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 Fax : 044 874 7817 Cell : 082 655 1222 Cell : 082 655 1222 Email : c.kapp@mweb.co.za 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. Legal Framework 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

5. THE CONSTITUTION  151 Status 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  152 Objects 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 ACT BUDGET 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