9/1/2021
P 74 WC LG
Johnny Douglas
Municipal Minimum Competency Training
Programme
Unit Standard 116342
Apply Approaches to Municipal Income and
Expenditure in a Multi-year Framework
1
Unit Standard 116342
Apply Approaches to Municipal Income
and Expenditure in a Multi-year Framework
Chapters in Unit Standard 116342
Chapter 1. Introduction to municipal income and expenditure
management.
Chapter 2. Developing approaches to management of municipal
revenue in a sustainable manner.
Chapter 3. Subsidy framework for municipal rates and tariffs
Chapter 4. Forecasting of medium term revenue and expenditure
Chapter 5. Implication of medium term revenue and expenditure
Chapter 6. Design of rates, tariffs and user charges in a municipality
Chapter 7. Credit control and debt collection policy
3
ASSESSMENT INSTRUCTIONS FOR TAKE HOME
ASSIGNMENT and TEST
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US116342 - Assessment Plan
Class Test
Test learner’s understanding of:
❖ Definitions
❖ Indigent policy
❖ Credit control and debt collection
❖ Financial systems
❖ User charges and taxes
6
Participants are advised to have access to:
•
•
•
•
the respective learner guide,
MFMA,
The Constitution of the Republic of South Africa,
Local Government: Municipal Systems Act, Act 32 of
2000 and the
• Local Government: Municipal Structures Act, Act 117
of 1998.
During preparation/self study/watching the DVD
material
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Chapter 1
Introduction to municipal
income and expenditure
management
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8
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Chapter 1: Introduction to municipal income &
expenditure managementBackground
The conceptual framework for municipal finance can be traced
back to the White Paper on Local Government issued in 1998.
In order to meet the objectives of the Constitution the White
Paper proposed a structured system of municipal finance that
is in line with seven basic policy principles namely:
–
–
–
–
–
–
–
Revenue adequacy and certainty;
Sustainability;
Effective and efficient use of resources;
Accountability, transparency and good governance;
Equity and redistribution;
Development and investment; and
Microeconomic management
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9
Chapter 1: Introduction to municipal income &
expenditure managementBackground
THE MFMA
• The Municipal Finance Management Act (MFMA) has
transformed these basic policy principles as per the White
paper on Local Government into legislative requirements and
modernised the way in which municipal finances are
managed.
• It focuses on sound outcomes as well as rules and procedures
and on long term strategic planning rather than one-year line
item budgets and,
• establishes municipal practices that are rooted in a culture of
performance and regular reporting.
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10
Introduction/Overview
Constitution
Section 214 states that:
• Local Government Equitable Share must ensure that municipalities:
❖ are able to provide basic services
❖ fulfil their functions
– must take into account fiscal capacity and efficiency;
• Municipalities must generate own revenue and also rely on
intergovernmental fiscal transfers.
• In generating own revenue a municipality will inevitably incur
expenses by rendering services.
• Revenue is generally regarded as the total amount of money
received by an organisation for goods sold or services provided
during a certain period.
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3.4 Municipal Revenue
What is municipal revenue?
MFMA:
• Section 64(1) of the MFMA (No 56 of 2003) makes accounting
officers/municipal managers legally responsible for the management of
revenue of a municipality.
• In practice this function is delegated to the Chief Financial Officer
(CFO).
• Section 64(2) of the MFMA, which require the accounting officer
(delegated to CFO) to take all reasonable steps to ensure:
❖
❖
❖
that the municipality has effective revenue collection systems
consistent with section 95 of the Municipal Systems Act (MSA)
and the municipality’s credit and debt control policy
That revenue due to the municipality is calculated on a monthly
basis
That accounts for municipal tax and charges are prepared on a
monthly basis
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3.4 Municipal Revenue
What is municipal revenue?
❖
❖
all monies received must be promptly deposited into primary bank
account of the Municipality
Municipality has and maintains a management, accounting and information
systems in place which:
❖
❖
❖
Recognises revenue when it is earned
Account for debtors and
Accounts for the receipt of revenue;
municipality has and maintains a system of internal control in respect of
debtors and revenue
charges interest on arrears
revenue reconciled on a weekly basis
• municipalities are encouraged to generate own revenue through various sources:
❖ internal sources…. See pg 9 of LG
❖ external source ….See pg 9 of LG
❖
❖
❖
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3.7 Municipal Expenditure
What is municipal expenditure?
MFMA:
• Section 65 stipulates that the Accounting Officer (Municipal
Manager) must take reasonable steps to ensure:
❖ municipality has and maintains an effective system of
expenditure control;
❖ maintains a management, accounting and information
system which recognises revenue and expenditure on an
accrual basis.
• Municipal financial teams should be at the forefront of work
in identifying ways of securing sustainable revenue sources for
the municipality and of seeking innovative ways to raise
resources required to support service delivery.
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4. Definition of revenue and
expenditure (1)
Revenue:
•
•
GRAP broadly defines revenue as gross inflow of economic benefits or
services potential during the reporting period when those inflows result
in an increase in net assets, other than increases relating to owners’
contributions.
Typical transactions that gives rise to revenue are the following:
–
–
–
–
–
–
–
–
–
Services/tariffs
Sale of goods
Rates
Service charges
Fines
Government grants
Other grants/donations
Levies
Interest, royalties and dividends
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4. Definition of revenue and
expenditure (2)
Expenses:
•
•
GRAP – defines expenses as a decrease in economic benefits or services
during the reporting period in the form of outflows or consumptions of
assets or incurrence of liabilities that results in a decrease in net assets,
other than those relating to distribution to owners.
Different Types of Expenditure:
– Capital expenditure, that is the acquisition of capital assets such as
vehicles, property etc;
– Current expenditure, which are incurred within a year such as office
stationery.
– Losses represent other items that meet the definition of expenses
and may or may not arise in the course of the operating activities
such as:
• Losses resulting from Disasters and
• Disposal of non-current assets
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5. Importance of municipal revenue
and expenditure
MFMA (Section 64 and Section 65):once finances are allocated
through a budgetary process the municipal service delivery
activities move into an operational phase.
• This phase is referred to as In-year management of resources as it
includes:
– Overseeing monitoring, evaluation and reporting on all
aspects of municipal budgets and finances;
– Ensuring municipal compliance with MFMA regulations;
– Creating good administrative practices and procedures;
– Making funds available for SDBIP implementation;
– Overseeing the monitoring of funds used;
– Preparation and submission of monthly, quarterly, biannual
and annual reports
– Building of capacity and sound financial systems
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6. Municipal revenue management
system (1)
• A municipality should utilise all possible means available to
ensure that its revenue management system is operating
effectively and efficiently.
• Operating, monitoring and safeguarding activities important and
guided by following principles:
–
–
–
–
Expenses are incurred as authorised and in line with the budget
Expenditure are supported by revenue and cash collection
Expenditure are in line with SDBIP
Continuous adherence to regulations that guide spending, revenue
collection and safeguarding;
– Proper and timely reporting of revenue and expenditure
– Internal control systems in place to prevent fraud, wasteful and fruitless
expenditure.
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6. Municipal revenue management
system (2)
In the revenue collection cycle, a Municipality must ensure that it develops an
indigent policy that is implemented and managed on an ongoing basis.
Implementation of Policy:
• impacts on revenue base
• Term “indigent” means – lacking the necessities of life.
• Constitution provides a guide and provide the following goods and services as
necessities for an individual to survive:
– sufficient water
– basic sanitation
– refuse removal
– environmental health (Municipal Health)
– basic energy
– health care
– housing
– food and clothing
Everyone who does not have access to these goods and services is therefore
considered indigent.
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ACTIVITY/CLASS DISCUSSION
Page 16, 17
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Chapter 2
Developing approaches to
management of municipal
revenue in a sustainable manner
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Introduction
• MFMA, Act 56 of 2003 gives effect to the constitutional
principle that recognises that the local sphere of
government is distinctive, interdependent and interrelated
– municipality may generate revenue and determine
expenditure priorities
• Section 11 of Municipal Systems Act indicates that:
– A municipality exercises legislative and executive
authority by imposing and recovering rates, taxes,
levies, duties, service fees, etc.
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Difference between tax and user charges
•
Section 229 of the Constitution provides local government with certain taxing powers.
This section provides as follows:
– a municipality may impose:
– power of the municipality regulated by national legislation
• implies that the power of the municipality to impose rates on property may be regulated
by national legislation, which is presently in the form of Local Government: Property
Rates Act (Act No. 6 of 2004).
•
Two types of local government revenue instruments ie:
– User charges:
• money charged for use of specific local government services
– Taxes:
• legally levied on economic flows (commercial transactions or income) or stocks
A tax is an involuntary fee paid by individuals or businesses to government.
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4. Tax instruments and property tax
• The tax base for taxing real property as the object of taxation is its
capital value, which is supposed to reflect the ability of the owner
to pay.
• Municipal Property Rates Act, 2004:
– Empowers municipalities to impose property taxes;
– For many years property rates important source of revenue
– district municipalities do not impose property taxes;
• Market value of land and improvements is used as tax base on
which the same rate is applied;
• Creation of wall-to-wall municipalities resulted in the creation of
large municipal units that call for valuation and rating practices
enabling a municipality to have a single valuation roll
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5. User charges
An Important source of municipal revenue includes charges:
– The majority of incomes derived from user charges are charges on electricity and
water services.
• There are Principles for user charges as sources of revenue:
▪ Adequacy –user charges have to be adequate and have to be conscientiously
increased through a consultative process;
▪ The benefit principle-user charges are usually charged in proportion to the
amount of service consumed, conform to the benefit principle. User charges,
therefore, have to be subsidized if they are going to conform to the vertical
equity principle. The need for vertical equity can also be argued from an
economic
▪ Administrative feasibility –Administratively, user charges are theoretically easy
to collect as compared to taxes. Are based on measurable levels of
consumption and people only get the services they pay for.
▪ Politically acceptable in principle – but level of the tariff sensitive.
▪ Allocative efficiency – if informed by market forces may be more allocative
efficient than taxes. User charges should be as cost-reflective as possible to
achieve allocative efficiency.
▪ Productive inefficiency – make all prices and subsidies transparent to enhance
provider accountability to politicians and citizens and thereby assist in applying
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downward pressure on production costs.
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7. Incentive effects of municipal tariff
and user charges
• Incentive effects of municipal tariff and service
charges should be estimated to ensure that
municipalities are provided with appropriate
incentives to extend municipal revenue
• Financial incentive to limit spending on operations
and maintenance will be counteracted by political
pressure to extend services
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Sustainability of municipal revenue
• Certainty about revenue and balanced budgets
• Cost recovery mechanisms:
– Consolidated Municipal Infrastructure Programme
(CMIP): assists municipalities in meeting capital costs
– Ability to measure consumption and collect payments
– Effective administration – good postal system
– Threats/punishment (cut-offs and evictions) – expensive
and politically sensitive
– Move towards Prepaid metering for cost recovery.
• Appropriate tariffs, user charges and subsidies …
• Affordability issues …
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Sustainability assessment
Measure and manage sustainability of revenue:
• Complete knowledge of electricity consumption statistics in
residential, commercial, industrial usage – demand greater
than supply. Why? Inelasticity
• Water, sanitation & refuse – no more room for surpluses
because of free basic water, dwindling sources, government
set guidelines
• Sanitation and refuse not creating surplus – difficult to
attain full cost recovery
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ACTIVITY/CLASS DISCUSSION
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Chapter 3
Subsidy framework for
municipal rates and tariffs
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Subsidies at municipal level
• Constitution (Section 27):
– Everyone has the right to have access to❖ health care services, including reproductive health care
❖ sufficient food and water
❖ social security, including, if they are unable to support themselves
and their dependents, appropriate social assistance
❖ The state must take reasonable legislative and other measures,
within its available resources, to achieve the progressive realisation
of each of these rights
• Municipal Systems Act:
– Section 97(1) of the Municipal Systems Act 2000 (Act No 32 of 2000)
states that a municipality must provide in its debt collection and credit
control policy for debtors that are consistent with its rates and tariffs
policies and any national policy on indigents.
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Poverty in a municipality
• Poverty is more than low or inadequate income; It
refers to lack of physical necessities, assets and
income – A loss of assets precipitates poverty
• Municipality must understand of who is poor, what
causes it, where they are, movement and mobility
patterns, the variable sources of survival and
information.
• Requires detailed ethnographic research, observation
and engagement
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Poverty levels in a municipality (1)
Following Variables used to assess the level of
poverty in a Municipality:
•
•
•
•
•
•
•
•
•
•
living in formal housing;
access to electricity for lighting;
tap water inside the dwelling;
flush/chemical toilet;
telephone in dwelling/cellphone;
refuse removal at least once a week;
level of education of the head of household;
monthly household expenditure;
unemployment rate;
average household size and children under five years old
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Poverty levels in a municipality (2)
• Address poverty issues by giving the poor a subsidy to get
a service;
• Can be applied in different ways ie:
– give directly to poor to buy service at full economic cost, or:
– Can be used to provide the good or service at reduced price
(Credit the user’s account)
• Money for subsidy must come from:
– pool of resources earned ie. by selling services;
– equitable share or transfers to the municipality.
• Spending on one thing means that the municipality
cannot spend them on others-cost of doing this is called
Opportunity cost
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3.4 Negative consequences of no
subsidy framework
• Lack of a subsidy policy restricts the creation of equal
opportunity for self-advancement of South African
citizens.
• It also limits the promotion of a culture of responsibility
rather than one of entitlement.
• Some Direct consequences of the lack of a policy:
– contravening constitutional right of access to basic services;
– indigent debtors not able to meet obligations due to a lack of a
subsidy policy will lead to credit control measures being taken to
minimise consumption of services.
– if credit control measures are not taken, further wastage of
services at indigent households, leading to more debt for such
households
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4. Indigent and legislative compliant policy
• National government promotes free basic services to alleviate
poverty.
• Local government is constitutionally mandated to deliver services
such as:
• Electricity and water:
–
–
–
–
–
–
–
–
–
–
Understand consumers and consumption patterns
Assess technical options (e.g. low pressure system, prepaid)
Assess links with other services, e.g. water to sanitation
Establish institutional framework (network governance)
Understand costs
Review municipal financial sources
Select relief option …
Finalise pricing policy
Establish financial arrangements with providers
Establish management arrangements
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4.6 Who qualifies for indigent support
• Different municipalities use different formulae to determine who
of their residents should be placed on their indigent programme.
• It is possible that household would qualify in one municipality,
but not in another
• Some of the people that should receive help, are not receiving it
because of lack of a common approach to the indigent policy.
• Accountholder or property owner must register as indigent, only
after registration accepted and entered into register of indigents
shall qualify.
• Registered indigent must be the full-time occupant of the
property, may not own another property whether in or outside
the municipal area.
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4.7 Consideration of criteria and
process issues
• Setting criteria and process to identify indigents:
– start with national criteria, decide whether more or less generous
– consider application and registration steps – how to apply
– whether to rather identify indigents programmatically by formula, e.g.
consumption level
• Application of policy, determine:
– intended relief for registered indigents(e.g. 100% on first 7 kilolitres),
reviewable each annual budget
– Whether registered indigent must be full-time legal occupant of property
– whether indigent must be both owner and full-time occupant of property
– whether ownership of more than one property will be disqualified;
– period for which relief is granted
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4.8 Indigent database management and
vital reports
•
Each subsidy scheme requires a set of rules on who qualifies for
subsidies, in what form they are allocated, who can change the
rules and how to, who administers the system, and what
sanctions apply to those found cheating.
People need to be educated on how the subsidy scheme works
to enable them to take up the subsidy and to ensure that
subsidy entitlements reach them.
The municipal manager shall report on a monthly basis to the
executive mayor or executive committee for the month
concerned and by municipal ward on the ff:
•
•
❖
❖
❖
❖
number of households registered as indigents and a brief explanation of
movements, trends
The monetary value of actual subsidies and rebates granted
The budgeted value of subsidies and rebates concerned; and
cumulative information of above for the financial year to date.
• Executive mayor/committee - submit these reports quarterly to
Council and ward committees (or more frequently if so requested)
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5. Socio-economic impact of a subsidy
framework
• Need to balance fiscal, social, economic and
environmental goals as communities continue to grow.
• Socio-economic impact assessment assist communities
in decisions affecting long-term sustainability including
economic prosperity, a healthy community, and social
well-being.
• Factors that should be considered:
–
–
–
–
economic conditions in the municipality
uptake and consumption of services
employment within the municipality
financial aspects of subsidies
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6. Subsidy design and control mechanism
against leakages
• Three main sets of design parameters relating to
subsidies:
– method of transference from municipality to target
group;
– degree of choice in using the subsidy – for what services
subsidy can be used and at what rate (speed);and
– level of transparency of the subsidy – whether fully
transparent or subsidies are hidden.
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6.2 Design possibilities and control
mechanism
There are various ways in which the subsidy can be
transferred and accessed ie. via:
• Cash
• Vouchers/coupons
• Accounting/billing
• Self-selection
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7. Information sets to manage an effective
subsidy framework
The management of an effective subsidy framework is vital; the
information set used in the identification of the three broad options
clearly depends on the target group.
• Municipal selection using statistical data
– The municipality can select a target group by defining the group according to a
set of criteria, which can be measured on the basis of a set of information
external to the beneficiary (target group) or the officials selecting the group.
• Self-selection
– Self-selection occurs when a municipality provides a service at a subsidised rate
to all who claim it. Eg. provision of communal taps in certain localities.
• Registration of the target group by the municipality
– The municipality asks the local population to apply for a benefit, making it clear
who from the population would qualify for the benefit. During the application
process certain information is obtained from the applicants. This is usually done
through a written questionnaire that is part of the application form.
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DAY 2
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Chapter 4
Forecasting of medium term
revenue and expenditure
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3. Information sets for forecasting
revenue and expenditure (2)
The following points present revenue and expenditure
benchmark procedures through which municipalities
should function:
• Use resources effectively, economically, in an accountable and
transparent manner
• Structure and manage administration
• Budgeting and planning processes must prioritise basic needs
• Set clear objectives that municipalities will meet and sustain
• Regularly monitor and assess performance
• Prepare an IDP and financial plan
• Report to the community
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PLANNING
• Budgetary challenges are facing South African municipalities
when implementing the budget or when developing a financial
plan. How limited resources are utilised to satisfy unlimited
needs of communities, especially given the rapidly changing
operating environment and limited resources are factors
municipalities must deal with.
• Planning is one method to manage change to the best advantage
of the community and to improve the level of service delivery in
municipalities.
• What is a municipal financial plan?
– The result of evaluating the expenditure and financing options available to
a municipality
– It is a tool for informed budgeting and allocation of resources so that the
development strategies, including land-development objectives, can be
achieved, within a given budget and a set timetable
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3.4.3 FINANCIAL PLAN
• Financial Plan involves producing a medium-term
(3 years) projection of capital and operating
expenditure and revenue allocations with financial
strategy to raise the revenue to support objectives.
• National Treasury recommends ff. steps for
preparation of a budget:
–
–
–
–
–
–
Planning
Strategising
Preparing
Tabling
Approving
Finalising
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3.4.5 Information sets for forecasting
revenue and expenditure – Planning (3)
• Municipal financial planning objectives:
– Are to request for funding to specifically address / support the
implementation of the IDP
– use yearly financial planning processes to set priorities for
project and programme accomplishments
– work towards ensuring that revenue shall not fluctuate
substantially from year to year
• MFMA (Section 17) - prepare budgets and supporting
documentation:
– draft resolutions approving budget and imposing revenue
collection
– measurable performance objectives for various revenue
sources
– cash flow projections
– proposed amendments to IDP
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Information sets for forecasting
revenue and expenditure – Planning (4)
Municipal financial planning process
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3.4.5.4 Information sets for forecasting
revenue and expenditure – Planning (5)
Municipalities should base their forecast on certain
factors to manage their revenue and expenditure:
•
•
•
•
Economic factors
Debt factors
Financial factors
Administrative factors
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3.5 Forecasting income and expenditure
using data sets (1)
• Political Data Sets
– The key to strengthening the link between political priorities and spending
plans lies in enhancing political oversight of the budget process.
• Cost driver data sets
– Different types of service delivery are known to exist among different
municipalities. It follows that differences in quantity and inputs necessary
to supply municipal services, socio-economic composition of the
population, and environmental factors can cause variations in the cost of
municipal services. Different approaches can therefore be used to measure
costs of municipal service delivery
• Traditional cost accounting
– can be used to arbitrarily allocate indirect costs to the cost objects.
• Activity-based costing
– Activity based costing (ABC) may be defined as a methodology that
identifies the activities in the municipality that are responsible for
generating costs; these activities contribute to the service delivery in areas
of land and facility management, community planning, recreation, library,
protection and emergency services, utilities and public works (streets, storm
water, bridges, parks, traffic, environment).
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Forecasting income and expenditure
using data sets (2)
• Activity-based cost management (ABCM) is the
management technique that uses activity-based
costing as a major source of information in the
management of the municipality
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Forecasting income and expenditure
using data sets (3)
• Activity-based costing
• “Activity based costing (ABC) and activity based management
(ABM) more than just a costing methodology for a city”
Alistair Hofert (Buffalo City Management Accountant)
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SDBIP P67
Service delivery and budget implementation plan” means a detailed
plan approved by the mayor of a municipality in terms of section
53(1) (c)(ii) for implementing the municipality’s delivery of municipal
services and its annual budget, and which must include:
• projections for each month of- Revenue to be collected by source; and
- Operational and capital expenditure by vote;
• Service delivery targets and performance indicators for each
quarter; and any other matters that may be prescribed and
includes any revisions of such plan by the mayor in term of section
54(1)(c)
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Forecasting Social, institutional, economic and
environmental influences on municipal finances
Each municipality’s budgetary process is affected by
numerous variables such as:
•
•
•
•
•
•
The local government legislative requirements;
Intergovernmental fiscal transfers;
governmental structure;
the regional and national economies;
the nature of the service provided; and
the personalities of the principal actors
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5. Indicators relating to municipal
revenue and expenditure
• Municipalities should complete a financial analysis of at least
the following ratios and norms and recommend possible
steps to rectify deviations to the municipal council:
–
–
–
–
–
–
–
–
–
–
–
–
Coverage of Short-term Portion of Long Term Liabilities (STPLTL)
Short-term debt
Debtors tests
Creditors test
Capital cost burden
Staff cost
Grant dependency
Cash funded operating budget
Salary and bulk purchases coverage
Financing for net current assets
Financing method for long-term assets
The municipal manager must indicate the steps already taken to
address deviations from the norms or any other actions required to
ensure access to the capital market on a continuous basis.
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6. Forecasting revenue and expenditures
To make an accurate estimate of a municipality’s revenue for
the following financial year, the CFO should have a working
knowledge of the dynamics of local revenue sources and the
economic factors that can cause them to vary over time.
The local economy plays a key role in creating a municipal
budget – the questions:
•
•
•
•
•
•
•
•
•
will the business climate improve or weaken?
local economic conditions in nearby cities?
outlook for employment and industry growth?
population of the city increase, decrease, the same?
changes in age brackets or in the socio-economic composition of the
municipality’s population?
changes in residential and commercial development?
impact of the construction industry?
past and current rates of inflation?
trends in property values?
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8. Estimating known expenditures for
the next financial year
The factors for estimating the municipality’s essential
expenditures:
• The amount needed to pay interest and principal on outstanding
liabilities, leases and any other debts;
• financial impact of newly completed municipal facilities;
• cost of extraordinary maintenance requirements to muni facilities;
• changes in the legislation, which may impose new financial
requirements;
• cost of the payroll for the next financial year;
• reductions for the cost of any discontinued programmes or services;
• increases in expenditures due to increases in grant, donations or
contract revenue;
• cost of any legal judgments pending against the municipality.
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9. Estimating revenue and sources for
the following year
The task of forecasting how much money will be available to accommodate
growing needs for service delivery falls to the finance staff.
• Historical revenue trends
– The first step in making a revenue estimate for the next financial year is to compile a
five-year historical record for each individual revenue source
•
Revenue sources
•
Property rates and taxes
– Since the greatest source of funds for the budget year is normally revenue collected
that year, the preparation of reliable revenue estimates is critical.
– The property tax is an annual tax assessed, levied and administered exclusively by
municipalities on the values of all taxable property. Property taxes are levied to
finance the expenditures of a particular budget period.
•
•
Other revenue sources
Estimating revenues by trend analysis
•
Revenue estimate worksheet
– Estimating revenues can be performed with a variety of accounting measurements
– After the budget office has assembled historical data for each revenue source and
examined economic trends that will affect the municipal revenue in the future, the
information can be used to estimate the municipal revenue for the next financial year.
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Budget assumptions
• Estimation of revenue and expenditures occurs
under environment of uncertainty.
• Assumptions on Internal and external factors:
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
external factors
inflation outlook
credit rating
rates, tariffs, charges and timing
interest rates
growth or decline in tax base
collection rates
price movements
provincial and national policies
ability of the municipality to spend and deliver
trends in demand for subsidised services
changing demand characteristics
average wage increases
industrial relations situation ...
restructuring and other major events
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Chapter 5
Implication of medium term
revenue and expenditure
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3. The impact of political “buy-in” in
revenue management (1)
Consultation in revenue and expenditure planning is crucial for the effective and
efficient finance management. Medium-term budgeting is a continuous process
which covers a time span of more than one year. The purpose of such a process is
to assist in planning over the medium-term and to reflect the effect of current
decision over the medium-term.
Outcomes:
• Drive, direct, guide an support community participation processes.
• Ensure the Implementation of an integrated, participative, citizen-focused
organisation based on best practices;
• Legal requirements:chapter 4 to 6 of the Municipal Systems Act is the basis for
the requirement for the community participation process.
• Key strategic issues and challenges
• Critical success factors: An efficient corporate structure, staff compliment and
unqualified support from all city structures including the administration and
political components.
• Political buy -in is the political support required by municipalities in the
management of revenue and expenditure in the context of MTREF.
• Key to political buy-in the rigour and credibility …
• …
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The impact of political “buy-in” in
revenue management (2)
Outcomes:
• The MTREF is fundamentally a macroeconomic model that
indicates fiscal targets and estimates revenues and
expenditures, including financial obligations and high cost
service delivery programmes such as civil service reform.
• MTREF is working with an economic model that projects,
revenue and expenditure on a multi-year basis.
• Municipal right to determine internal procedures for multiyear planning - Constitution (Section 160) and MFMA
(Section 64 and section 65)
• Municipal right to structure internal operations - Municipal
Systems Act (Section 53)
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3.3.12 The impact of political “buy-in”
In revenue management (3)
Outcomes:
• Municipalities are required to define the roles and areas of
responsibility of political office-bearers and political structures.
TORs must be prepared for office bearers :
–
–
–
–
–
–
–
–
The Municipal Council
Municipal Systems Act –
requirements: Page 96
The Executive Committee
The Mayor
Each Section 79 committee (appointed by Council)
Each Section 80 committee (Executive Committee)
The Deputy Mayor
The Speaker
The Municipal Manager
• Design organisation to integrate MTREF and annual budgets
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Organisational structure to facilitate
revenue and expenditure management (1)
The organisational structure of the municipality should reflect all
stakeholders.. This displays the organisational structure of the entire
municipality.
Community
Delegation
Accountability
Legislature (Council)
Executive (Mayoral
committee)
Administration (MM Head)
Dept 1
Dept 2
Dept 3
Dept 4
Dept 5
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Organisational structure to facilitate
revenue and expenditure management (2)
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Municipal MTREF budget structure
• The MTREF budget of a municipality is structured on the basis
of the need to achieve accountability, functionality, and
transparency financial governance system. This further takes
cognisance of the need to comply with National Treasury
requirements. These objectives are reflected in each level of
detail in a municipal MTREF budget structure, which has the
following outline:
• Department
• Cost Centre
• Item
• Line item
• Vote Sec 1 of MFMA
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Municipal budgets
The MFMA further states that there can be only one adjustments budget per year. Any
further changes to the budget must be submitted to the MEC for Local Government for
approval.
•
•
Internal control
– The system of controls is designed to provide cost-effective assurance that assets are
safeguarded and that liabilities and working capital are managed efficiently.
Demonstrating good internal controls
– Good internal control is the primary indicator of good management.
Audit Committee’s challenge
Medium-term budget
– The medium- term budget policy is a tool to be used in municipal transparency and
accountability as it sets out the municipality’s position, broad policy and spending priorities.
Expenditure
•
•
•
•
•
•
Cash management
Payment of creditors
Management of cash flow
Administration of banking accounts
Petty cash procedures
Investment ethics, principles and procedures
•
•
•
–
Responsibilities of this function include the planning and control of the full spectrum of assets and insurance for the
municipality in the medium-term.
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Key role players in revenue management
Political buy-in is required to form part and parcel of revenue and
expenditure management. Therefore, there is a need to
understand the role of other players in the revenue management
process.
•
•
•
•
•
•
•
•
•
Heads of department and officials
Municipal Manager
Chief Financial Officer
Executive Committee
Municipal Council (staff)
Ward Councillors
Support providers/planning professionals
Sector departments
Council
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Chapter 6
Design of rates, tariffs and user
charges in a municipality
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Legislative framework
• Constitution (section 229) – a municipality may impose:
– rates on property and surcharges on fees for services
– other taxes, levies and duties if authorised by national legislation
• Municipal Systems Act (Section 75A) – a municipality may:
– levy and recover fees, charges or tariffs in respect of any function or service
– recover collection charges and interest on any outstanding amount
• Municipal Systems Act (Section 74) – must adopt and implement tariff
policy on levying of fees
• Municipal Systems Act (Section 75) – must adopt bylaws for
implementation and enforcement of tariff policy …
• Municipal Property Rates Act – power to impose rates on property
• Water Services Act, 1997 and Electricity Act, 1987
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Tariffs and user charges
• Trading services:
– Water and electricity - tariffs
• Economical services:
– Sewage and domestic household removal – user charges
• Subsidised services:
– fire fighting, approving building plans and the construction
of buildings – user charges
• Community services:
– establishment, operation and maintenance of parks and
recreation facilities, provision and maintenance of roads
and storm water drainage systems – property rates
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Tariff policy
The goals:
1. A minimum amount of basic services must be free
2. Keeping tariffs affordable
3. Achieving price parity for services and property rates
4. Pulling untaxed properties into the tax net and fully
exploited sources of revenue
5. Introducing the “Consumer must pay” principle
6. Redistribution/cross-subsidisation
7. Promoting local economic competitiveness and
development
8. Ensuring financial sustainability of service delivery
9. Tariff determination process
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6. Financial effects and need for a tariff
policy
•
Revenue, adequacy and certainty
•
Sustainability
•
Effective and efficient usage of resources
•
Accountability, transparency and good governance
•
Equity and redistribution
•
Development and investment
– The Municipality must have access to adequate sources of revenue to enable it to
carry out its functions.
– Financial sustainability requires that the Municipality must ensure that its budget
balances.
– Resources are scarce and must be used in the best possible way to reap the
maximum benefit for the community
– The Municipality must be accountable to the community for the use of its resources.
– Budgeting and the financial affairs of the Municipality must be open to public
scrutiny,
– The Municipality must treat members of the community equitably with regard to the
provision of services.
– Meeting basic needs in the context of existing services backlogs, will require
increased investment in municipal infrastructure.
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Chapter 7
Credit control and debt
collection policy
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7.3 Legislative framework of credit Control policy
• Constitution:
– Section 152 (1)(b) …
– Section 153 (a) …
– Section 195 (1) …
• Municipal Systems Act:
–
–
–
–
Section 4(1)(c)
Section 5(1)(g)
Section 6(2)(c) and (f)
Chapter 9
• Municipal Finance Management Act:
– Section 64 Revenue Management
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Credit control and debt collection policy
• Definition of credit control
‒ Credit control is generally understood in the municipal
sector to be the functions related to the collection of
cash from ratepayers, customers and consumers of the
various municipal services
• Factors that affect the implementation of a full
credit control system:
‒
‒
‒
‒
‒
‒
Lack of administrative capacity
Lack of political support and commitment
Poor and inefficient accounting systems
Lack of financial resources
Insufficient customer pay-points
Non-existent indigent policy
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Credit control … P132
•
•
•
•
•
•
•
Principles
Necessity for credit control
Debt collection responsibility of municipalities
Contents of policy - Municipal Systems Act (Section 97)
Supervisory authority- Municipal Systems Act (Section 99)
Implementing authority-Municipal Systems Act (Section 100)
Credit control and debt collection
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Debt collection procedures and mechanisms
•
•
•
•
•
Annual general rates payers
Monthly general rates payers
Provisions for indigent debtors
Interest on arrears
Extension of time for payment
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Credit control procedures and mechanisms
•
•
•
•
•
•
Services by agreement
Deposits
Payment of charges
Reading of conventional meters
Low cost housing debtors
Procedures and mechanisms
– The instalments shall be paid on or before the first day of
each month.
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Johnny Douglas
Email: johnnyd@sun.ac.za
Good Luck with preparations
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