Analysis of revenue management within Lukhanji Local Municipality : a value chain approach

Derbyshire, Kevin (2007-10)

Thesis (MBA) -- Stellenbosch University, 2007.

Thesis

ENGLISH ABSTRACT: The study was motivated by the widely reported problem of poor financial management within South African local government and, more specifically, the deteriorating status of revenue management, especially in medium to smaller municipalities. The reasons for the alleged poor financial management are complex and involve issues of management capacity, inappropriate systems, and socio-economic circumstances. It is obvious that a holistic approach will be required to address such a multi-ciimensional problem. This research proposes to suggest solutions to the revenue management problems facing South African municipalities. If this issue is not resolved urgently, local government will impede service delivery rather than improve it. Service delivery is key to the integration of South Africa's first economy into a second economy. The specific objectives of the research are; firstly, to develop a revenue management value chain model specific for municipalities; and, secondly, to conduct an analysis of the Lukhanji Local Municipality's financial status against the value chain model. To attain the objectives of this study existing literature and the scope of the problem must first be examined and understood. It is evident that the prevailing revenue management problem experienced, lie with the local government themselves in terms of their inadequate financial management. These problems have placed Significant pressure on municipalities' cash flows and eroded their financial resources. In turn, this has resulted in questionable sustainability and financial via bility, as the problematic cash position of municipalities has impacted negatively on their capital and maintenance expenditure. One of the greatest challenges facing local government is the collection of revenue raised for services rendered to various consumers. Of the various actions taken by government to address the current crisis situation in municipalities in the short to medium term, national grants to sponsor capital projects and services have been key in Stellenbosch University http://scholar.sun.ac.za iv ensuring that the decrease in municipal expenditure has not been greater, preventing the potentially disastrous consequences. The Municipal Finance Management Act, together with the Municipal Structures Act, Municipal Systems Act; and also the Constitution provide a well -defined financial framework within which local government can function. The research also reviewed all four main revenue sources of local government, namely own revenue {utility fees and property tax}; subsidies through intergovernmental transfers; loans; and private-sector equity. Despite the improvement in intergovernmental transfers, it is important that all municipalities maximise their own revenue, while considering those that cannot afford basic services. The research proposes the following revenue management value chain model, specifically for South African municipalities: Revenue Planning Indigent Management Tanff Setling ~ Metering Billing Customer Database Management Revenue Coliection I) Credit Control Loss Management In the analYSis of the Lukhanji Local Municipality's financial status against the value chain model, it became evident that problems existed in all elements of the value chain. General financial and viability assessments supported the above finding and indicated financial difficulties and serious cash-flow problems. The research present several recommendations regarding the improvement of poor financial management in South African municipalities and the Lukhanji Local Municipality. However, in brief, urgent attention is required in terms of the Lukhanji Local Municipality's cash-flow in the short term, while a performance-driven culture needs to be developed in the long term. Lastly, local government in general, and the Lukhanji Local Municipality specifically, will succeed in improving their revenue management if they harness the collective will and skills of all the stakeholders involved in the provision of services.

AFRIKAANSE OPSOMMING: Die studie spruit voort uit die negatiewe publisiteit oor die probleem van swak finansi~le bestuur in plaaslike regering en, meer spesifiek, die verslegtende stand van inkomstebestuur, veral in mid del slag- tot klein munisipaliteite. Die redes is ingewikkeld en behels probleme met bestuursvermo~, onvanpaste stelsels, 'n kultuur van nie-hetaling, en sosio-ekonomiese omstandighede. 'n Holistiese benadering is ooglopend nadig om die vee/dimensionele probleem op te los. Die doel van die navorsing is om by te dra tot die vind van oplossings vi r die inkomstebestuursprobleme wat munisipaliteite in die gesig staar. Indien die situasie nie dringend omgekeer word nie, bestaan die gevaar dat ons munisipaliteite in bankrotskap gebring kan word , wat beteken dat hulle nie hul grondwetlike verpligting sal kan nakom nie en dat hulle dienslewering sal belemmer en dit verbeter nie. Goeie dienslewering is die sleutel vir die integrasie van Suid Afrika se eerste ekonomie met die tweede ekonomie. Die doelwitte van die navorsing is; eerstens, om 'n spesifieke inkomstebestuurs-waardekettingmodel vir munisipaliteite te ontwikkel; en meedens, om Lukhanji Plaaslike Munisipaliteit se finansiele status teen die model te meet. Om die doelwitte te bereik moet die probleem vestaan word deur bestaande literatuur te bestudeer . Oit is duidelik dat die heersende inkomstebestuurs probleme h§ by die plaaslike regering in terme van hul onvoldoende finansiele bestuur. Die probleme het geweldige druk op munisipaliteite se kontantvloei gesit en sodoende hul hulpbronne gedreineer. Oit het 'n vraagteken geplaas op die volhoubaarheid en finansiele lewensvatbaarheid van munisipaliteite as gevolg van die kontant probleme se negatiewe impak op die kapitale en instandhouding bestedings. Een van die grootste uitdagings waarvoor plaaslike regering te staan kom, is die invordering van inkomste wat gehef word vir dienste wat aan verskeie verbruikers gelewer word . As dit nie vir die Stellenbosch University http://scholar.sun.ac.za vii nation ale tussenregeringsoordragte, vir beide dienslewering en kapitaal projekte was nie, sou munisipaliteite met baie erger probleme gesit het. Die Wet op die Bestuur van Munisipale Finansies, tesame met die Wet op Munisipale Strukture; die Wet op Munisipale Stelsels; asook die Grondwet verskaf 'n goed omskrewe finansif!le raamwerk binne plaaslike regering. Die studie behandel die vier vernaamste inkomstebronne van plaaslike regering, wat eie inkomste (utiliteitsgelde en eiendomsbelasting), subsidies deur tussenregeringsoordragte, lenings en privaatsektor-ekwiteit insluit. Ten spyte van die verbetering van tussenregeringsoordragte vir sommige jurisdiksies, is dit belangrik dat aile munisipaliteite huJ eie inkomste maksimeer, met die fokus op diegene wat wei basiese dienste kan bekostig. Die navorsing doen die volgende inkomstebestuurs-waardekettingmodel spesifiek vir munisipaliteite aan die hand: Inkomstebeplanning Bestuur van hulpbehoe- Tarief· wendes vasstelling C. Metenesing Fakturering Klante- Databasisbestuur Inkomsteinvordering ~ Kredietbeheer Verliesbestuur By die ontleding van die Lukhanji Plaaslike Munisipaliteit se finansiele status teenoor die waardekettingmodel het dit duidel ik geblyk dat probleme in al die elemente van die waardeketting bestaan. Die algemene finansiele ontleding en finansiele lewensvatbaarheidsmodel ondersteun die bostaande bevindinge en toon dat die Munisipaliteit in ernstige finansiele moeilikheid verkeer. Die navorsing sluit verskeie onderling velWante aanbevelings oor die verbetering van swak finansieJe bestuur in Suid Afrikaanse munisipaliteite en die Lukhanji PlaasJike Munisipaliteit in. Die Munisipaliteit se kontantvloei het veral dringende aandag nodig in die korttermyn, terwyl die Munisipaliteit 'n kultuur van prestasiebestuur in the langtermyn moet ontwikkel. Plaaslike regering oor die algemeen en die Lukhanji Plaaslike Munisipaliteit in die besonder sal net in hul inkomstebestuur slaag as hulle die gesamentlike wil en vermof!ns van al die belanghebbendes wat by die verskaffing van dienste betrokke is, kan aanwend.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/19813
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