REVENUE, EXPENDITURE & CASH MANAGEMENT CRITERIA - PowerPoint Presentation

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REVENUE, EXPENDITURE & CASH MANAGEMENT CRITERIA

MUNICIPAL GOVERNANCE REVIEW &

OUTLOOK – FINANCIAL MUNICIPAL CAPABILITY MATURITY MODEL

15 August 2014

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INTRODUCTION

The Municipal Financial Governance Review and Outlook (MGR&O) 2012 is a Provincial Treasury (PT) initiative in collaboration with the Department: Local Government that provides an independent assessment of the governance level of municipalities.

The

intention of the MGR&O is to assess the municipality in terms of the adopted assessment model and to provide recommendations to management on how to take the financial management capability of the municipality to level 3 and higher.

The Government (Corporate) Governance Framework includes and builds on initiatives

set by

the Provincial Government, in collaboration with and support of all

Municipalities, to improve

general governance, financial management, internal audit, risk management

, internal

controls, and resource

utilisation.

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Three objectives of the budget process

Fiscal sustainabilityAchieving an appropriate balance between revenue and expenditure, the debt level and other fiscal aggregates in a manner that promotes economic stability over the economic cycle and ensures a sustainable fiscal position in the medium to long term.Allocative efficiencyAchieving an allocation of resources that reflects the priorities of government on the basis of evidence of programme effectiveness.Value for moneyPromoting the provision of public services through a process that contributes to achieving economy, efficiency and effectiveness, while being cognisant of the quality and accessibility of services.

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Value for money

Dimensions of value-for-money:Efficiency: Achieving more output from the same input, while maintaining qualityEconomy: Reducing the cost of resources used as inputsEffectiveness: Achieving better outcomes by changing the nature of outputs. Programmes not covered on the budget can be financed by reallocating spending from non-performing programmes.Cost containment instructions: shifting resources from non-core goods and services budgets towards key service delivery requirements.

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MGR&O criteria and ratings

Ratings

Description

Levels

Start-up level

Level 1

Development level

Level 2

Control level

Level 3

Information level

Level 4

Management level

Level 5

Optimising level

Level 6

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Financial Management Capability Maturity Model

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FMCMM

The Financial Management Capability Maturity Model (FMCMM) is a tool to assess municipalities’ level of maturity and capabilities in financial management.A framework that describes the key elements of effective financial management and sets out a path that a municipality can follow to progressively develop more sophisticated financial management practices.The FMCMM was initially developed for assessment of financial maturity in provincial and national departments; it has now been adapted for municipalities.A Presidential Outcome 12 Deliverable.

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PURPOSE

To provide a tool that can be used to:

Measure the financial management

capability

within municipalities.

Identify

gaps

within the municipality’s financial systems and processes.

Assist leadership with support in financial management & enhance

accountability.

Provide a

tool

that helps management to

assess skills & structure

requirements.

Provide management with pointers on Financial

Systems of

Delegations.

Provide an

early-warning

mechanism for municipalities

.

Assist municipalities close on

AG findings

through detailed activity

checks.

Priorities, enhance and monitor

National

and Provincial Treasury initiatives.

Inform governance & oversight structures on significant of specific

operations.

Determine the impact of

key non-financial processes

on financial management

.

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FMCMM - Levels of Maturity

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FMCMM - Levels of Maturity

There are

six levels in the model

, most municipalities are expected to be operating between level 1 and 3, however this will be confirmed with first roll out to all municipalities once results are tabulated. The model allows for progression to levels 4 to 6 - future development.

Level 1:The Start-up level

Internal Control framework is inadequate with systems, processes and procedures not defined or followed.

Level 2: The Developmental level

Financial management systems, processes and procedures are basic and are being developed.

Level 3: The Control level

Financial management systems, processes and procedures are functional and able to support the

organisation

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FMCMM - Levels of Maturity

There are

six levels in the model

, most municipalities are expected to be operating between level 1 and 3, however this will be confirmed with first roll out to all municipalities once results are tabulated. The model allows for progression to levels 4 to 6 - future development.

Level 1:The Start-up level

Internal Control framework is inadequate with systems, processes and procedures not defined or followed.

Level 2: The Developmental level

Financial management systems, processes and procedures are basic and are being developed.

Level 3: The Control level

Financial management systems, processes and procedures are functional and able to support the

organisation

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FMCMM - Levels of Maturity

Level 4: Information level

The economic utilisation of resources is managed, measured and reflected in reliable financial and performance information.

Level 5: Management level

Capability is measured and monitored with procedures which are constantly being reviewed and improved.

Level 6: Optimisation level

Mature policies, practices, procedures and systems are implemented for effective and efficient operations.

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Structure of Model

Currently Model is MS Excel based. We are exploring alternative electronic applications.

Model includes:

- Index, instructions sheet and summary score sheet

- Accounting Officer/ CFO’s letter confirming review of completed model

Each module contains:

-Questions, Reference to Questions, Associated Risks and Associated Controls

Scoring Mechanism

Yes = 3

Partial = 2

No = 1

Not applicable = does not affect scoring

*

Next step to generate level 4-6 questions

Modules can also be completed independently, taking into account specific financial management disciplines.

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Modules

1. Reporting

12. Expenditure Management

2. Annual Financial Statements

13. Liability Management

3. Annual Reports

14. Borrowing

4. Budget Management

15. Supply Chain Management

5. Budget

and

Treasury Office

16. Information Technology

6. Bank, Cash and Investments

17. Human Resources

7. Asset Management

18. Capacity Building

8. Risk Management

19.

Compensation of Employees

9. Internal Audit

20. Management of Entities

10.Revenue Management

21. Public Private Partnerships

11.Transfers and Grants

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Characteristics of the FMCMM

Descriptive

Suggest what would be needed to achieve a certain level of capability

Assist in mapping out a strategic plan required for improving financial management at each level

Reflect specific attributes or financial capabilities that a municipality at a particular would exhibit

Building blocks to establish effective financial management

Provide guidance for continuous improvements

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MFCMM – LEVELS 4-6

MFCMM

do not have questions On this level, Statistics and trends suggest most municipalities fall between levels 1 and 3 Therefor the MFCMM questions focus more in compliance, however guidance are provided on the following levels:

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FMCMM – LEVEL 4

MFCMM do not have questions On this level, however the following Guidelines are given:

At the Information level,

operational

managers

have a broader

understanding of

their financial management

responsibilities

. They

also recognize their responsibility to contribute to the municipality's financial management capabilities.

At the Information level,

municipal standards

for

all processes and activities have been

established

to allow for measurement

and comparison

between similar business units

across

the municipality. These standard

financial

management practices can be

tailored

to the respective unit's nature and

unique

risks

.

One of the key processes at the Information

level

is to

provide consistent and comparable

financial

and operational (non-financial) information and reports that meet the needs of managers

.

This

information provides a basis for developing

performance

indicators, cost and quality measures and

monitoring

performance, to ensure that intended results are being achieved and to demonstrate accountability.

Critical to achieving this level of capability is a climate that institutionalizes financial management practices throughout the municipality's culture

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FMCMM - LEVEL 5

MFCMM

do not have

questions On

this level, however the following

Guidelines

are given

:

Uses

the information developed to balance two competing objectives:

using its resources economically and efficiently, and producing cost-effective results

- for example, goods or services of acceptable quality. The municipality understands the financial implications of the choices and trade-offs it makes between these objectives. Such information also allows the municipality to better account for the way that it uses the resources entrusted to it;

Can better manage its financial and operational performance because it has - and uses - the "right" information. It

has information and analyses on the relative costs of different approaches to achieving its objectives

;

Possess mechanisms for measuring the impact of variables such as cost, quality, productivity and degree of success in achieving its stated objectives

. This capability flows from a history of having measured and managed municipality performance, which includes, for example:

managing

the municipality's information and knowledge resources as assets, so that information needed to make informed decisions is available (for example, by using simulations, historical trends and manipulating variables to see how they affect results); etc

.

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MGRO INFORMATION LEVEL 6

MFCMM

do not have

questions On

this level, however the following

Guidelines

are given

:

A municipality at the Optimizing Level

uses information from inside and outside the organization to set and achieve strategic targets or objectives for improvement

. Achieving these targets enables the municipality to increase the value of its services or products to clients or consumers. The

focus is on continuous improvement

. The

municipality uses what it has learned from past experience to identify areas for future improvement

.

This

involves:

developing prospective information to anticipate both internal and external changes

and

making the necessary strategic or tactical decisions to manage their effects;

measuring the organization's performance against that of others in the same industry

finding

best practices and learning from other municipalities (benchmarking); and

minimize

costs and maximize revenues

,

improve the quantity and quality of outputs, by introducing new technology or improving existing processes.

The

key question that an organization at the Optimizing Level asks itself is:

"

How & where can the organization improve its performance

?"

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GOING FORWARD

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COMPARISON

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MGRO Criteria

Municipal self assessment

LEVELS 1 – 3

, replaced by FMCMM questions

LEVELS 4 – 6

, existing MGRO criteria, reviewed , guided by FMCMM (draft)

PT to validate and assess maturity level

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Copy only “Response and Comments” (not Score) using “Merge conditional formatting”

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At municipalities

The model consist of 21 modules and can be completed individually or together,

FOCUS: Revenue, Expenditure, Bank, cash and Investment,

Each module consist of a list of self-assessment questions,

After each question a response is required from a “Drop down box” under

Response

column.

Select appropriate response: ( levels 1-3)

YES = score 3 points

PARTIAL = score 2 points

NO = score 1point

N/A will not affect the scoring

Each module computes an average score between 1-3,

The average score ( summary score) determines the level of maturity,

“Comments” to be completed for “Partial & No” responses

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Example

MGRO Self Assessment: Revenue Management -

MFCMM

vs

MGRO\Muncde_FMCMM_2014 Revenue Management LGF.xlsx

MGRO

Self Assessment:

Expenditure Management -

MFCMM

vs

MGRO\FMCMM expenditure team (TB).xlsx

MGRO Self Assessment:

Bank, Cash & Investment Management -

MFCMM

vs

MGRO\2014 MGRO Criteria

Rev_Exp_Bank

cash & Investment.xlsx

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