Municipal Cash Flow Management Challenges and Solutions
The circular issued highlights challenges faced by municipalities in managing cash flow information correctly, including errors in using mSCOA segments and linking MBRR cash flow tables. The data strings used for budgeting, transacting, and reporting cash flow are discussed, covering cash receipts, payments, capital assets, and repayment of borrowings. The session aims to address these issues and improve cash flow accuracy.
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Cash Flow & Funding mSCOA Circular 10 & 11 11 December 2020 - Ria von Ronge
Objectives of the session Challenges experienced with Cash flow population Circular 10 Circular 11 Linking of Cash flow
Problem statement Cash flow Municipalities were not using the mSCOA segments correctly to populate their cash flow information; A number of municipalities did not use the movement accounts correctly in the mSCOA chart which distorts the figures reported in the cash flow tables; Some municipalities did not budget, transact or report directly in or from their financial systems; and There were errors in the linkages of the MBRR cash flow tables to the mSCOA data strings in the segment item: asset and liabilities on the Local Government Database. Balance sheet budgeting and Movement Accounting must be used in compiling the budget data strings Transacting and reporting will follow these data strings - with some challenges
Data strings used for Cash Flow The Cash flow for budgeting purposes is done on the SA30 that feeds the A7 in the regulated budget schedules The Cash flow for transacting and reporting in the monthly actuals SC30 and C7 This cash flow is not the same as the direct or indirect method of Cashflow in Annual Financial Statements This cashflow is based on the data strings that makes up the Cash receipts by Source Cash payments by Type Other Cash Flows Capital Assets Repayment of borrowing Other Cash inflows / payments Net Increase / Decrease in cash held
Data strings Cash receipts Cash receipts by Source Item Bank Deposits and Fund
Data strings Cash payments Cash payments by Type Item Liabilities linked to Fund
Data strings Capital Assets Other Cash Flows Capital Assets PC + IA +FD002
Data strings Repayment of borrowings Repayment of borrowing - IL001003003,4 and 5 Withdrawals and Fund
Investigations revealed Some challenges on the linking was identified by various sources and items was outstanding. Guidance on Fund segment was investigated and clarity was provided in Circular 11- Main rule If data string contains Non Funding Cash flow will not populate
Unresolved issues with solution (1) Clarification of unresolved Cash Flow issues Unallocated Deposits Receipts of unidentified money in the bank Linking: Item: Liability: Current liabilities: Unallocated deposits: Deposits Fund: Operational: Revenue: General Revenue: Service Charges: Unspecified This linkage will populate the cashflow VAT should be setup to pay the full amount When the receipt is identified the VAT must be corrected Duplication of capital Assets Linking : All Project Capital Item: Bank Withdrawals and Fund: FD002 only
Unresolved issues with solution (2) Construction work in Progress Linking : The use of project segment and Fund Capital will pick up the CWIP Advance payments and Retention Cash flow effect only when it becomes due. Transfer to revenue was added in Chart version 6.5 Additions to the Trade and other payables(Chart version 6.5) Inventory and Contracted Services was created as new posting levels to populate the SA30 Income Tax and VAT These items was not linked to the Cash flow. Linkages included now
Funding Segment and Movement Accounting
Movement Accounting and Fund Introduction of movement accounting in mSCOA chart version 6.2 created additional capability to the design principles of the Fund segment Cash flow is derived from Item Segment in combination with the Fund segment. Movement accounting and balance sheet budgeting requires that all transactions start with budgeting on the mSCOA segments at the lowest levels. Examples on the slides Fund segment must be populated with a operational fund or capital fund to ensure the cash flow is populated on all transactions. FD001 & FD002. The intent with the Funding segment is to assist municipalities in the management of available funds to use in running the municipality (working capital), capital expanding, maintenance programmes and operational projects intended for the benefit of the community Non-cash transactions must not be confused with Non-Funding Implementation : Improvement of population of Cash flow however the full implementation will be part of the Chart 6.5 version due to development of financial systems
Billing Budget for Electricity 1. The municipality budget to bill Electricity to Ward 2 based on the projections by the financial system and historical data for the ward: R6 000 000 Segment Debit Credit Project Function Default Function: Energy Sources: Core Function: Electricity Assets:Current Assets:Trade and other Receivables from Exchange Transactions:Trading Service and Customer Service Debtors:Electricity:Monthly Billing Fund: Operational: Revenue: General Revenue: Service Charges: Electricity Ward 2 Default R6 000 000 Schedules A6 Default Function: Energy Sources: Core Function: Electricity Item Revenue:Exchange Revenue:Service Charges:Electricity:Electricity Sales:Domestic High:Conventional Funding Fund: Operational: Revenue: General Revenue: Service Charges: Electricity Ward 2 Default R6 000 000 A4 Region Costing Amount 14 14
Payment rate of 85% for budgeting 2. Historically this ward has a 85% payment rate Segment Debit Credit Project Function Default Function: Energy Sources: Core Function: Electricity Assets: Current Assets: Cash and Cash Equivalents: Cash at Bank: Bank Account: Primary Bank account: Deposits Default Function: Energy Sources: Core Function: Electricity Assets: Current Assets: Trade and other Receivables from Exchange Transactions: Trading Service and Customer Service Debtors: Electricity: Collections Fund: Operational: Revenue: General Revenue: Service Charges: Electricity Ward 2 Default R5 100 000 A6 Item Funding Fund: Operational: Revenue: General Revenue: Service Charges: Electricity Ward 2 Default R5 100 000 A7 & A6 Region Costing Amount Schedules 15 15
Impairment provision due to 15% non payment rate 3. Impairment provision due to 15% non payment rate Segment Debit Project Default Function Function: Energy Sources: Core Function: Electricity Item Gains and Losses: Impairment Loss: Trade and Other Receivables from Exchange Transactions: Electricity Credit Default Function: Energy Sources: Core Function: Electricity Assets:Current Assets: Trade and other Receivables from Exchange Transactions: Trading Service and Customer Service Debtors: Electricity: Impairment: Recognised Fund: Operational: Revenue: General Revenue: Service Charges: Electricity Funding Fund: Operational: Revenue: General Revenue: Service Charges: Electricity Ward 2 Default Region Costing Ward 2 Default Amount Schedules R900 000 A4 R900 000 A6 16 16
Cash flow linkages (1) Budgeted Monthly Cash Flow: Table SA30 Property rates Service charges - electricity revenue Service charges - water revenue Service charges - sanitation revenue Service charges - refuse revenue Cash Receipts By Source FD001001001009001000000000000000000000 FD001001001008001000000000000000000000 FD001001001008005000000000000000000000 FD001001001008004000000000000000000000 FD001001001008003000000000000000000000 AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" Rental of facilities and equipment FD001001001006000000000000000000000000 FD001001001004003000000000000000000000 FD001001001004001002000000000000000000 Non- Cash Flow FD001001001004002000000000000000000000 FD001001001003000000000000000000000000 FD001001001005000000000000000000000000 FD001001001007000000000000000000000000 FD001001001002000000000000000000000000 FD001002002000000000000000000000000000 FD001001001009002000000000000000000000 FD001001001010000000000000000000000000 FD001001001011000000000000000000000000 FD001001001012000000000000000000000000 FD001001001013000000000000000000000000 FD001001002000000000000000000000000000 FD001001001008002000000000000000000000 AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" AND IA001001 - "INTEREST EARNED" Rental from fixed assets Rent on land Bank and other financial assets Interest earned - external investments Interest earned - outstanding debtors Dividends received Fines, penalties and forfeits Licences and permits Agency services Transfer receipts - operational AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" Equitable share Grants and subsidies Taxes and surcharges Operational Revenue Sales of goods and rendering of services Fuel Levy Transfers as subsidies Commercial Services Service charges - unspecified Other revenue
Cash flow linkages (2) Budgeted Monthly Cash Flow: Table SA30 Cash Receipts by Source Other Cash Flows by Source FD002002 (National Government, Provincial Government and District Municipalities) Transfer receipts - capital Transfers and subsidies - capital (monetary allocations) (National / Provincial Departmental Agencies, Households, Non-profit Institutions, Private Enterprises, Public Corporations, Higher Educational Institutions) Proceeds on disposal of PPE Short term loans Borrowing long term/refinancing AND IA001001 - "DEPOSITS" Monitory allocations FD002002002 FD001001001001000000000000000000000000 FD001003000000000000000000000000000000 FD002003000000000000000000000000000000 AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" AND IA001001 - "DEPOSITS" Increase (decrease) in consumer deposits Decrease (Increase) in non-current debtors (not used) Decrease (increase) in non-current receivables Decrease (increase) in non-current investments Total Cash Receipts by Source IL001002 Take total and compare with previous period IA002011, IA002012 IA002010 Take total and compare with previous period Take total and compare with previous period
Cash flow linkages (3) Budgeted Monthly Cash Flow: Table SA30 Cash Payments by Type Employee related costs AND IL001006004001 withdrawals IL001006004001001003 IL001006004001002003 IL001006004001003003 IL001006004001004003 IL001006004001005003 IL001006004001006003 IL001006004001007003 IL001006004001008003 IL001006004001009003 IL001006004010010003 Salary Control - withdrawals Travel Control - withdrawals Leave Control - withdrawals Tax Control - withdrawals UIF Control - withdrawals Skills Control - withdrawals Pension Control - withdrawals Medical Aid Control - withdrawals Group life Control - withdrawals FD001 Unions Control - withdrawals IL001006004001011003 IL001006004001011003 IL001006004001013003 IL001006005003 Employee deductions FICS - withdrawals Employee net Pay and Bond Payments - withdrawals Garnishee Payment - withdrawals Leave accrual - withdrawals
Cash flow linkages (4) Budgeted Monthly Cash Flow: Table SA30 Cash Payments by Type Employee related costs AND IL001006004001 withdrawals IL001006009003 IL001006012003 IL001006013003 IL001006017003 IL001006021003 IL001006022003 Long service awards - withdrawals Pension and retirement contributions - withdrawals PAYE deductions -withdrawals Bonus - withdrawals Overtime - withdrawals Standby - withdrawals Current: Defined benefit obligations - medical - actual employer benefit payment Current: Defined benefit obligations - pension - actual employer benefit payment Non -Current: Defined benefit obligations - medical - actual employer benefit payment Non-Current: Defined benefit obligations - pension - actual employer benefit payment FD001 IL001013001004 IL001013002004 IL002002001004 IL002002002004 Remuneration of councillors
Cash flow linkages (5) Budgeted Monthly Cash Flow: Table SA30 Finance charges FD001 FD001 FD001 AND IL001006002003 AND IL001006008003 Withdrawals AND IL001006023003 Bulk purchases - Electricity Acquisitions - water and other inventory Payables and accruals Inventory - withdrawals Payables and accruals Contracted Services - withdrawals Contracted services Transfers and grants - other municipalities FD001, FD002 FD001 AND IL001006024003 AND IL001007001001002 and IL001007001002002 AND IL001007001001002 and IL001007001002002 with Transferred to Revenue/Capital Expenditure AND IL001006011003 IL001006010003, IL001006019003 IL001007002001002 IL001007002002002 Transfers and grants - other FD001 , FD002 Other expenditure FD001 Payables and Accruals General - withdrawals Auditor-General - withdrawals Compensation Commissioner - withdrawals Transfer and subsidies unspent - operational Transfer and subsidies unspent - capital Charges (Assets: Current Assets: Cash and Cash Equivalents: Cash at Bank: Bank Account: Specify (replace with account description):Charges) Charges (Assets: Current Assets: Cash and Cash Equivalents: Call Deposits and Investments: Special Deposit for the Payment of Interest: Specify (replace with account IA001001001 IA001001002
Cash flow linkages (6) Budgeted Monthly Cash Flow: Table SA30 Cash Payments by Type Other Cash Flows/Payments by Type Capital assets FD002 PC000000000000000000000000000000000000 AND IA001001 - "WITHDRAWALS" IL001003003, IL001003004, IL001003005 FD001 Repayment of borrowing Other Cash Inflows/Payments "WITHDRAWALS" IL001006001 IL001006006003 IL001004003 IA001008003 IL001006007003 IL001008003 IA001011004004 IL001006016003 Short term Borrowings etc. Affiliates, Related Parties and Associate Companies Retentions - withdrawals Income tax payable Income tax receivable - refunds Dividends declared - withdrawals Vat Control (payments) Vat Control (receipts) Intercompany Parent/subsidiary transactions Total Cash Payments by Type NET INCREASE/(DECREASE) IN CASH Cash/cash equivalents at the month/year begin: IA001001, IL001001 - "OPENING BALANCE" Cash/cash equivalents at the month/year end:
THANK YOU For information on local government finances, please visit: https://municipalmoney.gov.za For additional information on national and provincial budgets, please visit our new budget data portal: https://vulekamali.gov.za
