Plan on voting? Do you know how much revenue your municipality did not collect?

It is a well-know fact that municipalities do not collect all the revenue  due to them. As the revenue collection strategies vary from municipality to municipality, it is important essential to know what information to look for in assessing how much revenue municipalities have lost or how efficient they are (have been) in collecting revenue. This information is available in a municipality’s financial statements.

There are a few items that are relevant in the financial statements:

• Revenue – This is the amount of money the municipality billed for services or taxes, received on grants or equitable share allocations, issued in traffic or other fines. This is the amount due to the municipality for the year.
• Impairment (could be “provision for impairment”, “impairment allowance”) – This is the amount of revenue that the municipality believes cannot be collected. This could include amounts that are still be collected from prior years.
• Credit risk and liquidity risk – Credit risk is the risk that the debtor will not pay the municipality. Liquidity risk is the risk that the municipality will not be able to pay its debts when they are due.

These items could be illustrated in the financial statements as follows. This is illustrative only – the terms and classification may differ from each entity.  

Municipalities will provide information on credit risk and liquidity risk in the notes to their financial statements. It is essential to review a municipality’s policy on credit risk as this explains on what basis they provide “credit” to consumers/ratepayers and how they manage collections, late payments, penalties, etc. The information on liquidity risk will explain when payments are due from, for example, debtors and due to creditors. The collection and payment periods of debtors and creditors should be aligned. If they are not, a municipality may need to borrow money.

Where can you access information? There are several sources, but these two are a good starting point.

• Municipal Money
• Auditor-General
• The budgets of each municipality are available on their websites.

This has been prepared by the Secretariat of the ASB and not the Board.