service Level Agreement SMME Small, Micro and Medium Enterprises SPPIA Standards of Professional Practice of Internal Auditing USDG Urban Settlement Development Grant VIP Ventilated Improved Pit WSP Workplace Skills Plan WWTW Wastewater Treatment Works 4 Integrated Annual Report 2015/16

7 PART B Basis of preparation and presentation The Integrated Annual Report followed accepted practices and framework legislation applicable to municipal governments and entities owned by it. In this regard, specific attention was given the summary of significant frameworks as contained below. Summary of the organisation s materiality determination process The entity has applied the principle of materiality in pertinent content and disclosure. A matter is material if it is of such relevance and importance that it could substantially influence an assessment of the report and the entity s ability to create value in the short, medium and long term. has premised its framework under two main categories, namely quantitative and qualitative materiality. Financial materiality Detailed below is an indicative table of financial indicators that are widely used and accepted in the accounting profession as a basis for calculating materiality. Element Range to be applied Gross profit 1% 2% Net profit 2% 5% Total assets 0.5% 2% Total revenue 0.25% 1% The control environment, as per the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Framework, has the following control elements as it sets the tone of the organisation: Integrity and ethics; Competency level required for a particular job; Role of the Board and Audit Committee in the control enviroment; Management philosophy and operating style; Organisational structure; Assignment of authority and responsibility; and HR policies and practices. An analysis the Statement of Internal Control for 2015/16 reflects the system of internal control within JW as adequate and partially effective to accomplish organisational goals and objectives. For different classes of transactions, the materiality level to be applied will be: Element Materiality level Assets 0.5% Expenses 2% Revenue 0.25% 5 Integrated Annual Report 2015/16

8 2015/16 (based on Annual Financial Statements) Element Assets Expenses Revenue Materiality R59 million R55 million R20 million 2016/17 (Based on the budget) Element Assets Expenses Revenue Materiality R64 million R62 million R23 million s main function is to provide water and sanitation services to the residents of Johannesburg through bulk infrastructure. Therefore, the most appropriate element to be used for measuring organisational materiality is its assets. The materiality level is set at 0.5% of the assets, which translates to R59 million for 2015/16. Qualitative materiality Materiality is not only related to the size of the entity and the elements of its Financial Statements. Misstatements that are critical, either individually or in the aggregate, may have a material effect on the company. Qualitative materiality, premised on the company s risk assessment, is set as follows: Internal criteria Financial performance both from a liquidity and improved revenue collection Sustainable infrastructure through prudent maintenance whilst ensuring security of supply Poor drinking water quality Information Management System and technology failures Compliance External criteria Ability to secure and ensure security of supply, while preserving asset integrity and managing supplier reliability Public health and safety; negative exposure from JW s operations Inadequate community awareness and stakeholder mobilisation Drought Compliance The above risks are mitigated through programmes to reduce the risks to an acceptable risk tolerance level approved by the Board. The tolerance level is 9 out of a total risk score of 25. The programmes to reduce risk exposure are outlined in the company s Risk Register. Reporting boundary The boundary of this report is limited to performance reporting of as a municipal entity that delivers water and sanitation service on behalf of the City of Johannesburg, for the period 1 July 2015 to 30 June The boundary of the report extends beyond financial reporting, and includes non-financial performance, opportunities, risks and outcomes attributable to, or associated with, key stakeholders that have a significant influence on our ability to create value. 6 Integrated Annual Report 2015/16

9 Summary of the significant frameworks and legislation used to prepare the report The Integrated Annual Report for the period 1 July 2015 to 30 June 2016, is in an integrated financial, social and economic report. The entity aligns itself to local and international sustainability reporting best practice, including the: Municipal Finance Management Act, No. 56 of 2003 (MFMA); National Treasury Circular 63; Standards of Generally Recognised Accounting Practice (GRAP); Section 46(1) on the Municipal Systems Act, No. 32 of 2000 (MSA); King Code of Governance Principles and King Report on Governance (King III); Discussion papers issued by the South African Integrated Reporting Committee and the International Integrated Reporting Council (IIRC); International Financial Reporting Standards (IFRS); Global Reporting Initiative (GRI) Framework; Millennium Development Goals; Joburg 2040: Growth and Development Strategy (GDS); and Integrated Development Plan (IDP). Assurance process for the Integrated Annual Report The Board, assisted by the Audit Committee and Social and Ethics Committee, is ultimately responsible for the integrity and completeness of the Integrated Report and any supplementary information. The Board has applied its collective mind to the preparation of the Integrated Report and has concluded that it is presented in accordance with the applicable international reporting frameworks. The Board approved the 2015/16 Integrated Report, together with the Annual Financial Statements; taking into consideration the completeness of material items it deals with and reliability of information presented in line with the combined assurance process followed on 29 November Integrated Annual Report 2015/16

10 PART C Table of contents Chapter 1: Leadership and Corporate Profile Corporate profile and overview of the entity...11 Strategic objectives...13 Value creation...14 High-level organisational structure...16 Foreword by the Member of the Mayoral Committee...19 Chairman s foreword...20 Managing Director s report...22 Financial Director s report...24 Company Secretary s Certificate...28 Statement of Responsibility...29 Chapter 2: Governance Corporate governance statement...32 Board of Directors...34 Board committee composition...41 Directors remuneration...44 Company secretarial function...46 Risk, opportunities and internal controls...46 Internal audit function...51 Statement on Internal Controls (SIC) to the Board of Directors of (SOC) Ltd for the year ended 30 June Corporate ethics and organisational integrity...57 Sustainability report...58 Anti-corruption and fraud...65 ICT governance...67 Supply chain management and black economic empowerment Integrated Annual Report 2015/16

11 Chapter 3: Service Delivery Performance Core business...74 Day-to-day operations...75 Highlights and achievements...76 Financial performance...78 Capital projects...79 Performance against the Integrated Development Plan (IDP) and City Scorecard...82 Assessment of arrears on municipal taxes and services charges...83 Statement on amounts owed by government departments and public entities...84 Recommendations and plans for the next financial year...85 Human resource management...87 Employment equity...92 Skills development and training...93 Performance management...96 Employee wellness and HIV/AIDS in the workplace...97 Chapter 5: Financial Performance Chapter 6: Auditor-General Findings Auditor-General s report for the current year Historical audit findings and remedial actions Commitment by Board of Directors Mitigation Strategies on Assessment of the Integrated Reporting and Municipal Finance Management Act (MFMA) (Circular 63) Annexure Balanced Scorecard 2015/ Integrated Annual Report 2015/16

12 Chapter 1 Leadership and Corporate Profile

13 HIGHLIGHTS FOR THE YEAR - Revenue increased by 8.5% to R7.9 billion (2014/15: R7.3 billion) - Net cash position stable at R330 million (2014/15: R330 million) - BBBEE recognition of 118% (2014/15: 106.1%) - Unqualified audit opinion achieved - 50% decrease in fraud cases reported - Jozi@Work 885 decent jobs were created 86 SMMEs were supported with a spent of R42 million job opportunities were created through EPWP - Response to water pipe bursts improved to 84.29% (2014/15: 81%) - Water consumption decreased to 309 litres per person per day (2014/15: 320) - 100% compliance to sludge breakage - R772 million capital budget spent, which represents 98% against target of 95% % female representation against target of 26% - Less than 3% staff turnover STRATEGIC OBJECTIVES - Resource management - Financial sustainability - Provide quality service - SMME development and job creation - Communication and stakeholder management - Protect and enhance the reputation of the entity VALUE CREATION CONTEXT - Six national outcomes - Six SDGs - Joburg 2040 Growth and Development Strategy - GDS Outcomes driven through four clusters - Two IDP flagship priorities SECTION ONE Corporate profile and overview of the entity SOC Ltd (JW) was incorporated on 21 November 2000 and commenced business on 1 January JW is a municipal entity, wholly owned by the City of Johannesburg (CoJ) as sole Shareholder, and mandated to provide water and sanitation services to the residents of Johannesburg. The company s strategic objectives are linked to the Shareholder objectives through the Service Delivery Budget Implementation Plan (SDBIP) and cluster plans whereby JW is assigned to the Sustainable Services Cluster. In addition, the relation between the company and Shareholder is governed through the Service Delivery Agreement (SDA) which is reviewed from time to time. The entity provides water and sanitation services to an area stretching from Orange Farm in the south, to Midrand in the north, Roodepoort in the west and Alexandra in the east. The company employed an average of people and functions within operating regions (as depicted in Figure 1), with ten networks depots and six wastewater treatment plants. 11 Integrated Annual Report 2015/16

14 The entity supplies Ml/day of potable drinking water, procured from Rand Water, through a water distribution networks of km, 122 reservoirs and water towers, and 37 water pump stations. The spent wastewater is then collected and reticulated via km of wastewater networks and 36 sewer pump stations. JW treats 864 Ml/day of sewerage at its six wastewater treatment works (WWTW), which include two of its biogas-to-energy plants where methane gas is converted to energy. Regions 01 Diepsloot 02 Midrand/Ivory Park 03 Santon/Rosebank 07 Alexandra 05 Roodepoort 04 Northcliff 08 Central Region 06 Doornkop/Soweto 10 Diepkloof/ Meadowlands 09 Johannesburg South 11 Ennerdale/ Orange Farm Midrand Sandton/Alex Roodepoort/Diepsloot Jhb Central Soweto Deep South Figure 1: Regions 12 Integrated Annual Report 2015/16

15 SECTION TWO Strategic objectives s vision is to become a world-class African water and sanitation utility. Delivery on this vision is underpinned by six strategic objectives. These strategic objectives are responsive to the principal risks facing the entity and are set out below. 1. Resource management We will achieve this by: Continuing to implement the capital programmes to meet water supply needs, replacement, upgrade and renewal of old infrastructure, system maintenance and regulatory compliance demands in a cost-effective manner; and Striving to achieve further water consumption per capita reductions to 308 litres per capita per day. 2. Financial stability We will achieve this by: Continuing with implementation of revenue enhancement project to increase metred customers and improve revenue; and Continuing to maintain efficiency in operational costs. 3. Quality services We will achieve this by: Maintaining high quality and reliable services; Maintaining a high level of community support and customer satisfaction; and Applying technology and innovative management techniques to enhance s ability to provide quality services. 4. SMME development and job creation We will achieve this by: Developing 65 contractors from CIDB grade 2CE to 4CE by 2016; and Creating EPWP jobs and 290 GEP learnerships by Integrated Annual Report 2015/16

16 5. Communications and stakeholder management We will achieve this by: Communicating priorities, goals, and objectives, clearly and consistently, to all stakeholders; and Using technology to create two-way communication platforms, report incidents, etc. 6. Protect and enhance the reputation of the entity We will achieve this by: Adhering to safety standards while exceeding the product quality expectations of our customers; Maintaining robust governance structures in accordance with the principles of King III; Formalising and implementing a comprehensive Business Continuity Policy and Strategy; Actively evaluating and mitigating risk on an ongoing basis; and Employing a strategy of proactive engagement with all stakeholders. Figure 2: Strategic objectives SECTION THREE Value creation In 2011, the City of Johannesburg (CoJ) committed to building a promising future for the communities of Johannesburg. Through an intensive consultative process, the City and its people adopted a Growth and Developmental Strategy (GDS 2040) that reflects the aspirations of a world-class African city that is liveable, sustainable and resilient. These aspirations were solidified in the 2012/16 Integrated Development Plan (IDP), and key priority programmes were identified in an effort to confront the challenges that are continuously faced by the people we serve. JW has set out its business model with inputs, business processes, and outputs. Figure 3 demonstrates the value creation process of JW s business plan in support of the CoJ s strategy. It further describes how we create value for our stakeholders through our core processes, and deliver on our mandate. As part of JW s business ethos, we recognise the interdependencies between our business and a range of inputs that include human, social and natural capital. In turn, our business delivers strong impact on society and its various communities that go beyond mere financial performance. 14 Integrated Annual Report 2015/16

17 Inputs Financial capital R330 million in cash in the bank R7.7 billion operational budget R839.9 million staff costs Manufactured capital km of water distribution networks km of wastewater networks 122 reservoirs and water towers 37 water pump stations 36 sewer pump stations 6 wastewater treatment works Intellectual capital Joburg 2040 GDS Strategy Smart City Strategy Strategic Area Frameworks for the Corridors of Freedom City reputation, branding and investment attraction potential Specialist knowledge and resources (e.g. resource planning and management) Human capital employees Staff retention stands at 97.84%. Social and relationship capital Residents and rate payers Vulnerable communities Targeted stakeholder groups (e.g. women, youth and the elderly) Media, NGO s and academic stakeholders Shareholder Natural capital 100% compliance with sludge disposal guidelines Natural resources consumed: Water networks Energy (electricity and fuel) Air quality Figure 3: JW value creation process Context Six National Outcomes Six SDGs Joburg 2040 Growth and Development Strategy GDS Outcomes driven through four clusters Two IDP flagship priorities Five key risks 1. Security of supply risk 2. Communication and stakeholder engagement risk 3. Information management system and technology risk 4. Financial sustainability risk 5. Sustainable infrastructure risk Opportunities Improved investment attraction Optimal use of City s use of its key assets Creation of sustainable human settlements Eco mobility Improved citizen participation Improved social cohesion through Corridors of Freedom Growth of the informal business sector Enhanced support for SMMEs and co-operatives Vision A world-class African water and sanitation utility. Mission To provide all CoJ citizens with quality water and sanitation services by: Delivering a sustainable affordable and cost-effective service; Upgrading services in marginalised areas; Creating a customer-focused culture; Valuing and developing employees to build sustainable capacity; Safeguarding the health and safety of JW employees, contractors and the general public; Improving the protection of the environment; and Managing assets and leveraging technology to enhance the level of security and quality of supply. Strategy/GDS Principles Economic sustainability Build and grow an inclusive economy Administrative sustainability Promote good governance Social sustainability Eradicate poverty. Achieve social inclusion through support and enablement Environmental sustainability Build sustainable human settlements Ensure resource security and environmental sustainability Corporate values Treat customers, employees, suppliers, role players and stakeholders with respect, compassion and dignity. Harness the power of diversity in an environment that provides equal opportunity and that is non-discriminatory. Reward fairly for exceptional performance and innovation. Achieve cost-effectiveness through technical excellence and innovation. Demand honesty and integrity from every employee and supplier of goods and services. Promote ethical behaviour and endorse zero-tolerance of corruption and fraudulent conduct. Outputs/programmes Leverage optimum value from city-owned assets Transform the inner City through properties in the Greater Soweto Area, Greater Orange Farm, Ivory Park and Alexandra, and promote mixed development projects Resuscitate declining and decaying economic nodes within the City Promote sector diversification, productivity and competiveness support Develop a dynamic entrepreneurial spirit and innovation to promote increased investment though SMME support Promote multi-level skills development programmes Promote area-based economic initiatives Promote citizen participation and empowerment. Enable Smart City initiatives. Promote human capital development and management Ensure integrated planning Promote innovation and knowledge sharing Institutionalise strong governance, risk management and compliance Ensure financial sustainability Maintain strong administrative governance Enable Smart City initiatives Promote strategic communications and marketing Ensure positive strategic relations Outcomes Economic sustainability R7.9 billion in sales revenue R8.7 billion cash managed R330 million cash in the bank EPWP jobs created 885 decent, Jozi@Work jobs created 86 SMMEs supported through Jozi@ Work Administrative sustainability 84.2% cash collection/payment level 118% of procurement recognition spent on B-BBEE Social sustainability households in informal settlements provided with access to basic sanitation households in informal settlements provided with access to basic water Environmental sustainability Retrofitting has been done to households Bacteria levels on sewer spill with negative impact to the river reduced to 1.35% 15 Integrated Annual Report 2015/16

18 SECTION FOUR High-level organisational structure Management structure The internal management structure, depicted in Figure 4 relates to those managers deemed to be appointed in terms of the provisions of Section 56/57 of the Municipal Systems Act, No. 32 of A summary of the executive management team is provided in Table 1. The organogram demonstrates how the core business of the entity feeds into the different departments within the entity. Managing Director Lungile Dhlamini Personal Assistant Hester Balt Chief Operations Office Chief Operations Officer Ntshavheni Mukwewho Communication and Marketing Executive Manager: Communication and Stakeholder Relations Hilgard Matthews Finance and Admin Financial Director Busisiwe Shongwe Corporate Affairs, HR and Admin Executive Manager: HR and Corporate Thembaletu Fikizolo Internal Audit Chief Internal Auditor Dudu Tshabalala Governance and Legal Services Company Secretary Graham Luden Risk and Compliance Management Acting Manager: Risk and Compliance Management Jones Mnisi Figure 4: Executive management Management changes related to the above The fixed term contract for Ms Qondile Zimu, Executive Manager: Human Resources and Corporate Services expired on 31 July The position was advertised and filled by 1 October The position of Senior Manager: Risk and Compliance has been vacant since 8 April 2016, which resulted in short-term pressures. However, the subdivision of work and the use of an acting incumbent provided an adequate short-term solution. 16 Integrated Annual Report 2015/16

19 Table 1: Executive management Name Position Contract type Qualifications Skills and expertise Thembaletu Executive Fixed term expiring Bachelor of Law Conflict management Fikizolo Manager: on 30 September BA Hons (Labour Union/management relations Corporate 2020 Relations and Human Negotiations Services and Resources) Human Resources Labour legislation and litigation HR management Hilgard Executive Fixed term expiring Bachelor of Arts Community development Matthews Manager: on 30 June 2020 (General) Radio broadcasting Communication Certificate in Land reform and Stakeholder Government Relations Road safety Communication and Marketing Strategy development Communication and marketing management Stakeholder management Ntshavheni Mukwevho Chief Operations Officer BTech Eng (Civil) Engineering and operation management Duduzile Tshabalala Phindile Shabalala Graham Luden Chief Internal Auditor Senior Manager: Risk and Compliance Company Secretary Fixed term expiring on 31 December 2016 Fixed term contract. Resigned on 1 July 2016 Fixed term contract. Resigned on 9 April 2016 Permanent. Transfer from the City of Johannesburg in 2001 in terms of Section 197 of the Labour Relations Act Masters of Business Leadership (MBL) PrTech Eng BCom MA (Science) Audit Management and Consulting ND Accounting BTech Management BA (Hons) PGDip Business Management Construction management Project management Water purification and distribution system Sewerage collection systems Planning processes for strategic management, Public Finance Management Act (PFMA), King III and Company Secretary Enterprise risk management Professional Practice of Audit and Codes of Ethics Implementation of risk management frameworks Project management Governance and compliance Local government and business management Executive management remuneration (Section 56S) The Managing Director and Financial Director s salaries, together with those senior managers that report directly to the Managing Director, are regulated in terms of Section 89 of the Municipal Finance Management Act (MFMA). The Managing Director and Financial Director are directors on the Board, therefore their remuneration is shown separately under Director Remuneration elsewhere. In terms of this provision, the parent municipality will determine the upper limits of salaries. 17 Integrated Annual Report 2015/16

20 Table 2: Executive manager salaries for 2015/16 Executive Basic salary Bonuses and performancerelated payments Travel and subsistence allowances Contributions to pension funds and medical aid Total Q Zimu Executive Manager: Corporate Services and Human Resources Contract ended on 31 July T Fikizolo Executive Manager: Corporate Services and Human Resources Appointed 1 October H Matthews Executive Manager: Stakeholder Relations and Communication NJ Mukwevho Chief Operations Officer D Tshabalala Chief Internal Auditor G Luden Company Secretary P Shabalala Senior Manager: Risk and Compliance Management Resigned 11 April Total The following pertinent issues pertain to the remuneration and other matters of the company s executive management: The remuneration levels are determined by the Shareholder who, on an annual basis, sets the median and upper limits for each position. The positions are graded in terms of the Hay grading system and remuneration is determined accordingly. The Shareholder, by way of Circular 2 of 2008, set out the procedure for implementing annual increases as determined by the Shareholder, and applying performance results to the average percentage increase. In terms of the process, executives can earn higher or lower than average increases based on performance. However, for the 2014/15 financial year the Board of Directors resolved that all executives will receive the standard increase of 5.76% as determined by the Shareholder, with no performance-related reward. In cases where total cost to company remuneration is above the median determined by the Shareholder, the matter is managed by way of the Shareholder Circular of 2008, which provides for retardation of increases for those who earn near or at the upper limit of the position. This process is well understood and managed, therefore no executives earn above the upper limits of their position ranges. The incentives described above are deemed important to motivate high levels of performance. Policies regarding executive employment are derived from the prescripts of the Local Government: Regulations on Appointment and Conditions of Employment of Senior Managers are followed and have been consolidated into a Standard Operating Procedure adopted by the Human Resources and Remuneration Committee. This policy has proven successful in the recruitment of executives. 18 Integrated Annual Report 2015/16

21 SECTION FIVE Foreword by the Member of the Mayoral Committee The August 2016 municipal elections saw a a change in political power in the City and therefore a change of guard in the Environment, Infrastructure, and Services Department (EISD) Portfolio. I became the new Member of the Mayoral Committee tasked with overseeing the portfolio. The Integrated Annual Report deals with all aspects of service delivery in the City. Aspects covered include delivery to marginalised communities, adherence to compliance standards, SMME development, expenditure against the capital budget, stakeholder engagement, responsiveness to bursts, and financial performance. Looking forward, faces a number of challenges to its business model. The current drought and increasing consumer awareness of the costs of water will place pressure on revenue. Consumers will become increasingly conscious of water usage. It is therefore imperative that there is a focus on all aspects of the business that contribute to non-revenue water both physical and commercial. The drive to improve productivity in the workplace must continue. My thanks go to the outgoing MMC, Cllr Mfikoe, and to the Board for upholding the service delivery imperatives of the Shareholder over the past year. I look forward to the task ahead. Councillor Anthony Still Member of the Mayoral Committee (MMC) Environmental and Infrastructure Services Department Johannesburg 29 November Integrated Annual Report 2015/16

22 SECTION SIX Chairman s foreword As Chairman of since March 2014, I have seen the company successfully execute the task of advancing the Shareholder s service delivery thrusts as contained in the Growth and Development Strategy, and more specifically, in the annual Service Delivery Budget Implementation Plans. This report sees the end of a five-year plan which has been informed and aligned to the Shareholder s strategic route in line with achieving specific flagship programme objectives. The company remains robust in its service delivery mandate, despite the effects of socio-economic conditions and the regional crippling drought. It has remained agile to adapt to challenging conditions in a manner that reflects our ethos, values and experience. The effects of climate change and the worst drought in decades has resulted in the implementation of water restrictions across Gauteng, including the City of Johannesburg. The consistent equitable supply of good quality potable water to the nearly 5 million people in the City demands greater stewardship of this precious resource. The entity s on-going pipe and and pressure valve replacement programmes will contribute to the reduction of major bursts and concomitant physical water losses. Vibrant communication and stakeholder engagement should form the bedrock for customer behaviour change in water demand reduction. achieved a 99.8% water quality level that exceeds the water quality standards of the Department of Water and Sanitation (DWS). The management of the water supply system in the City remains of the highest standard in terms of risk management and the overall provisions of the Blue Drop Certification Programme. The dignity and human rights of residents continue to be of importance to the entity. Access to basic sanitation was 46.59% ( households). Similarly, 96.15% of the targeted households ( ) gained access to water. The biggest regulatory challenge relate to compliance with effluent quality. Although the industry target is 90%, Johannesburg Water remained non-compliant at 74.7% against an internal target of 97%. This non-compliance is as a result of the revised and exceedingly stringent licensing conditions imposed by the DWS to achieve effluent quality equivalent to drinking water standards. The DWS has acceded to the petitions of JW and reverted back to more realistic effluent quality standards. The financial position of the company has improved in the past year, mainly due to the impact of the in-house revenue and metering project. The project addresses the gaps in the revenue process which resulted in a marginal improvement in liquidity. However, more needs to be done to ensure the financial sustainability of. As the financial and performance results are to be found elsewhere in this report, I am pleased for this opportunity to report that an initiative germinated by the Board in previous years, continues to advance the empowering of small, micro and medium enterprises (SMMEs) and black designated groups. also continues to contribute towards economic development, poverty alleviation and unemployment eradication within the City of Johannesburg Metropolitan Municipality. 20 Integrated Annual Report 2015/16

23 The entity s total broad broad-based black economic empowerment procurement spent was R1.34 billion, based on actual invoices paid during the year under review. This equates to a 111% actual achievement against a 95% target. There were no disputed tenders during the period under review. A total of job opportunities were created under the Extended Public Works Programme (EPWP), whilst 885 jobs were created as part of the City s Jozi@Work initiative. As reported in the previous year, the company has other SMME development programmes, such as the Vukuphile Learnership Programme, in partnership with the National Department of Public Works, and Jozi@Work. However, the Enterprise and Supplier Development Programme has integrated these initiatives and stimulated the development and growth of emerging enterprises amongst black designated groups, including new and existing SMMEs, by providing capacity building information, tools, counselling, assistance and resources to vulnerable groups, such as unemployed youth. As part of our on-going decision-making process, the Board is committed to the highest standards of corporate governance. The Board and all its sub-committees meet regularly to monitor the progress of the company in achieving the strategic targets as captured in its scorecard. The expertise, experience and institutional memory provides a climate that is conducive to smooth transitions and stability in the Board. We are doing our utmost to secure the future wellbeing of the company by embedding strong governance into our routine processes. To this end, the corporate governance practices of the entity are reviewed and improvements effected periodically, where it is deemed necessary. The integrity of this Integrated Report has been scrutinised by the Board. We would like to acknowledge the support and assistance provided by the Group Governance team in this regard this continued support of our office is valuable in keeping us consistent in both practice and application of governance, as envisaged for municipal entities and companies overall. A special word of appreciation goes to the Managing Director, Lungile Dhlamini, who has concentrated on the delivery of services and ensured most targets were met through a stringent performance management dashboard. Our gratitude is extended to the executive team for their commitment and efficient management in endeavouring to deliver a quality service to the residents of Johannesburg. Lastly, I take this opportunity to express my gratitude to the Shareholder, represented by Coucillor Mfikoe, the outgoing Member of the Mayoral Committee for Environment, Infrastructure and Services, and my colleagues on the Board for excellent leadership, as well as all staff at for the excellent results you achieved. Getty Simelane Chairman of the Board Johannesburg 29 November Integrated Annual Report 2015/16

24 SECTION 7 Managing Director s report Sector and business review The end of the financial year also saw an end to the political office term and ushered in another term in political office for , and another five-year Integrated Development Plan (IDP) as the key to municipal appropriation of service delivery budgets which will inform the associated annual Service Delivery Budget Implementation Plans (SDBIPs) over the same period. The audited performance results for the year include a net cash position of R330 million (2014/15: R330 million), attributable to a payment level of 84.2% (2014/15: 81.1%) with sales revenue of R7.9 billion against a budgeted target of R8.3 billion. Capital investment of R772 million (98%) was spent against an annual budget of R792 million to extend, maintain and renew water and sanitation social infrastructure. The sales revenue lower than budget, among other factors, is attributable to water saving programmes presently underway, which resulted in reduced bulk purchases from Rand Water. The company achieved an unqualified audit opinion against a target of a clean audit opinion, which is the same achievement as the prior financial year. The company will address shortcomings identified to ensure that attainment of a clean audit opinion remains a focus. The subdued operating and trading conditions are expected to continue, however good rainfall is projected to continue in the current wet season which commenced in October 2016 and the affordable retail tariff regime (especially for the lower to middle income customers) and cost containment measures within the organisation will ensure continued financial sustainability in the 2016/17 financial year. Seasonal climate watch by the South African Weather Services (SAWS) Given the ensuing drought conditions and the declining levels of water in the Vaal River Catchment System, invoked Level 2 water restrictions, which remain in place at the time of reporting. The DWS has further imposed water supply restrictions to reduce demand (NRW) by 15%. In response to this directive, the company tightened water restrictions for residents to not irrigate gardens using sprinkler system and to not use hosepipes to wash cars and paved areas. Measures had already been put in place by the entity, when first mooted in 2014, by reducing the water networks operating pressure by 40% among other programmes in our accelerated water conservation and water demand management strategy. 22 Integrated Annual Report 2015/16

25 The recent Seasonal Climate Watch of 20 May 2016, by the SAWS advisory for June to October 2016 observations, shows that El-Niño is fast decaying. As most ENSO (El-Niño Southern Oscillation) prediction models indicate, however, the state of climate drivers show that El-Niño is steadily declining (drought-related) and most of the forecast models predictions indicate the possible development of a moderate (weak) La-Niña (floods-related) state toward late spring and summer 2016/17. The aforementioned phenomenon resulted in most of South Africa experiencing high temperatures with below-normal rainfall patterns. Infrastructural and access to services performance The company is mindful of the prevailing subdued economic growth, as well as ensuing inequality, unemployment and poverty. Therefore, our capital investment programmes and policies are used to leverage capital expenditure in contribution towards the alleviation of these socio-economic ills. During the year under review and in giving effect to this strategy, 86 SMMEs were supported with 885 decent jobs created under the Jozi@Work Programme. In addition, Expanded Public Works Programme (EPWP) job opportunities were created and 118% of the total B-BBEE spend achieved. The slowdown in investment in water pipe replacement resulted in an increase of water pipe bursts by 18.6% in 2015/16 (from to per annum). Although the yearly target of 114 km was achieved by replacing 140 km of water pipes, the overall target of 900 km to be replaced by June 2017 was reduced to 520 km. The lost ground on the increasing number of bursts emphasizes that continued efforts are needed on renewing old infrastructure at an acceptable rate going forward. In 2015/16, despite a historic annual growth (before 2013/14) in demand for water of 2.3%, the entity managed to meet this increased demand with a reduced average annual daily demand of billion litres compared to billion litres in 2014/15. Consequently, less water was purchased from Rand Water for the second year in a row. Finally, an additional and informal dwellings were provided with access to basic water and sanitation services respectively. This translates into service coverage of 96.14% and 46.59% respectively against current backlogs. Looking forward In the year ahead, we will expand the capacity of our existing infrastructure and create jobs in the process. Development of SMMEs remains a focus to up-skill future contractors. Our water conservation/water demand programmes will be intensified to ensure water security. I believe all leaders are nothing without a great team. So during this period of reflection and thanksgiving, please know how very proud I am to be part of this team that serves the citizens of greater Johannesburg. I further wish to extend my gratitude to our Board of Directors under the leadership of Ms Getty Simelane, the Chairman, for their continued support and guidance. Thank you all for your continued dedication. Lungile Dhlamini Managing Director Johannesburg 29 November Integrated Annual Report 2015/16

26 SECTION 8 Financial Director s report Overview The financial year under review has been challenging for (JW). The increase in the inflation rate, unemployment, and the decline in domestic economic growth have all negatively affected the disposable income of JW customers, resulting in lower than anticipated payment levels for water and sanitation services and an increase in accounts receivable. Source of revenue JW does not receive government grants for its business operations. The government grants that are received are mainly for water and sanitation infrastructure projects. Other income includes water and sanitation related infrastructure donated by developers. The sources of revenue for 2015/16 are summarised in Figure 5. 1% 3% 3% 35% 58% Water Sanitation Other income Interest received Non-exchange revenue Figure 5: Sources of revenue 24 Integrated Annual Report 2015/16

27 Table 3: Critical financial indicators % change Operating risk indicators Gross profit margin 51.6% 49.5% 52.0% 49.86% (4%) Net profit margin 13.8% 8.3% 9.2% 9.03% (2%) Rate of return on assets 11.4% 8.2% 12.9% 7.46% (42%) Salaries as a percentage of operating costs 25.9% 25.8% 22.8% 24.11% 6% Net debtors collection period (11%) Financial risk indicators Bad debts % 15.5% 15.5% 19.5% 16.04% 18% Current ratio (10%) Quick ratio (4%) Interest cover % Debt-to-asset ratio (4%) Debt-to-equity ratio (7%) Financial performance The company is exempt from the payment of normal company tax in terms of Section 10(1)(t) of the Income Tax Act, No. 58 of 1962, since July 2007 and has consequently not been providing for tax since this date. The financial year under review has been a difficult one for ; this is evidenced by the summarised results, as reflected in Table 4. Table 4: Financial performance 2015 (R 000) 2016 (R 000) % change 2016 budget (R 000) Revenue % Bulk purchases ( ) ( ) 13.3% Gross profit % Other income % Operating cost and interest ( ) ( ) 4.7% ( ) Net profit % An average tariff increase of 14% was charged to our customers, who range from domestic to industrial customers. Revenue increased by 8.5% from R7.3 billion to R7.9 billion. The gross profit (Rand) increased by 4%. The improvement in gross profit is mainly due to the increased revenue billed and tariff increase. Bulk purchases consist of the purchase of potable water from Rand Water. The price is determined by a combination of a government pricing strategy, which is linked to consumer price index (CPI) for the raw water, electricity, chemicals and other production input costs at Rand Water level and at company retail level. The net profit improved by 6.2%, mainly due to the development funding and cost savings. Control over operating costs Total staff costs increased by 9% to R839.9 million. This increase is attributable to a general salary increase of 6% and additional posts that were created and filled during the financial year. The average number of permanent employees increased to (2014/15: 2 540). Austerity measures were put in place during the financial year, which led to general cost savings and operating costs being below budget. These austerity measures, however, did not affect service delivery. 25 Integrated Annual Report 2015/16

28 Cost structure The cost structure of has remained fairly stable over the last few years. Figure 6 reflects the cost structure for the financial year. High provision for bad debts and bad debt written off still remains a challenge. Measures are being put in place to reduce the bad debt level to a benchmark level of 7%. 13% 16% 5% 3% 11% 52% Bulk purchase Employment cost Net interest paid Bad debt provision Contacted services Other operating costs Figure 6: Cost structure Cash generated from operations The revenue function, which includes the customer call centre, invoicing of customers and collection of monies from customers, is outsourced to the City of Johannesburg s Revenue and Customer Relations Management Department. The cash balance is swept to the City of Johannesburg in terms of the treasury management arrangement. At year end, Johannesburg Water had cash reserves of R330 million (2014/15: R330 million). Figure 7 reflects the cash reserves at financial year end. R million R350 R300 R250 R200 R150 R100 R50 R June June June June June 2016 Financial year ending 330 Figure 7: Cash reserves The cash reserves have been under pressure in recent years, as reflected in Figure 7. This has necessitated management to initiate a project to ensure the financial sustainability of the company through accurate billing and timeous collection of amounts due to it. The improvement in cash resources over the years can be attributed to lower operating expenditure. Looking forward Financial performance is expected to improve in 2016/17, however, budgeted revenue may not be achieved due to current water restrictions and the directive (issued by the Department of Water and Sanitation) to reduce water demand by 15%. The metering and revenue project will focus on new developments and those areas that are not metered and thus are currently not being billed for water consumption. 26 Integrated Annual Report 2015/16

29 The project involves ensuring that all residents of the City are being billed accurately, consistently, and regularly for services provided and water consumed. While the project also aims to ensure that every consumer is metered and billed correctly, the immediate focus is those customer categories that will have the biggest impact on both sales revenue and cash. Therefore priority interventions will be business customers. For the rest of the consumer categories, interventions will be prioritised by suburb. The project aims to raise enough revenue to enable to finance some of the capital projects from its own funds, rather than through loan financing. The Census results of 2011 indicate that single residential stands with a dedicated water and sewer connection, total properties. Technically, these households are indicative of the customer revenue base, which is estimated to be growing at 3.7% per annum. plans to continue with the rollout of its water and sanitation pipe replacement project to ensure that we continuously meet the expectation of the citizens of the City by providing adequate infrastructure. Busisiwe Shongwe Chief Financial Officer 29 November Integrated Annual Report 2015/16

30 SECTION NINE Company Secretary s Certificate In terms of Section 88(2) of the Companies Act, No. 71 of 2008, and the Municipal Finance Management Act, No. 58 of 2003, I certify that to the best of my knowledge and belief the entity has lodged for the year ended 30 June 2016, all such returns and notices as required and that all such returns and notices are true, correct and up to date. Graham Luden SOC Limited Company Secretary Johannesburg 29 November Integrated Annual Report 2015/16

31 SECTION TEN Statement of Responsibility The directors are responsible for the preparation, integrity and fair presentation of the Annual Financial Statements of the entity. The Annual Financial Statements have been prepared in accordance with Standards of Generally Recognised Accounting Practice (GRAP) and include amounts based on judgments and estimates made by management. The directors are also responsible for the preparation of the other information in the Integrated Report and are responsible for both its accuracy and its consistency with the Financial Statements. The going-concern basis has been adopted in preparing the Financial Statements. The directors have no reason to believe that the entity will not be a going concern in the foreseeable future based on the forecast and on the Memorandum of Incorporation signed with the City of Johannesburg. Refer to the Directors Report in the Annual Financial Statements with regard to the appropriateness of the going-concern assumption for the preparation of the Financial Statements. The Auditor-General, who was given unrestricted access to all financial records and related data, including minutes of all meetings of the Shareholder, the Board of Directors and committees of the Board, has audited the Annual Financial Statements. The directors believe that all representations made to the Auditor-General during their audit are valid and appropriate. The Auditor-General s report is presented in the Annual Financial Statements. The Financial Statements were approved by the Board of Directors on 29 November Getty Simelane Chairman of the Board Johannesburg 29 November Integrated Annual Report 2015/16

32 Chapter 2 Governance

33 Alignment to corporate governance requirements - Board committees properly constituted in compliance with regulatory requirements - Annual Board assessment and evaluation conducted - ICT governance in place and in line with CoGTA s Municipal Corporate Governance of ICT Policy Assurance activities - Enterprise risk management is in place and risk assessments and reviews were conducted and reported on - Compliance assessment conducted as per regulatory requirements - 72% of internal audit findings were resolved and the rest are either in progress or not resolved - 44% decrease in reported incidences of fraud down to 18 (2014/15: 32) - Ethical standards are being met and supported by Ethics Programme Sustainability - Drinking water quality status: 99.8% (2014/15: 99.8%) - Response time to water quality states: 84.29% (2014/15: 81%) - Response time to sewer blockages: 93.46% (2014/15: 93%) - Water demand per person per day: litres (2014/15: 310) - 100% compliance to sludge disposal (2014/15: 100%) - 69% customer satisfaction (2014/15: 69%) Corporate social responsibility - Ten bursaries were awarded, 70% of which to black females - Nine internships, 88.8% of which to black females - Over adult nappies were donated - 65 contractors are being developed through the Vukuphile Learnership Programme - 73 learners are being developed through the Basic Plumbing Skills Programme Supply chain management and BEE - BBBEE recognition of 118% (2014/15: 106.1%) on tenders awarded against DI target of 80% - R38.3 million spent on the six contractors on the Vukuphile Learnership Programme Figure 8: JW governance overview 31 Integrated Annual Report 2015/16

34 SECTION ONE Corporate governance statement King III reporting The entity applies the governance principles contained in King III and continues to further entrench and strengthen recommended practices in our governance structures, systems, processes and procedures. The Board of Directors and executives recognise and are committed to the principles of openness, integrity and accountability advocated by King III. Through this process, the Shareholder and other stakeholders can derive assurance that the entity is being ethically managed according to prudently determined risk parameters in compliance with generally accepted corporate practices. The entity has complied with the Code in all respects during the year under review. The JW Governance Protocol is premised on the principles enunciated in King II, and the company steadfastly consolidated its position in respect of adherence to King III. The entity s practices are, in most material instances, in line with the principles set out in King III. On-going steps are taken to align practices with the report s recommendations, and the Board continually reviews the company s progress to ensure that we improve our corporate governance. During the year under review, entrenched its risk management reviews, and reporting and compliance assessments were conducted in terms of the Companies Act, No. 71 of 2008, the Municipal Systems Act, No. 32 of 2000 (MSA) and the Municipal Finance Management Act, No. 56 of 2003 (MFMA). The annual Board assessments and evaluations were conducted and an Integrated Report for the previous year was effectively completed in accordance with the terms of Section 121 of the MFMA. Group Governance Framework The City s Governance Framework assists it to better understand the governance structure and principles required to ensure effectiveness and accountability. The framework clarifies governance roles and responsibilities, and enhances oversight, monitoring and evaluation within the group functions in the City. The framework also aims to improve the capacity and capability of the Board of Directors and managing executives to effectively manage the entity and efficiently account to the City as sole Shareholder. This reinforces the conception of the City as a Holding Company with Subsidiaries and ensures the alignment and consistency of the City group policies through the setting of consistent performance standards. The Board of Directors has incorporated the City of Johannesburg s Corporate Governance Protocol in its Board Charter, which inter alia regulates its relationship with the City of Johannesburg as its sole member and parent municipality in the interest of good corporate governance and good ethics. The Board and management recognise that the entity has a mandate to deliver services derived from a political structure and aligned to the City strategy, such as game changers. During the year under review, the company conducted its risk management reviews and reporting and compliance assessments were conducted in terms of the Companies Act, the MSA and the MFMA. Ethical leadership The Board provides effective leadership based on a principled foundation and the entity subscribes to high ethical standards. Responsible leadership, characterised by the values of responsibility, accountability, fairness and transparency, has been a defining characteristic of since the company s establishment in November The fundamental objective has always been to do business ethically while building a sustainable company that recognises the short- and long-term impact of its activities on the economy, society and the environment. In its deliberations, decisions and actions, the Board is sensitive to the legitimate interests and expectations of the company s stakeholders. Corporate citizenship The Board and management recognise that the entity is formed under a political structure. As such, it has a social and moral standing in society with all the attendant responsibilities. The Board is therefore responsible for ensuring that the entity protects, enhances and invests in the wellbeing of the economic, social, and natural environment, and to pursue its activities within the limits of social, political and environmental responsibilities outlined in international conventions on human rights. 32 Integrated Annual Report 2015/16

35 Compliance with laws, rules, codes and standards The Board provides quarterly and annual reports on its performance and service delivery to the parent municipality, as prescribed in the Service Delivery Agreement (SDA), the MFMA and the MSA. An SDA was concluded in accordance with the provisions of the MSA, which governs the entity s relationship with the City of Johannesburg. Non-executive directors contribute an independent view to matters under consideration and add to the depth of experience of the Board. The roles of Chairman and Managing Director are separate, with responsibilities divided between them. The Chairman has no executive functions. Directors have unlimited access to the Company Secretary, who acts as an advisor to the Board and its committees on matters relating to, inter alia, compliance with company rules and procedures, statutory regulations and best corporate practices. The Board and managing executives ensure that there is full compliance with all relevant legislation. The Company Secretary has certified in terms of Section 88(2)(e) of the Companies Act that all statutory returns have been submitted to the Registrar of Companies. The Board or any of its members may, in appropriate circumstances and at the expense of the company, obtain the advice of independent professionals. 33 Integrated Annual Report 2015/16

36 SECTION TWO Board of Directors Board composition has a unitary Board, which consists of executive and non-executive directors. The Board is chaired by a non-executive director, Ms Getty Simelane. The Board meets regularly (at least quarterly) and retains full control of the company. It remains accountable to the City of Johannesburg Metropolitan Municipality as its single Shareholder, through the company, its stakeholders, and the citizens of Johannesburg. In terms of the company s Articles of Association, there may not be more than 11 directors on the Board of which two (2) shall be executive directors. The Board is fully capacitated with nine (9) non-executive directors and two executive directors. Table 5 provides a list of board membership and qualifications. The Shareholder, at its Annual General Meeting held on 15 March 2016, retained the Board. As Chairman of the Board, Ms Getty Simelane is a non-executive director and remains independent. She has no pecuniary interests in. The composition of the Board is: Getty Simelane Lungile Dhlamini Busisiwe Shongwe Zanele Hlatshwayo Simphiwe Khondlo Gugu Moloi Honey Mateya Maselaganye Matji Khanyisa Mdutshane Charles Motau Neo Motlabane Non-executive Director (Chairperson) Managing Director Financial Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director 34 Integrated Annual Report 2015/16

37 Table 5: Board members SIRDAR Governance Panellist SABPP Chartered HR Practitioner and Chair of Mentoring Committee Fellow Member of the Institute of Directors of South Africa (IoD) (F.Inst.D) Ms Getty Simelane (Chairman) Role Non-executive Director Qualifications BA Social Work HDip Public Management MPhil Executive Development Programme Board Leadership Programme Other directorships Co-founder and Director, The HR Touch Co-founder and Director, DMG Women Empowerment Company South African National Blood Services, Non-executive Director T Systems SA, Non-executive Director St Mungos Diepsloot Social Action NPC, Non-executive Director Skills and expertise Strategy development Governance People and talent strategy, including remuneration, succession and transformation; municipal and national government structures experience; global entities exposure Europe, US Exposure to industries - telecoms, industrial, manufacturing, financial services, energy, FMCG, infrastructure development Role Managing Director Qualifications BSc Civil Engineering Other directorships Engineering Council of South Africa (ECSA) Councillor, Member of the Finance and Staff and Audit and Risk Committees (ECSA). Mr Lungile Dhlamini (Managing Director) Skills and expertise Administration and financial management of water and sanitation companies Infrastructure asset management, planning and project management 35 Integrated Annual Report 2015/16

38 Role Financial Director Qualification BCom (Hons) (Accounting) CA (SA) MBA Other directorships Chairperson of the Audit and Risk Committee of the Health Professions Council of South Africa (HPCSA) Ms Busisiwe Shongwe (Financial Director) Skills and expertise Experience in various disciplines of accounting, auditing and supply chain management Strategic management Role Non-executive Director Qualifications BA (Law) MA (Town and Regional Planning) Diploma (General Management) Ms Gugu Moloi Other directorships Iman Africa Holdings FNB Futura (a la Bata) Bible Society Soul City Investment Company Skills and expertise Expertise in the fields of municipal infrastructure, local government and water delivery Role Non-executive Director Qualifications Advancement Management Programme MSc Policy and Planning in Developing Countries PGDip Education BA Humanities Other directorships Umnotho Ezandleni Zabafazi (Financial sector) Ms Zanele Hlatshwayo Skills and expertise Governance Management Strategy development Monitoring and evaluation Project management 36 Integrated Annual Report 2015/16

39 Role Non-executive Director Qualification BCom (Hons) (Accounting) HDip Tax Law CA (SA) Other directorships K and M Consult, Director Ms Khanyisa Mdutshane Skills and expertise Tax Auditing Financial management Role Non-executive Director Qualifications Master in Engineering Management BSc Agric Engineering NDip Civil Engineering Other Directorships Buffalo City Development Agency, Chief Executive Walter Sisulu University Council Mr Simphiwe Khondlo Skills and expertise Engineering infrastructure development and operation Strategic planning and leadership investment promotion Role Non-executive Director Qualifications BTh (Hons) Philosophy and Systematic Theology Other directorships None Mr Neo Motlabane Skills and expertise Facilitation and negotiation skills Conflict resolution and management Stakeholder relations and management Public relations 37 Integrated Annual Report 2015/16

40 Role Non-executive Director Qualifications BCom MBA HDip Company Law LLB SEP Other directorships None Mr Honey Mateya Skills and expertise Law, industrial relations, risk and human resource management Qualifications BCom HDip Computer Auditing MBL Master of Information Technology Mr Charles Motau Role Non-executive Director Other directorships Motau Consulting (Pty) Ltd, Director Moshupi Technology Solutions (Pty) Ltd, Director Department of International Relations and Cooperation (DIRCO), Audit Committee Private Security Industry Regulation Agency (PSIRA), Audit Committee South African Council for Architectural Profession (SACAP), Audit Committee Skills and expertise Information and communication technology (ICT) and corporate governance of ICT Qualifications Msc Engineering Sciences (Civil) MBL (Corporate Strategy) Bsc (Hons) Computational Fluid Dynamics Bsc Applied Mathematics and Physics Management Advanced Programme Dip Business Management Certificate in Project Management Pr.Construction and Project Management PrNatSci (Hydrology) Other directorships Roads Agency Limpopo, Chief Executive Mr Maselaganye Matji Role Non-executive Director Skills and expertise Water services and water resource planning Water infrastructure finance and planning Water conservation and water demand management Strategy formulation and implementation Leadership 38 Integrated Annual Report 2015/16

41 Schedule of attendance of meetings Part of the remuneration of non-executive directors is a retainer determined by policy imposed by the Shareholder, which provides for fee rates and retainers and furthermore provides for a threshold of at least a 60% attendance of all meetings. Directors will be paid an annual retainer as described above. The retainer is payable at the end of the financial year and upon achieving a 60% attendance record. The retainer is for minor travel and communication costs and other expenses incurred from time to time in respect of meetings and interactions with the Shareholder. Attendance of meetings held during the year, in terms of a ratio of attendance per meeting convened, was as follows: Table 6: Meeting attendance Directors and independent members* Board Audit Committee 11 (4 ordinary/ 8 (4 ordinary/ Remuneration and Human Resources Committee 7 (4 ordinary/ Service Delivery and Procurement Oversight Committee Risk and ICT Committee 6 (5 ordinary/ Social and Ethics Committee Nominations Committee Total Period (in months) Number of meetings 7 special) 4 special) 3 special) 4 (4 ordinary) 1 special) Getty Simelane 11/11 4/4 15/15 12 Gugu Moloi 2/11 3/4 0/6 2/4 7/25 12 Simphiwe Kondlo 5/11 4/4 9//15 12 Maselaganye Matji 7/11 7/8 14/19 12 Neo Motlabane 11/11 7/7 4/4 22/22 12 Zanele Hlatshwayo 5/11 5/7 4/4 14/22 12 Honey Mateya 7/11 7/7 3/6 4/4 21/28 12 Charles Motau 9/11 4/4 6/6 3/4 22/25 12 Khanyisa Mdutshane 11/11 8/8 6/6 25/25 12 Vusi Mokwena* 8/8 8/8 12 Rudolph Buys* 8/8 8/8 12 Zukisani Samsam* 7/8 7/8 12 *Independent members of the Audit Committee The Board of Directors has adopted the Board Charter which encapsulates the City of Johannesburg Governance Protocol and includes matters of ethics, procedure and the conduct of committee members. Registers are kept and updated on the disclosure and declaration of interests of directors and senior management. The Board and senior management ensure that there is full material compliance to all relevant legislation 39 Integrated Annual Report 2015/16

42 Board induction and information There were no inductions as the Board was retained by the Shareholder. All company information is captured in a document management system under the control of the Company Secretary. Board members have unrestricted access to the Company Secretary and all company records and documents. Disclosure of interests Each time a meeting of the Board or one its sub-committees is convened, a specific point is included in the agenda on declaration of interests. During the year under review there were no conflicts of interests. The attendance and declaration of records are kept in one register and are open for scrutiny. Policy review and adoption The Board, for the year under review, adopted no new policies. However, as a matter of course, the Board does review its policies. The following policies were reviewed and adopted: Bad Debt Provision Policy (13 August 2015); Information Security Policy (15 September 2015); and HIV/AIDS Policy (15 September 2015). Table 7: Application for information in terms of the Promotion of Access to Information Act, No. 2 of 2000 Date requested The request Requested by April 2016 Compliance Certificate and actual water laboratory results Exotic Brands May 2016 Communication (letter/notices) about the fat trap at old General Rhodes Food Group Mills plant in Linbro Business Park June 2016 Site development plan, pump station approval by CoJ and a traffic Mr Paul Furniss impact study for property situated at Chartell Ext 14, Plot 87 June 2016 Chlorine/Monochloramines analysis results Continental Biscuits Manufacturers 40 Integrated Annual Report 2015/16

43 SECTION THREE Board committee composition The Board has the following six standing committees, each of which is chaired by a non-executive director: Audit Committee; Risk and Information Communication Technology Committee; Human Resources and Remuneration Committee; Service Delivery and Procurement Oversight Committee; Social and Ethics Committee; and Nominations Committee. Audit Committee The committee consists of the following non-executive directors and independent members: Khanyisa Mdutshane (Chairman); Maselaganye Matji; Vusi Mokwena (Independent member in terms of National Treasury directive); Zukisani Samsam (Independent member in terms of National Treasury directive); and Rudolf Buys (Independent member in terms of National Treasury directive). The Audit Committee s terms of reference are in accordance with Section 166 of the MFMA. The constitution of the committee was also aligned to this section of the MFMA and a directive from the National Treasury. The role of the Audit Committee is to assist the Board by performing an objective and independent review of the functioning of the organisation s finance and accounting control mechanisms. The committee exercises its functions through close liaison and communication with corporate management and the internal and external auditors. The Audit Committee operates in accordance with its terms of reference, as authorised by the Board and provides assistance to the Board with regard to: Review of financial compliance with applicable legislation and the requirements of regulatory authorities; Matters relating to financial accounting, accounting policies, reporting and disclosures; Internal and external audit policy; Activities, scope, adequacy and effectiveness of the internal audit function and audit plans; Review/approval of external audit plans, findings, problems, reports and fees; and Overall performance of the company. Management has reviewed the Financial Statements with the Audit Committee. The quality of the accounting policies was discussed with the external auditors. The Audit Committee concurs with the Auditor-General that the Annual Financial Statements of needs to be a fair presentation of its financial position as at 30 June 2016, and of the results of its operations, changes in equity and cash flow for the period then ended in accordance with Generally Recognised Accounting Practice (GRAP) and the Companies Act. Risk and Information Communication Technology Committee The committee consists of the following directors: Charles Motau (Chairman); Lungile Dhlamini (Managing Director); 41 Integrated Annual Report 2015/16

44 Busisiwe Shongwe (Financial Director); Khanyisa Mdutshane; Gugu Moloi; and Honey Mateya. The Risk and Information Communication Technology Committee has the task of overseeing the quality, integrity and reliability of the company s risk management function, as well as oversight of information technology support. In terms of its mandate, the committee reviews and assesses the integrity and quality of risk and ensures that risk policies and strategies are effectively managed. The Committee also ensures that information and communication technology advances best business practices. Human Resources and Remuneration Committee The committee consists of the following directors: Honey Mateya (Chairman); Lungile Dhlamini (Managing Director); Busisiwe Shongwe (Financial Director); Zanele Hlatshwayo (up to 21 June 2016); Getty Simelane (with effect from 21 June 2016); and Neo Motlabane. The Human Resources and Remuneration Committee advises the Board on remuneration policies, remuneration packages and other terms of employment for all executive directors and senior executives. Its specific terms of reference also include recommendations to the Board on matters relating, inter alia, to policy, remuneration, bonuses and employment contracts. Service Delivery and Procurement Oversight Committee The committee consists of the following directors: Gugu Moloi (Chairman); Lungile Dhlamini (Managing Director); Busisiwe Shongwe (Financial Director); Simphiwe Khondlo; Zanele Hlatshwayo (with effect from 21 June 2016); and Charles Motau. The objective of the committee is to ensure service delivery and that the adopted Supply Chain Management Policy (the Procurement Policy) of the company is correctly and strictly applied. The committee is also tasked with providing guidance to the Board and executive management on the overall operational direction of the company. Social and Ethics Committee The committee comprises the following directors: Zanele Hlatshwayo (Chairman); Lungile Dhlamini (Managing Director); Busisiwe Shongwe (Financial Director); Getty Simelane; and Neo Motlabane. The committee monitors the company s activities, having regard to any relevant legislation, other legal requirements, or prevailing codes of best practice in respect of matters relating to social and economic development, corporate citizenship, and environmental and labour matters as contained in its Social and Ethics Framework. 42 Integrated Annual Report 2015/16

45 The adopted framework ensures that the Board, through the Social and Ethics Committee (in terms of Companies Act Regulation 43) is able to monitor the company s activities with regard to matters relating to: Social and economic development, including the company s standing in terms of the goals and purposes of: - The ten principles set out in the United Nations Global Company Principles; - The OECD recommendations regarding corruption; - The Employment Equity Act, No. 55 of 1998; and - The Broad-Based Black Economic Empowerment Act, No. 53 of Good corporate citizenship, including the company s: - Promotion of equality, prevention of unfair discrimination and measures to address corruption; - Contribution to development of the communities in which its activities are predominantly conducted or within which its products or services are predominantly marketed; and - Record of sponsorship, donations and charitable giving; The environment, health and public safety, including the impact of the company s activities and its products or services; Consumer relationships, including the company s policies and record relating to advertising, public relations and compliance with consumer protection laws; and Labour and employment matters, including: - The company s standing in terms of the International Labour Organization Protocol on Decent Work and Working Conditions; and - Employment relationships and its contribution to the educational development of its employees. The committee meets on a quarterly basis, more than a minimum of once annually. Nominations Committee Regulations in respect of Section 56 appointments in terms of the MSA determine the procedure for recruiting and appointing senior managers defined as having to be appointed on fixed terms contracts. Section 56 positions include the Managing Director, Financial Director and those senior managers that report directly to the Managing Director. The composition of the committee is determined on an as-and-when the need arises basis in respect of appointing Section 56 positions. 43 Integrated Annual Report 2015/16

46 SECTION FOUR Directors remuneration Remuneration Director remuneration is regulated through the Shareholder s Policy on Remuneration of non-executive directors and independent members of the Audit Committee. A Shareholder directive dated 5 March 2015, effective from 3 February 2015 (the date of the Annual General Meeting), sets out the revised fees and retainers for directors and independent members of the Audit Committee. is classified by the Shareholder as a large Municipal-owned Entity. Table 8: New fee structure: Type of meeting Fees and retainers Board Chairperson retainer R Chairperson meeting R Member retainer R Member meeting R7 605 Audit Committee Chairperson meeting R Member meeting R7 605 Independent member R7 605 Other Board committees Chairperson meeting R9 125 Member meeting R Integrated Annual Report 2015/16

47 Table 9: Directors remuneration Description (All amounts are before tax) Non-executive Director: Getty Simelane Non-executive Director: Gugu Moloi Non-executive Director: Honey Mateya Non-executive Director: Charles Motau Non-executive Director: Khanyisa Mdutshane Non-executive Director: Zanele Hlatshwayo Non-executive Director: Simphiwe Khondlo Non-executive Director: Neo Motlabane Non-executive Director: Maselganye Matji Managing Director: Lungile Dhlamini Salariesand Wages R 000 Normal Overtime Contributions R 000 Pensions Medical Aid Other Allowances R 000 Travel and motor car Accommodation Subsistence Other Benefits R 000 (Specify) Bonus Meeting fees paid to non executive directors R Retainer paid to nonexecutive directors R Total Financial Director: Busisiwe Retired directors remuneration None. Table 10: Independent Audit Committee members fees Description (All amounts are before tax) Independent member Vusi Mokwena Independent member Rudolf Buys Independent member Zukisani Samsam Total Meeting fees paid R Retainer paid to non-executive directors R Total Integrated Annual Report 2015/16

48 SECTION FIVE Company secretarial function The primary function of the Company Secretary is to act as the link between the Board and management and to facilitate good relationships with the Shareholder. The Company Secretary is responsible for general administration; more specifically with ensuring compliance with good corporate governance practices and with providing guidance to the directors on corporate governance principles and applicable legislation. has centralised its records, within the function of the Company Secretary, and has a file plan approved by the Department of National Archives. All reports are captured electronically in terms of the file plan. These include policies, terms of reference of the standing committees, procurement reports, quarterly reports, business plans and annual financial reports, among others. An integral part of the company s record keeping is a library which has, inter alia, a full set of bound minute books of the Board, its standing committees and Executive Committee, as well as bound books of all business plans, quarterly reports and major agreements. The company is obliged to submit an annual return to the Companies Intellectual Property Commission. The company s annual return is up to date. Furthermore, all changes to directorships are up to date. SECTION SIX Risk, opportunities and internal controls Risk management The management of strategic, operational and compliance risks form part of s culture on how to conduct business, and risk management is incorporated into the company s strategic planning and decision-making processes. The company has adopted an enterprise-wide approach to risk management whereby every employee is responsible for management of risk, while executive management remains accountable. The company s Enterprise Risk Management (ERM) process is driven by a framework that is stakeholder value-based, embedded throughout the organisation, and reviewed on a continuous basis. Risk management, as applied throughout the organisation, is centered on two main objectives: improving internal controls and operational efficiencies, and excelling in delivery of services to our customers. Risk taking is a necessary element of our service delivery model, and calculated risks are taken within applicable risk appetite levels that have been carefully developed and defined by management to ensure that the company will remain sustainable and compliant with legislative requirements in pursuit of our objectives. The reputation of the company and its ability to continue doing business are essential elements of our risk management and control framework, and consistently applied throughout the organisation. Risk governance has assigned roles and responsibilities for the management of risk through its risk governance structure as set out in Figure Integrated Annual Report 2015/16

49 The risk management function is directed by JW s Board, facilitated by the Risk and Compliance Management Department and carried out by every executive manager in each area as a core activity Board Accountable for JW s overall governance of risk Board Risk and ICT Committee Delegated to discharge the Board s responsibility for risk management Executive Committee Responsible for executing their risk management activities as outlined in the Risk Management Strategy and for integrating risk management into their operational routine Risk and Compliance Management Department Internal audit function Responsible for reviewing and providing an objective view on the effectiveness of risk management activities within JW Responsible for executing their risk management activities as outlined in the Risk Management Strategy and for integrating risk management into their operational routine Risk champions Responsible for co-ordinating and providing feedback on risk management activities within JW Figure 9: Risk management structure Strategic risks The Board has identified the following strategic risks that may affect s ability to achieve its strategic objectives. The risks were rated on their residual risk rating after the effectiveness of controls were taken into account. Figure 10 depicts the seven strategic risks according to their residual risk rating as at the end of the 2015/16 financial year. 47 Integrated Annual Report 2015/16

50 Security of supply Communication and stakeholder management Information management system and technology Financial sustainability Sustainable infrastructure Public safety and health Drinking water quality status Risk rating Priority Exposure and treatment Extreme Unacceptable escalation to Board and Exco High Unacceptable escalation to Board and Exco Medium Acceptable with caution Management mitigation and monitoring Low Acceptable Management to monitor risk Figure 10: Strategic risks Table 11 illustrates the seven strategic risks, the strategic objectives that are impacted by the risks and the mitigation plans that are put in place to mitigate these risks. The Risk Management Unit has been tracking and reporting on the status of the risk rating and implementation of the mitigation plans on a quarterly basis. Table 11: Strategic risks and mitigations Risk Ranking Strategic risk Steps taken in mitigation 1 Security of supply The inability of to ensure continued water supply to customers; leading to revenue losses and reputational damage The Pressure Reducing Valve Maintenance Programme is continuing in five of the six regions as planned. The Water Demand Management Tariffs have been approved and are being implemented as part of level 2 water restrictions. The public participation on the draft effluent reuse by-law was completed in May The report will be presented to Mayoral Committee and Council. A total of 140 km of water mains have been replaced during the year to date. Mayoral priority implementation programmes (PIPS) Resource sustainability Investment attraction, retention and expansion Agriculture and food safety and security Department/ MOE objectives Reduce service interruptions and ensure reliable services 48 Integrated Annual Report 2015/16

51 Risk Ranking Strategic risk Steps taken in mitigation 2 Communication and stakeholder engagement Poor customer and stakeholder communication management leading to public protest 3 Information management system (IMS) and technology Inadequate IMS capability, leading to inadequate support to operations 4 Financial sustainability Johannesburg Water s inability to sustain a sound financial status 5 Sustainable infrastructure Compromised infrastructure, leading to disruption to operations and impacting on service delivery Extensive stakeholder engagement is conducted to ensure customer and stakeholder satisfaction. Public meetings are attended to address the community about CAPEX projects and other service delivery issues. Efforts are made to keep in contact with the 130 ward councillors on a regular basis to determine service delivery issues and discuss any project-related issues in their wards. Daily updates on the JW website, social media platforms, SMS notifications, media advisories and regular loud-hailing are different channels of communication to inform stakeholders of service disruptions. The Borehole Campaign was launched with an increase in boreholes sunk in the CoJ. Nine stakeholder forums, viz: six regional forums, one trade effluent forum, one top 100 customers forum and one councillors forum are in place and regular meetings are taking place. The implementation of disaster recovery site is in progress. The disaster recovery (DR) hardware has been installed at the Head Office Data Centre. The next step is to start installing and configuring the systems and applications. The data will then be restored and replication tests will be conducted before physically moving the DR hardware kit to the DR Data Centre. The CoJ has established different streams, reporting to the City Manager and dealing with revenue leakages in the City. Disconnection notices are being issued to those customers that still do not pay, despite making arrangements, and those who cannot be contacted. The credit control teams are following up on the top 200 customers and escalating issues that need intervention at different levels. Faulty metres are replaced as they are reported. To date over metre replacements were done. The pipe replacement programme has resulted in 140 km of water mains replaced to date. Costs-cutting measures have been implemented, which include: vehicles management, overtime management, and the filling of only critical posts. The approved CAPEX funding of R737 million has been confirmed for 2016/17. This will be used for the replacement of ageing infrastructure and other capital expenditure. The Preventative Maintenance Programme for water networks (PRVs, pump stations and reservoirs), sewer networks (cleaning through hydro jetting) and WWTWs (electro-mechanical) is continuing in all six regions. Mayoral priority implementation programmes (PIPS) Engaged and active citizenry Smart City Financial sustainability and resilience Resource sustainability, investment attraction, retention and expansion Department/ MOE objectives Contribute towards National Development Plan goals Ensure organisational excellence on IMS Improve financial ratios Improve infrastructure conditions 49 Integrated Annual Report 2015/16

52 Risk Ranking Strategic risk Steps taken in mitigation 6 Public safety and health Public safety threatened during JW operations in the communities by JW assets and related services 7 Drinking water quality status Compromised water quality and failure to maintain acceptable water quality level, leading to harm to the public Public education on the proper use of sanitation and water infrastructure started in December 2015.The cumulative number of residents reached from the start of the project in December 2015 to date is km of sewer mains have been replaced during the year to date. The contractor for desludging dam 01 at Northern works is on site (30% physical progress on desludging the dam and 80% physical progress for the entire project) km of sewer mains have been cleaned through the hydro jetting Preventative Maintenance Programme. JW was 99% compliant with water quality standard on E. Coli (SANS 241), which has also been consistent throughout the previous years; resulting in the risk rating being green. Continuous monitoring of compliance. Mayoral priority implementation programmes (PIPS) Resource sustainability Agriculture and food safety and security Resource sustainability Agriculture and food safety and security Department/ MOE objectives Protect the Environment Ensure organisational excellence The strategic risks and operational risks are contained in the company s risk profile, and risk mitigation plans have been developed by management to ensure that the exposure to, and the impact of these risks is minimised and kept within acceptable levels of the company s appetite for risk. Implementation of these mitigation plans is monitored on a quarterly basis by the Risk Management Unit, to ensure that risks are effectively and consistently managed throughout the organisation. Internal Audit also provides management with assurance on the effectiveness of controls in place to manage risks, by conducting risk-based audits throughout the year and focusing on the adequacy of risk mitigation plans and their effectiveness in reducing risk exposures. The risk profile of the company takes into account the fact that while it is essential to continue with business as usual, this has to be balanced with the responsibility of delivering a service that is protected by the Constitution of the country and the Bill of Rights. 50 Integrated Annual Report 2015/16

53 SECTION SEVEN Internal audit function Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisation s operations. It helps an organisation accomplish its objectives by providing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. The Internal Audit Department (IAD) comprises the following sections: Internal Audit (Financial, Operational and Compliance), Information Technology (IT) Audit, and Forensic Audit. These subdivisions are headed by managers who report to the Chief Internal Auditor (CIA). The IAD reports administratively to the Managing Director, functionally to the Audit Committee and has a staff complement of 13 officials, including the CIA. The IAD has a specific mandate from the Audit Committee to independently appraise the adequacy and effectiveness of risk management, internal controls and governance within. The audit coverage plan is based on JW s risk profile. This means that risk-based audits are executed, whereafter internal audit reports with findings and recommendations towards improvements are distributed to management, the Audit Committee and the Auditor-General of South Africa (AGSA). The Board has access to the executive summary of internal audit reports. For the purpose of this Integrated Report, all prioritised assignments were executed as per the Internal Audit Plan 2015/16. Statement on Internal Controls (SIC) to the Board of Directors of (SOC) Ltd for the year ended 30 June 2016 Introduction The statement is an expression of an opinion by the IAD on the status of the internal control system of after evaluation of the entity. Both King III and Standards of Professional Practice of Internal Auditing (SPPIA) require the CIA to provide a written assessment of the adequacy and effectiveness of the internal controls and issue a report reflecting any deficiencies which have been mitigated by management. The report also forms the basis of the Audit Committee Report. Independence and objectivity For assurance purposes, the CIA confirms that the Internal Audit Department in is independent and objective in carrying out the internal audit activities. The activity is not under influence or control by Executive Committee members. The JW Internal Audit Department works for JW only and reports functionally to the Audit Committee and administratively to the Managing Director. For the IAD, independence is freedom from conditions that threaten its ability or the ability of the CIA to carry out internal audit responsibilities in an unbiased manner. Objectivity is defined in the IIA Standards as an unbiased mental attitude that allows internal auditors to perform engagements in such a manner that they have an honest belief in their work product and that the quality of their work is not compromised in any way. Compliance with SPPIA The IAD in obtained a Partially Compliant (PC) assessment rating during the External Quality Assurance Reviews undertaken during April 2015 with the final report issued in August The responsibility of management Management is responsible for establishing and maintaining an appropriate system of internal controls for the prevention and detection of irregularities and fraud. The objectives of internal controls are to ensure: Reliability and accuracy of data: Data is accurate, timely, useful, reliable and relevant; Effectiveness and efficiency: Operations are effective, efficient and add value to accomplishment and monitoring of goals; Authorisation: Proper review and approval; Safeguarding assets: Assets are protected from theft, misuse, and/or destruction; and Compliance: Compliance with policies, rules, regulations and laws. 51 Integrated Annual Report 2015/16

54 Internal Audit Department s responsibility The IAD evaluates adequacy and effectiveness of the internal control systems. In assessing these, consideration of the above stated internal control objectives and the audit evidence obtained during the execution of audits should be used as basis for the opinion. Only completed assurance engagements/projects are considered. Audit projects Table 12: Internal Audit projects undertaken during 2015/16 No. Project Number of findings 1 Assets infrastructure funding and management 3 2 Liquidity and cash flow management 3 3 Revenue management 8 4 Public safety and health 21 5 Electronic funds transfer (EFT) system 7 6 Fraud awareness campaign (special project) N/A Total 42 Analysis of follow-up audit projects Table 13: Internal Audit projects followed up and closed during 2015/16 Number of findings Findings status Resolved In progress Unresolved No. Follow-up audit No % No % No % No % 1 Human resources head count follow-up Project management Soweto Project and prepayment metres follow-up Fleet management follow-up audit Follow up on unresolved findings (supply chain management, expenditure management) Liquidity and cash management follow-up Revenue management follow-up EFT follow-up Public safety and health follow-up Follow-up on implementation of recommendation from forensic reports (EY, PWC and IAD) Water demand side management follow-up Drinking water and effluent quality follow-up Activities and resources alignment (ops networks) Implementation of Board resolutions follow-up Totals ** ** 45 24** 7 4** ** The total percentages are based on total number of findings Note: The Public safety and health follow-up had three findings which could not be followed up due to mitigating controls to address the deficiencies to be implemented in 2016/17. Drinking water and effluent quality follow-up had two findings which could not be followed up due to mitigating controls to address the deficiencies to be implemented in 2016/17. A total number of five findings could not be followed up to provide assurance and they will be followed up in 2016/ Integrated Annual Report 2015/16

55 Analysis of internal audit project follow-ups 185 (100%) internal control deficiencies were followed up and the results revealed the following: 133 (72%) internal control deficiencies were resolved; 45 (24%) internal control deficiencies were in the process of being resolved; and Seven (4%) were not yet resolved. Effectiveness A total of 52 (28%) internal control deficiencies remain unresolved, of which 45 (24%) deficiencies management is working on resolving them. Impact Seven (4%) internal control deficiencies have critical impact on the achievement of company objectives and 45 (24%) control deficiencies have significant impact on the achievement of objectives of the company. Assessment and conclusion of internal controls using the COSO Framework Table 13: Assessment of internal controls before follow-up and interventions by the IAD Component of COSO Framework on full reviews Control environment Sets the tone of an organisation, serving as a foundation for all other control components. The core of any business is its people and their individual attributes, including integrity, ethical values and competence, as well as the environment in which they operate. Risk assessment The entity must be aware of, and deal with the risks it faces. It must set organisational objectives that are operating in accord. It must also establish mechanisms to identify, analyse and manage the related risks. Control activities Encompass control policies and procedures that must be established and executed to help ensure that the actions indemnified by management, as necessary to address risks to achievement of entities objectives, are effectively carried out. Information and communication Surrounding these activities are information and communication systems. These enable the entity s relevant employees to capture and exchange the information needed to conduct, manage and control its operations. Monitoring Refers to on-going assessment of internal control quality by management to assure controls are operating as intended. The entire process must be monitored, and modifications made as necessary. HR head count Project management: Soweto project and prepayment Fleet management Unresolved findings Liquidity and cash management Revenue management EFT Public safety and health Implementation of recommendation from forensic reports Water demand side management Activities and resources alignment Drinking water and effluent quality Implementation of Board resolutions 53 Integrated Annual Report 2015/16

56 Table 14: Assessment and conclusions on improvement of internal controls based on follow-up and intervention by IAD using COSO Framework Component of COSO Framework on full reviews Control environment Sets the tone of an organisation, serving as a foundation for all other control components. The core of any business is its people and their individual attributes, including integrity, ethical values and competence, as well as the environment in which they operate. Risk assessment The entity must be aware of, and deal with the risks it faces. It must set organisational objectives that are operating in accord. It must also establish mechanisms to identify, analyse and manage the related risks. Control activities Encompass control policies and procedures that must be established and executed to help ensure that the actions indemnified by management, as necessary to address risks to achievement of entities objectives, are effectively carried out. Information and communication Surrounding these activities are information and communication systems. These enable the entity s relevant employees to capture and exchange the information needed to conduct, manage and control its operations. Monitoring Refers to on-going assessment of internal control quality by management to assure controls are operating as intended. The entire process must be monitored, and modifications made as necessary. HR head count Project management: Soweto project and prepayment Fleet management Unresolved findings Liquidity and cash management Revenue management EFT Public safety and health Implementation of recommendation from forensic reports Water demand side management Activities and resources alignment Drinking water and effluent quality Implementation of Board resolutions NB: The above assessment reflects the status of the internal controls after intervention by the IAD on the projects closed. Legend Rating Rating 1 Rating 2 Rating 3 Rating 4 Rating 5 Description Controls are functioning as intended and no additional actions are necessary at this time Many of the controls are functioning as intended; however, some minor changes are necessary to make the control environment more effective and efficient Some controls are in place and functioning; however, several control issues were noted Material persistent and pervasive control problems were noted that could jeopardise accomplishment of business objective Controls are not functioning and/or fraudulent activities have been detected which will or have a material impact on both the Financial Statements and operations of the company 54 Integrated Annual Report 2015/16

57 Auditor-General of South Africa (AGSA) Management Letter follow-up 2014/15 Table 15: Progress on resolving AGSA audit findings as at the end of 2015/16 Financial year Initial number of findings Number of findings outstanding Resolved findings Partially resolved findings Findings not resolved 2012/ / / Total % Analysis of Table 15 The IAD followed up on 31 (100%) of the AGSA control deficiencies and the results revealed that: 23 (74%) of the AGSA control deficiencies were resolved; Six (19%) of the AGSA control deficiencies were in the process of being resolved; and Two (7%) of the AGSA control deficiencies were not resolved. Effectiveness Eight (26%) of the AGSA control deficiencies raised remain unresolved, of which management is working on resolving six (19%) deficiencies. Impact assessment Two (7%) of the AGSA control deficiencies have critical impact on the achievement of company objectives and six (19%) control deficiencies have significant impact on the achievement of objectives of the company. Table 16: Improvement in internal controls before (left) and after (right) intervention by the IAD AGSA Management Letter 2014/15 Reviews components of coso framework on full reviews Control environment Sets the tone of an organisation, serving as a foundation for all other control 4 components. The core of any business is its people and their individual attributes, including integrity, ethical values and competence, as well as the environment in which they operate. Risk assessment 2 The entity must be aware of, and deal with the risks it faces. It must set organisational objectives that are operating in accord. It must also establish mechanisms to identify, analyse and manage the related risks. Control activities 4 Encompass control policies and procedures that must be established and executed to help ensure that the actions indemnified by management, as necessary to address risks to achievement of entities objectives, are effectively carried out. Information and communication 3 Surrounding these activities are information and communication systems. These enable the entity s relevant employees to capture and exchange the information needed to conduct, manage and control its operations. Monitoring 3 Refers to on-going assessment of internal control quality by management to assure controls are operating as intended. The entire process must be monitored, and modifications made as necessary. AGSA Management Letter 2015/ Integrated Annual Report 2015/16

58 Legend Rating Rating 1 Rating 2 Rating 3 Rating 4 Rating 5 Description Controls are functioning as intended and no additional actions are necessary at this time Many of the controls are functioning as intended; however, some minor changes are necessary to make the control environment more effective and efficient Some controls are in place and functioning; however, several control issues were noted Material persistent and pervasive control problems were noted that could jeopardise accomplishment of business objective Controls are not functioning and/or fraudulent activities have been detected which will or have a material impact on both the Financial Statements and operations of the company Matters of emphasis The IAD would like to highlight the following matters which the system of internal control could not prevent: The material misstatement on accruals adjustments journals for revenue estimates. Material misstatements of revenue and receivables identified by the auditors in the submitted Financial Statements were subsequently corrected. Management did not prepare regular, accurate and complete financial reports that were supported and evidenced by reliable information for revenue and receivables. This resulted in non-compliance to the MFMA. Non-compliance with the Water Supply By-law: Customers are billed on estimates for more than six months due to metres not being read because of the fact that change metres are not yet interfaced. An operational scope on replacement, repair or relocation of these metres must occur in order for Metre Reading to access and read the metres accurately. Opinion The internal and external audit findings resolution rates were 69% and 76% respectively in the 2014/15 financial year. The resolution rate has improved moderately with regards to internal audit findings, increasing from 69% to 72%. A decline is noted on the external audit findings from 76% to 74% resolution. The control environment has experienced challenges on internal control rating where there was still one activity rating four after follow-up was performed. Management is monitoring the deficiencies against mitigating controls using a dashboard and continuous engagement to ensure that the resolution rate is improved. Based on the above analysis, the systems of internal controls within JW are adequate and partially effective to accomplish its organisational goals and objectives. 56 Integrated Annual Report 2015/16

59 SECTION EIGHT Corporate ethics and organisational integrity Ethics-based governance The Board of Directors has adopted a Board Charter, which encapsulates the City of Johannesburg Governance Protocol and includes matters of ethics, procedure and the conduct of committee members. The company has developed a Code of Conduct (the Code) that has been fully endorsed by the Board and applies to all directors and employees. The Code is regularly reviewed and updated as necessary to ensure that it reflects the highest standards of behaviour and professionalism. In summary, the Code requires that its entire personnel act at all times with utmost integrity and objectivity and in compliance with the letter and spirit of both the law and its policies. Failure by employees to act in terms of the Code results in disciplinary action. The Code is discussed with each new employee as part of his or her induction training. A toll-free anonymous telephone facility exists for reporting non-adherence to the Code or to ethics-related matters. Furthermore, any breach of the Code is considered a serious offence and is dealt with accordingly. As a result, the Code acts as a deterrent. The directors believe that ethical standards are being met and are fully supported by the ethics programme. 57 Integrated Annual Report 2015/16

60 SECTION NINE Sustainability report Sustainability is committed to sustainable development. The activities and services provided are inextricably linked to the natural environment; to the health of the communities served; and to the economic wellbeing of the areas in which the organisation operates. Sustainable development for the company means working with all stakeholders to deliver water and sanitation services in an economically, socially and environmentally responsible way. This approach helps shape the business decisions that are made. is a service-delivery orientated entity which has identified key programmes to ensure delivery of reliable and quality services to all residents, including marginalised areas. The key programmes include infrastructure development, access to basic services and in changing course, an accelerated Water Conservation and Water Demand Management Programme, underlining that financial sustainability is crucial to supporting the identified key programmes. All of these programmes are powered in support of the City of Johannesburg s priority programme objectives. The organisation has identified key sustainability-related risks and opportunities as part of the enterprise-wide risk assessment. The sustainability strategy aligns with the identified risks and opportunities for the business arising from its key sustainability issues. The company has integrated its priorities, as it relates to the sustainability strategy, into its core business strategic priorities. The outcomes of the sustainability strategy have resulted in improved human wellbeing, reduced inequalities and protecting future generations from environmental risks and ecological degradation. The organisation has also placed high emphasis on investment in marginal areas, with a R211 million spent on 14 projects in the following areas: Orange Farm, Diepsloot, Ivory Park, Soweto and Alexandra for the year under review, (a 41% increase compared to R125 million in the 2014/15 financial year). JW has incorporated resilience and sustainability into its business model and the four sustainability thrusts of the organisation are as follows: Protect and promote public health and safety of employees; Provide a high quality, reliable, and value for money service; Respond to climate change; and Reduce our impacts on the environment. Table 17 highlights the sustainability achievements emanating from implementing the strategies discussed above. 58 Integrated Annual Report 2015/16

61 Table 17: Summary of sustainability indicators and performance Sustainability risk Drinking water quality failure Public safety and health Occupational safety fatalities and injuries Stakeholder relationship failure Inability or slow response to climate change Old infrastructure replacement backlog Failure to implement bulk water demand management strategies Sustainability strategic thrust Protect and promote public health and safety of employees Provide a high quality, reliable, and value for money service Respond to climate change Reduce our impacts on the environment Indicator Drinking water quality Occupational health and safety compliance Response time to water pipe bursts Water demand Customer satisfaction Greenhouse gas (GHG) offset (CO₂) Non-revenue water Percentage response time sewer blockages Effluent compliance Indicator explanation Drinking water has to comply with the standard (SANS 241) Compliance with occupational health and safety system, NOSA Time taken to respond to water bursts Average water used per person per day The degree/or extent to which the customer is satisfied by the service provided by the company A reduction in CO₂ or GHG emission made in the wastewater treatment plant Water lost through physical/ commercial and authorised but not billed Time taken to respond to sewer blockages Compliance of the effluent produced at wastewater treatment works with legislation Sludge compliance Measure Percentage compliance with drinking water quality standard on E. Coli (SANS 241) Disabling injury incidents rate Percentage water bursts restored within 48 hours of notification Household water consumption per capita Customer Satisfaction Level Index on water and sanitation Tons CO₂ offset in GHG emissions from WWTW from Biogas Projects Percentage non-revenue water Percentage of sewer blockages cleared within 24 hours of notification Percentage effluent compliance Compliance of the sludge produced at wastewater treatment works with legislation 2013/14 actual 2014/15 actual 2015/16 actual 2016/17 target 99.8% 99.8% 99.8% 99% NOSA 3 star NOSA 3 star Accreditation Audit NOSA 4 star 80% 81% 84.29% 95% % 69% 69% 70% tons UFW measured in 2013/ tons tons tons 35.80% 35.3% 30% 95% 93% 93.46% 95% 92% 91% 74.7% 97% 100% 100% 100% 100% 59 Integrated Annual Report 2015/16

62 Key material issues Health and safety The company recorded a total of 20 injuries, with 19 being disabling injuries resulting in a Disabling Injuries Frequency Rate (DIFR) of 0.65, which was well below the target of 1. A DIFR ratio is used to express disabling injuries occurring in a workplace with regard to an injury arising out of and in the course of employment, where that injury renders an employee unable to carry out his/her regular established job on one or more shifts other than the day on which he/she was injured. The organisation will continue putting mechanisms in place to keep the DIFR below 1 with an ultimate goal of zero. DIFR Year Figure 11: Disabling injuries frequency rate There were no reported public incidents for the period under review. This can be attributed to the fact that the company has reinforced its awareness programmes around construction safety. Safety notices have been developed and distributed with the intent to prevent injuries and fatalities around construction sites by creating public awareness on health and safety issues. These notices contain vital precautionary information for communities in the areas where these projects take place. Upon receipt, each household must sign a receipt of notice to confirm they have received the notice. Water demand management Non-revenue for water (NRW) for 2015/16 is 35.3%, which show a decreasing trend compared to the previous financial year (35.8%). The billing ratio is 0.7 which is similar to the previous year. This is a concern for as the billing ratio should be 0.8 or better. JW is currently engaging with the Billing Department to address this decrease. Going forward, interventions like the Metering and Revenue Project will also address this issue, with improved results expected to reflect in the 2016/17 financial year. It must, however, be noted that an NRW percentage between 30 40% is seen as an average performance according to research published by the Water Research Council under the title: The state of non-revenue water in the Republic of South Africa Figure 12 indicates the performance to date in respect of water demand management measures. Response times to water bursts 89% 89% 87% Water consumption l/c/d Non-revenue water 35.3% 35% 35.8% 84% 81% 80% Figure 12: Water demand management measures 60 Integrated Annual Report 2015/16

63 In light of the aforementioned actions in support of a sustainable water supply, the performance of the organisation on the following measures becomes even more critical: In South Africa, water is key to winning the battle against poverty and its scarcity could be a limiting factor to growth. No socio-economic development can take place without water. South Africa s water resources are indeed limited and scarce. The situation is worsened by the occurrence of droughts and the increasing demand associated with population growth and a developing economy. As a country, we are approaching the full utilisation of our available water resources. Further water augmentation schemes will be costly and are likely to be detrimental to our environment. Our water is a precious resource that has to be used as efficiently as possible before we consider any new water resources development (Water Conservation and Demand Management Strategy for Water Services Sector: DWS August 2004). We therefore require a strategic change in the use and conservation of our water resources. During the 2015/16 financial year, the company managed to achieve water consumption (l/c/d) of against a target of 308. Although the target was missed by a small margin, performance improved significantly when compared to the previous year. strives to continuously improve in this area to contribute significantly to water demand reduction. Response times to water bursts have been fluctuating over the year, and where targets were not met, it was mainly as a result of resource utilisation in an endeavour to reduce the number of bursts (minor and major) unattended for more than seven days. It is, however, important to note that the acceleration on the implementation of the Pipe Replacement Programme culminated in the replacement of 140 km of water pipes. This contributed to the performance improvement from 81% in 2014/15 financial year to 84% during the 2015/16 financial year. The enforcement of the minimum of six job cards per networks team per day also contributed to this improvement. Productivity improved by 25% as water teams are now doing an average of 3.97 jobs per team per day, compared to 3.17 jobs per team per day in 2014/15. This performance shift is encouraging and it is expected that targets will be met in the 2016/17 financial year. Environmental issues South Africa is the 30 th driest country worldwide. Water is critical to the survival of people and planet, and should be at the core of the green economy in the context of sustainable development and eradicating poverty. Water has a vital function in the South African economy where it contributes 60% towards agriculture and irrigation. Our ability to respond to changing environmental legislation and policy represents one of our most material risks. To this end, is committed to working with all government spheres to find solutions that contribute to the desired environmental outcomes, while advancing the country s socio-economic development priorities. It is in this context that JW monitors the response time to sewer blockages, effluent quality, GHG offset and sludge compliance to ensure that the country s water resources are protected, managed, used, developed and conserved sustainably. Response time to sewer blockages The performance on response times to sewer blockages has been fluctuating over the year, and targets that weren t met can be ascribed mainly to ineffective resource utilisation as a result of the drastic increase in the number of sewer blockages (13% increase from the previous year).the enforcement of the minimum of six job cards per sewer team per day also contributed to this slight improvement. Sewer teams are doing 3.85 jobs per day on average, which is a 27% improvement in productivity from the previous year. This performance shift is encouraging and targets should be met in the 2016/17 financial year. Effluent quality Figure 13 illustrates the performance trend for the last five years. Significantly, performance between 2011/12 and 2012/13 was stable when compared to the 2014/15 and 2015/16 financial years. The biggest challenge with regard to the decline in performance in recent years can be ascribed to the introduction of a more stringent regulatory framework as it relates to compliance with effluent quality. Although the industry target is 90%, managed to achieve 74.7% compliance during the 2015/16 financial year against an internal target of 97%. The company received new licence requirements, which are extremely stringent and may require expensive and complicated technological changes. It is our opinion that JW s current technology will simply not be sufficient to meet the new licence conditions, therefore compliance would require huge capital expenditure. We are currently engaging with the DWS in this regard. 61 Integrated Annual Report 2015/16

64 Response times to sewer blockages 89% 89% 87% Effluent quality 97% 97% 92% 91% 84% 75% 81% 80% Figure 13: Response times and effluent quality GHG offset The company has not been doing well in this area over the last three years. The main two causes of the target not being met are: 1. Continued failure of the head of works (HOW) at Northern Works that causes rags and sand to enter the process. This results in reduced primary sludge pumped to the digesters, and reduced digester performance which leads to reduced gas production. The screens at the HOW is in the process of being refurbished, which should be completed and installed end of August This should drastically improve the performance of the HOW. 2. The delay in the commissioning of the biogas-to-energy plant at Driefontein Wastewater Treatment Works also has an impact since the target was set assuming both plants will be operational. The delay at Driefontein is due to the lack of gas production as a result of the non-availability of sufficient sludge and sludge thickening to produce enough gas. The company will commission the plant in the third quarter of the 2016/17 financial year. Sludge compliance The DWS has developed a set of guidelines to assist in terms of sludge compliance management; has thus achieved 100% against a target of 100% compliance. Tons CO 2 offset in GHG emissions from WWTW from biogas projects 2309 % sludge compliance 100% 100% 100% 100% 100% Figure 14: CO 2 offset and sludge compliance 62 Integrated Annual Report 2015/16

65 Corporate social responsibility report Overview has adopted corporate social responsibility (CSR) to ensure that it consistently operates in a manner that minimises detrimental impacts to society and the environment. Its social responsibility activities are aligned to the ten principles of the United Nations Global Compact, which asks companies to embrace, support and enact, within their sphere of influence, a set of core values in the areas of human rights, labour standards, the environment and anti-corruption. Education contributes to the South African agenda of providing young people from designated groups with employment opportunities through talent pipeline development programmes. The strategies of the bursary and internship programmes focus on service delivery and social responsibility issues with the following objectives: Providing previously disadvantaged students, in the first instance, the opportunity to further their academic qualifications; Enabling the company to focus on future competency requirements by identifying and filling talent gaps; Empowering youth with the necessary skills to ensure they become marketable; Creating an opportunity for students who have completed their studies to familiarise themselves with the working environment and gain practical experience; and Increasing awareness among young people of job and career opportunities in. Bursars and internships Bursars who have qualified and received practical training provide a pipeline of young graduates for appointment in vacant positions, with females representing 41% of the bursars. Table 18 provides details of the demographic breakdown of the 16 bursars currently sponsored for fulltime study: Table 18: Bursaries for fulltime study per population group and gender Demographic Male Field Female Field of study Africans 9 8 Civil Engineering 1 Mechanical Engineering 7 1 Communication 1 Electrical Engineering 1 Biochemistry 4 Civil Engineering Whites 1 1 Civil Engineering 0 - The number of internships at any given time is fairly stable, however, the numbers do fluctuate over quarters as the interns are on contract and these contracts expire on different dates. Females represent 88.8% of the interns. Table 19 provides details of the demographic breakdown of the nine interns currently obtaining practical exposure in the workplace. Table 19: Interns by population group and gender Demographic Male Field Female Field Africans 1 Microbiology 6 1 Human resources 2 auditing 1 supply chain 2 biochemistry Coloureds 0-1 Biochemistry Indian 0-1 Biochemistry White Integrated Annual Report 2015/16

66 Small business development implemented an enterprise development programme targeted at delivering and providing opportunities to unemployed black youth by enhancing emerging enterprises capacity. In this respect, the entity s Vukuphile Learnership Programme provides a two- to three-year contractor development programme for 65 emerging contractors. These contractors will exit the programme once they have achieved a 4CE CIDB grading status. To date, R38.3 million worth of contracts have been awarded to these learner contractors, with two contractors having since exited the programme due to disciplinary challenges. The Basic Plumbing Skills Programme for unemployed youth was implemented for 80 youth in Diepsloot, Alexandra, Soweto, Eldorado Park, Ivory Park, JHB CBD and Orange Farm. The programme aims to train youth on basic skills in plumbing for the subsequent establishment of their own enterprises. The training commenced in March 2016 and is conducted from three venues. To date, 73 learners are still participating in the programme whilst seven had to exit the programme due to lack of commitment and poor attendance. Total expenditure on the programme to date is R and the programme is expected to be completed by the end of September Sanitation for dignity The #nappies4dignity campaign was launched on 16 May 2016 as part of National Sanitation Week, May Internationally, sanitation is closely linked with dignity and with this in mind, JW aspired to restore the dignity of the old and frail by launching the #nappies4dignity campaign. This initiative aimed to collect thousands of adult nappies that will be donated to eleven old age homes and hospices. An accompanying media campaign was launched to support the project in conjunction with brand activations at various malls. Driving this campaign has helped to broaden recognition of s brand as a key stakeholder on social issues regarding dignity. As at the end of June 2016, a total of over adult nappies were donated by different stakeholders. 64 Integrated Annual Report 2015/16

67 SECTION TEN Anti-corruption and fraud Fraud risk management JW has prioritised fraud risk management as per the MFMA, with a zero tolerance policy towards acts of fraud and corrupt activities. This means that JW will investigate any individual, or group, or internal/external company, which commits, or tries to commit, fraud or corrupt activities through its systems, officials or clients, to the limits of the law. Fraud prevention and response plans are in place and fraud awareness campaigns have been rolled out to sensitise and educate employees on promotion of ethical behaviour within the organisation. The Tip-Offs Anonymous Hotline through which service delivery complaints are received and whistle blowers are able to report anonymously is centralised at the CoJ. To instill confidence in the anonymous reporting of incidents of fraud and corrupt activities, the Tip-Offs Anonymous Hotline is outsourced to a private company and managed independently. JW has sound internal controls in place that serve as a deterrent to prevent the occurrence of fraud incidents. All reported cases are registered, monitored and investigated. The executive summary of investigation reports is distributed to executive management, the Risk and Audit Committees and the Board. Internal Audit, risk management, internal controls and the Tip-offs Anonymous Hotline assist in detecting fraudulent and corrupt activities. Table 20 lists statistics in terms of number and types of cases reported in the 2013/14, 2014/15 and 2015/16 financial years. Table 20: Types of alleged cases reported per financial year 2013/ / /16 No Cases No. % No. % No. % 1 Bribery Non-compliance Fraud Corruption Unethical conduct Theft Total cases Analysis of the statistics in Table 20 The analysis of Table 20 reflects that reported fraud incidences have declined dramatically from 41% during 2014/15 to 22% in 2015/16. This translates to almost 50%. Alleged bribery dramatically reduced from 38% in 2014/15 to 11% during 2015/16. This translates to a 71% decrease; however, alleged incidents of corruption have dramatically increased from 3% in 2014/15 year to 28% in 2015/16. Alleged non-compliance is also on the increase, from 9% in 2014/15 to 28% in 2015/16. Combating corruption and non-compliance should remain a priority of the company. Table 21: Types of cases still open as at end of 2015/16 Fraud and Financial year corruption Theft Compliance issues Totals 2015/ / / Totals Percentage (%) 65% 6% 29% 100% 65 Integrated Annual Report 2015/16

68 Analysis of Table 21 There was also a challenge of monitoring and prioritisation in closing long outstanding cases dating to 2013/14 and 2014/15. In this regard Internal Audit will: Focus its energy and resources to ensure that all long outstanding cases are completed in quarter one of the 2016/17; Engage Human Resources (HR) to investigate cases of an HR nature and on which HR will report back to Internal Audit on the results and action, where applicable; and Implement consequence management where cases of negligence are found. Cases resolution rate The number of cases finalised in the 2015/16 financial year is 11 out of a total of 42. This translates to a resolution rate of 26%. The number of complaints received and being investigated in 2015/16 by IAD is 18. Success rate Three employees were subjected to disciplinary hearings resulting from closed cases during 2015/16 as per the JW Disciplinary Code. There was one dismissal, one final written warning and one caution. Two cases were prosecuted by SAPS resulting in the sentencing of two bogus JW employees. Sentences were five and three years respectively. Fraud Awareness Roadshows were a success and was attended by out of a staff complement of (48%) as at the end of October Integrated Annual Report 2015/16

69 SECTION ELEVEN ICT governance Overview Information and communications technology (ICT) governance is done in the context of the King III Report and the Municipal Corporate Governance of ICT Policy. This context maintains that as companies become more reliant on information and communication technologies, the associated risks need to be well governed and controlled. ICT is a pervasive technology and cuts across all aspects of the business, from administrative back office processes to operations. ICT is an increasingly critical enabler of JW s business, as well as the information analytical functions in support of management and decision-making. The increase in business systems integration and interconnectivity with the associated information security challenges can result in significant additional costs and risks. The Board and executive management are well informed about the role of ICT and the potential for growth and renewal, as well as enabling and transforming service delivery. The Board recognises that ICT is fundamental to the support, sustainability and growth of JW. It is satisfied that ICT is properly managed and that it is aligned with the objectives of. The ICT Steering Committee, together with the Executive Committee, are responsible for the development and implementation of the ICT Strategy in support of JW s Business Strategy, as well as ensuring that ICT synergies, collaboration and standardisation across the business platforms are maximised. The ICT Steering Committee is responsible for monitoring the corporate governance of ICT, and ICT risk management is fully integrated in the company s risk management processes. For the year under review, a new three-year ICT Strategy has been developed and approved by the Board together with the Corporate Governance for ICT Framework. The Board is responsible for the corporate governance of ICT and to ensure that the ICT Strategy is both aligned with Johannesburg Water s strategic objectives, and adopting and implementing an ICT control framework. The ICT Steering Committee assists with the implementation of ICT strategies and policies. All executive members are members of the ICT Steering Committee to ensure that the committee is able to make appropriate decisions and recommendations. The entity is constantly reviewing its current technology and investigating opportunities to utilise technology and integrate it into its strategy and processes. Security, disaster recovery and delivering value-added projects are essential focuses of the ICT Department. Table 22 depicts the Corporate Governance of ICT Implementation Plan in line with the Department of Cooperative Governance and Traditional Affairs (COGTA) Municipal Corporate Governance of ICT Policy three-phased approach. Table 22: ICT governance Phase One create an enabling environment Status Target date Comment Corporate Governance of ICT Policy - A framework for the corporate governance ICT Governance Charter - of ICT has been developed and approved by the Board ICT Governance Framework adoption: COBIT, ITIL, etc. Speaks to ICT Management Framework: management processes, organisation, structures, roles and responsibilities, activities, required skills and Mar 17 The specifications for a tender calling for a service provider to perform an assessment of the maturity state in respect of the Governance Framework is in progress and is to be finalised in July competencies Project management: PMBOK - PMBOK is the adopted Project Management Framework by the entity to manage ICT projects Risk Management Policy - ICT risks are reviewed in line with JW s Risk Management Policy and processes Internal Audit Plan - Audit of ICT systems is done in line with IA s Annual Audit Plan and includes follow-up audits on audits performed by the AGSA ICT Information Security Policy - The ICT Information Security Policy has been revised and updated and approved by the Board 67 Integrated Annual Report 2015/16

70 Phase One create an enabling environment Status Target date Comment ICT Continuity Plan Sep 16 To be developed upon implementation of the DR Data Centre ICT Service Charter Oct 15 Completed ICT User Access Management (Information Oct 15 Completed Security Policy) ICT Operating Systems Security Controls Jun 16 Completed Guide Data Backup and Recovery Policy Mar 17 To be revised upon implementation of the DR Data Centre Capabilities created: Governance champion, Enterprise Architect, ICT Manager - To be developed in 2016/17 Phase Two strategic enablement Status Target date Comment Enterprise Architecture Jun 17 To be developed in 2016/17 ICT Strategic Plan A new three-year ICT Strategy was developed and approved by the Board. To be revised annually. ICT Performance Indicators - Completed and revised annually Phase Three continuous improvement Status Target date Comment Monitor ICT enablement of business goals - Part of the corporate governance of ICT ICT projects Disaster Recovery (DR) Centre The implementation of the entity s DR Data Centre is in progress and is expected to be operational by the end of September. The DR Data Centre improves the company s ICT readiness in respect of its ability to recover from major disasters and is part and parcel of its business continuity planning. IP telephony Through the use of IP technology, the entity has realised operational savings in the region of 25 30% for telecommunication charges between Head Office and its operations sites. The technology will also provide the platform to extend ICT service into the company, including video conferencing. All sites will be operating on the new telephony technology by the end of September Digitisation The entity has made significant investments in hardware and software to move towards a digitised environment and thus eliminate associated costs with keeping hardcopy printed material. The digitisation project has significantly improved access to information from within applications and systems and with the upgrade of the Wide Area Network (WAN) infrastructure, information is electronically available across the entity s operations. The technology is integrated into the applications to make the digital content easily available thus delivering business process efficiencies. WAN upgrade Applications and systems evolve constantly and the need for a data networks infrastructure is paramount to ensure access to applications and that systems are fast and reliable. The project will more than double the capacity of the WAN and include the deployment of WiFi access points across the main buildings of the operations sites to complement the digitisation project and improve access to applications and systems for its mobile workforce. ICT expenditure The ICT capital requirements are reviewed annually in line with the ICT Strategy and business requirements. The ICT capital expenditure for 2015/16 was R21.7 million against the annual revised budget of R23.8 million. This represents a 91.2% expenditure against the budget. The 8.8% variance is attributed to projects which are to be rolled over into the new financial year. 68 Integrated Annual Report 2015/16

71 ICT security and information assets The security of ICT assets and information is paramount to JW. The Information Security Policy has been revised and approved by the Board. Security assessments are regularly performed and security controls are audited annually by Internal Audit and the AGSA. ICT operations performance Table 23 highlights some of the key performance indicators for ICT operations for the year under review. Table 23: ICT operations performance Description Achievement Target Uptime of core ICT systems and applications 98.5% 95% Uptime WANs 99.1% 95% Uptime WAN Wastewater Treatment Works (WWTW) 99.5% 95% Uptime WAN Other (Fennell, Cydna and CoJ) 99.7% 95% Number of Priority 1 incidents 16 - Priority 2 SLA 91.7% 95% Priority 3 SLA 85.1% 95% Total amount of downtime in hours unplanned hrs - Total amount of downtime in hours planned 12.8 hrs - Total number of incidents logged Average number of incidents per staff (ratio) Total number of service contracts in place Integrated Annual Report 2015/16

72 SECTION TWELVE Supply chain management and black economic empowerment New tender and contract awards A total of 34 new tenders (2014/15: 45) were awarded during the year under review, with a total value of R642.7 million (2014/15: R million). There were no disputed tenders during the period under review. Disputed tenders include those where legal processes have been initiated or are in the process of being instituted against the entity by bidders. For the year to date, the entity awarded R1.34 billion (2014/15: R1.67 billion) worth of contracts, which comprises all new tender awards, additional funding on contracts, extensions on contracts, purchase orders via requests for quotation and deviation purchases with a B-BBEE recognition of 118% (2014/15: 106.1%) against a JW target of 95% and a the dti compliance target of 80%. From the above total procurement value of contracts and purchase orders awarded during the year under review, the procurement share awarded to black designated groups was as follows: R919.1 million to black-owned entities (suppliers who are at least 50% black-owned); R586.2 million to small, medium and micro enterprises (emerging suppliers with turnover from R1 to R10 million and from R10 million to a maximum of R50 million). R140.4 million to black women-owned enterprises (suppliers who are at least 30% black women-owned); R26.3 million to black youth-owned enterprises (suppliers who are at least 50% black youth-owned); and R2.2 million to entities that are owned by disabled persons (suppliers who are at least 30% owned by disabled persons). The above indicate that proportionally, the entity awarded 56.5% of its total procurement value to black designated groups during the year under review. Furthermore, 9.8% of the entity s procurement requirements were awarded via the request for quotations process, while 90.2% of contracts were awarded via the entity s Bid Committee and tender processes. Actual procurement spend The entity s performance against the IDP and City s scorecard in respect of B-BBEE procurement spend from qualifying small enterprises (QSE), with turnover of between R10 million and R50 million, and exempted micro-enterprises (EME), with turnover of less than R10 million, is 118.5% for the year. This is based on the applicable B-BBEE procurement recognition level as a percentage of total procurement spend against a target of 125% for the period under review. The target was not met due to Construction Sector Charter Codes that were not timeously aligned for SMMEs to take advantage of the simplified scorecard for emerging enterprises. This means SMMEs would have updated their B-BBEE scorecards by providing a simple affidavit to confirm their B-BBEE status and not request the services of a verification agency or auditor to conduct a full accreditation. the dti has since confirmed that the construction industry may henceforth provide affidavits to confirm B-BBEE status and this will have a positive impact on the target going forward in the new financial year. the dti compliance target for this SMME category combined is 30%. The entity s total actual procurement spend based on actual invoices paid during the full year under review was R412.1 million (2014/15: R612.3 million) with a B-BBEE recognition spend of 109% (2014/15: 95%) against a 95% target. The share of actual procurement spend in terms of invoices paid was as follows for designated black groups during the year to date: R288.8 million to black-owned entities (these are suppliers that are at least 50% black-owned). A total of 746 suppliers benefitted; R209.5 million to SMMEs (emerging entities with turnover of R1 to R10 million and up to a maximum of R50 million). A total of 908 SMME suppliers benefitted; R104.4 million to black women-owned enterprises (these are suppliers that are at least 30% black women-owned). A total of 316 black women-owned suppliers benefitted; R29.3 million to black youth-owned enterprises (these are suppliers that are at least 50% black youth-owned). A total of 131 black youth owned suppliers benefitted; and R3.5 million to black disabled persons and/or entities (these are suppliers that are at least 30% black disabled). A total of ten black disabled person-owned suppliers benefitted. Early payments to emerging suppliers The entity has identified and tagged in excess of 513 emerging suppliers (i.e. small and micro enterprises as defined by the B-BBEE Codes) for early payment facilities within 15 days to improve their cash flow situation and long-term sustainability. For the year under review approximately R156 million was paid early to these emerging suppliers. 70 Integrated Annual Report 2015/16

73 Contractor performance In total, during the year under review, four Capex and six Opex contracts performed poorly, of which one Capex contract was eventually terminated while the other contracts improved their poor performance and are being monitored. The entity had 83 Capex and 117 Opex live contracts in place. Procurement deviations Total procurement deviations was R307 million (2014/15: R274.4 million) for the year which constitutes 22.9% of the total contract awarded (i.e. contracts/tenders and request for quotations). The entity s Supply Chain Management Policy and the MFMA regulations allow the Accounting Officer to dispense with the official procurement processes established in exceptional cases (i.e. emergencies, sole suppliers, or impracticality). No unsolicited bids were received or awarded by the entity during this period. Enterprise development implemented an enterprise development programme targeted at delivering and providing opportunities to unemployed black youth by enhancing emerging enterprises capacity. In this respect, the entity s Vukuphile Learnership Programme provides a two- to three-year contractor development programme for 65 emerging contractors. These contractors will exit the programme once they have achieved a 4CE CIDB grading status. To date, R38.3 million worth of contracts have been awarded to these learner contractors, with two contractors having since exited the programme due to disciplinary challenges. The Basic Plumbing Skills Programme for unemployed youth was implemented for 80 youth in Diepsloot, Alexandra, Soweto, Eldorado Park, Ivory Park, JHB CBD and Orange Farm. The programme aims to train youth on basic skills in plumbing for the subsequent establishment of their own enterprises. The training commenced in March 2016 and is conducted from three venues. To date, 73 learners are still participating in the programme, whilst seven had to exit the programme due to lack of commitment and poor attendance. Total expenditure on the programme to date is R and the programme is expected to be completed by the end of September Irregular expenditure for the prior year identified in current year This irregular expenditure emanates from an amendment to a contract that was awarded to a service provider in September 2011 who managed the entity s farm over a period of six years, and was occasioned by an element of security services that was previously not part of the original contract, but subsequently included and approved by one executive manager who has since resigned from the entity. The amendment to this contract was never presented to the various bid committees and the accounting officer for consideration and approval. Investigations are still under way on the matter. Disciplinary action will be taken based on the recommendation in the investigation report. This amounted to R3.3 million for the prior periods. Irregular expenditure for the current year identified in current year emanated as follows: R1.0 million for the continued payments in respect of the security contract on the farm as detailed above. R0.371 million on contract JW for the supply and installation of water saving cisterns. Service providers were disqualified for a criterion which was not adequately disclosed as a disqualification criterion in the bid documentation. R million on contract JW CHR 026/15 for the provision of human resource-based security services, in which service providers who were recommended for further evaluation as per the compliance evaluation sheets were not evaluated further based on site visit outcomes which were not properly highlighted as disqualification criterion in the bid documentation. An investigation will be performed to determine the cause of the irregular expenditure incurred in the current year. Disciplinary action will be taken based on the recommendations in the investigation report. The prior year balance on irregular expenditure of R25.6 million has been approved by the Board of Directors for condonation and write off as irrecoverable, since no official benefitted personally and there was no loss to the entity. This was as a result of accepting BBBEE certificates that were neither original nor certified copies. The required condonation has yet to be finally approved and confirmed by the CoJ Council and National Treasury. 71 Integrated Annual Report 2015/16

74 Chapter 3 Service Delivery Performance

75 Core business - Water and sanitation services delivered to 1.4 million households - 6 billion litres of drinking water distributed per day million litres of sewerage treated per day water pipes and meter and connection failures repaired during 2015/16 Finance Service delivery performance - 8.5% increase in revenue to R7.9 billion (2014/15: R7.3 billion) - Profit R676 million - Bad debts decreased by 11% to R1.3 billion (2014/15: R 1.4 billion) due to improved customer payment - Cash reserves are stable at R330 million (2014/15: R330 million) - Property, plant and equipment increased by R751 million to R9.6 billion carrying value due to replacement of ageing equipment Capital projects - R772 million spent in capital projects, 98% spent against budget compared to a target of 95% Informal settlements - Over ventilated improved pit toilets were desludged chemical toilets provided and serviced on average twice per week million litres of water transported to stationery tanks in informal settlements Jozi@Work decent jobs created - 86 SMMEs supported Figure 15: Service delivery performance 73 Integrated Annual Report 2015/16

76 SECTION ONE Core business supplies water and sanitation services to an area stretching from Orange Farm in the south to Midrand in the north and Roodepoort in the west to Alexandra in the east. It operates in six regions, with ten network depots and six wastewater treatment plants. The entity supplies approximately domestic, commercial and industrial customers and serves an estimated consumer base of about 4.4 million people (Census 2011). Considering that the population for the city has been growing at a rate of about 3.7% per annum, the current population for the city is estimated at 5.1 million people. 74 Integrated Annual Report 2015/16

77 SECTION TWO Day-to-day operations provides water and sanitation services to approximately 1.4 million households (Census 2011) within the City of Johannesburg. Water is provided through a network of km of water pipes, 88 water reservoirs and 34 water towers. During the reported financial year (2015/16), an average of 1.6 billion litres of water, complying with acceptable drinking water standards (SANS 241), was distributed to the households within the City on a daily basis. This is the same daily volume as for the 2014/15 and 2013/14 financial years, which indicates improved water demand management to sustain population and economic growth with the same water volume year on year. The quality of the water supplied is ensured by daily sampling and testing at four accredited laboratories which account for over 500 samples per month. Sewerage is collected through a total network of km of sewer pipes and treated at six wastewater treatment plants situated around the City. During 2015/16, an average of 864 million litres of sewerage per day was treated at the six plants. The treated effluent was then discharged back into the river system in compliance with the Department of Water and Sanitation standards as contained in our licence agreements. As part of the wastewater process, sludge is produced that need to be disposed of within the required guidelines. Daily, the sludge is transported to contracted famers who use it as fertiliser. During 2015/16, transported cubic metres of sludge to farms. This is a 14% reduction compared to the previous year, indicating an increased volume of dried sludge being transported, which is more cost effective than transporting wet sludge. The water and sewer network infrastructure is operated and maintained, daily, by teams based in ten network depots and four electro-mechanical depots. During 2015/16, water pipes and metres and connection failures were dealt with by these teams. During the same period, sewer blockages were cleared. also provides onsite water and sanitation services to households residing in informal settlements. These services include desludging of VIP toilets, provision and servicing of chemical toilets and transporting of drinking water. During the year under review, over ventilated improved pit toilets were desludged, chemical toilets were provided and serviced (twice weekly on average) and 100 million litres of water was transported to stationary tanks in the informal settlements. 75 Integrated Annual Report 2015/16

78 SECTION THREE Highlights and achievements Financial sustainability During the year under review the entity achieved a profit of R672 million. Capital investment and asset management The capital expenditure for the year was R772 million, which represents 98% of the capital budget of R792 million. Customer responsiveness The response time to water bursts restored within 48 hours of notification were 84.29% against a target of 95%, and for sewer blockages cleared within 24 hours of notification 93.46% against a target of 96%. Although the failure rate of water infrastructure increased during the year, the response times improved when compared to the 2014/15 financial year. Continued efforts were made to reduce the number of bursts (minor and major) outstanding for longer than seven days. Positive improvements were evident in the number of outstanding works order longer than seven days decreasing by 34% year on year. This is a positive continuation from last year s reduction of 40%. Response times on water bursts will improve further since minimum standards of at least three major bursts and three other water related jobs per team per day is being implemented. Water teams are doing 3.97 jobs per day on average, which demonstrates a 25% improvement in productivity from the 2014/15 financial year. The accelerated rate of water infrastructure renewal will also contribute positively to the response times. Although improved from the previous year, the target for sewers was missed. This was mainly due to the increase in the number of sewer blockages experienced during 2015/16 (13% increase from the previous year). This will improve going forward due to the increased capital investment especially with regard to the renewal of old sewer infrastructure. Minimum standards of at least five sewer blockages per team per day are being implemented. Sewer teams are doing 3.85 jobs per day on average (a 27% improvement in productivity from 2014/15). Continued education campaigns in respect of the incorrect use of sewer infrastructure will also have a positive impact on reducing the failure rate. Operations The number of bursts experienced per 100 km was against a target of 259, while sewer blockages experienced per 100 km was against a target of 469 km. The number of bursts per 100 km increased by 17% year on year which relates to the reduced level of infrastructure renewal as well as the fact that pipe replacement contracts are currently being implemented by learner contractors. This lead to an increase in existing infrastructure damage during the execution of the project. Although the targets were met, the year on year increase in the number of sewer blockages per 100 km relates directly to the incorrect use of the sewer infrastructure causing reoccurring blockages, specifically in hotspot areas like Ivory Park, Alexandra, Diepsloot and Orange Farm. This is currently being addressed through on-going social education programmes. Increased capital expenditure on the renewal of sewer infrastructure will also have a positive impact on the failure rate in coming years. During the 2015/16 financial year, percentage compliance with the water quality standard (SANS 241) on E. Coli was 99.8% against a target of 99%. This positive achievement will enable the City of Johannesburg to retain its Blue Drop Status. Final effluent compliance from our wastewater treatment works was 74.7% against a target of 97%. New Water Use Licences (Wastewater Treatment Works Permits) with more stringent limits were received for Driefontein, Bushkoppies, Ennerdale and Northern Wastewater Works in 2014/15 and implemented in the 2015/16 financial year. However, the fact that the entity is not able to achieve these requirements with our existing wastewater treatment processes, has a negative effect on the effluent compliance. objected to these licences during the year under review and is currently addressing it with the Acting Director General of the Department of Water and Sanitation. Further contributors to this target not being met were sand blockages at Bushkoppies, as well as mechanical failures due to advanced age at Northern Works. The mechanical failures at Northern Works are being addressed and two contracts were awarded to refurbish the electrical and mechanical equipment. These contracts will continue into the next financial year where after the improvement in effluent compliance at Northern Works will be noticeable. Sand blockages are addressed on an on-going basis as and when required. 76 Integrated Annual Report 2015/16

79 During the year under review, 1.4% of spills that occurred at the waste water treatment works had a negative impact on the receiving water quality. This is a 75% increase from the 0.8% of spills that had a negative impact on the receiving water in the previous financial year. In addition, only two spills at Northern Works affected the river quality. Greenhouse gas emissions offset was tons of CO 2 gas offset against a target of tons of CO 2 at the biogas-to-energy plant at the Northern Wastewater Treatment Works. Digester capacity is currently not adequate to reach the set target. The refurbishment of existing decommissioned digesters commenced in the 2015/16 financial year and will continue into the next year. This is bound to improve gas production substantially, which will further increase the CO 2 gas offset in greenhouse gasses. Furthermore, the continued failure of the head of works at Northern Works, causing rags and sand to enter the process and limit the pumping of sludge to the digesters, had an impact on gas production. The new head of works will be in place early in the 2016/17 financial year. The delay in the commissioning of the biogas-to-energy plant at Driefontein also impacted on the overall performance of greenhouse gas emissions. The delay was due to the lack of enough gas production as a result of the non-availability of sufficient sludge and sludge thickening. This plant will be commissioned in the third quarter of the 2016/17 financial year. The household water consumption litre per capita per day was against a target of 308. It has reduced from the reported in 2014/15. The implementation of projects like the Pressure Management, Soweto Infrastructure Upgrade and Renewal Project, as well as mains replacement projects to reduce water demand is having a positive impact. The overall impact is also becoming more visible, as demonstrated by the fact that the water demand did not increase when measured against the previous reporting year, as opposed to the past where the increase averaged 2.4%. It is anticipated that the impact should become more evident in the 2016/17 financial year when implements its revised Water Demand Management Strategy. Soweto infrastructure upgrade and renewal The project entails the upgrade and replacement of secondary mains, once off property retrofitting and installation of prepaid metres to stands in Soweto. In the 2015/16 financial year a cumulative total of prepaid metres were installed, against a cumulative target of , representing an achievement of 85%. The overall project progress is at 80% ( ) of the targeted prepaid metres. The non-achievement of targets for the year is attributed to project stoppages due to community hostility and poor performance from the contractors which resulted in termination of a contract in Diepkloof and Orlando. Areas with community hostility include Pimville and Orlando East and West. Engagement with affected stakeholders has been done throughout the financial year and is still continuing with regards to buy-in. More than 90% of the service level agreement (SLAs) have been signed to date. Basic services Notable progress has been made with regard to access to basic services, with households receiving access to basic sanitation in the 2015/16 financial year; increasing the total sanitation coverage in informal settlements to 46.59%. In addition, households were provided with basic access to water; increasing the water coverage in informal settlements to 96.14%. Water pipe replacement had planned to replace a total of 900 km of water pipes by June 2017 to improve water networks remaining useful life. However, due to reduced budgets, it is estimated that only 709 km will be achieved by Encouragingly, although the target for the 2015/16 financial year was to replace a total of 114 km of old (mostly asbestos) pipes; the entity managed to replace 140 km which represents 123% of the yearly target. With regard to sewer pipe replacement, the entity has managed to replace a total of 6.8 km against a target of 55 km for the year. 77 Integrated Annual Report 2015/16

80 SECTION FOUR Financial performance Revenue The entity posted revenue of R7.9 billion for the year, an increase of 8.5% over the previous year (2014/15: R7.3 billion). Revenue from the sale of water represents 63% (2014/15: 62%) of the revenue received from exchange, while sales received from sanitation accounts for 37% (2014/15: 38%). Results of operation Operational costs increased on average by 14.9% to R2.224 billion (2014/15: R1.935 billion). The provision for bad debt reduced by 10.9% to R1.267 billion, (2014/15: R1.423 billion) due to increased payment levels by consumers. Cash flow Service charges are generated from the sale of water and sanitation services. In addition, the entity receives grant funding from the Municipal Infrastructure Grant (MIG) and Urban Settlement Development Grant (USDG) to assist with the funding of capital projects. Other income includes developer funded assets. At year end, had cash reserves of R330 million (2014/15: R330 million). Statement of Financial Position Property, plant and equipment increased by R815.4 million to R9.5 billion at carrying value. This increase was due to the replacement of aging and obsolete equipment and water and sewer pipes as installation of new infrastructure. It is the strategic intention of the entity to allocate approximately R11.8 billion to capital expenditure for the period from 2008 to 2018, largely to upgrade and enhance its water distribution networks and treatment plant infrastructure. The expenditure will compliment water conservation and water demand management imperatives. has demonstrated its commitment and contribution to this achievement and believes that it is financially well placed going forward to meet objectives in terms of funding the required capital expenditure while maintaining tariff increases at reasonable levels. 78 Integrated Annual Report 2015/16

81 SECTION FIVE Capital projects Expenditure per capital budget category During the year under review, the entity delivered a number of capital projects to the value of R772 million against a total budget of R792 million. This translates to an achievement of 98% against the target of 95%. The expenditure breakdown per capital budget category is reflected in Table 24. Table 24: Expenditure per capital budget category Category 2015/16 budget (R 000) Expenditure at end June 2016 (R 000) % expenditure Corporate requirement % Unaccounted for water % Operate and maintain % Upgrading and renewal % New infrastructure % Planning and engineering studies % Information technology % Special projects % Bulk wastewater % Total % Projects completed In the 2015/16 financial year, JW has managed to complete a total of 27 projects. Table 25 provides a detailed list of projects completed during the year. Table 25: Completed projects # Project description Value (R 000) Completion date 1 Bryanston pipe replacement Phase 5: PRV Jun 16 2 Morningside Ext 1 and Wendywood Apr 16 3 Bramley North Ext 1 and Lombardy East Apr 16 4 Randpark Ext 4 water pipe replacement Jun 16 5 Randpark, Bokskruin Ext 1 and Northwold Ext Jun 16 6 Dunkeld and Dunkeld West pipe replacement Part Apr 16 7 Dunkeld and Dunkeld West pipe replacement Part Apr 16 8 Gallo Manor water pipe replacement Jun 16 9 Kelvin water pipe replacement Phase Jun Kelvin water pipe replacement Phase Jun Brixton water pipe replacement May Lonehill Phase 1 water pipe replacement Project Apr Bryanston water upgrade Phase 3 (Riverclub Phase 2) Jun Lonehill Phase 4 water pipe replacement project Sep Lining and repair of Parktown Reservoir # Aug Purchase of Skid Steers (BWW 903) Mar Northcliff Ext 10, water pipe replacement Nov Lonehill Phase 3 water replacement Feb Lonehill Phase 2 water replacement Feb Duxbury and Morningside Ext Mar Eccleston Cres and Strathoven Feb Integrated Annual Report 2015/16

82 # Project description Value (R 000) Completion date 22 Bosksruin Northwold and Randparkrif water pipe Jun 16 replacement 23 Morningside Ext 40 and Riverclub Nov Meredale and Bassonia pipe replacement Dec Strijdom Park water upgrade Feb SB 12 bulk pipeline Dec Supply, deliver and technical support of prepayment water metres Lesira-Teq Sep 15 Bulk wastewater major capital projects Table 26 provides some of the major bulk wastewater capital projects that JW implemented in the 2015/16 financial year and their progress status. It should be noted that most capital projects are multi-year focused; as a result most of them will be completed in the coming financial year (2016/17). Table 26: Major bulk wastewater capital projects Project description Project objective Dam 1: Construction of high rate settling tanks, pumping mains, dam liner, mechanical and electrical, and control and instrumentation equipment for pumping installations. Northern Wastewater Treatment Works (WWTW) Digester heating and mixing upgrade at Olifantsvlei WWTW Refurbishment of two digesters, at Unit 2 at Northern WWTW To de-sludge Dam 1 at Northern WWTW and to reduce the rate of future sludge ingress To ensure a sustained and improved sludge treatment capacity To ensure that the sludge from the biological process is conditioned and treated to comply with DWS standards Estimated completion date Cost (R 000) Progress status Dec The project is in construction stage and 83% physical progress has been achieved to date Oct The project is at 26% physical progress Oct The project is at 64% physical progress Water reservoirs JW has embarked on the construction of new reservoirs to increase the storage capacity within the City. In the 2015/16 financial year, construction of new Orange Farm and Diepsloot reservoirs commenced and projects are progressing well. Table 27 provides details on reservoir projects. Table 27: Reservoir projects Name and capacity Value (R 000) Status Estimated Completion Date Comments Diepsloot Reservoir (25Ml) % construction Sep 2016 Construction in progress Lenasia (12.5 Ml) High Reservoir Orange Farm (33.5 Ml) High Level Reservoir Planning Still to be determined Design stage: Land availability is a concern, but engagement with the Provincial Department and CoJ to release the land has started % construction Apr 2017 Contract awarded May 2015, however sub-contracting issues are drastically affecting progress Erand Tower (0.75 Ml) Procurement Jun 2017 Project to be re-tendered Crown Gardens Tower (1.1 Ml) Design stage Nov 2017 Designs have been completed; project to proceed to procurement stage in the 2016/17 financial year 80 Integrated Annual Report 2015/16

83 Asset management programme One of the asset management strategies is the continuous improvement of asset management data. The data provide assistance in day-to-day operations and planning, as well as motivation for capital, operating and strategic investment decisions. Asset attributes which are rated for data confidence are: condition, location, expected useful life, unit rates, construction year, criticality and utilisation. Data confidence has improved over the past three financial years from 67% to 90%. A score of 91% was achieved against a target of 91% for 2015/16. The measure of 92% data confidence means asset data with minor inaccuracies, which is an acceptable international norm for data confidence. will maintain data confidence at 92% in future. Jozi@Work progress performance The Jozi@Work programme aims to create decent jobs, reduce unemployment within the City and empower local communities through implementation of operational and capital programmes. In 2015/16, had planned to support a total of 114 SMMEs and create jobs. By the end of June 2016, a total of 885 decent jobs were created which represents 68% of that target, while 86 SMMEs were supported which represent 75%, with a total of R42 million spent. It should be noted that a delay in rolling out the War on Leaks initiative, as well as the appointment of capacity support agents (CSAs) to support operation and maintenance programmes, resulted in set targets not being met. Table 28: Jozi@Work progress per programme Jozi@Work programme Actual number of SMMEs supported Number of jobs created Expenditure (R 000) City regions Comments Pipe renewal C All SMMEs (63) completed their first trial contract. Two SMMEs were excluded from the programme pending misconduct investigation Operation and maintenance (SMMEs development) (Fixing of leaks at schools War on Leaks ) Installation of basic services infrastructure 4.5 litre toilet cistern A,C,D,E and G The target was to support 24 SMMEs under O and M Jozi@Work Programme. By year-end, 27 SMMEs were identified. However, a delay in finalising the appointment of CSAs resulted in appointment letters not being issued. A nonaward of reinstatement tender contributed in not meeting the set target All A total of 14 local SMMEs appointed, however targeted number of jobs was not achieved due to delay in finalising the appointment of the CSAs. Number of SMMEs could not be claimed as actual work has not commenced A, C, D, E, F, G A total of three CSAs were appointed and 83 jobs were created, through five SMMEs. Target was met D Two CSAs appointed and physical work is progressing well on the ground. Target of number of jobs and number of SMMEs to be supported was exceeded Other A, B, F Two SMMEs appointed in the Diepsloot Water Upgrade Project Total Integrated Annual Report 2015/16

84 SECTION SIX Performance against the Integrated Development Plan (IDP) and City Scorecard In alignment with the IDP Service Delivery Budget Implementation Plan (SDBIP) 2015/16, JW contributed to priority number six, namely resource sustainability, which had two KPIs in respect of the urban management programme. KPI: NRW The state of NRW was 35.3% for the period under review, compared to a target of 32%. According to research published by the Water Research Council entitled: The state of non-revenue water in the Republic of South Africa, 2012, NRW percentage between 30 40% is seen as an average performance. This average performance is attributable to the lower than budgeted billing volumes, with billed actual readings marginally lower at 89.35%, compared to 91.07% for the same period in the previous year. KPI: Number of schools retrofitted War on Leaks The entity did not perform well under this indicator, mainly due to delays in appointing contractors and ensuring that they deliver the project under Jozi@Work. The contractors have now been appointed and the backlog will be addressed in the next financial year. 82 Integrated Annual Report 2015/16

85 SECTION SEVEN Assessment of arrears on municipal taxes and services charges Table 29: Assessment of municipal taxes and service charges owed to the entity Detail 0 30 days days days days >=120 Total Debtor s age analysis R916 million R440 million R278 million R246 million R5.340 billion R7.220 billion The accumulated provision for bad debts amounts to R5.322 billion or 74% of the accumulated debtors. Table 30: Amounts owed to the group for service charges Name of entity Amount owed Status Comments R1.9 billion Amounts provided for in the entity s books Confirmed inter-company balances with all entities and the Shareholder Table 31: Assessment of directors and senior managers municipal accounts Name Designation Name of municipality Account status Zukisani Samsam Independent Member of the Audit Johannesburg Current Committee Vusi Mokwena Independent Member of the Audit Johannesburg Current Committee Maselaganye Matji Non-executive Director Madibeng, Polokwane, Current Cape Town and Tshwane Lungile Dhlamini Managing Director Johannesburg Current Simphiwe Khondlo Non-executive Director Current Neo Motlabane Non-executive Director Johannesburg Current Honey Mateya Non-executive Director Johannesburg Account on 90 days+ arrears Khanyisa Mdutshane Non-executive Director Johannesburg Current Zanele Hlatshwayo Non-executive Director Johannesburg Current Gugu Moloi Non-executive Director Ethekwini Current Charles Motau Non-executive Director Current Busisiwe Shongwe Financial Director Johannesburg Current Getty Simelane Non-executive Director Johannesburg x 3, Tshwane, Current KwaDukuza Ntshavheni Chief Operating Officer Johannesburg Current Mukwevho Duduzile Tshabalala Chief Internal Auditor Vereeniging, Tshwane Current Graham Luden Company Secretary Johannesburg Current Thembaletu Fikizolo Executive Manager: HR and Corporate N/A No account Services Phindile Shabalala Senior Manager: Risk and Compliance Johannesburg In dispute Hilgard Matthews Executive Manager: Stakeholder Relations and Communication Tshwane x 2 Current 83 Integrated Annual Report 2015/16

86 SECTION EIGHT Statement on amounts owed by government departments and public entities Table 32: Amounts owed by government departments and public entities Name of department Amounts owed Account status Department of Education R More than 90 days overdue Department of Health R More than 90 days overdue Department of Public Works R More than 90 days overdue 84 Integrated Annual Report 2015/16

87 SECTION NINE Recommendations and plans for the next financial year Capital budget ( ) In line with the National Treasury Medium-Term Expenditure Framework (MTEF), has allocated a total of R3.1 billion capital budget in the coming three year period. Table 33 provide detailed breakdown per year. Over the years, JW capital expenditure performance has always been above 95% and it is therefore expected that this performance will be maintained in the next three-year period. Table 33: Capex budget 2016/ /19 Financial year 2016/17 (R 000) 2017/18 (R 000) 2018/19 (R 000) Capital budget In line with its mandate, JW capital expenditure will be spent mainly on the following programmes: Wastewater treatment works; Pipe replacement and upgrades; and Construction of reservoirs. In the 2016/17 financial year, JW capital expenditure will focus on the following projects: Olifantsvlei wastewater treatment works (heating and mixing) and planning for new Lanseria wastewater treatment works; Finishing the Soweto Infrastructure Upgrade and Renewal Programme by completing the remaining length of secondary mains, retrofitting and metreing of properties; and Accelerating both the water and sewer pipe replacement programmes. The plan for the 2016/17 financial year is to replace 105 km of water pipes. Similarly, the entity plans to replace 55 km of sewer pipes. Contractor Development Programme The Contractor Development Programme will enter its third phase (second trial contract) through which leaner contractors will be expected to complete their second trial contract. It is expected that after completion of the second trial contract, all leaner contractors should be equipped enough to achieve CIDB Level 3. Corridors of Freedom The CoJ has prioritised three Corridors of Freedom as development focus areas: Empire-Perth, Louis Botha and Turffontein. The intention of this programme is to address the imbalances of the past, which forced the labour force to reside far from the workplace and to ensure that sustainable human settlement is achieved with all required amenities for residents. Through the Corridors of Freedom development initiative, various programmes will be co-ordinated, with public transport as a key element to facilitate transporting people to work and various destinations of their choice. In line with the Corridors of Freedom development programme, JW has planned a capital infrastructure project to a total value of R313 million. The main objective is to ensure that the infrastructure has enough capacity to support these Corridors of Freedom. Table 34 reflects the estimated budget allocation per corridor based on the estimated densities. Designs commenced in 2014/15 and were completed in 2015/16. Construction will commence in 2016/17 with implementation concluding over a five-year period. Table 34: Corridors of Freedom infrastructure projects Corridor name Water (R 000) Sewer (R 000) Total (R 000) Empire-Perth Louis Botha Turffontein Total Integrated Annual Report 2015/16

88 Chapter 4 Human Resources and Organisational Management

89 Skills development Staffing Employment equity Performance management Wellness and HIV/Aids - 84 learnerships - Four learners qualified as electricians - 15 plumbing apprentices completed N1 and N2 qualifications - Ten employees completed the RPL Water and Waste Process Supervision NQF Level 4 Pilot Programme - 16 learners completed the RPL Water and Waste Reticulation Programme NQF Level 3-24 engineers were registered with ECSA through the Capacitation Programme - Payroll expenditure is 23.1% of total operating expenditure - 7% salary increases were implemented across the board as per the South African Local Government Bargaining Council Threeyear Agreement which commenced in 2015/16 - Salary progression benchmarking for junior employees (Patterson Grade A and B) finalised - Female staff increased to 27.06% against a target of 26% % of employees are living with disabilities, exceeding the regulated percentage - Staff retention is 97.84% and staff retention for scarce skills is 97.31% employees were trained on Diversity - Performance management is fully implemented and all employees have performance agreements - A review of both the Performance Management and the Remuneration Policies is under way - A total of employees participated in the Wellness Week Implemented an educational campaign on the appropriate use and adherence to ARVs - Peer educators received training on basic counselling and presentation skills - World AIDS Day programme attended by employees Figure 16: HR management overview SECTION ONE Human resource management Overview The strategic role of the Human Resources (HR) function during the year was to align its solutions to the organisation s strategic needs. Underpinning the HR offering are the following measurable interventions: Retention of scarce skills; Delivery of training interventions to meet the organisational needs; Employment equity, with specific reference to the employment of females and people with disabilities; and Improvement in productivity and the introduction and final implementation of an evening shift for water and sanitation related work. During 2015/16 the entity intensified the Water and Wastewater Learnerships, with 84 employees enrolled. The entity also enrolled five employees who completed the NQF Level 4 Electrical Learnership for further training and trade testing as electricians. Four learners successfully completed the Electrical Trade Test and are now qualified electricians. The ten employees who started the Recognition of Prior Learning process for the Water and Wastewater Process Control Supervision NQF Level 4 Pilot Programme in the previous year, completed it successfully. Further initiatives resulted in the rollout of a Recognition of Prior Learning (RPL) 87 Integrated Annual Report 2015/16

90 Programme in Water and Wastewater Reticulation NQF Level 3. All 16 learners successfully completed the qualification and went on to complete the NQF Level 4 programme in the same year. Fifteen plumbing apprentices were appointed and have successfully completed their N1 and N2 courses. These apprentices are currently busy with the remaining phases of the apprentice programme. Productivity improvement remained topical during the year, with interventions showing improvements in response times and the number of jobs completed by each team per day. The system of providing for salary progression subject to performance is still in place, but a review of the policy is under way. A new benchmarking intervention is led by the City of Johannesburg towards a common key salary scale and benchmarked grading for all employees in the City. The project team finalised the benchmarking for employees graded in the Paterson A and B bands (junior staff ) and the results will be implemented in the company from 1 July The Specialist Career Grade, which provides for the progression of certain professional groups of staff (within the grade subject), leading to the achievement of certain targets related to their professional development, is gaining momentum. This year seven submissions were received for assessment and all seven applicants were able to progress. The Engineering Capacitation Programme also contributed to the professional registration of engineers with the Engineering Council of South Africa (ECSA). The 24 registered professionals are indicative of the success of the programme. The entity granted general salary increases for the 2015/16 financial year in line with those negotiated at the South African Local Government Bargaining Council. This resulted in an increase of 7% across the board with effect from 1 July This is the first year of a three-year wage increase agreement that provided some assurance of stability in the industrial relations environment. The past year also focused on the entrenchment of core leadership practices and skills: the alignment of training to deliver the training of the technical staff and coaching for managers. Standard deliverables in the human resources environment focused on, amongst others, the review of certain practices to entrench employee value proposition and expand the pool of women in the business; strengthening the Employee Wellness Programme; the continued rolling out of internships, bursaries, subsidised education programmes; other skills development initiatives and refining the recruitment and selection processes. The current percentage of employees with disabilities is at 3.74%, which exceeds the requirements of the Department of Labour. This is the result of a concerted effort to recruit persons with disabilities. The increase in the percentage of women is progressing slowly and is, to an extent, due to the fact that the turnover in staff is low at less than 3%. This means there are fewer opportunities to recruit females. Skills retention was within the target range for the year, with retention of scarce skills better than 3%. Remuneration and incentives The entity strives to be competitive in its remuneration structures for all levels of employees and as such has adopted a policy that targets the 50 th percentile of the remuneration market against which it will benchmark basic salaries and total cost to entity levels. The remuneration levels for the executive management team, including upper limits, are determined by the Shareholder in line with the provisions of Section 89 of the MFMA. This is dealt with in more detail in Chapter 1, Section 7 of this report. Employees below executive level are incentivised in terms of the Performance Management and Remuneration Policies. This provides for formal performance evaluations and adjudication of bonus payments and salary progression based on performance, after adoption by the Board of Directors of the entity s performance results for the financial year. Payment of performance bonuses to executive management is determined as provided for in the Local Government: Municipal Performance Regulations for Municipal Managers and Managers Directly Accountable to Municipal Managers, This is subject to the meeting of annual targets for both the entity and the individual employee. The entity strives to ensure that its salaries and allowances budget is strictly controlled and as such a measurement of the ratio of total salary costs against operating expenditure is in place. 88 Integrated Annual Report 2015/16

91 Analysis of statistics and employee benefits as at 30 June 2016 Staff complement As at 30 June 2016, employed staff members in the operational areas listed below. Table 35: Number of employees per operational area A number of funded vacancies from the total number of vacancies per department Personnel area Total filled positions Vacancies Managing Director s Office Capital Projects and Infrastructure Operations Operations Networks and Technical Services Operations Bulk Wastewater Operations Support Operations Monitoring and Evaluation Unit Stakeholder Relations and Communication Company Secretariat Human Resources (including apprentices, bursars and learners) Contracts and Fleet Corporate Services Finance Information Technology Supply Chain Management Metre Reading Internal Audit Risk and Compliance Superblocks Strategic Planning Total A total of 66% of employees are involved at operational level in the Networks Department, which main function is water and waste water reticulation. A total of 10% of employees are operationally involved with the treatment of waste water. Staff turnover is low, with the retention for all staff for the year at 97.84%, while the retention for scarce skills categories is 97.31%. This is dealt with in more detail in Section 3 below under the heading Succession Planning and Retention. Age distribution The age distribution of employees is demonstrated in Table 36. The relatively high number of employees above the age of 50 presents a challenge for effective succession planning, specifically in the technical skills area where a high percentage of employees are above the age of 50. Research indicates that this is indicative of a labour market with the type of skills sought by, and is not unique to the entity. The entity is addressing this through both a bursary scheme and the roll out of a specialist grade for engineers and scientists to enable progression for specialists, in addition to learnership and apprenticeship programmes. It was also possible to lower the average age fractionally by the employment of younger staff. The situation is not regarded as critical. Based on a rolling three-year forecast (until 2019) for loss of skills due to retirement upon attaining the age limit, the development programmes will provide a pipeline of skills in the plumbing trade that will more than meet the needs. A few occupations, such as fitters, are more difficult to develop in-house and these positions are filled via external recruitment. 89 Integrated Annual Report 2015/16

92 Table 36: Age distribution Age group 0 20 years years 262 (10%) years 879 (35%) years 715 (28.5%) years 565 (23%) years 88 (3.5%) 70 and older 0 Total Medical Fund Membership The entity embarked on an exercise to have all employees join one of the five accredited medical aid funds. The exercise involved subsidising employees without medical fund membership. This exercise paid dividends, with the number of uninsured nonmembers reduced to only 106 as at 30 June Of the 106 employees who are non-members, 86 have medical aid with their spouses and 20 are contractors who are not compelled to join a medical fund. Table 37: Membership per fund Medical aid Total Bonitas Medical Fund Hosmed 463 Key Health 272 LA Health 440 Samwu Med 220 Non-members 106 Total Total Retirement funds The entity has six retirement funds for members. In terms of policy, only short-term contract employees may be excluded from membership of these retirement funds. A project in conjunction with the City of Johannesburg consolidated the majority of retirement funding arrangements into a defined contribution dispensation where there are no contingent liabilities for the employer. The e-joburg Retirement Fund is a defined contribution fund established for the purpose of accommodating all employees in the future. It will be noted that the majority of employees belong to this fund. The next largest in terms of membership by employees is the City of Johannesburg Pension Fund (CJPF), which is also a defined contribution fund with no liabilities to the employer, except for monthly contributions in respect of the employer contribution to the fund. Actuarially there are no liabilities to these funds over and above the monthly contribution. Table 38: Retirement fund membership Pension fund Total City of Johannesburg Pension Fund 346 e-joburg Retirement Fund Joint Municipal Pension Fund 12 Municipal EE Gratuity 89 Municipal Employee Pension Fund 38 National Fund For Municipal Workers 1 Non-members (short-term contract employees) 19 Total Integrated Annual Report 2015/16

93 Table 39: Trends on total personnel expenditure Year Total payroll expenditure R 000 Total operating expenditure R 000 Percentage compared to operating expenditure Training and development spend as % of total payroll cost 2015/ % 1.83% 2014/ % 1.52% 2013/ % 1.46% 2012/ % 1.43% 2011/ % 1.52% 2010/ % 1.74% The total expenditure on payroll is under control when compared to the total operating expenditure. This has been made possible by introducing efficiencies, such as reductions in overtime expenditure in real terms, i.e. though the appointment of additional staff in the meter reading and meter maintenance functions. The total training cost of 1.83% of payroll expenditure represents the direct costs of the implementation of training interventions and not the costs of employees release from duty to attend training interventions. The percentage spent on direct training costs is still considered low and is being increased incrementally. The implementation of the Apprenticeship Scheme and learnerships will require additional funding in future and probably additional training resources as well. More details of the training interventions delivered are provided in Section 3 below. Arrear moneys owed to the entity by staff and non-executive directors The entity does not provide loans to employees; however, instances do occur where employees may be overpaid. Such overpayment is recovered over a period of time in terms of sound labour practice. The subsidised education scheme, which provides for bursaries to employees, results in default by recipients who do not complete their studies and who have to repay study fees and study leave taken in installments. Finally, a few instances occurred where employees changed their medical fund category and plan and have to pay arrears on their contributions. The total outstanding amount in respect of the above is R as at 30 June 2016 (R recoveries + R subsidised education). 91 Integrated Annual Report 2015/16

94 SECTION TWO Employment equity Equity overview In July 2014, approved a three-year Employment Equity (EE) Plan that will guide the implementation of a transformation agenda within the company. The plan will expire in December Within the plan the two priority targets are female and disability representation. Although the two priority targets are critical to the company, the fundamental objective of the plan is to ensure that the company eliminates all forms of unfair discrimination and strives to promote and maintain an environment that empowers all Johannesburg Water employees to achieve the highest potential, without fear of prejudice or bias. This is achieved by putting a number of mechanisms and initiatives in place. Our Recruitment and Selection Policy is effective in guiding the fairness and transparency of the recruitment process. The application of the recruitment and selection policy in support of employment equity has proven to be efficient. This is evident in the achievement of the female representation target within the second year of the EE Plan. As at 30 June 2016, the representation of females has grown to 27.08% against a target of 26%. The representation of females has increased by 3.12 % from a baseline of 23.92% in July As part of eliminating any form of discrimination, the company ensures that all its buildings are barrier free. As such, in this financial year the Capital Infrastructure Department conducted an accessibility audit, especially for employees with disabilities. The outcome of this study has already been incorporated into the Operational Plan of the Operations Department. Employment of persons with disabilities is receiving close attention. A talent pipeline plan has already been approved to appoint graduates supernumerary against identified positions for a period of two years. This will allow graduates to gain relevant experience in those positions. This plan will ensure that the company has a pool of candidates with disabilities that can compete for permanent positions. At the end of June 2016 the representation of employees with disabilities in the company was at 3.74% against the target of 3.91%. The company has provided diversity training for 114 employees, with all participants being line managers and supervisors. The objective of the training was to ensure that line managers and supervisors play an effective role in leading their diverse teams and to ensure that the working environment is conducive to all employees, irrespective of their diversity. The distribution as at 30 June 2016 is captured in Table 40. Table 40: Demographic staff distribution Males Females Total People with disabilities African Coloured Asian White Total Integrated Annual Report 2015/16

95 SECTION THREE Skills development and training Skills development As part of its development of engineers, the entity is managing a programme aimed at fast tracking professional registration for all its engineers with the Engineering Council of South Africa (ECSA). has now managed to build up its engineering capacity to 24 professionally registered engineers. There are a further 38 candidates registered with the ECSA for the different levels of registration as professionals that are being supported by the company. This has been achieved partially by the entity s ability to attract and recruit registered professionals, but also by specific programmes that have been put in place, such as the Engineering Capacitation Programme and the Specialist Career Grade. Of the 24 professionals, four are registered as Professional Engineers, 19 are registered as Professional Engineering Technologists and one is registered as a Professional Engineering Technician. The entity has an on-going bursary and internship scheme to supplement the skills pipeline and enhance service delivery. There are currently 17 bursars in various fields, but predominantly in the field of civil engineering. In addition, one-year internships have been provided to ten graduates in various disciplines as part of the entity s social responsibility activities Technicians Technologist Engineers 4 Figure 17: Professional registration with ECSA A Leadership and Coaching Programme for a fourth group of senior and executive management started in September The aim of this programme is to develop senior staff and create leadership capacity for the future. The benefits include enhanced individual and organisational performance, the retention of talent and increased productivity. The total number of employees planned for training in 2015/16 was A total of were actually trained. This deviation of 56% from the actual target of the Workplace Skills Plan (WSP) can mainly be attributed to ad-hoc and unplanned training needs that were identified after submission of the WSP to the Energy and Water Sector Education Authority (EWSETA). The fact that the SETA s financial year cycle is different from that of also created a challenge with regard to planning for training. Training interventions were focused on the development of specific competencies that relate to JW s future strategies. These included learnerships, recognition of prior learning (RPL), compliance training, short courses related to various JW occupations and jobs, as well as national accredited training and educational courses for apprentices. In total, hours were spent on training for the year as indicated in Figure 18, equating to over 50 hours per employee. 93 Integrated Annual Report 2015/16

96 / / / / /16 No. of training hours Figure 18: Training hours Thirteen employees enrolled for the Municipal Finance Management Programme. Three employees completed successfully, two resigned and eight are still in process. This programme is a National Treasury requirement for employees in finance and at executive level and has thus been treated as compliance training. Employees learn to apply strategic level financial management competencies to ensure the effective utilisation of public funds at local government level. s Subsidised Education Scheme is aimed at providing employees with the opportunity to further their studies at a tertiary level, specifically in terms of qualifications aligned to the entity s strategic objectives, skills requirements, and relevance to the employees line of work in the company. Thirteen new applications were approved for 2015/16. Of these applications, ten were males and three were females. The fields of study included Civil Engineering, Water and Waste Water Treatment, Supply Chain, Finance and Accounting. The WSP for 2015/16 was successfully implemented with deviations as mentioned above. The Annual Training Report (ATR) was submitted timeously to the EWSETA. The entity also focused on legally required compliance and technical training interventions, such as various health and safety courses and learnerships in water reticulation, process control and electrical. A total of 106 employees are participating in the Adult Education and Training (AET) Programme (Communication and Numeracy from Level 1 to 4) and have been progressing through the levels. No new learners were enrolled due to the fact that the learners who originally enrolled are still in the process to complete the levels; however eight learners completed AET Level 4 and will be awarded the General Education and Training Certificate (GETC). Total allocated budget 2015/16 for the training function was R million; however total expenditure for the training function amounted to approximately R million for the year, indicating overspend of R1.275 million. This expenditure was critical to implement and support training and related interventions in support of the JW Strategy. The company succeeded in claiming back 20% of the allowed Mandatory Funding in the amount of R An amount of R was received as a Discretionary Grant for 15 learners in the Water and Water Reticulation Services Learnership from the EWSETA Succession planning and retention Succession planning Towards the end of 2007, the Board approved the adoption of a Succession Planning Policy in line with the entity s Talent Management Strategy. The overall objective of the talent management and succession planning process is to facilitate a structured identification and growth of employees, as well as aid the retention of talent and in the process create and strengthen the talent pool of the entity. In, succession planning is carried out by functional talent forums. The talent forums identify key or critical positions at all levels for which succession planning is considered important. Succession plans, which identify individuals as well as their competency gaps, are drawn up and the identified individuals sign a succession planning agreement whereby they acknowledge their responsibilities in being part of the succession planning process. 94 Integrated Annual Report 2015/16

97 Employee retention scheme Employee retention is measured in terms of one Balanced Scorecard target, namely 97% retention of scarce skill category staff, e.g. engineers and artisans. The total as at 30 June 2016 for this category is (a slightly positive variance of 0.31%). Retention is also measured for all staff and for 2015/16 it was 97.84%. 100% 99% 98% 97% 96% 97% 97.31% 97.84% 95% Target Scarce staff All staff Figure 19: Staff retention JW has a number of projects and interventions aimed at supporting the retention of skills. One such programme is the Engineering Capacitation Programme, which supports employees to register as professional engineers, technologists and technicians with the Engineering Council of South Africa. Linked to this in part, is the Specialist Career Grade launched in January 2009, aimed specifically at engineering and scientific staff. It provides the opportunity to advance the grading hierarchy and remain in their traditional fields without having to apply for managerial positions. Professional registration is one of the criteria for promotion. Exit interviews provide a mechanism for the diagnosis of underlying causes of problems, e.g. high turnover. At Johannesburg Water, exit interviews are conducted with all employees who voluntarily leave the entity and the reasons for these resignations are reported. Where specific problems are identified, these are addressed through tailored interventions. In addition, entrance interviews are conducted with all new employees as part of the on-boarding process to enable them to provide feedback on entity processes (e.g. recruitment, induction) and to identify and resolve problems that could lead to the employee exiting the entity prematurely. In terms of the company s remuneration practices there is provision for salary progression through the salary band based on a combination of time in the entity and performance where performance is the gate keeper. The entity tracks the 50 th percentile of the market as its midpoint and whilst it is accepted that cannot compete on salary with the top end of the market, there is provision for counter offers for employees that resign and who are deemed critical to service delivery. Finally, through the regular tracking of employee satisfaction levels by way of surveys, the entity is able to assess if there are problem areas that will affect satisfaction levels and possibly lead to resignations. No survey was conducted in 2015/16 and the next survey is planned for 2016/ Integrated Annual Report 2015/16

98 SECTION FOUR Performance management Staff performance The entity has employed a structured performance management system since 2006 every employee has a performance plan with annual targets which support the company s Balanced Score Card. During the 2015/16 financial year, all employees, including the Managing Director, signed performance plans with their managers. The performance management system provides for reward for acceptable performance as determined in the Remuneration Policy and forms a combination of non-recurring payment (bonuses) and advancement through salary bands based on performance (salary progression). The process of reviewing both the Performance Management and Remuneration Policies is currently underway with a view of adopting new policies for the 2016/17 financial year going forward. It is expected that the benchmarking exercise aimed at parity across the City and all municipal entities will impact in this area once the City of Johannesburg Group Human Resources has developed a City-wide salary advancement approach. The productivity improvement projects focus in 2015/16 was on the Networks Division, which has the biggest impact on the customer and is the biggest division in the entity. The project has resulted in the increase in the number of completed jobs per day per team. One of the major deliverables was the introduction of an early evening shift from September 2014 and this was finalised as a permanent feature of the work environment during the year. 96 Integrated Annual Report 2015/16

99 SECTION FIVE Employee wellness and HIV/AIDS in the workplace HIV/AIDS The impact of the Human Immunodeficiency Virus (HIV) and Acquired Immune Deficiency Syndrome (AIDS) are in respect of the following areas: operations, supplier risk, legal risk and health risk. has adopted the following core principles as a basis for its HIV/AIDS Policy: Continuously assess the risks posed by HIV/AIDS on the business; Limit the number of new infections among employees; Ensure employees living with HIV/AIDS are aware of their rights and that their rights are respected and protected; and Provide care and support to employees living with HIV/AIDS. HIV/AIDS structures The company has established an Employee Wellness Unit, which is, inter alia, developing strategies and programmes designed to address HIV/AIDS challenges. To this end, the entity supports the strategies adopted by the City of Johannesburg and participates in interventions at that level, but also develops its own supplementary programmes. has 40 peer educators who are fulltime employees and who have shown passion and a willingness to assist colleagues with various health-related issues, including providing care and support to their HIV positive colleagues. Prevalence rate and Knowledge, Attitude and Practice (KAP) Surveys KAP Surveys KAP Surveys are conducted on biennial basis, as a result, none was conducted in the current cycle because the last one was done in the first half of The next KAP survey will be conducted in the 2016/17 financial year. HIV Counselling and Testing (HCT) and Prevalence Survey The company has, on a yearly basis, commissioned HIV Counselling and Testing (HCT) Campaigns for its employees through external services providers. The HCT Campaign seeks to achieve the following: To mobilise employees to know their status; Serves as a gateway for both HIV prevention and for early access to treatment care and support; and Reduce the risk of HIV transmission to future children and partners by increasing the incidence of health-seeking behaviour. The HCT services were conducted at the entity s 22 work sites during the 2015/16 financial year. A total of employees participated in HCT in 2015/16. HIV prevalence within the participants was 3.8% (58 out of 1 500). Education and awareness of the disease On the basis of the findings of the last KAP Survey (2014), it emerged that a knowledge gap exits with regard to the appropriate use of antiretroviral therapy (ART), as well as adhering to treatment. Consequently, a campaign to educate employees on the appropriate use of and adherence to ARTs was conducted. Peer educators received training on basic counselling skills and presentation skills. The programme is judged to be successful. The peer educators meet on a monthly basis to keep abreast with the current trends and developments of HCT, and are also responsible for condom distribution. World AIDS Day interventions on a centralised level concentrated on education and knowing one s status. At least employees attended the session on 1 December The entity does not provide medication (ART), but instead provides subsidised access to medical funds to all employees, thus ensuring that all have access to managed care if required. HIV is categorised as a Prescribed Minimum Benefit (PMB) condition by the Council for Medical Schemes. 97 Integrated Annual Report 2015/16

100 Employee Assistance Programme Apart from the above interventions that are aimed at HIV/AIDS risks, an Employee Assistance Programme service is offered to employees and their spouses. This provides counselling for any issue that could impact on the employee psycho-socially. A service provider, Healthi Choices, has been engaged to render the Employee Assistance Programme service. Wellness Week A total of employees participated in Wellness Week 2015 and following Wellness Week, 948 employees participated in complementary services provided (flu vaccination and multivitamin booster injections). The major findings of the Wellness Week event included a determination that the body mass index (BMI), which measures obesity and the risks for diabetes, hypertension and cardiovascular diseases, was high in most work sites. The Wellness Unit has designed programmes to improve employee risks associated with elevated BMI results. Programmes such as The Biggest Loser encourages employees at a designated site to collectively lose weight throughout the year and compete with other sites for a prize and the title of the Biggest Loser. Full gymnasium facilities are also available to employees at one of the Head Office buildings at a very low membership fee. 98 Integrated Annual Report 2015/16

101 Chapter 5 Financial Performance

102 (SOC) Limited (Registration number 2000/029271/07) Audited Annual Financial Statements for the year ended 30 June 2016 General information Country of incorporation and domicile South Africa Nature of business and principal activities Supply of water services as defined in the Water Services Act, No. 108 of 1997 Directors KPM Simelane (Chairperson) LT Dhlamini (Managing Director) CB Shongwe (Financial Director) ZD Hlatshwayo SN Khondlo JJH Mateya MP Matji K Mdutshane G Moloi C Motau NJ Motlabane Registered office 17 Harrison Street Marshalltown Johannesburg 2107 Business address 17 Harrison Street Marshalltown Johannesburg 2107 Postal address PO Box Marshalltown Johannesburg 2107 Controlling entity City of Johannesburg Metropolitan Municipality Bankers Standard Bank of South Africa Limited Auditors The Auditor-General of South Africa Company Secretary GJ Luden Company registration number 2000/029271/07 Attorneys Moodie and Robertson The preparation of these Financial Statements were supervised by: CB Shongwe (Financial Director) 100 Integrated Annual Report 2015/16

103 Index The reports and statements set out below comprise the Annual Financial Statements presented to the Shareholder: General information Directors responsibilities and approval Directors report Certificate by Company Secretary for the year ended 30 June Report of the Audit Committee Report of the Auditor-General to the Gauteng Provincial Legislature and the Council of the City of Johannesburg Metropolitan Municipality on (SOC) Limited Report on the Financial Statements Report on other legal and regulatory requirements Statement of Financial Position Statement of Financial Performance Statement of Changes in Net Assets Cash Flow Statement Statement of Comparison of Budget and Actual Amounts Summary of accounting policies Integrated Annual Report 2015/16

104 Directors responsibilities and approval The directors are required by the Companies Act of South Africa, No. 71 of 2008 to maintain adequate accounting records and are responsible for the content and integrity of the Annual Financial Statements and related financial information included in this report. It is their responsibility to ensure that the Annual Financial Statements fairly present the state of affairs of the company as at the end of the financial year and the results of its operations and cash flows for the year then ended, in conformity with Standards of Generally Recognised Accounting Practice (GRAP) and in accordance with directives issued by the National Treasury. The Auditor-General of South Africa is engaged to express an independent opinion on the Annual Financial Statements. The Annual Financial Statements have been prepared in accordance with GRAP including any interpretations, guidelines and directives issued by the Accounting Standards Board, the Companies Act of South Africa, and directives issued by the National Treasury. The Annual Financial Statements are based on appropriate policies consistently applied and supported by reasonable and prudent judgments and estimates. No external party, including the Shareholder, has the authority to amend the Annual Financial Statements after being issued by the company. The company relies on the City of Johannesburg Metropolitan Municipality for the following functions for all its customers: Billing; Cash collection; Debtors administration; and Call centre management. The management of the above functions is regulated by an agency agreement between the City of Johannesburg Metropolitan Municipality and the company. The implemented processes and methods of operation are solely under the control and stewardship of the City of Johannesburg Metropolitan Municipality. This arrangement is managed in terms of a service level agreement underpinning the agency agreement. Clause 13.3 of the agency agreement with the City of Johannesburg Metropolitan Municipality states that The performance of the Customer Revenue Collection and Customer Relations Management functions shall be conducted and records thereof kept by the City of Johannesburg Metropolitan Municipality in such a manner as to ensure that the audited accounts of the company are in no way qualified as a result of any act or omission connected with the execution of the Customer Revenue Collection and Customer Relations Management functions. The directors place full reliance on the internal controls as established by the City of Johannesburg Metropolitan Municipality in the execution of the Customer Billing and Revenue Collection and Customer Relations Management functions. The directors acknowledge that they are ultimately responsible for the system of internal financial controls established by the company and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the Board of Directors sets standards for internal control aimed at reducing the risk of error or loss in a cost effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the company and all employees are required to maintain the highest ethical standards in ensuring the company s business is conducted in a manner that, in all reasonable circumstances, is above reproach. The focus of risk management in the company is on identifying, assessing, managing and monitoring strategic, operational and external risk across the company. While operating risk cannot be fully eliminated, the company endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints. The directors are of the opinion, based on the information and explanations given by management, that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the Annual Financial Statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss. 102 Integrated Annual Report 2015/16

105 The directors have reviewed the company s cash flow forecast for the year to 30 June 2017 and, in light of this review and the current financial position, they are satisfied that the company has or has access to adequate resources to continue in operational existence for the foreseeable future. The approved budget for the ensuing financial year assumes a positive cash flow. The Auditor-General of South Africa is responsible for providing assurance and reporting on the company s Annual Financial Statements. The Annual Financial Statements set out on pages 115 to 158, which have been prepared on the going concern basis, were approved by the Board on 29 November 2016 and were signed on their behalf by: KPM Simelane (Chairperson) ` LT Dhlamini (Managing Director) 103 Integrated Annual Report 2015/16

106 Directors report The directors submit their report for the year ended 30 June Incorporation The company was incorporated on 21 November 2000 and obtained its certificate to commence business on 1 January Review of activities Main business and operations The company is engaged in the supply of water services as defined in the Water Services Act, No. 108 of 1997, as well as the treatment of wastewater and operates principally in South Africa. The company continues to rely on the City of Johannesburg Metropolitan Municipality for the following functions for all customers: Billing Cash collection Debtors administration Call centre management The implementation of the project to centralise the customer call centre, billing and credit control functions in the 2010 financial year has resulted in significant challenges in the performance of all migrated functions. The Board of Directors have continued to express their concern to the Shareholder, and have been assured that the challenges are being addressed, and that appropriate interventions are being implemented by the City of Johannesburg Metropolitan Municipality. The operating results and state of affairs of the company are fully set out in the attached Annual Financial Statements and do not in our opinion require any further comment. Net surplus of the company was R713.0 million (2015: R582.3 million ). The company is exempt from income tax with effect from the financial year ended 30 June 2007 in terms of Section 10(1)(t) of the Income Tax Act, No. 58 of 1962, as amended. There is consequently no taxation effect. 3. Going concern The Annual Financial Statements have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business. 4. Directors interest in contracts The directors of the company did not have any personal financial interest in contracts entered into by the company. 5. Accounting policies The Financial Statements have been prepared in accordance with the effective Standards of Generally Recognised Accounting Practices (GRAP) including any interpretations, guidelines and directives issued by the Accounting Standards Board. 6. Contribution from Shareholder There were no changes in the authorised or issued share capital of the company during the year. According to the company s register at 30 June 2016, the City of Johannesburg Metropolitan Municipality held 100% of the ordinary share capital of the company. 104 Integrated Annual Report 2015/16

107 7. Borrowing limitations In terms of the sale of business agreement, the company requires the approval of the Shareholder in instances where the borrowing is to be secured by the hypothecation of the assets of the company. 8. Non-current assets There were no major changes in the nature of non-current assets of the company during the year. 9. Distributions to Shareholder No distributions were declared or paid to the Shareholder during the year. 10. Directors The directors of the entity during the year and to the date of this report are as follows, with no recorded changes of appointment for the year. Name KPM Simelane (Chairperson) LT Dhlamini (Managing Director) CB Shongwe (Financial Director) ZD Hlatshwayo SN Khondlo JJH Mateya MP Matji K Mdutshane G Moloi C Motau NJ Motlabane Nationality South African South African South African South African South African South African South African South African South African South African South African 11. Company Secretary The Company Secretary is GJ Luden. 12. Corporate governance 12.1 General The Board of Directors are committed to business integrity, ethics, anti-corruption, transparency and professionalism in all its activities. As part of this commitment, the board supports the highest standards of corporate governance and the development of best practice. The company confirms and acknowledges its responsibility to total compliance with the Code of Corporate Practices and Conduct ( the Code ) laid out in the King Report on Corporate Governance for South Africa 2009, and the Companies Act of South Africa, No. 71 of The Board of Directors discuss the responsibilities of management in this respect, at Board meetings and monitorsthe company s compliance with the code on a quarterly basis. The salient features of the company s adoption of the Code are outlined below: 12.2 Board of Directors The Board: Retains full control over the company, its policies, strategies and plans; Acknowledges its responsibilities as to strategy, compliance with internal policies, external laws and regulations, effective risk management and performance measurement, transparency and effective communication both internally and externally by the company; and 105 Integrated Annual Report 2015/16

108 Is of a unitary structure comprising: Nine non-executive directors, all of whom are independent directors as defined in the Code; and Two executive directors Chairperson and Managing Director The Chairperson is a non-executive and independent director (as defined by the Code). The roles of the Chairperson and Managing Director are separate, with responsibilities divided between them, so that no individual has unfettered powers of decision Executive meetings The directors met on 11 separate occasions during the financial year. The directors are scheduled to meet at least four times per annum. Non-executive directors have access to all members of management of the company. Board meetings Audit Committee meeting Human Resources and Remuneration Committee meeting Service Delivery and Oversight Procurement Committee meeting Risk and Information Technology Committee meeting Social and Ethics Committee Nominations Committee Total meetings Name Total number of meetings held KPM Simelane (Chairperson) LT Dhlamini (Managing Director) CB Shongwe (Financial Director) ZD Hlatshwayo SN Khondlo JJH Mateya MP Matji K Mdutshane G Moloi C Motau NJ Motlabane Audit Committee The chairperson of the Audit Committee is K Mdutshane who is a non-executive director. The other member of the board, who forms part of the Audit Committee, is MP Matji. The committee met eight times during the financial year to review matters necessary to fulfill its role. In terms of Section 166 of the Municipal Finance Management Act, No. 56 of 2003, the City of Johannesburg Metropolitan Municipality, as the Shareholder, must appoint members of the Audit Committee. Notwithstanding the fact that non-executive directors appointed by the Shareholder constituted the company s Audit Committee, National Treasury policy requires the appointment of further members to the Audit Committee who are not directors of the company. Three independent members were appointed to the Audit Committee in compliance with Section 166 of the Municipal Finance Management Act. The independent members of the Audit Committee are: R Buys attended eight meetings; V Mokwena attended eight meetings; and Z Samsam attended seven meetings. 106 Integrated Annual Report 2015/16

109 12.6 Internal audit The company has an internal audit unit which is operational. This is in compliance with the Municipal Finance Management Act. 13. Shareholder The company s Shareholder is the City of Johannesburg Metropolitan Municipality. 14. Special resolutions The company did not pass any special resolution during the year under review. 15. Bankers The Standard Bank of South Africa Limited served as the company s bankers throughout the financial year. 16. Auditors The Auditor-General of South Africa will continue in office in accordance with the Public Audit Act, No. 25 of 2004, Section 92 of the Municipal Finance Management Act and Section 90 of the Companies Act of South Africa. 107 Integrated Annual Report 2015/16

110 Certificate by Company Secretary for the year ended 30 June 2016 In terms of Section 88(2)(e) of the Companies Act and the Municipal Finance Management Act, I certify that, to the best of my knowledge and belief, the company has lodged and/or filed, for the year ended 30 June 2016, all such returns and notices as required and that all such returns and notices are true, correct and up to date. GJ Luden (SOC) Limited Company Secretary Johannesburg 29 November Integrated Annual Report 2015/16