Revenue Management Master Class 2018 Dr Dirk Brand 19 November 2018 © The content of this presentation is confidential.

RMMC 2018 – Some reflections South African and global context Political volitality – identity politics The Trump roller coaster 4th Industrial Revolution Impact of climate change on local situations Growing need for more infrastructure investment in developing countries -$1 trillion annual need Global economic growth in 2018 3,1% 17 Sustainable Development Goals Global Infrastructure Hub – www.gihub.org is a global initiative to support infrastructure development and funding for projects involving private and public sectors.

RMMC 2018 – Some reflections

RMMC 2018 – Some reflections South African and global context A changed political context under Pres. Ramaphosa Zondo Commission of Inquiry into state capture VBS Bank scandal New Minister of Finance Very low economic growth <1% Unemployment SA – 27,5% Western Cape – 20,4% High fuel prices Eskom’s problems continue Civil unrest Effect of the drought in the Western Cape

RMMC 2018 – Some reflections Local Government financial situation Mkhize: 87 municipalities 'dysfunctional', require urgent intervention [Network 24, 2018-05-15] Auditor-general laments lack of accountability as he releases declining local government audit results [www.agsa.co.za/Reporting/MFMAReports/MFMA2016- 2017.aspx] South Africa is paying a heavy price for dysfunctional local government [The Conversation, September 3, 2018]

RMMC 2018 – Some reflections RMMC 2016 recommendations – 10 point plan: Political will – implementation, accountability Improving Treasury oversight Validate non-rate payers Back the debt against the asset Automation to improve efficient and effective credit control Ensure data integrity Double the service at half the cost Improve administrative efficiencies Maintain good client relations Ensure consequence management During the 2016 Revenue Management Master Class various practitioners made presentations on some recent case studies, innovative approaches and best practices in municipalities. Out of these discussions the following key points were identified and included in the program report: The following recommendations were made on a collective basis, and were also summarised during the last session: Political will Cut and collect – it is the only tool to use to ensure that residents that can pay, actually settle their debts on a timely basis. Culture of non – payment can be changed through cut and collect process. Many retail industries and mobile phone companies are extremely effective in this regard. No bailout for public entities – Other government departments and entities should be held accountable for their own expenses. Money for effectiveness – conditional grants should be granted to municipalities that can spend their capital and operational grants effectively, and conversely be taken away from municipalities that do not spend the budgets effectively. Property owners – accounts should only be granted to property owners, where the property will be the surety against the outstanding debt. Consumer deposit processes should be ended as it is an ineffective way of securing debt. Dashboard should be developed at council level and should at least include the following:- Cash flow ratios Debt collection ratios Financial ratios National Treasury oversight can be improved as a lot of the information that is available to them, is not analysed to ensure accountability where needed. Such oversight should have the following focus:- Key ratios, which include the ten critical liquidity ratios; Preventative oversight, instead of responding to crisis situations where it occurs. Payments for Bulk services should be correlated to distribution of equitable share. Active communication of Case law, which should pro-actively influence credit policies. Validate non-rate payers – a strong point was made by several presenters that recipients of free basic services should be validated, and some comments included:- Indigent registration on an annual process of application and approval. The definition of indigents should be revisited from time to time and a decision should be made whether income streams or asset base should be used in the definition. Automated tools should be utilised to validate the financial status of indigents, and ITC, SARS and Vehicle registration systems should be utilized in this regard. Regular updating of the indigent register should be explored and the role of internal audits should be explored. Automated process across government departments, and SARS should be established to enhance the validation of indigents. Back the debt against the asset – many comments have elevated the asset as an effective credit control mechanism. Some comments included:- Accounts for owners of property only. Deposit process not needed if the asset back the debt; A significant reduction of administrative and staff cost when deposit processes are eliminated. It also negates any potential interest payments on deposits. Eliminating the deposits has a positive Influence on the current ratio of municipalities. Property registration is one of the critical processes in a municipality, and can effectively be applied to enhance the recommendations above. Automation is the key to effective and efficient credit control. It allows for:- Data mining and analysis of trends, movement of residents, selling and buying of property, and validation of indigent applications. Immediate decision making as information is on hand. Any delays often lead to delayed payments. Data sharing between municipalities and other user departments. Supplier information can be shared across municipalities Payment history analysis. Blacklisting of slow and non-payers. Payments by staff, councillors, provincial and national employees can be monitored and checked against the HR database. Data integrity Data analysis is reliant on quality information and control processes should ensure accurate, complete and timely information. Property information should be accurately and timely updated to ensure accurate rates accounts and valuations. Debtor information should continuously be validated in terms of ownership, addresses and changes to infrastructure and usage. Service usage should be accurately captured and timely distributed to prevent any delayed payments. Variances in usage over time should be measured and questioned. Automation reduces the time differential between registration of building plans, approval, ownership changes and invoicing of consumers, and eventually improves the speed of cash flows. Suspense account transactions are eliminated and/or limit to exceptions only. Double the service at half the cost Increase the number of buyers by auditing the indigent register; Improve spending by applying the principles of economic and efficient procurement; Local economic development needs to be financed through conditional grants and not the payroll. This will create able buyers that will increase revenue stream; and Economic and GDP growth should be the focus of any revenue improvement program. Efficiencies Automation reduces time differences; Efficiency allows for the linking of systems across databases, which in turn allows for faster decision making on real time information. It allows for one information source; and Water losses should not be financed through transfers. Client relations Knowledgeable staff members can deal with issues quicker, resolve them and improve the cash collection process; One point of interaction will allow consumers to resolve their issues faster; and Modern infrastructure will allow for real-time information, professional service delivery and information on hand. Consequence management is critical and some suggestions included:- Dashboard of the MM should include specific indicators on revenue management; Liquidity ratios, including the current ratio and the creditors payment ratios; Debt collection ratios against a predetermined standard approved by the Municipal Council; Debt written off and the size of the debt impairment; Performance management should be applied against these indicators and performance bonuses should be adjusted accordingly; and Accountability should be applied in terms of under-performance.

RMMC 2018 – Some reflections RMMC 2017 recommendations: Apply evidence-based decision making Effective risk management is an important management tool Understanding the changing economic and governance context

RMMC 2018 – Some reflections RMMC 2017 recommendations: Good Financial Governance Charter (2017) A road map for effective integrated revenue management: Political leadership is necessary to implement effective integrated revenue management. Management and administration: Focus on both revenue and expenditure Revenue – strengthen revenue collection, explore new sources of revenue Expenditure – ensure proper costing of services Systems and processes - Innovate and automate where possible. A road map for effective integrated revenue management: Political leadership is necessary to implement effective integrated revenue management. Management and administration: Focus on both revenue and expenditure Revenue – strengthen revenue collection, explore new sources of revenue Expenditure – ensure proper costing of services Systems and processes: Innovate and automate where possible. Make effective use of technology, which includes updated software, data management systems and use of geographical information systems. Focus on effective service delivery. Risk management – adopt a comprehensive risk management strategy and ensure regular risk assessments are done. The municipal council and the top management should show the municipality’s commitment to good financial governance. Share best practices with practitioners in other municipalities. Reporting: a statement about the implementation of effective integrated revenue management practices should be included in the annual and six- monthly reports of the municipality to the Provincial Treasury.

RMMC 2018 – Some reflections RMMC 2017 recommendations: Make effective use of technology, Focus on effective service delivery. Adopt a comprehensive risk management strategy Commitment from municipal council and top management to good financial governance. Share best practices with practitioners in other municipalities. Regular reporting to Provincial Treasury A road map for effective integrated revenue management: Political leadership is necessary to implement effective integrated revenue management. Management and administration: Focus on both revenue and expenditure Revenue – strengthen revenue collection, explore new sources of revenue Expenditure – ensure proper costing of services Systems and processes: Innovate and automate where possible. Make effective use of technology, which includes updated software, data management systems and use of geographical information systems. Focus on effective service delivery. Risk management – adopt a comprehensive risk management strategy and ensure regular risk assessments are done. The municipal council and the top management should show the municipality’s commitment to good financial governance. Share best practices with practitioners in other municipalities. Reporting: a statement about the implementation of effective integrated revenue management practices should be included in the annual and six- monthly reports of the municipality to the Provincial Treasury.

RMMC 2018 – Some reflections Key focus areas: Effective data management Creative approaches to strengthen resilience Involve community in co-creation of solutions Ensure accountability Network of practitioners to share best practices …..what next?

RMMC 2018 – Some reflections https://nextstepac.com/good-financial- governance/