INCA SUMMER SCHOOL 2004

1. INCA SUMMER SCHOOL 2004 REVENUE MANAGEMENT PRESENTED BY: CHRIS KAPP ZADER MUNICIPAL SERVICES (PTY) LTD ONTACT DETAILS: Tel : 044 874 7815 Fax : 044 874 7817 Cell : 082 655 1222 Email : c.kapp@mweb.co.za

2. REVENUE MANAGEMENT • Legal framework (policies and by-laws) • Budgeting • Billing and billing administration • Rates • Service charges • Sundry income • Credit control and debt collection • Cash management and investments

3. REVENUE MANAGEMENT – BUDGET RELATED POLICIES ( Including tariff policy, rates policy debt and credit control policy) • Legal framework • Difficulties experienced by municipalities • Possible solutions • Financial performance

4. The Constitution • Systems Act • Local Government: Municipal Finance Management Act • Local Government: Property Rates Act • Municipal Policies and By-Laws: • Tariffs • Credit Control and Debt Collection • Rates • Delegations Legal Framework

5. THE CONSTITUTION • 151Status of Municipalities • Separate sphere of government • A municipality may govern subject to the national and provincial legislation • National and provincial may not compromise or impede a municipality’s ability or right to exercise its powers or perform its functions • 152Objects of Local Government • Ensure the provision of services in a sustainable manner

6. THE CONSTITUTION • 153. Developmental duties of municipalities • Municipality must: • Structure and manage its administration, budgeting and planning processes to give priority to the basic needs • 229. Municipality financial powers and functions • Municipality may impose:- • Rates on property and surcharges on fees for services • If authorised by national legislation, other taxes, levies and duties

7. THE SYSTEMS ACT • 4.Right and duties of municipal councils • Municipality has a right to:- • Finance the affairs of the municipality by:- • Charging fees for services • Imposing surcharges on fees, rates and other taxes, levies and duties (subject to national legislation)

8. THE SYSTEMS ACT • 74 Tariff Policy • Municipal council must implement and adopt a tariff policy • Must reflect the following principles: • users of municipal services should be treated equitably • amount individual users pay for services should be in proportion to usage • Poor households must have access to basic services, through: • Tariffs that covers only operating and maintenance cost • Special tariffs or life line tariffs • Any other direct or indirect subsidisation

9. THE SYSTEMS ACT(Tariff Policy continue) • Must reflect the costs associated with the service • Must be set at levels that facilitate financial sustainability of the service • Provision must be made for surcharge on tariffs • Provision may be made promotion of local economic development • Efficient and effective use of resources must be encouraged • Extent of subsidisation of tariffs must be disclosed May differentiate

10. THE SYSTEMS ACT (Tariff Policy continue) • 75. By-laws to give effect to the policy • Municipal council must adopt a by-law to give effect to its policy • By-law may differentiate between different categories of ratepayers, users of services, debtors, taxes, services and service standards

11. THE SYSTEMS ACT (Credit Control and Debt Collection Policy ) • 95. Customer care and management • Establish a sound customer management system • Establish mechanism for users of services to give feedback • Users of services must be informed of the cost of services • Consumption must be verified • Consumers receive regular and accurate accounts • Create accessible mechanisms to query and verify accounts • Provide accessible mechanisms for dealing with complaints • Provide mechanisms to monitor response time • Provide accessible pay points

12. THE SYSTEMS ACT (Credit Control and Debt Collection Policy ) • 96 Debt collection responsibility of municipalities • Municipality must: • Collect all money that is due and payable to it • Adopt, maintain and implement a credit control and debt collection policy

13. THE SYSTEMS ACT (Credit Control and Debt Collection Policy ) • 97. Contents of policy • Policy must provide for:- • Credit control procedures and mechanisms • Debt collection procedures and mechanisms • Provision for indigent debtors • Realistic targets consistent with: • Grap and collection ratios • Estimates of income • Interest on arrears • Extension of time for payment • Termination or restriction of services • Matters relating to unauthorised consumption, theft and damages • Other matters

14. THE SYSTEMS ACT (Credit Control and Debt Collection Policy ) • 98. By-laws to give effect to the policy • Municipal council must adopt a by-law to give effect to its policy • By-law may differentiate between different categories of ratepayers, users of services, debtors, taxes, services and service standards

15. MUNICIPAL FINANCE MANAGEMENT ACT • 64. Revenue management • The Accounting Officer is responsible for the management of revenue and must ensure that:- • The Municipality has effective revenue collection systems • Revenue is calculated monthly • Accounts are prepared monthly • Money received is promptly deposited • Internal control for debtors and revenue is in place • Interest in charged on arrears • Revenue is reconciled weekly • The Accounting Officer must inform National Treasury of late payments due to the municipality

16. MUNICIPAL FINANCE MANAGEMENT ACT 17. Contents of the budget • Prescribe format – setting out: • Realistically anticipated revenue for budget year • Expenditure for budget year • Indicative revenue and expenditure for the following two financial years • Separate capital and operating budgets • Accompanied by supporting documents

17. MUNICIPAL FINANCE MANAGEMENT ACTBUDGET RELATED POLICIES • 13. Cash management and investment • A municipality must establish a cash management and investment policy • 111. Supply chain management policy • Each municipality must implement a supply chain management policy

18. MUNICIPAL PROPERTY RATES ACT • 2. Powers to levy rates • A metropolitan or local municipality may levy rates on properties in its area • A district municipality may levy rates on properties in the district management area • Rates must be subject to- • Section 229 of the Constitution • Provisions of the Property Rates Act • Rates policy

19. MUNICIPAL PROPERTY RATES ACT • 3. Adoption and contents of rates policy • Rates policy takes effect on the effective date of the first valuation prepared in terms of this Act • A rates policy must: • Treat persons equitably • Determine criteria- • Different rates • Exemptions • Grants, rebates or reductions to specific categories of owners or category of properties • Increases in rates • Categories of properties or owners of properties

20. MUNICIPAL PROPERTY RATES ACT • Any exemptions, rebates or reductions must comply and be implemented in accordance with national framework • No relief may be granted other than by way of an exemption, a rebate or a reduction • 11. Amount due for rates • A rate levied must be on the market value of the property • In the case of public service infrastructure on the market value less 30% • A rate levied on properties with a market value below a prescribe valuation value may be an uniform fixed amount

21. DELEGATIONS • 79. Delegations • The Accounting Officer must :- • Develop an appropriate system of delegation • Regularly review delegations • The Accounting Officer may not delegate to any political structure or political office bearer any powers or duties • Delegations must be- • In writing • To a specific individual or holder of a specific post

22. MINISTER MFUMADI The underlying causes of the staggering debt situation are “largely administrative” he said….

23. Difficulties experienced by municipalities • Administrative difficulties: • Lack of policies and by-laws • Inability to communicate policies and by-laws • Inability to administer debtors database • Inability to support indigent consumers • Number of defaulting consumers • Outdated archiving system • Limited response period • Monthly recurring rates and service charges • Lack of specialised credit control and debt collection system • Exorbitant legal costs • Lack of staff

24. Difficulties experienced by municipalities • Financial difficulties: • Reluctance of councillors to increase rates and service charges • Insufficient provision for working capital and bad debts

25. POSSIBLE SOLLUTION • Political buy-in • Data integrity • Credit control and debt collection

26. POSSIBLE STRATEGIES • Financial analysis (status quo) • Political buy-in • Community participation and communication • House-to-house survey • Identify indigent consumers • Gather information of consumers • Update database • Electronic debt collection system capable to manage and control all internal and external processes including legal actions • Electronic archiving system • System must interface with and produce a mirror image of accounting system • System must be able to distribute work to multiple users • System must have a workflow process to direct and interchange work between credit control and debt collection staff, external contractors and departments • System must be user friendly and consumers must be encouraged to make arrangements • Possible outsourcing

27. FEATURES OF A CREDIT CONTROL AND DEBT COLLECTION SYSTEM • Interface with accounting system • Handle large number of defaulting consumers • Workflow • Electronic Archiving • Telephone processes • Reminder & Final Demand processes • Dis- and Reconnection processes • Legal Process up to Judgement • Account queries • Indigent applications and management • Data Filtering • Parameter driven system

28. FEATURES OF A CREDIT CONTROL AND DEBT COLLECTION SYSTEM • Management of :- • Arrangements • Estates • Insolvencies • Administrations • Account Queries • Contractors • Attorneys • Electronic Data Exchange • Arrears Extracts • Daily Payments Processing • Municipal Costs • Handovers

30. FINANCIAL PERFORMANCE

31. ZADER MUNICIPAL SERVICES PRODUCTS • Financial analysis and strategies • Policies and by-laws • Performance management systems • Forecasting models • Zeus credit control and debt collection system • Turnaround strategies • Assistance with budgets, financial statements and business processes