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Reporting on performance information and results

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Presentation on theme: "Reporting on performance information and results"— Presentation transcript:

1 Revenue Master Class: Reflections from Durban’s Chief Financial Officer
Reporting on performance information and results Monitoring and Measuring Results Budgeting Accountability Matrix IDP/SDBIP LTDF Getting feedback from Key Stakeholders Using performance information and results

2 INTRODUCTION Effective financial management is critical to any organisation. In the context of local government, a lack of sound financial management will have a direct adverse impact on service delivery. As there is a strong correlation between sound financial management and effective service delivery. “The aims of a democratic society and growing economy can only be realised through a responsive, accountable, effective and efficient system of local government. If local government fails, South Africa fails.” “You are not just paid to work. You are paid to be uncomfortable – and to pursue projects that scare you.”

3 TOUGH TIMES Tough Times Never Last But Tough People do!!!!
Robert H Schiller International Best Seller

African American – Oseola McCarty Washer Lady Lived to 88 Save $ Donated $ to bursary fund Died two weeks after seeing first student graduate Many Corporates contributed to the bursary fund This is a legacy + Living a life that matters

5 RECEIPE FOR SUCCESS 20 X 3 Daily Get up at 5AM 20 Min exercise
20 Min Meditation 20 Min Goal Reflection Focus on key issues 60 – 90 minutes Capital Infrastructure Credit worthiness Maximize Revenue Value For Money

6 RECEIPE FOR SUCCESS Be responsive 24/7 Earn Respect
Give leadership and direction Make decisions Hard work Set tone at the top Fish rots from the head Do not be afraid to speak out Be a good listener


8 RECAP 10 COMMANDEMENTS Build confidence Income collect revenue
Expenditure Value for money Credit worthiness – strive to improve credit rating Resilience / Sustainability Asset management Grow the economy Financial System Skills Performance and Planning GOD

9 ROLE OF CFO – s81 OF MFMA Must perform: - budgeting - cash management
- accounting analysis - financial reporting - debt management - supply chain management - financial management The CFO is accountable to the accounting officer for the performance of the duties referred to above.

Stewardship of public funds Financial analysis of local authority activity to secure value for money through effective management accounting Identification of risk and from that defining internal control and internal audit requirements Ensuring efficient management of cash and borrowing Safeguarding assets Securing a prudential financial framework so that a balanced budget exists and is maintained “Take care of your relationships and the money will take care of itself.”

Responsive to needs of communities Create culture of accountability and good governance Prevent corruption Establish communication channels Give information to all stakeholders Inform stakeholders on costs of management “To double your income, triple your rate of learning”

The Municipal Finance Management Act (MFMA) has the following impact with regard to income and expenditure:- Must have realistic income projection Must have a balanced cash budget and ensure sustainability 3-year budgeting must be in place (MTIEF) All funds must be cash backed Adequate provision must be made for bad debts Must have an effective revenue collection system consistent with the Systems Act Expenditure has to be reduced when revenue is anticipated to be less than projected  As regards the Municipal Property Rates Act, it has caused a shift in incidence due to the change in the basis of valuation (market value), but it has not necessarily resulted in an increase in income. “Be a master of your craft. And practice + practice + practice.”

Return on investment Maximize current infrastructure investment Use Value Filters in IDP Sustainability Balancing capital expenditure for social, economic, rehabilitation and support (including fleet and IT) Social housing impact on free basic services Need to ensure rates base growth to ensure sustainability of free basic services Energy efficiency and green economy Increase in informal settlements Investigate feasibility of a minimum service charge for residents “Don’t fall in love with your press releases” 13

14 ETHKWINI OUTCOMES Densification – optimal use of infrastructure
Improved spatial planning – catchment / nodal development Transport corridors More efficient integration of rail and road Job creation Affordability of services Retain and increase growth in businesses Move from housing driven development to economic driven development Urban migration control Establish Land Bank – Identify land for future development “Every moment in front of a customer is a moment of truth to either show you live by the values you profess – or you don’t.” 14

15 BUDGET Must be balanced and income projections must be realistic
3-year budgeting (MTEF) – better planning and funding strategy Linked to IDP – value filters & needs analysis Also linkages to NDP (National), PGDS (Provincial) and LGTAS (COGTA) Key issue is balancing social, economic, rehabilitative and support expenditures No over-expenditure – adjustments budget Community participation another key issue The main budget-related policies – Credit Control and Debt Collection Policy, Rates Policy, SCM Policy, Tariff Policy, etc Municipalities need to be economically viable – cannot rely on grants Look to fund capital budget from internal funds and borrowings

16 BACKLOGS Huge inherited backlogs
Have made great progress since 1994, however, the following backlogs still exist: SERVICE BACKLOG Water 19.3% Sanitation 32.6% Electricity 27.3% Refuse 0% Housing 2.1 M units The funding gap – local government under funded Rural-urban migration exacerbating the problem Housing accreditation Densification strategy

17 POLICIES Don’t do anything not in your Policy or bylaws
No use having policies and bylaws in place but not complying with them No political interference Zero tolerance towards non-compliance Requirements: transparency, accuracy, etc “If you’re in business, you’re in show business. The moment you get to work, you’re on stage. Give us the performance of your life”

18 CASH MANAGEMENT No overdraft or borrowing for operating budget
Liquidity – current ratio – 1:1 Daily cash flow analysis Reserves Cash on hand > 90 days “The purpose of work is to help people. The other rewards are inevitable by-products of this singular focus.”

Basic Strategy : - Increase Income - Contain Costs ‘Increase Income’ Measures :- Actively chasing up Debtors Top level interaction with Government depts. owing money. Vigorously applying Credit Control Policies Ensure DORA Payments timeously received. “Every visionary was initially called crazy.” 19

No risk Gearing ratio < 40% What is your debt appetite? Fund capital budget from internal funds Reduce borrowings –what is your borrowing horizon? Debt service cost < 10% Long term loans have to be sustainable and affordable Loans vs bonds “Keep promises and be impeccable with your word. People buy more than just your products and services. They invest in your credibility.”

21 BORROWING STRATEGY Strategy based on Borrowing Framework and Guidelines Borrow long term at lowest possible rate with minimum risk Borrowing requirement based on three year CAPEX coinciding with MTREF Flexibility to borrow for three years or one year based on market conditions “You’ll get your game-changing ideas away from the office versus the middle of work. Make time for solitude. Creativity needs the space to present itself.” 21

22 AFS & AUDIT OPINION Accounting standards: GRAP, GAAP, IFRS
Audit outcome vital – impact on credit rating and borrowing rates Operation Clean Audit 2014 2010/2011 audit findings for the 283 municipalities: AUDIT OUTCOME 2010/2011 2009/2010 Disclaimer 55 77 Adverse opinion 7 Qualified 53 61 Unqualified with findings 115 122 Unqualified with no findings 13 There have been improvements in respect of all audit outcomes However, progress still too slow

Rating agency provided an independent assessment of the credit quality of the municipality to provide investors with information on which to base investment & pricing decisions. Ethekwini has been awarded an Investment Grade: A1 SHORT TERM - Very high certainty of timely payment Liquidity factors are excellent AA - LONG TERM - Very high credit quality. Protection factors are very strong. Adverse changes in business, economic or financial conditions would increase risk although not significantly. - Highest Credit Rating in Municipal Sector allows ETM to borrow at very competitive interest rates. 23

24 ECONOMIC DEVELOPMENT Recognise developmental mandate to facilitate growth of the local economy and job creation – create a conducive environment Growth in rates base a key issue Need to attract new businesses – to ensure long term sustainability Job creation “The way you do one thing defines the way you’ll do everything. Every act matters.”

25 ASSET MANAGEMENT To support more efficient service delivery – less down time in terms of plant and equipment To reduce costs in terms of reduced maintenance cost in the long term – maintenance vs replacement costs Maximises the use of the asset – sweat value Identifies the correct time to replace asset – when no longer cost effective to maintain asset Hence good asset management facilitates the provision of services in a financially sustainable manner Asset management policy must be in place Software and technology available must be explored Compliance with GRAP requirements with regard to immovables and movables

26 ASSET MANAGEMENT Immovable assets - review of useful life
- identification of impairment - extending the lives of fully depreciated assets - componentisation - location of asset (on GPS) - asset loaded on system and linked to asset register – 100% coverage Movable assets - physical verification - conditional assessment - major clean up - reassessment of useful lives of fully depreciated assets

SCM regulations in terms of MFMA Councillors cannot be part of tender process even as observers SCM Policy Irregular expenditure Planning is critical ISO 9001 accreditation – key processes and SOP’s documented SSS system – e-procurement Contract management – tracking of tender through every stage – will also help with the timeous renewal of contracts Centralised contract register “Don’t do your best work for the applause it generates but for the personal pride it delivers.”

Procurement scheduling – key to ensuring optimal capital spend Bid Committees: BSC, BEC, BAC Blacklisting Appeals Conflict of interest – officials and councillors in the employ of the Municipality and State doing business with the Council Internal controls – pre-screening all expenditure in terms of a checklist, 100% pre-payment audit in Accounts Payable Service level agreements with suppliers and customers “Remember that what makes a great business – in part – are the seemingly insignificant details. Obsess over them.”

GL – JDE One World / JDE Enterprise One Valuations – Value Assist Asset management – Ellipse (Electricity and Roads) HR – Dynamique Long-term looking at ERP However, will have to compromise certain business requirements “An addiction to distraction is the death of creative production. Enough said.”

30 FINANCIAL MODELLING Infrastructure planning is a key issue MIIF model
Financial model – 20-year projection Capmon / JDE Enterprise One Access model Rates model “If you’re not failing regularly, you’re definitely not making much progress”

31 SKILLS Need to have the necessary financial and business skills
According to Deloitte sound financial management requires the deployment of suitably skilled people at the right places, and a continuous building of internal capacity Reduce reliance on consultants – skills transfer as part of SLA Strategic HR – recruitment, retention and development of skills Succession planning and talent management MINIMUM COMPETENCY FRAMEWORK Strong leadership Trainee Accountant and Graduate Trainee Accountant schemes “The only standard worth reaching for is BIW (Best in World)”

Need to align service delivery, the budget, performance management and reporting SDBIP Scorecard Some KPI’s attached “You become your excuses”

33 FROM VISION TO ACTION… By 2030 EIGHT eThekwini will be POINT
Where we want to be What we have to do How we are going to do it A Plan to make it happen A defined Vision Making hard choices 8 action plans Development Principles 8 city plans with key focus areas that outline a set of programmes and projects with budgets and timeframes for delivery Screening all actions to promote only development that supports our core principles and values Deciding on the platform to build in order to achieve the prosperity we desire Refining and refocusing or Vision to help guide action: VISION By 2030 eThekwini will be Africa’s most caring and livable city CHOICES MADE Creating Sustainable Livelihoods A Socially Cohesive City A Financially Sustainable City Creating a Safer City Promoting an Accessible City Environmentally Sustainable City eThekwini’s EIGHT POINT PLAN

Within the Long Term Planning framework, the IDP drives the way we PRIORITISE DEVELOPMENT, BUDGET and MEASURE OUR PERFORMANCE CITY’S STRATEGY CITY’S FINANCIAL ALLOCATION TO STRATEGY CITY’S ANNUAL DELIVERY PLAN CITY’S REPORT Done annually to publicly report on progress Done Once in Five Years Reviewed Annually Done annually to manage delivery Done annually with a three year projection ANNUAL REPORT IDP BUDGET SDBIP CITY’S PERFORMANCE MONITORING SYSTEM PERFORMANCE MANAGEMENT SYSTEM

IDP Budget SDBIP In - year Reporting Annual Financial Statements Report 5 year Strategy Three year Budget Annual Plan to Implement Monitoring Oversight Reports

36 ORGANISATIONAL PERFORMANCE MONITORING It is also necessary to establish processes to ensure all major organisational components of the city are integrated into an overall organisational monitoring and reporting framework. Report against SDBIP Quarterly Departments Consolidated Report that Measures Organisational Performance against IDP /SDBIP Targets Report Against Head Performance Agreement Report against Departmental SDBIP Report against Business Plan Report against Business Plan Monthly Departments Report Against Managers Performance Agreements

Debtors/Income % 20.0 Net debtors/Income 15.0 Debtors Days Days 60.0 Personnel to total Expenditure 30.0 Debt Servicing Costs to total Expenditure 10.0 to15.0 Creditor Days Current ratio Ratio 1:1 Distribution Losses Electricity Water 6.0 to10.0 20.0 to 25.0 Maintenance cost to total Expenditure 10.0 Cash collection rate 95.0 Gearing ratio 40.0 Debt coverage No. of times 18.0 Cost coverage 2.0 Cash on hand No of days 90

38 RISK MANAGEMENT An enterprise risk management system is required in terms of the MFMA and management best practices Risk management policy and framework in place Risk registers and profiles are also in place Risks identified, measured and prioritised on city, cluster and unit levels All financial risks reviewed on a monthly basis and performance in respect of mitigation strategies reported – mitigation strategies continuously refined From a financial management perspective the biggest risk is sustainable revenue collection which is part of the top strategic risks of the city Risk management software implemented – CURA

39 FRAUD & CORRUPTION Zero-tolerance
Have to ensure compliance with regulations Internal Audit, Internal Control and Ombuds Office have a critical role to play Fraud & Corruption Policy must be in place MFMA – criminal offence Municipal Systems Act – codes of conduct – councillors and officials IMFO – code of conduct “In the new world of business, everyone’s part of the leadership team.”

40 OVERSIGHT Committees - Finance & procurement Committee
- EXCO - Council - MPAC - Audit Committee - Bid Committees Other governments and departments - Province - National Treasury - Auditor General Internal departments - Internal Audit - Ombuds Office - Internal Control “It could take you 30 years to build a great reputation and 30 seconds of bad judgment to lose it.

41 HOW TO MAKE A CITY GREAT According to a McKinsey & Company report on “How to make a city great” the following key issues were identified: 1. Economic growth 2. Do more with less 3. Win support for change In terms of the relevance to this presentation, I will discuss the first two issues “The job of the leader is to grow more leaders”

42 DO MORE WITH LESS Assess and manage expenses rigorously – Top 10 items of expenditure Look at opportunities: outsourcing, technology, security, overtime standardisation of vehicles and computers, etc. Zero-based budgeting can help – review baseline Explore partnerships – PPP’s – cost-benefit analysis must be clear Repairs & Maintenance – do the cost-benefit analysis in terms of maintenance vs replacement Investment accountability – prioritisation of spending, return on investment, triple bottom line (economic, social and environmental) Active project management – time and cost savings Governance systems – monitor Top 150 capital projects – also look at forecasting and prioritising maintenance costs

Right systems, right structure, right people – reduce costs Data / reports vital for making management decisions Smart technology – lighting, metering, ticketing, energy savings – smart cities CCTV cameras – safer cities Fleet monitoring system Geospatial data / access modeling – manage resources Help engage citizens and improve relationships – digital applications, bills via and SMS, complaints (potholes, verges, services, accounts, cleaning, etc) Internet and online applications – share information easily Electronic billboards – provide motorists with real time information and help save them time and energy

44 ECONOMIC GROWTH Adopt a strategic approach
Identify competitive clusters – automotive, agriculture, etc – identify your competitive advantage Invest to support growth and attract new businesses – create an enabling environment Meet regularly with Chamber of Commerce and industry leaders Offer a client service to business – must do what you can to help business thrive – Rio offers free support services in terms of fact finding visits, permit applications and regulation compliance, identifying programmes to develop and train staff Rates holidays – view on a case-by-case basis Integrate environmental thinking Offer opportunities to all

45 ECONOMIC GROWTH Ensure that we have good infrastructure – water, electricity, sewerage, refuse removal, ICT Competitive basket of services, including taxes Create investor confidence Be business friendly “The antidote to deep change is daily learning. Investing in your professional and personal development is the smartest investment you can make. Period.”

46 CONCLUSION Common thread running through all issues are return-on-investment, value-for-money, and sustainability Productivity and benchmarking are hence vital issues Do more with less Opportunities: technology, outsourcing, standardisation Technology: data, CCTV, smart technology, fleet monitoring & management, on-line forms and complaints line, billboards Explore partnerships – PPP’s Densification strategy Risk management Performance management – SDBIP and scorecard

47 CONCLUSION Prioritise spending – capital, repairs & maintenance
No irregular, wasteful or fruitless expenditure – service delivery not an excuse for non-compliance Monitor Top 150 projects actively Strict compliance with legislative framework and regulations key Strict adherence to policies Balanced budget – economic/social/rehabilitation balance Linkage of budget to IDP and other strategies No unfunded mandates should be allowed Interrogate Top 10 items of expenditure “Remember that the things that get scheduled are the things that get done.”

48 CONCLUSION Economic development and growth – rates base and job creation Cash collection must be > 95% Cash management – 90 days cash on hand Gearing ratio < 40% Unqualified / clean audit report Fully reconciled asset registers Ensure value for money in respect of procurement Ensure technological opportunities are maximised Financial modeling is a useful tool for long-term planning Loss in distribution strategies should be introduced Eliminate fraud and corruption – everyone needs to play their role

49 THE END Live with the 3 E's … Energy, Enthusiasm, Empathy, and the 3 F's … Faith, Family, Friends.

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