The objective of any successful revenue enhancement strategy is to build and improve on current payment levels and then to recover arrear debt. Covid-19 exposed a lot of loopholes in local government revenue management and within a few weeks of the pandemic, one could already start to see the potential impact on cashflow and how the crisis would impact long-term sustainability.
Revenue management is an integral part of any business that strives to succeed, this also includes municipalities. With the pressures that Covid—19 has put on the national fiscal, it is even more crucial that municipalities should be self-sufficient as they can no longer be solely dependent on the National Treasury for funding. In order, for municipalities to be able to deliver on their service delivery mandate, it is prudent that municipalities must be able to generate their own revenue.
In April 2020, the Chartered Institute of Goverment Finance Audit and Risk Officers (CIGFARO) made the following comment, “Each municipality must have its financial system, which is the backbone and driver to manage the raising of revenue and the related collections.” Municipal revenue collections are usually done internally by the municipality.
In exceptional cases, we have noted that the collection of revenue is done through external service providers, but this is not readily recommended by CIGFARO. It is advisable that the municipalities should deal with their credit control and debt collection processes to retain customer-centricity and only outsource the final debt collection procedures when debt has to be handed over for legal collection procedures to take place. The main reason for municipalities to manage the collection of revenue through the municipal administration is to encourage municipalities to apply legislation to their benefit during the collection processes.
The municipal disaster recovery plan should provide for channels of payment in times of disaster and the related reconciliation of receipts. We note that in the past many municipalities had received negative audit outcomes from the Auditor-General South Africa due to challenges that the municipalities were experiencing with their revenue management.
This was accompanied by service delivery protests where communities complained that the municipalities were not being able to provide basic services.
The national lockdown exposed the worsened situation of the municipalities where many could not:
· Charge interest on long outstanding debt, and
· Apply their credit control processes to enforce payments of their accounts as the entire economy was at a standstill
To ensure that the situation does not become dire, in such a way that the municipalities are not able to function, municipalities should look at an inclusive revenue enhancement strategy that will assist municipalities with the following:
1. Cleaning of the customer database that will ensure that:
· Only customers that exist and are receiving municipal services are billed.
· All customers within the municipality’s jurisdiction that are receiving municipal services and own properties are billed monthly (completeness) and
· These customers are billed for actual consumption (accuracy). This will be done through auditing of meters.
2. The Indigent Management System should assist the municipalities to improve their indigent management through:
· Verifying the indigent register
· Verifying validity of indigency status of applicants from Home Affairs, Social Development and Credit Bureau
· Ensuring that municipal indigent registers are complete The revenue enhancement strategy should not only focus on data cleansing to ensure complete and accurate billing, improved credit control and debt management and improved indigent management but it should assist with revenue solutions. The revenue solutions should assist the municipalities to identify new revenue streams. This will not only assist municipalities in reducing the audit findings from the Auditor General, but it will assist the municipalities with increasing their internally generated revenue that will in turn make sure that municipalities are able to provide services to their communities as mandate by the Constitution.
It will not be enough for municipalities in this new normal to only recover revenues as the crisis subsides. We have entered an era where the world is in need to fundamentally rethink their revenue profile, in order to position themselves for the long term sustainability and to ensure the municipality is a going concern.
In conclusion, the municipalities can no longer focus on just collecting revenue from the service charges, in this new normal but they need to rethink and find ways to increase their current revenue base, as they can no longer depend on government grants and subsidies to supplement their own revenue.
For more information, contact:
T:+27 31 201 1241