Cash balance at the end of the financial year.
A municipality's cash balance refers to the money it has in the bank that it can access easily. If a municipality's bank account is in overdraft it has a negative cash balance. Negative cash balances are a sign of serious financial management problems. A municipality should have enough cash on hand from month to month so that it can pay salaries, suppliers and so on.
Months of operating expenses can be paid for with the cash available.
Cash coverage measures the length of time, in months, that a municipality could manage to pay for its day-to-day expenses using just its cash reserves. So, if a municipality had to rely on its cash reserves to pay all short-term bills, how long could it last? Ideally, a municipality should have at least three months' of cash cover.
Difference between budgeted operating expenditure and what was actually spent.
This indicator is about how much more a municipalty spent on its operating expenses, than was planned and budgeted for. It is important that a municipality controls its day-to-day expenses in order to avoid cash shortages. If a municipality sigificantly overspends its operating budget this is a sign of poor operating controls or something more sinister.
Overspending by up to 5 percent is usually condoned; overspending in excess of 15 percent is a sign of high risk.
Difference between budgeted capital expenditure and what was actually spent.
Capital spending includes spending on infrastructure projects like new water pipes or building a library. Underspending on a capital budget can lead to an under-delivery of basic services. This indicator looks at the percentage by which actual spending falls short of the budget for capital expenses. Persistent underspending may be due to underresourced municipalities which cannot manage large projects on time.
Municipalities should aim to spend at least 95 percent of their capital budgets. Failure to spend even 85 percent is a clear warning sign.
Spending on Repairs and Maintenance as a percentage of Property, Plant and Equipment.
Infrastructure must be maintained so that service delivery is not affected. This indicator looks at how much money was budgeted for repairs and maintenance, as a percentage of total fixed assets (property, plant and equipment). For every R10 spent on building/replacing infrastructure, R0.80 should be spent every year on repairs and maintenance.
This translates into a Repairs and Maintenance budget that should be 8 percent of the value of property, plant and equipment.
Unauthorised, Irregular, Fruitless and Wasteful Expenditure as a percentage of operating expenditure.
Unauthorised expenditure means any spending that was not budgeted for or that is unrelated to the municpal department's function. An example is using municipal funds to pay for unbudgeted projects. Irregular expenditure is spending that goes against the relevant legislation, municipal policies or by-laws. An example is awarding a contract that did not go through tender procedures. Fruitless and wasteful expenditure concerns spending which was made in vain and would have been avoided had reasonable care been exercised. An example of such expenditure would include paying a deposit for a venue and not using it and losing the deposit.
The value of a municipality's short-term assets as a multiple of its short-term liabilities.
The current ratio compares the value of a municipality's short-term assets (cash, bank deposits, etc) compared with its short-term liabilities (creditors, loans due and so on). The higher the ratio, the better. The normal range of the current ratio is 1.5 to 2 (the municipality has assets more than 1.5 to 2 times its current debts). Anything less than that and the municipality may struggle to keep up with its payments.
The municipality's immediate ability to pay its current liabilities.
Liquidity ratios show the ability of a municipality to pay its current liabilities (monies it owes immediately such as rent and salaries) as they become due, and their long-term liabilities (such as loans) as they become current.
These ratios also show the level of cash the municipality has and / or the ability it has to turn other assets into cash to pay off liabilities and other current obligations.
The percentage of new revenue (generated within the financial year) that a municipality actually collects.
Municipalities don't manage to collect all of the money they earn through rates and service charges. This measure looks at the percentage of new revenue that a municipality collects. It is also referred to as the Current Debtors Collection Ratio.
This shows how much of a municipality's income it is able to generate itself (through property rates, service charges, etc), compared with how much it receives as transfers and grants from national government. The more a municipality is able to generate its own income, the more self-sufficient it is.
Staff salaries and wages as a percentage of operating expenditure.
Employee-related costs are typically the largest portion of operating expenditure, but they should not grow so large that they threaten the sustainability of the operating budget.
The normal range for this indicator is between 25% - 40% of total operating expenditure. Municipalities must guard against spending too much on staff while also making sure they have the people they need to deliver services effectively.
Costs of contractor services as a percentage of operating expenditure.
Private contractors are sometimes needed for certain work, but they are usually more expensive than municipal staff. This should be kept to a minimum and efforts should be made to provide services in-house, where possible.
This measure is normally between 2 percent and 5 percent of total operating expenditure.
Municipalities spend money on providing services and maintaining facilities for their residents.
Your municipal bill is made up of property rates, basic electricity levy, electricity consumption charge, basic water levy, water consumption charge, sanitation, refuse removal and ‘other’.
The property values, water consumption and electricity consumption of a household in an income category may differ from municipality to municipality.
Average increase over the financial years
A middle income household use as base a property value of R700 000, consumption of 1 000 kWh electricity and 30kl water.
The bill is made up of property rates, service charges for electricity, water, sanitation and refuse removal and various other charges which are typically small.
Minimum service standards may differ between municipalities. These standards form part of the municipality’s budget which is consulted with citizens in the period 1 April to 31 May each year.
Average increase over the financial years
The statistical standard set for affordable income households is a base property value of between R500 000 and R700 000, consumption of 500 kWh electricity and 25kl water.
A basic levy is a fixed monthly charge that does not change with the amount of service consumed. Not all municipalities use basic levies.
Average increase over the financial years
Free basic service (FBS) is defined as the minimum amount of basic levels of services, provided on a day to day basis, sufficient to cover or cater for the basic needs of the poor households.
Various sector departments have set minimum standards outlining basic amount of services or quantity to be supplied to the indigents with regards to water, energy, sanitation and refuse removal.
Only indigent households qualify for FBS and the programme is solely intended to assist them. Municipalities subject all applications to means tests to determine whether households applying meet the criteria set by their municipality to qualify for indigent status.
There are different categories of subsidies as set out by the various indigent by-laws/policies of the municipalities. In some municipalities, households qualify for 100% subsidies while other qualify for less that 100% depending on the criteria set.
The bill represented in the graph reflects what it costs the municipality to render the services to indigent households, not what each indigent household needs to pay as these costs are covered by the Equitable Share grant allocation to the municipality.
Read more about Local Government Finances and learn about how your money is spent.
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