presentation on policy determination

PRESENTATION ON POLICY DETERMINATION

LOCAL GOVERNMENT BUDGETING PROGRAMME

CHARTERED INSTITUTE OF GOVERNMENT FINANCE, AUDIT AND RISK

OFFICERS

16 SEPTEMBER 2021

TABLE OF CONTENTS

Setting

Context:

Policy

Determination

Local

Government

Context

Budget

Related

Policies

Long Term

Financial Plan

Key

Consideration

s

Putting it all

together

SETTING THE CONTEXT : POLICY DETERMINATION

Supports mission, vision, objectives and strategies

Aligns the formulation of strategy with its execution –

minimize strategy – performance gap

Aligns actions and behaviors with strategy

Informs the standard operating procedures


Source: Cummings, Worley & Donovan (2019)

POLICIES


Inputs :

General environment - external forces that directly or indirectly

affect an organization (PESTLE)

Task environment – Industry structure

Enacted environment – Members perceptions of above


Organizational Design Components:

Align strategy to environmental inputs (strategy fit)

Fit the design components to each other to jointly support

the strategy

Collectively promotes strategic behavior- culture


Outputs :

Organizational effectiveness

Stakeholder / Customer satisfaction

Performance (Deficits, cash flow constraints?)/ Service

Delivery

LOCAL GOVERNMENT CONTEXT

IDP aligned to general environment (PESTLE)

Budget Related Policies supports the IDP (strategy) and the

Budget

Section 21 of the MFMA - Review of Budget Related Policies

Read with Reg. 7 of MBRR

Section 24 (2) (c) of the MFMA - Approval of Budget Related

Policies with the Budget

CASH MANAGEMENT AND INVESTMENT POLICY

Section 13 of MFMA

Bank Account Management

Cash Flow Management – Forecasting , Execution, Monitoring &

Reporting

Investment appetite and parameters

Maximizing returns on investment

Risk Management – Risk Analysis and Exposure

Liquidity Management

FUNDING AND RESERVES POLICY

Section 18 of the MFMA read with Regulation 8 of MBRR

Support financial resilience and sustainability

Support the long term capital investment strategy

and funding plan

Respond to the capital budget

Sets assumptions and methodology for estimating:

Projected billings, collections & all revenues

Debt impairment

Investment revenue

Dividends from municipal entities

Proceeds from sale of assets

Borrowing requirements – funding gap

Sets out required reserves

BORROWING POLICY

Chapter 6 of the MFMA

Management of short and long term borrowings

Cost of borrowings

Security

Manage interest and credit risk exposure

Reporting

CAPACITY TO BORROW - LEVERAGE

Ratio analysis (compare over years and

with other similar size municipalities)

Ratios outcomes to be analysed

collectively not in isolation

Consider quantitative and qualitative

factors

Liquidity Management

Liability Management

Sustainability

Level of Cash Backed

Reserves (Net Assets -

Accumulated Surplus)

(Cash and Cash Equivalents - Bank overdraft +

Short Term Investment + Long Term Investment

- Unspent grants) / (Net Assets - Accumulated

Surplus - Non Controlling Interest Share

Premium - Share Capital - Fair Value

Adjustment - Revaluation Reserve) x 100

100%

Debt (Total Borrowings) /

Revenue

(Overdraft + Current Finance Lease Obligation +

Non current Finance Lease Obligation + Short

Term Borrowings + Long term borrowing) /

(Total Operating Revenue - Operational

Conditional Grants) x 100

45%

Capital Cost(Interest Paid and

Redemption) as a % of Total

Operating Expenditure

Capital Cost(Interest Paid and Redemption) /

Total Operating Expenditure x 006% - 8%

Current Ratio Current Assets / Current Liabilities 1.5 - 2:1

Cash / Cost Coverage Ratio

(Excl. Unspent Conditional

Grants)

((Cash and Cash Equivalents - Unspent

Conditional Grants - Overdraft) + Short Term

Investment) / Monthly Fixed Operational

Expenditure excluding (Depreciation,

Amortisation, Provision for Bad Debts,

Impairment and Loss on Disposal of Assets)

1 - 3 Months

LONG TERM FINANCIAL PLAN

LTFP supports IDP, SDF, Master plans etc

Guides CEF, Policies, MTREF and the SDBIP

Considers infrastructure asset registers- replacement

Forecasts for Revenue, Opex and Capex (long term)

Free Cash Flow forecasts

Balancing levers on capital funding mix and borrowing

strategy

Projection of AFS

Assist in assessing the financial impact of numerous

policy and other strategic decisions

Assist in assessing socio economic impact

KEY CONSIDERATIONS

Strategy formulation vs strategy execution

Do we have integrated and aligned strategies and

plans

Are our policies comprehensive or flexible enough to

deal with the Covid-19 pandemic or any other future

Disaster?

Do we have agile leadership?

Leadership and management competencies required:

Shared vision and strategic thinking

Results oriented

Decisiveness /adaptive decision making

Consequence management

Business sense

PUTTING IT ALL TOGETHER

Stakeholder involvementExecution, Monitoring and

Evaluation

Integrated and Long term

Planning is fundamental in

local government

THANK YOU

presentation on policy determination

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