MUNICIPAL GOVERNANCE REVIEW amp OUTLOOK FINANCIAL MUNICIPAL CAPABILITY MATURITY MODEL 15 August 2014 INTRODUCTION The Municipal Financial Governance Review and Outlook MGRampO 2012 is a Provincial Treasury PT initiative in collaboration with the Department Local Government th ID: 776250
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REVENUE, EXPENDITURE & CASH MANAGEMENT CRITERIA
MUNICIPAL GOVERNANCE REVIEW &
OUTLOOK – FINANCIAL MUNICIPAL CAPABILITY MATURITY MODEL
15 August 2014
Slide2INTRODUCTION
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.
Slide3Three 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.
Slide4Value 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.
Slide5MGR&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
Slide6Financial Management Capability Maturity Model
Slide7FMCMM
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.
Slide8PURPOSE
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
.
Slide9FMCMM - Levels of Maturity
Slide10FMCMM - 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
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
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.
Slide13Structure 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.
Slide14Modules
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
Slide15Characteristics 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
Slide16MFCMM – 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:
Slide17FMCMM – 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
Slide18FMCMM - 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
.
Slide19MGRO 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
?"
Slide20GOING FORWARD
Slide21COMPARISON
Slide22MGRO 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
Slide23Copy only “Response and Comments” (not Score) using “Merge conditional formatting”
Slide24At 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
Slide25Example
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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