1. DEVELOPMENT OF A CASH FLOW MANAGEMENT MODEL by LEON KAPLAN: MUNICIPALITIES PROJECT LEADER Gauteng Department of Finance Municipal PPP Conference 18 FEBRUARY 2010

2. AGENDA Background The SAICA Developed/Facilitated Cash Flow Model for municipalities Application of the CFM to Capital Projects Way forward

4. BACKGROUND

5. BACKGROUND: MOTIVATION FOR DEVELOPING A CASH FLOW MANAGEMENT MODEL SAICA’s response to ‘Cash Crunch’ & Municipal needs for meaningful Management Information Reduced household disposable incomes (unemployment/increased tariffs etc) Increase bad debts and reduced collection rates (consumer boycotts) Unrelated Income & expenses (Reduced Revenue and Actual Collections v Budgeted Expenditure) Grants (‘ring-fencing’) Capex v. Opex?..(service delivery!) Balance Sheet Projections Risk of unidentified Cash Flow viability (unreliable/non-existent cash flow projections; timing of cash flows) 5

6. Cash Flow Model….. features 12 step process utilising wide range of MS Excel functions (including explanatory notes for first time users) Daily, Weekly, Monthly and Yearly Cash Flow Projections ‘Flash’ report for Management with relevant indicators (early warning system for potential future financing/cash challenges; basis for assessing and developing an adjustments budget (eg: based on reduced revenue receipts) Debtors collection rates to be based on previous year’s actuals rather than budget Distinguishes between “own funding” and grant funding which requires to be ring-fenced Tracking Capital Projects (% complete v funding needs)

7. Cash Flow Modelling process…Inputs Assistance from Budget office to complete 3 year MTREF Assumptions used in model to be historically accurate and achievable based on the current economic climate (Adjustment budgets catered for) Regular (daily, weekly) updating of the system to maintain the model Active engagement with the cash flow management reports by CFO and senior management to inculcate new financial discipline of on-going cash flow management and forecasting Capital Projects data input

9. Application of the CFM to Capital Projects Caters for ‘Own’, ‘Grant’ and ‘Loan’ funded projects Budgeted figures for projects obtained from the municipality’s Capital Budget The model highlights monthly actuals v. monthly budget & total budget The model allocates the timing of expected Capital Grants receipts and payments (daily; monthly) The model highlights surplus funds (including Grant funding) to be ‘ring- fenced’ for short term investment Multi-year funding is tracked

10. Capital Projects : Grant funding inflow

11. Capital Projects : Grant funding outflow

12. WAY FORWARD ……CFM ‘vision’

13. WAY FORWARD Phase 1 Roll-out to remaining Gauteng municipalities SAICA Endorsement Phase 2: Future Improvements ( subject to funding) Development of Grants Registers Web based portal for Gauteng Municipalities to input Cash Flows Integration with Municipal financial systems to import daily Cash Flows Usage of common chart of accounts (NT GFS codes) for reporting purposes & consolidation aligned to the new NT reporting Regulations NT Endorsement and ‘National’ roll-out

14. CONTACT DETAILS Leon Kaplan (Municipalities Project Leader) leonk@saica.co.za 0828005154 Colleen Robinson (Municipalities Project Co-ordinator) colleenr@absamail.co.za 0836312183

15. Q & A

16. THANKS