As the economy continues to decline municipalities will face even bigger challenges in generating revenue.
The continued restructuring and closure of businesses which lead to job losses would have far reaching effects for local government. Revenue generated from rates, taxes, and service charges will dwindle. The ratio of indigents compared to paying customers is likely to increase.
The equitable share and grants from national or provincial government is expected to be under pressure going forward.
Communities deserve and continue to demand quality and timely services but some communities cannot afford to pay for the services rendered. While the challenge appears insurmountable, however, municipalities should focus on the low hanging fruits i.e. aspects that are within the municipality’s control.
It is usually challenging to balance the political, economic (various categories of municipalities with varying economic circumstance, leading to high level of indigents), and social priorities of municipalities given the recent history of South Africa.
While most municipalities would like to maximise revenue, this goal is not always practical. Context and the landscape where the municipality operates usually limits the creativity of municipal officials.
Financial sustainability can be achieved through appropriate funding, financial viability, revenue generation capability, and revenue management processes. The Department of Co-Operative Governance and Traditional Affairs’ (CoGTA’s) Back to Basics Campaign is built on five pillars which include ensuring sound financial management and accounting. Revenue assurance is a subset of financial management. This department is now headed by Minister David van Rooyen, following the reappointment of Minister Pravin Gordhan as the Minister of Finance for South Africa.
A comprehensive revenue assurance mechanism has widespread benefits for municipalities including:
- Enabling the planning and design of revenue management processes and systems;
- Identifying where revenue losses are occurring;
- Correct revenue loss areas;
- Preventing future leakage;
- Assessing risks; and
- Optimising and enhancing possible new sources of revenue
Municipal Revenue Assurance, as a subset of Revenue Management (RM), has only one purpose i.e. to help improve a municipality’s financial position through improved revenue collection.
The key pillars of a sustainable and effective revenue assurance system are:
1. A logical and practical revenue management strategy
The revenue management strategy must be holistic and comprehensive and filter through all facets of the revenue system.
2. Improved quality of data (master data)
This aspect involves capturing accurate and complete data, periodic reviews, data matching and cleansing. A system with a single source of master data and consolidating where practical would be greatly beneficial to municipalities.
3. Accurate billing and invoicing
An audit must be conducted to ensure the municipality is accounting for all land parcels, accurate rate tables, timely meter reading, etc.
4. Effective debt management and collection
Effective debt collection is one of the pillars for achieving sound financial management.
5. Revenue fraud and leakage management
- Reducing third-party fraud - Early detection systems (meter tampering, illegal connections, etc.) and management of fraud
- Elimination of employee fraud
6. Supply leakage management
- Both bulk and consumer water leakages (bulk and supply to the consumer)
- Electricity leakage from Eskom to a municipality (distribution) - the responsibility for distributing electricity to end-users is shared between Eskom and municipalities.
7. Identifying opportunities
The assurance system must take advantage of opportunities to bill more services to existing clients and existing services to new or more clients
The whole point of Revenue Assurance (RA) is to ensure completeness and accuracy of revenue that is being collected and to improve or enhance revenue (collect more). When implemented effectively, municipal revenue assurance can reduce unbilled or under-billed revenue and assist revenue enhancement efforts.
Municipalities should continuously consider and make the best revenue management and enhancement decisions so that revenue can be maximised. This should be achieved within the confines of relevant legislation, and regulations, taking into account economic and social factors.