CASH FLOW MANAGEMENT in Municipalities

Those municipalities which are in financial distress are characterised by poor cash flow management and an increase in outstanding debtors and creditors, according to the report. ... According to Treasury these municipalities have liquidity challenges, and are failing to deliver services, bill services and collect revenue.

We often hear of how much municipalities are in debt. But there is another side of the coin. Municipalities themselves are owed money, often by consumers and institutions. Debt owed to South Africa’s 257 municipalities (referred to as net current debtors) totalled R72,4 billion in the 2018 financial year, according to the latest Financial census of municipalities report. To give some idea of how much this is, imagine if all those owing money to local government suddenly paid up the R72,4 billion. This would raise municipal cash flow by a substantial amount which in turn, could be used to pay creditors or further the provision of services.

If we take a closer look at the R72,4 billion, consumers of municipal services owed just over two-thirds of this amount, followed by the miscellaneous category ‘other’ debtors and VAT receivable.

This training course covers several of the key elements to enhance the effectiveness of cash flow.

Outcome 1: IDP and cash flow management

1. Cash Management Best Practices Presentation

2. Exploring SDBIP, IDP. and its role within the cash flow management space

3. Linking planning to cash flow management.

   • MTEF regulations?

   • Cost containment regulations

Outcome 2: Understanding the legislative requirements, circulars included.

1. Exploring the Systems, Act, Structures Act, MFMA.

2. Exploring the requirements relating to the circulars issued by Provincial Treasury.

Outcome 3: Financial analysis as a tool to effective cash management

Financial analysis

1. Financial census of municipalities

2. Analysis of cash coverage, current and liquidity ratio

3. Analysis of debt ratios, as well as working capital ratios.

4. Exploring the elements of financial sustainability of a municipality.

   • Size of the bailout?

   • Best and worst municipalities

   • Sustainability rating example

5. Monthly commitments and CFA – linked to BSAC and C schedules.

   1. Schedule A6, its issues and completion

   2. Schedule A7.its issues and completion

   3. Schedule A8, its issues and completion

Outcome 4: Cash and Investment management Policies and framework

1. Exploring the content of a cash management policy

2. Exploring the content of investment management policies, and investment options.

   1. Different investment options;
   2. Different maturity dates
   3. Different return on investments

3. Assessing the Cash Flow (Focus Areas)

4. Reconciling the balance on the AFS to the bank statement balances.

Outcome 5: Borrowing framework

1. Borrowing ratios

   1. Calculating weighted average cost of capital
   2. Debt to Equity ratios

2. Exploring different financing options

3. Exploring interest rate swaps, and their benefits.

4. Understanding the use of a sinking fund to settle long term annuity loans.

Outcome 6: Refinancing of debt

Practical exercise to explore the risks of re-financing of long term loans

Outcome 7: Funding and reserves framework

1. Theory of funding and reserves

2. Exploring budget assumptions and different costing models to budgeting.

3. Provision for debtors not collected - per Municipal Money analysis

4. Income from investments and other sources.

5. Cash funded versus non-cash funded reserves.

Outcome 8: BTO structure supporting cash management

1. Cash management within the BTO structure

2. Cash Management: Financial Sustainability (Linked to Monthly Reporting Section 71) Circular 71 of NT: Sustainability Ratio, Debt/ total operating, Current Ratio

Outcome 9: Risk management capacity within cash management

1. Theory: Risk management capacity

2. Liquidity risk.

3. Credit risk - Worldbank view

4. Exploring the reasons for borrowing.

   • Borrowing policy example?

   • Exposure to long term loans

   • Why borrow?

5. Exploring the risks of not borrowing.

Outcome 10: Effective cash management versus affordability, linking budget to cash management

1. Exploring and understanding the cash flow forecast;

2. Annual budget submission

3. Adjustment budget submission

Outcome 11: Credit control

1. Best practices from the 2018 Revenue management masterclass

Test

A test will be written on day three that will be supplemented with an assignment based on the work done on day.