first edition - united...

First Edition: November 2003 (by Manual Production Team)

Second Edition: April 2008

for Training of Trainers Workshop on Finance Manual of Local Authorities and Local Government Audit Manual

FOREWARD

The Government of the Republic of Zambia through the Ministry of

Local Government and Housing has revised the Local Authorities

Finance Manual. The revision process has been made possible with

funding from the District Development Project (DDP)/German

Technical Service to Zambia (GTZ) under the second component.

The process commenced in June, 2001 and finalized in 2003.

The first edition of the Finance Manual was published in 1965.

Since then, Local Authorities have been operating without a Finance

Manual, a situation which resulted in the adoption of different

methods of keeping their books of accounts. To address this

problem, my Ministry found it necessary to come up with a revised

standard Financial Manual which should be followed by all councils.

Accountants and supporting Accounting staff in the councils’

Finance Departments will find this manual useful particularly young

professional entering the field of Local Government and want to

pursue it as a lifetime career.

The Manual will also make the work of Local Government Auditors

easier by ensuring that the Council Officers are applying the

principles contained in the standardized Finance Manual

Handbook.

I thank DDP/GTZ for their financial support, the consultants for

putting the revised Manual together, the core committee for

guiding the revision process and indeed, all stakeholders who made

it possible to adopt the Manual.

It is my sincere hope and trust that, the application of the

principles contained in the Finance Manual will go a long way to

enhance sound financial management to enhance accountability,

transparency and above all, to promote democratic local

governance, efficient and effective delivery of quality housing and

social services by Local Authorities and other stakeholders in order

to contribute to the improvement in the quality of life of

communities, within their areas of jurisdiction, for this is the

summarised tenet of the Ministry’s mission Statement.

Hon. Sylvia T. Masebo, MP

MINISTER OF LOCAL GOVERNMENT AND HOUSING

Finance Manual for Local Authorities in Zambia

Management Accounting and

Control

Final Accounts and Other Reports

• Employees • Premises • Supplies and

Services • Transport and

Plant • Establishment • Miscellaneous • Debt Charges • Income

• Long Term Liabilities

• Current Liabilities

• Funds and Provisions

• Capital Discharged

• Revenue Account Surpluses

• Capital Outlay • Other Capital

Outlay • Investments and

Advances • Current Assets • Other Balances • Control and

Suspense Accounts

Prepared for:

The Ministry of Local Government and Housing

&

District Development Programme,

ddp / GTZ, Lusaka

by:

Bowanda Consultancy Services Limited

Planning & Budgeting

Annual Activity Checklist

Month DateMayJunAug 1 Review performance in

the identified priority areas for current year

Aug 1 Prioritise areas of action and prepare annual work plans as per priorities for the year

Aug 15 Cost the annual work plans

Aug 15 Asses the revenue potential for the budget year

Aug 21 Adjust the activities to the resource envelope

Sept 1 Submit Annual Work Plan and Budget to Standing Committees

Oct 1 Submit Annual Work Plan and Budget to Council

Octobe 15 Submit Annual Work Plan and Budget to Ministry

NovDec

Weekly Daily

Dec

JanFeb

MarApr

Prepare final accounts and call for external auditPrepare Annual Report and performance review for year 1 comparing actual

activities and services provided to annual work plans and strategic plans

Planning and Budgeting for

Year 1

Preparation of Final

Accounts for year 1

Year 2

Monthly

Annual Activity Plan

Annual Stock taking

December 01 bank reconciliation, carry forward balances from year 1Provide for accrued income and expenditure, Create provisions for debtors, bad

debts, creditors, funds, correct any bookkeeping errors, do recharges

Year 0

Weekly cash control statements, investment register maintenance,

weekly debtors and creditors controls, weekly performance review and

target setting.

Payment voucher processing and

vouching, receipts and banking controls, Cashbook entries,

control of advances and imprests, stores

requisition and control, control of accountable

stationery,

Bank Reconciliation, Debtors Controls, Creditors

Controls, ledger posting, monthly journals, Order on

the Treasurer Report to Finance Committee, fixed

asset register maintenance, cumulative year to date

income and expenditure and performance statements, budgetary control reports

and variance analysis,

Bring forward balances from year 0

Make or review Strategic Plan

Management Accounting

and Budgetary Control for

Year 1

Year 1

Finance Manual for Local Authorities in Zambia.

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Foreword.

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Foreword by the Manual Production Team This manual is prepared for Local Government Finance Officers as a practical day to day reference book on the procedures for managing the finances of councils in Zambia. The last comprehensive Finance Manual for Local Government was the 1965 Handbook of Financial and Accounting Procedures for District and Urban Authorities in Zambia. Other more recent efforts have included:

a) Local Authorities Finance Guide, 1997, LOGOSP

b) Financial Processing Desk Procedures, 2001, Grant Thornton and

c) An attempt to reproduce the 1965 manual in electronic form with amendments by the Chalimbana Local Government Training Institute, First Modernised Draft of the 1965 Edition, 2001, presented to the Core Committee on the Revision of the Finance and Audit Manual.

The Ministry of Local Government and Housing has encouraged and supported efforts to update the Local Authorities for sometime culminating in its appointment, in June 2001, of a core committee for the Revision of the Local Authorities Finance and Audit Manual. The core committee brought together various documents relating to financial management in local authorities in Zambia, approved the proposal by Bowanda Consultancy Services Limited to use a significantly different approach to the preparation of this manual and provided supervisory and quality control functions to Bowanda in preparing this manual.

GTZ / DDP contracted us to undertake this assignment and also provided supervisory and quality control functions. We are much obliged, both to GTZ / DDP and the Core Committee for this guidance which has made it possible to produce this manual.

We also value the input of the Accountant General’s Office and the Accountant General himself, the Auditor Generals Office, the Zambia Institute of Chartered Accountants (ZICA) and the National Institute of Public Administration (NIPA), all key stakeholders and participants in issues of public finance, during the consultative meeting. This has added great value to the manual and has encouraged us in our endeavour to produce as comprehensive a manual as is possible.

Local government is a complex entity. These complexities increase over time with new societal concerns such as, in recent times, concerns with participation, governance, transparency, accountability, gender, HIV/ AIDS and so on.

While the basic objective of Local Government remains the same; to provide or facilitate the provision of services, these additional concerns and the increasing diversity of services to be provided, from birth to death, means that the management skills and techniques of council officers must change to keep pace with this increased complexity in their operational environment..

Financial management is but a portion of management, a key portion. The main thrust of financial management in local government has, in view of the objectives of local government, to do with:

a) The efficient management of the cost of service delivery.

b) The mobilisation of the resources required to deliver these services.


Foreword.

Page: xi

c) The stewardship of the public resources entrusted to local government.

While the complexities of managing local government have been increasing, local government in Zambia has not, in the last thirty years or so, invested as much as it should have done in upgrading the capacities of personnel who manage the finances of these institutions. The response to this increasing complexity and decreasing capacity to manage, has been, as far as financial management is concerned, to simplify the financial management procedures to suit the available capacity. That financial management has suffered is relatively obvious1, for instance:

a) even the major councils final accounts, the end product of the financial management process, have either not been prepared or if they have, have not been audited2

b) weak linkages between plans and budgets3

c) cases of council employees not being paid on time are fairly regular4

d) incomplete revenue databases.5

The solution should always have been to increase management capacities to suit the increasing complexity of managing local government. There are current good practices within the Zambian local authorities but these are not carried out comprehensively in any council. To illustrate issues raised examples of these good practices are given from different councils in Zambia. In a few cases where this is not possible, and as the management of the financial affairs of councils is an international practice, examples are given from elsewhere.

We hope that this manual, which provides considerably more information than a standard manual would, is a small but perhaps significant step standardising the use of good practices in Zambia in a comprehensive manner by all councils..

BOWANDA Consultancy Services Limited

Chitala Msichili Lungu Chunga Chitembo [email protected] Monday, 03 November 2003 1 See the opening paragraph for instance to Action Plan for Financing Local Government in Zambia, MLGH,

March 2000

2 See for instance: a) Widening the Resource Base of Kitwe City Council, Institute for Housing and Urban

Development Studies, 1999, Ndeke, Chitembo, Dauskaardt, Available in PDF format on line from

www.ihs.nl/sinpa; pages 7 and 8; b) Action Plan for Financing Local Government in Zambia, MLGH, March

2000 page 33, implementation modalities; c) Problems of effectiveness in service delivery, accountability

and transparency of Local Authorities in Zambia, Prof. J. C. Momba, 2003, page 28; DDP Report of the

Meeting of Local Government Auditors, 2002. Annex 5 showing for instance 79 years of arrears of audit on

the Copperbelt. 3 See for instance Kabwe Council Strategic Plan, 2001 – 2005, page 10

4 See Times of Zambia of Monday 9th June regarding Kasempa employees not paid for two years.

5 Study of Expenditure Assignments and Existing Revenue Base for Local Governments in Zambia - A Case

Study for Lusaka,” in November 1999, which was supported by NALAD-INESOR/World Bank/USAID

mailto:[email protected]

http://www.ihs.nl/sinpa


Foreword.

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Members of the Manual Production Team: The members of the production team were:

A. Chitembo, Team Leader, Mr Chitembo is former City Treasurer for Kitwe City Council, 1982 – 1988. He started his local government career in 1972 at Lusaka City Council were he rose from Trainee accountant to Assistant City Treasurer 1972 and 1979. He has a Zambia Diploma In Accountancy (Public Finance Option)(NIPA, 1977); a Certificate in Urban Finance, Economic Development Institute of the World Bank (1982) and a Master of Social Science Degree in Development Finance (Birmingham University, 1980). Mr Chitembo is Managing Consultant of Bowanda Consultancy Services Limited since 1988.

S. Msichili, (Public Finance) Mr Msichili is a Chartered Accountant, Fellow Chartered Institute of Public Finance Accountants (FCIPFA), the world’s leading public finance accounting body, Manchester College, 1970. He is one of Zambia’s longest serving local government officers. He is an Honorary Member of the Institute of Local Government Administrators of Zambia and was Chairman of the Local Government Association of Zambia. He was City Treasurer for Ndola City Council and Honorary Treasurer of the Local Government Association of Zambia, for more than 15 years, then Town Clerk for Kabwe and Luanshya Municipal Councils.

N. A. Lungu (Management Accounting). Mr. Lungu is an Associate of the Chartered Institute of Secretaries and Administrators, Fellow of the Chartered Institute of Management Accountants and a Fellow of the Zambia Institute of Chartered Accountants (FZICA). He also holds a Certificate in Project Analysis obtained at the Graduate School, Washington D.C. USA. Mr Lungu was financial controller for NAMBOARD, the Financial Controller of the IFAD SSRP. He is the Managing Partner of N. A. Lungu and Associate, Chartred Accountants.

M. A. Chitala.(Public Finance and Training). Mr Chitala has the. Zambia Diploma in Accountancy, 1973, accounts clerk certificate, Institute of Municipal Treasurers, 1971. He was formerly Senior Local Government Auditor, Eastern Province, Town Treasurer Chipata Municipal Council, 1971. Currently Head of Accountancy and Business Studies, Local Government Training Institute.

B. Chunga. (Training and Quality Control). Dr Chunga, a former lecturer at Evelyn Hone College, has a, Doctor of Philosophy Degree in Sociology (1989), Sussex, UK; Master of Arts Degree in Curriculum Evaluation, Planning and Management in National Development (1986), Sussex, UK and a Diploma in Technical Education. He was a Permanent Secretary and Director of Higher Education Research, Planning and Policy Development.

FFiinnaannccee MMaannuuaall ffoorr LLooccaall AAuutthhoorriittiieess iinn ZZaammbbiiaa.. Section 1: Background

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Section 1: Background

1 Introduction

1.1 Objective This handbook is intended to be used by Local Government Finance officers as a reference document in the execution of their duties and functions. It is a distillation of all the complimentary and contemporary global, international, professional, local and legal standards to which local government finance officers must conform and also the combined expertise and experience of all the participants in the manual preparation process.

1.2 Evaluation Framework A Handbook of Financial and Accounting Procedures for Local Authorities is supposed to be a key tool in the financial management of councils as it should set the guidelines of what has to be done in any given circumstance. To be relevant therefore it has to be:

a) current

b) comprehensive

c) in line with the legal framework and all supporting instruments such as rules and regulations

d) be in line with local, international and global financial management and accounting standards as they apply, in this case, to public bodies.

Using this framework, previous efforts are briefly reviewed.

1.3 Review Previous Efforts The three previous manuals all contain useful information. However, using the criteria established in above, it was found that the available accounting manuals are fragmented, and / or out of date and in some cases inappropriate to public finance in general and Local Authorities in Zambia in particular.

A brief description of the results of our analysis of the three accounting manuals is given below.

1.3.1 The 1965 Handbook The Handbook of Financial and Accounting Procedures for District and Urban Local Authorities in Zambia. (1965 edition) has been described by the core committee as the most comprehensive one available. This is correct relatively speaking. However using the criteria above the manual has fallen short of the basic tenets for a good accounting manual. A brief analysis is presented hereunder


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1.3.1.1 Current

The manual was written nearly forty years ago. It is therefore completely outdated. In other similar handbooks, for instance the ACCA accounting handbooks, revisions are carried out annually to keep abreast of changes in the operating environment. While others such as the CIPFA Financial Information services, the manual itself is loose leaf facilitating several updates in any particular year as circumstances change.

1.3.1.2 Comprehensive

The manual is not arranged in any readily apparent logical sequence it is therefore difficult to understand and implement. It is also difficult to ascertain, without a major re-arrangement exercise, whether any major aspect has been omitted. A handbook is supposed to be a regular reference tool which should be arranged in some generally accepted format for ease of reference.

For instance, while logically, planning and budgeting is towards the beginning of the financial management cycle and forms a key framework for control and prioritisation of activities, it is covered in Section 12 Estimates and Budgetary Control, squeezed in three pages, 45 to 48, somewhere between Section 5 Wages and Salaries NAPSA, and Income Tax and Section 17 Insurances.

1.3.1.3 Legal framework

Because the format of the manual does not seem to follow any logical sequence, as the Act does in complying with the accepted financial management cycle, it is not readily possible to ascertain how closely aligned this manual is to the Act. There periodic references to the Act in the manual.

There have been several revisions of to the 1965 Local Government Act and yet the manual has not been specifically revised to take cognisance of the changes in the legal framework that may have arisen from the various revisions of the law.

1.3.1.4 Accounting standards

International and local professional accounting standards have defined specific formats for most aspects of financial management in the public sector in general and local government in particular. The manual does not specifically conform to these standards.

1.3.1.5 Consistency

The style of the manual is inconsistent. Whereas in some cases it, provides, as a manual should, specific details of the steps to be taken in carrying out an activity e.g. Section 35 ‘Entries in the Cash and Bank Columns’ it actually describes Debit this Credit that, in others cases e.g. Section 12 Estimates and Budgetary Control’ it says, ‘ a council must have a balanced budget’, how?

1.3.2 The LOGOSP Finance Guide The Local Authorities Finance Guide, 1997 by LOGOSP is incomplete as two thirds of the intended chapters have not been written as noted in the proceedings of the


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consultative meeting on the revision of the Local Authorities Finance Manual and Audit Manual at the meeting held on the 29th and 30th January 2002.

1.3.3 Desk Procedures Financial Processing Desk Procedures for Local Authorities, August 2001 by Grant Thornton have attempted to bring up to date accounting concepts into the manual. The manual does not specifically adhere to the internationally accepted standards for local government by CIPFA. For instance in the proposed chart of accounts structure there does not seem to be a provision for funds which is a common practice in local government finance and is specifically provided for in the Local Government Act, Section 40.

The arrangement of the chart of accounts (COA) does not specifically differentiate between recurrent, capital expenditure and balance sheet items, a common practice in Local Government Finance, nor does it arrange the recurrent expenditure headings in the internationally accepted CIPFA format.

2 This Handbook

2.1 Method for Adopting the Manual Structure In order to fulfil the evaluation criteria described above, permission of the Core Committee was sought to structure this manual in manner that combines two generally accepted concepts and standards. These are briefly described below:

2.1.1 The Financial Management Cycle There is a logical sequence in which financial management is practiced starting with planning and budgeting before the event, management accounting and control during the event and financial accounting and reporting after the event.

The sections of the manual are arranged in this sequence. The advantage of structuring the manual in this format is that following the logical workflow of the financial management cycle makes the manual an easier reference document as points of contention can be easily located within this logical framework.

The annual financial management cycle and its various components is shown in Figure 1: Annual Financial Management Cycle below.

The Annual Financial Management Cycle is also reflected, and perhaps validated too, in the structure of Part VI of the Local Government Act, the part that deals with finance, Sections 38 to 60. This section also generally follows the same sequence as shown in Figure 2: Local Government Annual Financial Management Cycle which shows the arrangements of the various key sections of the Local Government Act as they relate to financial management.

There is also partial compliance to this logical cycle in the Financial Regulations as the section on estimates, Part II, sections 4 – 11, are presented before the management accounting functions of control which are presented in Part VIII in sections 78 – 98.


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2.1.2 CIPFA Chart of Accounts Over the years CIPFA has devised a standard chart of accounts and nomenclature that applies specifically to local government. This standard structure, nomenclature and sequencing of accounting items and headings is given in the proposed chart of accounts attached as Appendix 3: Annual Work Plan and Budget Contents.

1. Introduction. This part will normally contain two major sections:

• A review of the previous years activities and achievements and a

• A restatement of the councils vision and statement, objectives, key targets for the year and conditions and assumptions made in the proposed achievement of those targets and objectives which may not be directly in the control of council.

2. Description of activities This is a description of the main activities to be undertaken by the council which should be a summary of the departmental activities. The departmental AWPs should have more detailed descriptions on the basis of which the specific action plans are made.

This section should also have a bar chart representing the timing of the various activities.

3. Procurement Plan This is a List of what goods and services need to be procured and when in order to implement the plan.

4. Budget This is the monetary implication of implementing all the planned activities.

5. Cash flow Projection Since the budget will be on accrual basis, a cash flow projection taking into account the timings of the cash receipts and payments should be presented. This will be mainly for internal financial management purposes.


Appendix 4: Proposed Chart of Accounts starting on page 157 Figure 1: Annual Financial Management Cycle

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Set Objectives

for the Year

Estimate Available Resources

Plan

Estimate Required Resources

Mobilise the Resources

Allocate Resources

Implement Annual Work

plan

Monitor Progress

Evaluate

Control

Review and External

Reporting

Management Planning Cycle

Figure 2: Local Government Annual Financial Management Cycle

Budget Year 01

Local Government Financial Management Cycle

Final Accounts yr 1

Sections 41, 42, and 47 of the Local Government Act

Sections 43, 31(2), and 46 of the Local Government Act

External Audit Yr1

• Section 43(3) • Sections 52- 4 5

Monitoring, Safeguarding and Control

Usage of standard accounting beadings established by CIPFA has advantages as it:n s e-Library Courtesy of Bowa da’

Section 39 of the Local Government Act

Before 01/11/00 Before 30/06/02 From 01/01/01 to 31/12/01

Bookkeeping, Management Accounting

-


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• Contributes to the comprehensiveness of the manual as these headings have been developed over time to cover all possible financial activities,

• Contributes to the demystification of the specific local government finance nomenclature which our public finance training institutions are currently not teaching adequately and ;

• Makes reference to the manual easier as knowledge of the standard chart of accounts will enable a user to directly zero in on any topic.

2.2 Context This manual is produced within the context that there are two major overriding requirements for financial management in local government, these being:

a) The legal framework within which financial management is practiced as described in 3.1 Legal Provisions below and graphically outlined in Figure 4: Legal Framework on page 5, which stipulates what should be done and

b) The professional standards and procedures that have been developed regarding financial management in general and public finance in particular as it relates to local authorities, which stipulate why and how things should be done.

This manual is built on various previous works, especially the 1965 manual and takes into account various developments since then both in the legal framework and financial management spheres.

2.3 Basis This manual is based on the following financial management and accounting concepts:

1. Budgeting, activity based, as this identifies the cost of service delivery, the very core of council’s existence.

2. Accounting system, manual, as most council maintain manual accounting systems. However the concepts are applicable to computer based systems as well.

3. Basis of accounting, accrual system, as this system specifically recognises right and obligations as they arise, rather than as they are paid for, thereby giving a truer reflection of the actual financial position of council.

2.4 Contents The contents of the manual have been selected to reflect, among other issues, the financial management topics raised in the benchmarking exercise. The results of the exercise gave an indicative snapshot of the current state of financial management in the bench marked councils. However, in view of the fact that different topics may


score differently over time, equal emphasis has been placed on each of the topics. A summary of the results is shown in the chart below6. Figure 3: Benchmarking Results - Compliance with Score Card

The full list of benchmarking topics is listed in Appendix 9: Financial Benchmarking Questions.

Benchmarking is the process where standards (benchmarks) are set for the performance of tasks by similar entities against which these entities are compared. This also forms a basis for comparing the entities to each other.

6 Results of Financial Benchmarking by Local Government Auditors supported by ddp/GTZ.

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3 Councils There are seventy two councils in Zambia made up of City, Municipal and District Councils. This manual refers to all of them. Councils are created by law and are structured in certain similar ways despite their differences in size.

3.1 Legal Provisions

3.1.1 Constitutional Provision For the first time in the history of Zambia, the 1996 constitution specifically provided that there shall be a local government system to be prescribed by an Act of Parliament and that such a system ‘shall be based on democratically elected Councils on the basis of universal adult suffrage’7. The first and second Republican Constitution did not contain any such provision for the establishment of a democratic form of local government. Constitutionally, therefore, the government of the day could administer the whole country through government appointed civil servants or political appointees answerable only to the central government or directly to the Head of State as did the District Governors of the Second Republic8.

3.1.2 Establishment of Councils Under section 3 of the local Government Act No. 22 of 1991 provision is made that: -

‘For the purpose of local Government, the Minister, may, by statutory order establish for any district, a City Council, Municipal Council or District Council as the case may be and the name of the Council shall include the name of the District’

The number of Councillors in each Council is prescribed by the order establishing such Council but Members of Parliament representing the constituencies in the District are automatically members of such Council. Provision is also made for two Chiefs’ representatives to be members of Councils in districts.

3.1.3 Constitution, Powers and Functions of a Council

Under Section 6 of the Local Government Act No. 22 of 1991, it is provided that: -

‘Each Council shall be a body corporate with perpetual succession and a common seal, capable of suing and being sued in its corporate name.... '.

Section 61 of the Act empowers Councils to discharge all or any of the functions contained in the second schedule to the Act.

3.1.4 Financial Provisions Part VI of the Local Government Act, Sections 38 to 60 deals with the financial provision under which councils are allowed to operate. This part of the Act is the basis and forms the context of the subject matter for this manual. For ease of

7 The Constitution of Zambia, Part VIII, Article 109

8 See The Local Government Administration Act. No. 15 of 1980


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reference, an extract of this part is attached as Appendix 2: Financial Provisions of the Local Government Act.

3.1.5 Financial Regulations Section 46 of the Act provides that ‘The Minister shall, by statutory instrument, make regulations for the control and management of finances of councils and in particular for…’.

(a) the keeping of the accounts of councils, including separate accounts of any undertaking or service established and maintained by the council, and the form of, and information to be included in, the account of councils and the summarised statements thereof;

(b) the payment of moneys into and from banking accounts;

(c) the form of, and information to be included in, the annual and supplementary estimates of councils;

(d) the establishment of special funds and the payment of moneys into and the withdrawal of moneys from such funds;

(e) the composition or remission of debts due to councils.

(As amended by Act No. 19 of 1992 and Act No. 30 of 1995)

The Minister introduced by Statutory Instrument number 125 of 1992, the Local Authorities Finance Guide and Financial Regulations basically to:

Provide a framework within which local authorities are required to carry out financial management.

Describe those elements or aspects of financial management which cannot be ignored or contravened under any circumstances and

Provide sanctions for the contravention of the financial regulations.

Treasurers must be conversant with the provisions of the financial regulations as without this knowledge they are likely to contravene some provision of the regulations. As these regulations are created under the Local Government Act, by Statutory Instrument, they have legal authority.

The overall structure of the legal framework which governs the financial management can therefore be summarised as per the Figure 4: Legal Framework below.

3.1.6 Other Laws

There are various other laws that have financial implications for councils among which are the Rating Act, the Trade Licensing Act, and the Personal Levy Act.


Figure 4: Legal Framework

The Constitution

Article 109

The Local Government

Act

Part VI

Financial Regulations

Section 46

3.2 Functions of Councils The Second Schedule to the Local Government Act contains 63 functions which a Council may discharge. These range from general administration, agriculture, community development, education, public health and public order. However, any function which a Council discharges must be within the purview of the law. Anything done outside the law is ultra vires, i.e. beyond the powers of the Council.

3.3 Structures In order to undertake their functions, councils in Zambia are organised generally in the manner indicated in Figure 5: Possible Council Organisation Structure below. The number of Standing Committees of most councils and departments has, in recent times, been reduced as functions such as water and commercial undertakings and housing have been removed or reduced. The current structure of most councils may therefore smaller than indicated in the Figure 5.

3.4 Role and Responsibilities Various stakeholders at the local level interact to make councils operational. Their interaction and roles and responsibilities are outline in Figure 6: Role and Responsibilities below:

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Figure 5: Possible Council Organisation Structure

Mayor

Council

Chair Person Chair Person Chair Person Chair Person Chair Person Chair Person Chair Person

Establishment Housing and Social Services Licensing Finance and General

PurposesPlans, Works and

Development Public Health Water and Sewerage Services

Policy

ExecutiveThe Town Clerk

Director of Administration

Director of Housing and

Social Services

Director of Legal Services Director of Finance Director of

EngineeringDirector of Public

Health

Director of Water and Sewerage

Services

In district councils, Mayor and Town Clerk are referred to as Chairman and Council Secretary respectively. Figure 6: Role and Responsibilities

4 Financial Management Financial Management implies the taking of actions to optimise achievement of organisational goals relative to the (financial) resources used. The optimisation is between resources used and benefits gained.

This is about creating value for money which implies ensuring that resources, such as manpower, materials and equipment are mobilised, safeguarded, utilised and accounted for to the stakeholders in the most economical, efficient and effective manner. The three terms are described below:

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Table 1: Effectiveness, Efficiency and Economy.

Term Definition Example

Effectiveness The services that are being provided are having the desired impact on the community.

A road rehabilitation programme has resulted in improved access to health facilities by the community

Efficiency Making the best use of limited resources to complete a task to a given level

All roads have been upgraded within the planned time and resource constraints.

Economy Acquiring resources of a suitable quality and quantity at the lowest cost

The roads department was able to get a high discount on the cost of bitumen by buying in bulk.

In order to manage properly several factors must be in place among which are:

i) Clear goals and objectives.

ii) An assessment of available resources

iii) A plan for achieving the organisational objectives within a given timeframe and resource constraints with appropriate milestones

iv) A system of mobilising the required resources

v) A system for deploying the resources

vi) A method for keeping track of progress during the implementation of the plan

vii) A method for comparing actual progress against the plan

viii) A method for taking corrective action should this be necessary.

ix) A method for reviewing the activities of the current and previous planning periods which results could be used as an input into the next planning period.

See Figure 1: Annual Financial Management Cycle on page 5 above.

4.1 Public Finance Governments, whether Federal, Central, Provincial, State or Local, provide services which society feels are better provided at societal level rather than at individual level, public goods and services. Thus Central or Federal Governments will usually provide Defence and Security services, establish and execute foreign and economic policies, Local Governments will normally provide street lighting, water (in some cases) and storm water drainage, while individual members of the society will normally provide clothes and food among other services, private goods and services. There are of course overlaps in the categories for some goods and services such as, for instance shelter and education.

While it is fairly easy to finance private goods and services, by charging the user or buyer, public goods and services do not render themselves to such an easy solution.


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How these are financed has given rise to a branch of financial management called, not surprisingly, Public Finance.

The basic tenets of financing the provision of goods and services in Public Finance are fairly easy and straightforward. These being:

1. For services that can be allocated to specific consumers, such as water or housing, user charges and fees should be used to finance the services.

2. For services for which allocation to specific consumers is not easily possible, such as street lighting, parks and open spaces and storm water drainage, (public goods and services) as defined above, the services should be financed by taxes and levies.

Unlike the financial management in commercial enterprises whose underlying thrust is to optimise (maximise?) the difference between the cost of goods and services bought and the price at which these are sold (profit), the main thrust of public finance is to optimise (minimise?) the cost of goods and services provided to the public as these are generally funded from the same said public who do not have (except eventually through the electoral process), a direct discretion regarding the utilisation of these goods and services.

This manual is concerned with the related issues of public finance and the bookkeeping and accounting systems and procedures that support good financial management practices.

4.2 Accounting Accounting which is traditionally classified as:

a) management accounting, which is primarily aimed at providing information to managers on the day to day execution of their functions or

b) financial accounting, which is primarily aimed at reporting to outside stakeholders such as the tax office, the public, the shareholders etc,

is all about collecting financial data in an organisation, interpreting and presenting it in a manner that is useful to the user of the information.

Accounting and the information that it generates is a key component of organisational Management Information Systems (MIS). As finance presents a common medium to which the varied activities of an organisation can be reduced, accounting provides a major strategic tool for ensuring that the organisational activities are producing the desired results. This is even more crucial in Public Finance as:

a) the diversity of objectives in public bodies is much higher than in most commercial undertakings and

b) the financiers (the community) have no ability to counter check the usage or utilisation of their money and therefore have to rely to a greater extent on the accounting system.

4.3 Local Government Accounting Systems Because of the peculiar nature of local government, a prescribed and internationally accepted accounting system has been developed over the years. In Zambia our system


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is based on the standards set by the Chartered Institute of Public Finance and Accountancy (CIPFA) of the UK which is used in most Commonwealth countries. The main emphases of this system cover the following:

(a) Standardisation of nomenclature for purposes of intra and inter council comparisons.

(b) Determining the cost of providing the individual services that councils offer.

(c) Determining the source of funding for such services

(d) Providing information regarding the financial position of the council at any particular time.

(e) Determining levels of subsidies

(f) Determining equitable levels of taxation and

(g) Establishing the historical values of assets.

While this manual covers both the cash based and accrual based accounting system, it is strongly recommended that where ever possible the accrual system is used as it is best suited to keeping track of public assets and liabilities.

FFiinnaanncciiaall aanndd AAccccoouunnttiinngg PPrroocceedduurreess ffoorr LLooccaall AAuutthhoorriittiieess iinn ZZaammbbiiaa.. Section 2: Planning and Budgeting

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Section 2: Planning and Budgeting

5 Planning

5.1 What is a Plan? A plan is a statement by an institution or an individual of where they would like to be at the end of the planning period and the actions they will need to take in order to get there. In order to plan it is necessary to have a:

a) clear vision of the desired end state;

b) clear understanding of the present undesired state.

c) clear understanding of the means available for, and constraints relating to, achieving the desired end result.

The planning process is then a process of identifying what activities need to be undertaken, when, by whom and at what cost. The cost element, the budget, is therefore a result of the plan.

Councils in the past used to have long term, ten to twenty years, district wide development plans, Lusaka City Council had the Dioxides Plan more than thirty years ago. This is a good way to set the planning direction of a council over a long period. This manual starts with a description of this long-term plan.

Some councils have strategic plans, these are medium term plans of three to seven years or so. Most of these councils cannot, however, make a direct connection between their strategic plans and their day-to-day activities or their budget. This manual outlines in this section planning and budgeting, a simple way of doing this.

5.2 Why Plan? Planning helps the councils to evaluate their current (undesirable) status, visualise their planned (desirable) status at the end of the planning period, prioritise their objectives, articulate different strategies for going from the current status to the desired status, evaluate the strategies and choose their preferred strategies, develop action plans and cost them.

In doing all the foregoing, the councils also create a framework or road map for evaluating progress in the implementation of the plan. Without a plan evaluation becomes impossible. Planning is therefore a key component of management as it gives the manager the means to check if they are headed in the right direction (monitoring) and to take action if they are not (control). Figure 7: The Planning Roundabout9 below gives some key features of the planning process.

9 Adapted from the Chartered Institute of Management Accountants (CIMA) Management Accounting Magazine of April 1999CIMA

UK


Figure 7: The Planning Roundabout

1 Where do we want to be?

Mission, objectives, Key Performance Indicators

2 Where are we likely to be? If we continue as we are 5 How are we doing?

Evaluation and Control

3 How can we get where want to be? Strategies

4 Lets Go Implementation

5.3 Types of Plans There are various types of plans ranging from the long term plans, covering up to 10 years or more right down to weekly work programmes. Generally the shorter the time frame the more detailed the information contained in the plan. The long term plan for a council, say a ten to twenty year plan might use demographic projections from say the central statistics office to generally determine how many houses might be required at the end of the planning period or how many schools and make the necessary arrangements to zone the areas for such development long before demand actually arises.

In order to ensure coherence between the plans, the plans should be linked. The long term plans should set out the over all general directions the council intends to go while the short term plans should have specific action that need to be undertaken immediately within the context of the long term plan. The figure bellow illustrates the concept of the linkages between the different types of plans.

At any given time the council should be reviewing and updating its plans to take account of changing circumstances. The different types of plans are described below;

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Figure 8: Planning Framework

Strategic Plan 3 to 5 YearsAnnual Work Plan and

Budget 1 Year

Quarterly Work Plan and Budget 3 months

Work Programmes and Budgets 1 month or 1

week

District Development Plan 10 to 20 years

5.3.1 District Development Plan The District Development Plan should set out the general developmental objectives of the district. Some of the key issues this plan should be based on are projected population growth, vehicular traffic patterns and anticipated economic activity growth. This helps to assess what services will be required, such as housing, commercial centres, roads, schools, hospitals and play parks; and where these will be located, zoning. It should also outline when these services should be available relative to the growth projections. The financial implications of such plans are normally based on broad-brush assumptions and are not very detailed.

In essence these plans form the basic foundation of all council activities. Their demise in the recent past may have created some of the issues being faced currently such as unplanned settlements for the urban areas and inappropriately sited services.

5.3.2 Strategic Plan A more detailed plan than the District Development Plan is a strategic plan. All councils should have strategic plans. Currently only a few of the major councils have strategic plans that give in some reasonable detail what direction they ought to be headed. The strategic plan normally has the following components:

1 Mission statement

2 A SWOT Analysis

3 Sometimes a goal statement

4 Objectives

5 Strategies

6 Indicators

7 Specific activities and action plans to support the strategies and

8 Output indicators

The strategic planning framework and its components are outlined in the chart below:

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The strategic planning process should be consultative and participative to ensure that the priorities set in the strategic plans coincide with the stakeholders’ aspirations. Examples given below are copied from the Kabwe Municipal Council Strategic Plan 2001 – 200510 and Lusaka City Council 5-Year Strategic Plan 1999 – 2004, for purposes of illustrating the application of the concepts involved in above described components.

The process of arriving at a strategic plan involves consultation and participation of various stakeholders in the district. This process is described in detail in the Kabwe Municipal Council Strategic Plan 2001 – 2005 and the Choma Municipal; Council: Proceedings of the Council Strategic Planning Workshop held from 19th to 23rd August 2003 facilitated by ddp/GTZ.

5.3.2.1 Vision and Mission

A vision or mission statement describes the ideal desired conditions that council will strive to achieve by the end of the planning period. This should be arrived at after due consultations with the key stakeholders who help in identifying the vision of their town. Here are some examples:

Box 1: Mission Statement Kabwe Municipal Council ‘To promote the provision of social services in order to attain sustainable

development of the Kabwe Community’

Box 2: Mission Statement Lusaka City Council ‘To provide high quality services and an enabling environment, with stakeholder

participation, in order to improve the quality of life for all those who live, work, visit or conduct business in Lusaka’

5.3.2.2 Strengths Weaknesses Opportunities and Threats (SWOT) Analysis

A SWOT analysis is an analysis of the Strengths, Weaknesses (internal) of the councils and Opportunities and Threats (external) available to council. The figure below outlines the components of a SWOT analysis.

5.3.2.3 Goal Statement

In order to create goals for the council to aim at during the plan period clearly stated goals to be achieved must be articulated. For Kabwe the following goal statement was articulated.

Box 3: Goal Statement Kabwe Municipal Council

‘To provide adequate and accessible social services to improve the community’s standard of living’

10 Facilitated by the Management Development Division (Cabinet Office) and Premier

Consult – August 2000


Adequacy, access, standard of living are all issues that can be measured in some manner. So this makes a good goal statement. To complete it two other instruments are required to be developed to create the appropriate framework for evaluation:

a) a baseline study should be undertaken to determine the prevailing, undesirable, situation at the start of the plan period relating to articulated goals are deemed to be important and

b) a statement of the desired end of planning period situation relating to the articulated goals which would indicate the achievement of the desired vision or mission.

Figure 9: SWOT Framework

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5.3.2.4 Objectives, Strategies and Indicators

Since councils functions relate to a whole range of services, several objectives need to be set and achieved in order to achieve the stated vision. Kabwe Municipal Council had 14 objectives among which were:

Box 4: Extract - Objectives Kabwe Municipal Council

1. To establish and maintain a consultative and collaborative system in order improve service delivery

3. To broaden the revenue base and increase collection levels of KMC in order to improve service delivery

Residents Forces for change: Social Economic Political Technological

Council Service Delivery

Mission Vision Objectives

Stakeholders

Strategies Structures Skills Systems Staff Shared Values Service

External Analysis

Internal Analysis

Opportunities and Threats

Strengths and Weaknesses


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5. To promote the participation of women in decision making process in council affairs in order to improve service delivery.

Lusaka City Council had ten objectives including:

Box 5: Extract - Objectives Lusaka City Council 1. 90% reduction in crime rate (from 1999 levels)

3. Community or private sector provision of services 5. Quality health care accessible to all

7. LCC Operates with a balanced budget with adequate revenues

Related to the objectives should be strategies, how the objective is going to be achieved, and indicators, how the achievement is going to be measured. For the finance related objectives the strategies and indicators for Kabwe and Lusaka were:

Box 6: Extract - Strategies and Indicators Kabwe

Objective 3. To broaden the revenue base and increase collection levels of KMC in order to improve service delivery

Strategies Identify non traditional sources of revenue Enforce by-laws Develop measures to ensure consumers pay bills Establish more revenue collection points

Output Indicators Increase in revenue annually Number of non traditional sources of revenue identified Enabling legislation in place by June 2001 Reduction of unsettled monthly bills Improve council liquidity Revenue collection systems and procedures developed and approved by May

2001.

Box 7: Extract - Strategies and Indicators Lusaka

Objective 7. LCC Operates with a balanced budget with adequate revenues

Strategies Enhancing revenues in the short term by optimising income from existing or

potential sources

Improving long-term revenue potential by facilitating new economic investment within the city

Output Indicators Internal revenue base of Kwacha 100 billion

Create a US $ 2 million development fund through affordable housing projects


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5.3.2.5 Action Plans

For the desired results to be achieved, actions plans are necessary. These will indicate for each strategy, who will do what and when. The Kabwe strategic plan had no specific activities or action plans identified. However, the plan, under paragraph 5.3 states the need for action plans. For the first strategy in the above list the following action plan could have been made. Table 2: Possible Action Plan - Kabwe

Strategy Action By Whom When

Identify non traditional sources of revenue

List current sources Compare with other councils Survey activities being undertaken in the district

Propose new Sources

Revenue Accountant Treasurer Council Secretary

Council Secretary

March 00March 00April 00 June 00

Lusaka City Council had the following 12 month action plan in respect of the first strategy in the above box: Table 3: Action Plan - Lusaka

Year 1 milestone 1999 - 2000 1st Six months Next 3 monthsNew property and company database an billing system

installed

Debt collection team functioning

and already collected an

additional K 4 bn

Formation of debt collection team

Strategy 1-1

Establish new database

Strategy 1-2

Procurement and installation of

computers.

Strategy 1-3

And:

Box 8: Action Plan Lusaka for Strategy 1-1 Name of Action: Formation of Debt Collection Team

Description of Action: Preparation of guidelines and job specifications, allocation of resources, and the formation of a debt collection team.

Intent: To increase short term revenue collection by K 4 bn per annum.

Key Implementation steps:

1. Preparation of guidelines and job specifications for debt collection team. (Director of Finance and Director of Administration). By 30 November 1999

2. Allocate resources and obtain council approval (vehicles, office space, equipment, incentives) (Director of Finance, Full Council). By 30 November 1999

3. Form and train debt collection team. (Director of Finance). By 30 November 1999.

Estimated Costs: Vehicles (4xK30m.) – K 120 m Incentives - K 36 m


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5.3.2.6 Capital Improvement Plans

In order to implement strategic plans, there is almost always a need for improved capital formation, whether it is the acquisition of refuse trucks, computers or the building of new public conveniences. These capital improvements are usually a key element in the successful implementation of strategic plans.

It is now standard management practice to extract these items and create a procurement plan for the capital items as capital improvement plans.

A proposed format is shown in the figure overleaf which gives:

a) The Department acquiring the capital item

b) The item to be acquired

c) The linkage to the action plan in the strategic plan, AWPB.

d) The cost

e) The proposed timing for the purchase

f) The total for each month and each department

g) The gross totals

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5.3.2.7 Departmental Strategic Plan

Each department should have a strategic plan that feeds in the councils strategic plan. The format of these strategic plans should be exactly the same as the council’s own strategic plan.

5.3.3 Other Plans The other plans, annual work plans, quarterly work plans, and monthly work programmes and / or weekly work programmes fit within the context of the annual financial management cycle and form the basis of day-to-day financial management tasks. For this purpose they discussed in greater detail in the sections that follow.

6 Annual Work Plans and Budgets (AWPB) Councils are obliged by law 11 to prepare their annual estimates of revenue and expenditure at least 60 days before the commencement of the year to which they relate. See Appendix 2: Financial Provisions of the Local Government Act starting on page 149 for the actual provision.

In the past councils have prepared their annual estimates of revenue and expenditure without due regard to the actual services that will be provided as a result of the expenditure of the budgeted funds. This is extremely bad financial practice as then budgets are prepared without plans and yet budgets are supposed to be products of plans.

The budgets of councils must therefore always be accompanied with annual work plans to describe what physical work done or what services will be provided and by whom and at what cost. This is the essence of activity based budgeting that each activity must be costed based on what it will deliver to the total work output of the council as a whole for the benefit of the residents.

The AWPBs must consist of:

An introduction covering a review of the previous year’s activities and the current status of the council relative to the baseline position on the key issues.

Vision of the desired status of the council at the end of the annual work plan period.

Activities to be undertaken, which should link into the overall strategic plan, to enable the achievement of the stated vision by the end of the work plan period. These should be broken down by section and department.

A programme, probably represented by bar charts illustrating the timing and duration of the activities, to create a visual road map of what should be done and when. See for instance Figure 17: Petauke Quarterly Work Plan – Extract Finance.

The budget will then be a product of the foregoing. A Cash flow Projection, for internal management purposes to show the

expected cash flow position during the year as the budget itself is done on an accrual basis.

11 Section 39 of the Local Government Act


This outline of the contents of the AWPBs is also reproduced with a little bit more detail in Appendix 3: Annual Work Plan and Budget Contents. Various extracts given as examples in this manual are given because they present acceptable formats.

The council’s annual Work Plan will be the consolidation of all the departments work plans. See the Daytona examples in Appendix 7: City Dayton – Finance Department Budget 2001 and Appendix 8: City of Dayton – Public Works Department Budget 2001. The figures in the budget form only a small part of the departmental AWPBs shown. For purposes of administration the departments will have detailed breakdown of the proposed budgeted income and expenditure.

6.1 Strategic Plans and AWPBs Strategic Plans link into the Annual Work Plans and Budgets through the incorporation f the action plans that relate to the year being planned for. This is outlined in the figure below. Figure12 : Vision to AWPB

Articulate, Formalise or Update Vision

Set out where the council would like to be in the long to medium term ( i.e. define the long to

medium term goals of the council.)

Prepare Strategic Plans

Decide what strategies are required to achieve the goals

Formulate Specific Action Plans

Prepare specific action plans and objectives to support the strategic plans

Incorporate into AWPB

Incorporate action plans and objectives into the Annual Work Plan and (Recurrent and Capital)

BudgetCourtesy of Bowanda

6.1.1 Departmental Annual Work Plan Each department of council should have an annual work plan that feeds in to the Council annual work plan. This will have the same format as the council annual work

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plan. Petauke District Council annual work plan for 2002 has four major objectives for its Finance Department. These are given below:

Box 9: Petauke District Council AWPB – Finance Dept. Objectives 1. To ensure receipts and disbursements of councils moneys are properly accounted for. 2. To collect punctually all revenue and broaden tax base 3. Strengthen financial management 4. Effective planning and allocation of resources

For the first objective it then has the following details:

Table 4: Annual Work Plan – Petauke Finance Dept.

Activities Input Means of Verification Output Assumptions

Prepare cash books

Prepare financial statements

Stationery Office

equipment Accountable

documents Printer toner Diskettes

Cash books Reports Receipt books Payment vouchers Expenditure returns Revenue returns Register of accountable

documents

16 update cash books

Management and councillors updated

Financial position of council established

Funds will be available

6.2 The Budget CIPFA defines a budget as follows: “a budget is a financial and quantitative statement prepared prior to a definite period of time, of the policy to be pursued during that time for the purpose of attaining a given objective”

So a budget to be prepared there must be an objective to achieve, policies to be pursued (or strategies to be used) for achieving that objective, a given timeframe a statement of the quantities of goods and services to be used and / or produced to achieve he objective and the financial implications of all these activities.

Budgeting creates a framework for monitoring, evaluation and control in the financial management process as it creates parameters regarding what should happen before the activity period against which what actually happens during and after the activity period can be compared. . Currently however, councils have such structural rigidities that most of the revenues they raise only go to pay salaries and wages rather than to finance actions for the provision of services. The impact of this is increased resistance by the residents to pay for unseen services.

The expectation by council officers that some outside forces, such as the government, may provide funds for redundancy packages may or may not be fulfilled. The duty of the Treasurer is to make plans to improve the situation whether outside intervention occurs or not even if this means paying off one person every two months. As part of the strategic planning process, strategies should be developed to reduce, over time, this imbalance between services provided and revenues raised from the public.

Traditionally councils have tended to use incremental budgeting. This is not practical under the present circumstances. This and the recommended activity based budgeting are described below.


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6.2.1 Incremental Budgeting This is a method of budgeting, most favoured by councils in the recent past, in which the budget provision or actual expenditure and income, of a previous period is increased by a certain factor to arrive at the new budget. While this method of budgeting was popularly used because of its simplicity, it has the limitation that it can only be appropriate if:

(a) The initial basis of allocation of the expenses was a true reflection of the priorities of the organisation.

(b) Those priorities have not changed since the previous budget period.

(c) The service being provided by the expenditure is still justifiable.

(d) The method used for the provision of the service is still cost effective and

(e) The cost of inputs has changed at the same rate for all inputs for all departments.

In view of changing technologies, shifting population patterns, changing environmental concerns etc. it is highly unlikely that the above listed conditions could be true for any length of time. In any case what would happen if a new service were introduced?

This method is therefore not recommended.

6.2.2 Activity Based Budgeting Activity based budgeting is the term used to describe budgeting based on agreed activities to be undertaken. The activities are identified, agreed and costed. The process of agreeing the activities refers to the evaluation of each activity relative to its contribution to the organisational objectives. It is expected that in the process activities that do not effectively contribute to the achievement of organisational goals would be disallowed.

In a council where the key objective is service delivery to the residents, all activities must therefore be directed towards creation of the appropriate environment for service delivery. That means that activities that do not themselves directly lead to service delivery to the public must be justified and costed on the basis that they form an integral part of the service delivery mechanism. The cost of service delivery must therefore include the cost of these indirect services (absorption costing and recharges). To this effect it may be more accurate to refer, for council purposes, to Service Based Budgeting.

This method is recommended in line with discussions outlined in this manual. This however means that each service must be fully costed to include the cost of all activities that contribute to its delivery.

6.2.3 How is a Plan Different from a Budget? Most financial management textbooks define the budget as a plan in money terms. A plan is the itemisation of the actual physical things that will be done while the budget is the resulting financial implications for doing those things. The difference therefore between a plan and a budget is that a plan is a statement of what will be done while


the budget is a statement of how much implementing the plan will cost and how it will be funded.

Since a budget is the product of a plan, a plan can exist without a budget but a budget cannot, logically, exist without a plan. Unfortunately in councils sometimes budgets are prepared without a clear definition of what will be achieved at the end of the budget period. This is unacceptable. Even the central government’s budget presentation to parliament contains more information regarding objectives and strategies to justify the numbers.

6.2.4 The Budget Process As the process involves the allocation of scarce resources to community priorities, for the process to gain legitimacy and for purposes of good governance the process must be done in an open and transparent manner. A checklist is attached as Appendix 5: Budget Preparation Process – Key Factors 12for checking on issues that relate to transparency and good governance in the budget process. Other factors to consider that may affect the practical implementation of the budget are given in Appendix 6: Budgeting – Other Factors.

The actual budgeting process and detailed procedures are described in some detail in chapters 77 The Budget Process starting on page 36, 8 Recurrent Budgeting and 9 Capital Budgeting.

The figure below shows the linkages of all the issues discussed so far from vision to budget. Figure 13: Linkages between Vision and Budget

Action P lan 1 B udget 1Action P lan 2 B udget 2Action P lan 3 B udget 3Action P lan 4 B udget 4Action P lan 5 B udget 5Action P lan 6 B udget 6Action P lan 7 B udget 7Action P lan 8 B udget 8Action P lan 9 B udget 9

Action P lan 10 Budget 10Action P lan 11 Budget 11Action P lan 12 Budget 12Action P lan 13 Budget 13Action P lan 14 Budget 14Action P lan 15 Budget 15Action P lan 16 Budget 16Action P lan 17 Budget 17Action P lan 18 Budget 18Action P lan 19 Budget 19Action P lan 20 Budget 20Action P lan 21 Budget 21Action P lan 22 Budget 22Action P lan 23 Budget 23Action P lan 24 Budget 24Action P lan 25 Budget 25Action P lan 26 Budget 26Action P lan 27 Budget 27Action P lan 28 Budget 28Action P lan 29 Budget 29Action P lan 30 Budget 30Action P lan 31 Budget 31

Action P lan 32 Budget 32

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12 Based on the UNDP The Draft Country Assessment on Accountability and Transparency Report , 1997.

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6.2.4.1 Procurement Plan

Arising from the annual work plan and budget, the council should create an annual procurement plan indicating when what will be procured to enable the orderly procurement of goods and services and to ensure that only the goods and services included in the AWPB are procured. This includes elements from the capital improvement programme and the procurement of goods and services.

A summarised plan format is given in Figure 14: Procurement Plan below. Each heading would be supported by detailed statements giving information regarding council authority and relation to council and departmental objectives.

This plan is a major tool for cash flow forecasting.

6.2.5 Cash flow Forecast The budget as cast so far, apart from capital improvement plan and the procurement plan which detail when what will be acquired, is based on the accrual concept. Thus income and expenditure is recognised as the bill is received or as bill is sent out. Because:

a) There may be significant timing differences between cash outflows, which may be significantly constant throughout the year and cash inflows which may be lumpy, for instance rates and personal levy are billed twice a year, rather than monthly;

b) Actual cash paid out and / or received may differ significantly from the bills received or raised and

A cash flow forecast is an essential feature of good financial management as it enables the management to anticipate times of cash surpluses and deficits and take pre-emptive measures to optimise the benefit from one and minimise the detrimental effect of the other.

6.2.5.1 Timing Considerations

For instance an annual procurement plan of ZMK 4,105 million as shown in Figure 14: Procurement Plan below may have a corresponding income of ZMK 4,150 million giving a surplus of ZMK 45 million as shown below: Table 7: Income and Expenditure

Total Expenditure 4,105.00 Income Rates 2,150.00 Personal Levy 950.00 Other Charges 750.00 3,850.00 Loans 300.00 Total Income 4,150.00 Balance 45.00


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A cash flow statement taking into account the timing of the rates and personal levy billing periods might show an even more pleasant situation as shown in Figure 15: Cash flow – Timing implications below. This shows that while the over all annual surplus remains at K 45 million, by January, the council will, due to the rates billing raised on January, have a surplus of K 764 million and will have a positive cash flow balance through out the year. This however is an incomplete picture as the bills raised in January will not all be paid in January. Adjustments for this accrual need to be made.

6.2.5.2 Accrual Considerations

Other considerations in the cash flow projections must take into account issues of accrual. While for purposes of prudence and conservatism the finance managers must plan to liquidate council obligations as they arise, the same considerations mean that they should take due cognisance of the fact that amounts billed by council are not immediately paid by council’s customers. This has two cash flow implications as follows:

a) That some amounts billed in the previous period may be received in the current period and;

b) That some amounts billed in the current period will not be received during the current period.

A study of the councils past performance will give an indication of the collection efficiency and timings. In addition to this the cash flow projection must take into account the fact that the council will open the year with some cash balance, even though this may be negative.

A cash flow projection should therefore be prepared to enable management take pre-emptive action. The format may be as indicated in below.

In the figures given in this figure, it is shown that even though the council has an opening balance and even thought it receives some money from previous years billings, as the January rates bills will only begin to come in February, the council will have a deficit in January. Knowing this in august of the previous year while preparing the budget gives the finance officers the opportunity to take the necessary measures to ensure that council’s operations are not disrupted because of this relatively foreseeable condition.

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68.4


6.2.6 Revised Estimates and Expenditure Virement As part of the process of preparing the annual work plans an budgets, a review of the current year’s activities are undertaken. This review may show that there are divergences between what was planned and what is actually happening. Normally the budget is revised to take into account such changes as may have happened,

It is important however to ensure that even as the budget is revised and expenditures transferred from one account head to another, council permission is obtained and the over all budget still balances.

6.2.7 Short Term Plans – Quarterly Work Plans These will be extracted from the annual work plan but giving more details for each activity and its timing. Since council activities are not evenly spread through out the year, grass cutting for instance is only done in the first and last quarter of the year during the rain season, the quarterly work plans are not merely an equal quarterly allocation of annual work plans to each quarter.

The quarterly work plans must reflect this seasonal variation in the operations of the council. Figure 17: Petauke Quarterly Work Plan – Extract Finance

30 2 5 8 11 14 17 20 23 29 1 4 7 10 13 16 19 22 25 28 3 6 9 12 15 18 21 24 27138 Prepare Cash books 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1139 Prepare Financial Statements 1140 Prepare Financial Statements 1141 Prepare Financial Statements 1142 Engage and select revenue agents 1 1 1 1 1143 Prepare debtors and creditors schedules 1 1 1 1 1 1144 Prepare debtors and creditors schedules 1 1 1 1 1 1145 Prepare debtors and creditors schedules 1 1 1 1 1 1 1

157 review 2001 Annual Plan 1 1 1 1 1

MarchID Task Name

January February

6.2.8 Short Term Plans – Monthly Action Plans This will be a list of actions to be undertaken and by whom during the month.

6.2.9 Short Term Plans - Weekly Work Programmes Some councils, Petauke for instance, do not have a monthly action plan, but derive a weekly work programme from the quarterly work plans.

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Figure18: Petauke – Weekly Work Programme Finance Department

ActivitiesA ttend M anagem ent M eetingP repare B ank R econc iliation S tatem entP repare B ank R econc iliation S tatem entP repare R eceipts and P aym ents Account for January 2002P repare B ank R econc iliation S tatem entP repare R eceipts and P aym ents Account for January 2002F inalise R eceipts and P aym ents Account for January 2002U p date databaseT ravel to C hipataFollow up debts in C hipataS ubm it R eceipts and P aym ents A ccounts to P LG OU p date databaseP repare W eekly W ork P rogram m e

S aturday 09 M arch 2002 A ttend M arket B oard M eeting

05 M arch 2002

06 M arch 2002

07 M arch 2002

08 M arch 2002

T uesday

W ednesday

T hursday

Friday

Finance D epartm ent

DaysM onday 04 M arch 2002

W eekly W ork P rog ram m e 4 th to 8 th M arch , 2002

7 The Budget Process The general concepts of activity based budgeting, and how they fit into the planning framework, have been described above. In order, however, to comply with the law and outline the specific activities to be undertaken and when, this section describes the actual budget process.

7.1 Council Budget Structure The financial information system (FIS) for a council must be sophisticated enough to track activities of various types, in the various sections, departments and at the council level as a whole. For instance a typical accounting system should be able to capture and summarise data in the following structure: Figure 19: Council Budget Structure

Council Budget Structure

Stores Section Computer Section Revenue Section

Finance Department Town Clerks Department Engineering Department

General Rate Fund Housing Fund Commercial Undertaking Water Undertaking

Grand Summary

Each department has various sections not shown in the chart above. At each section the system should be able to track activities in the different classifications defined in the chart of accounts, see Appendix 3: Annual Work Plan and Budget contents

1. Introduction This part will normally contain two major sections:

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• A restatement of the council’s vision and statement, objectives. Key targets for the year and the conditions and assumptions made in the proposed achievement of those targets and objectives which may not be directly in the control of council.


This section should also have a bar chart representing the timing of the various activities.

3. Procurement Plan This is a list of what goods and services need to be procured and when in order to implement the plan.




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Appendix 4: Proposed Chart of Accounts:

7.2 Budget Deadline Section 38 of the Local Government Act requires councils to prepare their estimates and present the same to the Minister, at least 60 days before the commencement of the year to which the estimates relate. This is an essential aspect of the management of councils as unless provisions are made within the estimates, it would not be possible to undertake any activity. After defining the activities and costing them as outlined in the previous section activities happen in a sequence that should continue from the Annual Work Planning process. The general process at this stage is as follows:

The Ministry issues budget guidelines for each year for councils to follow.

The Treasurer interprets these guidelines and advises the other Chief Officers what their expenditure limits will be.

The Chief Officers prepare detailed Annual Work Plans and budgets for the resultant capital and recurrent income and expenditure necessary to implement the Annual Work Plan. These are submitted to the Treasurer / Director of Finance.

The Treasurer / Director of Finance consolidates the section, departmental and committee budgets to arrive at the over all council budget.

The Chief Officers meet to balance the budget. This is done by finding the difference between the total council expenditure and income. If the expenditure is more than the income, as is usually the case, the expenditure is reduced reducing the number of activities to be undertaken or income increased by revising the various tariffs or introducing new sources of revenue.


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Box 10: Balancing the Budget In order to ‘balance’ the budget, a policy / management decision has to be made whether the budget should aim for a surplus, in order to build up reserves and ensure sustainability; break even in order to maintain the status quo; or deficit, in order to draw down on accumulated reserves such as the tariff stabilisation fund. . This decision is partly determined by the state of reserves available to the institution. Reserves are needed for:

a) Providing a cushion against unexpected increases in expenditure or shortfalls in revenue

b) Providing a working balance where expenditure tends to run ahead of revenue in time

c) Accumulating resources for large future commitments such as renewal of plant.

Self-financing activities should as much as possible be budgeted as such. This may seem obvious but examples of parastatals and local government enterprises budgeting for losses would seem to indicate that this might not be so obvious after all.

It is also possible to estimate a global income figure and allocate departmental budget ceilings within which each department should budget.

Each standing committee’s draft annual work plan and budget as prepared by the officers is submitted to that standing committee for approval and or modification.

The draft Annual Work Plan and Budget of the Finance and General Purposes committee should be submitted to the Finance and General Purposes Committee only after all the other committees have considered and approved their own Draft Annual Work Plans and Budgets. This is to enable the Finance and General Purposes Committee to consider its own Draft Annual Work Plan and Budget as well as to consider the AWPBs of the other committees and consolidate them into the Councils AWPB.

The consolidated Draft Annual Work Plan and Budget as approved by the F and GP committee should finally be submitted to the full Council meeting for approval.

The Council approved Draft Annual Work Plan and Budget should then sent together with a list of recommended revisions of fees and charges to the Minister for final approval.

7.3 Proposed Budget Programme In order to present a budget by 1st November, it is necessary to start the planning process that feed into the budget process much earlier than is the current practice. As the proposed process will include stakeholder participation in identifying priority activities for period being budgeted for, the costing of these activities, the selection of the key prioritises which may fit within the council’s resource envelope, it is proposed that the following programme may be adequate:


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Table 8: Proposed Budget Time Table

Month Date Activity May Jun Make or review Strategic Plan

Aug 1 Review performance in the identified priority areas for current year

Aug 1 Prioritise areas of action and prepare annual work plans as per priorities for the year

Aug 15 Cost the annual work plans Aug 15 Asses the revenue potential for the budget year Aug 21 Adjust the activities to the resource envelope Sept 1 Submit Annual Work Plan and Budget to Standing

Committees Oct 1

Submit Annual Work Plan and Budget to Council

October 15

15 Submit Annual Work Plan and Budget to Ministry

If this is done, then the budget becomes a tool for service delivery as each department and section will have specific performance indicators for the following year in addition to the numbers that make up the budget. See Appendix7: City Dayton – Finance Department Budget 2001 and Appendix 8: City of Dayton – Public Works Department Budget 2001 for examples of departmental budgets linked to specific activities, and they have one of these for each of their 20 departments.


8 Recurrent Budgeting This is the process of estimating recurrent income and expenditure on an annual basis. This process must always start with a list of activities that need to be undertaken. The product of this process is called an Operating Budget or Revenue Budget or Recurrent Budget. All these terms mean the same thing.

The amounts budgeted, in a cruel based system, must be the financial obligations that are expected to arise for operating expenses and the financial benefits that are expected to accrue to council for the year.

The figure below gives an overview of the recurrent budget process in graphical form. Figure 20: Recurrent Budget Overview

Constituent's ability to payQuality of service deliveryResources availableCommunity service priorities

Council must

Overview of the Recurrent Budget

The Recurrent (operating) budget

This is the annual financial plan

describing daily recurrent expenses

and income.

Repairs and maintenancePurchase of services and goods

Debt chargesOthers

Salaries and WagesService charges

Other income

Cost efficiency

Source of income from constituents:

Rates (property tax)Personal Levy (income tax) Recurrent expenditures for

community service delivery

Constituents must pay in order for council to have a recurrent budget

Councils must deliver quality service in a cost effective way

Maximise real services delivered by monitoring:

Quality of workProductivity

Overall Considerations

Assess constituents ability to pay

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8.1 Expenditure An amount of money planned to be expended during the budget year for planned activities.

8.1.1 Identification of Services to be Delivered Services to be provided and activities to be undertaken create the basis for estimating the required amounts to be spent. The process of identifying the activities and prioritising them should be participative and involve the various stakeholders. It should also link to the strategic plan. This should be done for each department and section.

Each expenditure item should have adequate supporting information, for instance employee expenses should be supported by an establishment list in which the cost of each employee is itemised. Debt charges should be supported by a loans schedule which shows the repayments due for that particular year and so on.

8.1.2 Estimating the Cost of Service Delivery Attempts must be made to capture all expenditure inclusive of recharges in order to arrive at the actual cost of service delivery. This should be done for each department and section.

8.2 Revenue Amount of money which ought to be raised from all sources, and not necessarily limited to what is actually collected, to provide the services. In as much as is possible activities that can be self-financed should be funded by direct charges. These form the basis for the ‘Fund’ categorisation in the council financial management.

8.2.1 Charges Charges relate to income planned to be billed for services rendered linked to specific consumers such as refuse collection charges. The amount to be included in the budget must be arrived at based on specific assumptions such as the number of loads of refuse to be collected for the year multiplied by the charge per collection. These assumptions should be clearly stated.

8.2.2 Taxes Taxes income planned to be billed for provision of general services rendered not necessarily linked to specific consumers, such as Personal Levy, Rates. Both the Personal Levy and the Rates budgeted should be based on an appropriate and updated database, for rates it called a valuation roll.

8.2.3 Levies Levies relate to income planned to be received from the public as a tax for transacting in a specific commodity. The common levies include Fish Levy, Timber Levy, Grain Levy, Beer Levy, Sand Levy and so on. As this income is based on discretionary activity by others, they may or may not trade in fish for instance, the amount budgeted should be based on some appropriate and justifiable trend analysis.


8.3 Budget Consolidation Councils are made up of sections, which belong to a department, which belong to a fund. In some cases different sections in the same department could belong to different funds. For instance the Works or Engineering Department reports to the Plans Works and Development Committee, however some section, like the Water Undertaking belonged to the Water Undertaking Fund. Another example is Housing Department in which the Low Cost Housing has a fund of it own separate from the community services which are part of the General Rate Fund or District Fund.

Preparing the AWPBs for council means articulating the activities of each section and costing them. These would then be consolidated into a fund AWPB which should then be consolidated into the councils AWPB. A simplified budgeting and financial information system structure for council may be as shown in the figure below. Figure 21: Sample Council Budget Structure

Grand Summary

District Fund Housing Fund

Administration Council Secretary

Finance Works Low Cost Housing Hotel Clothing Factory

Commercial Undertaking

8.3.1 Departmental AWPBs For purposes of illustration if the AWPBs of the sections have been consolidated into departmental budgets already, these may appear as follows: Figure 22: Departmental Budgets Before - Recharge

Administration Council Secretary Finance Works Low Cost Housing Hotel Clothing

FactoryExpensesEmployees 3,899,000 4,873,750 2,436,875 7,310,625 3,119,200 1,200,000 1,500,000 Premises 98,933 123,666 61,833 185,499 79,146 15,876,000 7,938,000 Supplies and Services 356,700 445,875 222,938 668,813 285,360 28,985,000 24,637,250 Transport and Plant 456,310 570,388 285,194 855,581 365,048 346,796 294,776 Establishment 1,230,000 1,537,500 768,750 2,306,250 984,000 934,800 794,580 Miscellaneous 67,000 83,750 41,875 125,625 53,600 50,920 43,282 Debt Charges 12,000 15,000 7,500 22,500 9,600 9,120 7,752 RCCO 23,400 29,250 14,625 43,875 18,720 17,784 15,116 Recharges

Total Expenditure 6,143,343 7,679,179 3,839,589 11,518,768 4,914,674 47,420,420 35,230,757

IncomeRates 22,007,850 Personal Levy 1,245,000 Grain Levy 1,230,000 Rent 2,220,000 Hotel Charges 35,002,500 Food 22,175,000 Uniform Sales 45,000,000 Licences 3,900,350 1,250,000

Total Income 5,130,350 1,250,000 23,252,850 - 2,220,000 57,177,500 45,000,000

Surplus (Deficit) (1,012,993) (6,429,179) 19,413,261 (11,518,768) (2,694,674) 9,757,080 9,769,243

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8.3.2 Recharges If as a matter of policy the council has agreed that the net cost of operating the Council Secretaries Department and the Administration Department, together with the full cost of operating the Finance Department should be recharged, as Central Administration Recharge to the Works Department, 50%, the Low Cost Housing, 25%, Hotel, 15% and the clothing Factory, 10%. Then the budget would be as follows: Figure 23: Departmental Budgets After Recharges

Administration Council Secretary Finance Works Low Cost

Housing Hotel Clothing Factory

ExpensesEmployees 3,899,000 4,873,750 2,436,875 7,310,625 3,119,200 1,200,000 1,500,000 Premises 98,933 123,666 61,833 185,499 79,146 15,876,000 7,938,000 Supplies and Services 356,700 445,875 222,938 668,813 285,360 28,985,000 24,637,250 Transport and Plant 456,310 570,388 285,194 855,581 365,048 346,796 294,776 Establishment 1,230,000 1,537,500 768,750 2,306,250 984,000 934,800 794,580 Miscellaneous 67,000 83,750 41,875 125,625 53,600 50,920 43,282 Debt Charges 12,000 15,000 7,500 22,500 9,600 9,120 7,752 RCCO 23,400 29,250 14,625 43,875 18,720 17,784 15,116 Recharges (1,012,993) (6,429,179) (3,839,589) 5,640,881 2,820,440 1,692,264 1,128,176

Total Expenditure 5,130,350 1,250,000 - 17,159,649 7,735,115 49,112,684 36,358,933

IncomeRates 22,007,850 Personal Levy 1,245,000 Grain Levy 1,230,000 Rent 2,220,000 Hotel Charges 35,002,500 Food 22,175,000 Uniform Sales 45,000,000 Licences 3,900,350 1,250,000

Total Income 5,130,350 1,250,000 23,252,850 - 2,220,000 57,177,500 45,000,000

Surplus (Deficit) - 0 23,252,850 (17,159,649) (5,515,115) 8,064,816 8,641,067 For a discussion of recharges see section 25.5 Recharges starting on page 127.

8.3.3 Fund Balances Summaries Preparing the fund summary is a question of consolidating the various departmental budgets into their appropriate funds. In the above council structure this would be as shown in Figure 24: Fund Budgets assuming there were opening fund balances as indicated.

8.3.4 Balancing the Budget Balancing the budget is the process of ensuring that the resources required to be raised for service delivery are equal to or exceed the resources required to be expended for those services.

In order to ensure the budget as whole balances, the fund summaries should be consolidated to a grand summary. This is an extremely important summary as it gives in one place an overview of the budgeted position of the council. The Grand Summary should appear as shown in Figure 25: Grand Summary below.

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Figure 24: Fund Budgets

District Fund Housing Fund Commercial Undertaking

Fund SummariesExpensesEmployees 18,520,250 3,119,200 2,700,000 Premises 469,932 79,146 23,814,000 Supplies and Services 1,694,325 285,360 53,622,250 Transport and Plant 2,167,473 365,048 641,572 Establishment 5,842,500 984,000 1,729,380 Miscellaneous 318,250 53,600 94,202 Debt Charges 57,000 9,600 16,872 RCCO 111,150 18,720 32,900 Recharges (5,640,881) 2,820,440 2,820,440

Total Expenditure 23,539,999 7,735,115 85,471,617 Income - - -

Rates 22,007,850 - - Personal Levy 1,245,000 - - Grain Levy 1,230,000 - - Rent - 2,220,000 - Hotel Charges - - 35,002,500 Food - - 22,175,000 Uniform Sales - - 45,000,000

Total Income 29,633,200 2,220,000 102,177,500 - - -

Surplus (Deficit) 6,093,201 (5,515,115) 16,705,883 Opening Balance 2,000,000 (1,590,500) (6,756,000) Closing Balance 8,093,201 (7,105,615) 9,949,883

Figure 25: Grand Summary

Grand SummaryExpensesEmployees 24,339,450 Premises 24,363,078 Supplies and Services 55,601,935 Transport and Plant 3,174,092 Establishment 8,555,880 Miscellaneous 466,052 Debt Charges 83,472 RCCO 162,770 Recharges -

Total Expenditure 116,746,730 Income

Rates 22,007,850 Personal Levy 1,245,000 Grain Levy 1,230,000 Rent 2,220,000 Hotel Charges 35,002,500 Food 22,175,000 Uniform Sales 45,000,000

Total Income 134,030,700 -

Surplus (Deficit) 17,283,970 Opening Balance (6,346,500) Closing Balance 10,937,470

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9 Capital Budgeting Capital Budgeting refers to the budgeting for the creation of Long Term Assets financed through Loans other than the occasional Revenue Contributions to Capital Outlay (RCCO).

The capital budget is a well ordered summary of a council’s expected capital spending for the budget year. This must be a product of the AWPB. Capital expenditure is expenditure on assets that:

Are related to the purchase of land, buildings, machinery and equipment.

Give long term benefit to the council

Include vehicles, office furniture and equipment, but excludes, sometimes by value, less expensive items that are regarded as expendable.

The capital budget will normally have:

Provision for acquisition of durable items with a life span of more than one year.

Provision for items that will result in capital expenditure.

Long-term financial implications which will commit council to large future financial obligations.

An overview of the capital budget process is shown in the figure below: Figure 26: Overview of the Capital Budget

Develop a vision for the councilEstablish community prioritiesProjects in progressCost of financingO ther resources available

Capital Expenditure w hich can include:

Land, Buildings, M achinery, Roads, M otor Vehicles, O ffice Furniture and Equipment

Revenue Contributions to Capital O utlay (RCCO )Loans

G rantsCapital Receipts

O ther

Q uality of w ork

Sources of incom e for capital bugets

Productivity

Cost efficiencyTimely progress of w ork

O verview of the Capital Budget

O verall Considerations

Respond to constituents priorities

and ability to pay

M axim ise real services delivered by m onitoring:

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9.1 The Capital Programme For proper planning, a council must have a multi-year capital programme. This is an important planning mechanism. The capital budget for a specific budget year, will normally be derived from the capital programme.

The capital programme provides a schedule of capital spending that a council envisages incurring as well as the sources of funding for that expenditure over a number of years usually 3 to 5 years. This is necessary as capital spending has long term financial implications for councils. A multi year approach enables the council to manage its finances and priorities according to a longer term plan based on key strategic objectives, the strategic plan.

This programme is easily derived from the council’s strategic plan as it is in effect the Capital Improvement Plan motioned earlier.

9.2 Revenue Budget Implications of Capital Budgets Care must be taken when making capital estimates that provision for the operational income and / or expenditure requirements arising from capital expenditure have been taken into account in the revenue budget. For instance a capital budget for a new clinic must have recurrent budget implications for medicines and staff to run the clinic.

FFiinnaanncciiaall aanndd AAccccoouunnttiinngg PPrroocceedduurreess ffoorr LLooccaall AAuutthhoorriittiieess iinn ZZaammbbiiaa.. Section 3: Management Accounting and Control

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Section 3: Management Accounting and Control

10 Accounting Accounting has to do with the ability to satisfactorily explain what one has done with a given set of resources. These may be financial resources, the subject of this manual, or other resources such as time.

Accounting, in financial management, is generally classified as Management Accounting and Financial Accounting. Together they form an integral part of financial management responding to different needs at different times. These terms are described below.

10.1 Management and Financial Accounting Management Accounting is primarily aimed at internal usage and for controlling activities during the year as the activities are taking place. Financial Accounting on the other hand is primarily aimed at external stakeholders, is carried out after the expiry of the financial year to which it relates and is a statutory requirement. The product of Financial Accounting, the Final Accounts, are externally audited to assure the public for whom the activities are undertaken that the financial activities of the council for the specific financial year were undertaken in conformity with agreed standards.

The format of Financial Accounts is normally standardised to enable comparisons between councils while management accounts can be in whatever format is suitable for the task. As however the Final Accounts are structured in somewhat the same way as the budget, and as the budget is the control document, it is logical that the management accounts are arranged in a similar format.

Financial Accounts are highly summarised while management accounts need to be extremely detailed in order to enable managers make the necessary adjustments as the activities are undertaken.

Finally Management Accounts need to be extremely timely (for instance in order for the Council to issue warrants of distress for rates, the Treasurer’s records must be up to date) while Financial Accounts are required to be, according to the Local Government Act, ready within six months after the end of the year to which they relate, thereby giving the council at the most six months to prepare them.

Both Management Accounting and Financial Accounting depend on good bookkeeping. Bookkeeping data is summarised into management accounting information and reports. Financial Accounting information is summarised into the Financial Accounts.

Because of the logical flow of the linkages between Bookkeeping, Management Accounting and Financial Accounting, the subjects are discussed in the same sequence as follows:

Bookkeeping in section 11 Bookkeeping starting on page 50,

Management Accounting in section 14 Management Accounting starting on page 68 and


Financial Accounting procedures are covered in section 23 Finalisation of Accounts starting on page.121. Financial Accounts are prepared from the data collected during the year through management accounting.

This relationship between Bookkeeping, Management Accounting and Financial Accounting is depicted in the figure below: Figure 28: Bookkeeping and Accounting

Summarised to:

Management Accounting

ReportsFinancial

Accounting Report

Summarised to:

Bookkeeping Records

Daily records

Daily records

Monthly Management Accounts &

Variance Analysis

Annual Final

Accounts

11 Bookkeeping Accounting for purposes of financial management depends to a great extent on good bookkeeping. ‘Bookkeeping is the art of recording transactions involving money or goods worth money, in a regular and orderly manner’13.

11.1 Double Entry Bookkeeping Financial transactions have two aspects, the loss of something of value, say money, in exchange for something else of value, say water. The double entry bookkeeping system ensures that both aspects of the financial transaction are explicitly recognised in the books. The standard approach is to Debit the account that has received the benefit and Credit the account that has given out the benefit.

If the council sold water for K 2000, the entries in the councils accounts would eventually be as follows:

13 Handbook of Financial and Accounting Procedures for District and Urban Local Authorities in Zambia, 1965

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Credit (CR) Water Account (by moneys worth of water sold, K 2000, this is the account that has given out water, therefore Credit the giver) and

Debit (DR) Cash Account (by the moneys worth of cash received, in this case K 2000, this is the account that has received the money, therefore debit the receiver)

If the, on the other hand, the council bought water for K 2000, the entries in the councils accounts would be as follows:

Debit (DR) Water Account (by moneys worth of water received, K 2000) and

Credit (CR) Cash Account (by the moneys worth of cash given out, in this case K 2000)

This method of recording transactions is the standard method used in practice as it gives a clear picture of the money value of the resources being exchanged and provides an easy method for checking that the bookkeeping has been done properly as at any time, the total debits recorded should equal the total credits recorded.

It is also standard practice that to make a bookkeeping entry there must be the appropriate supporting documents.

11.2 Prime Documents Accounting records are initiated through Prime Documents. These are the basic accounting records that explain and support the Debits and Credits in the books of accounts. In councils the prime documents are receipts, payment vouchers and journal vouchers.

11.2.1 Receipts Receipts are the official documents on which a council, through its various revenue collectors, acknowledges receipt of monies for services rendered or goods sold. Receipts come in all sorts of shapes and sizes but they all contain the following information:

a) Name of the council

b) Purpose for which payment is received (or income code)

c) Date

d) Receipt number

e) Payer’s details

f) Amount received

g) Identity of receiver (usually signature or receipting machine identity code)

Types of receipts include:

a) Manual Receipts, which are manually issued on payment for a service or levy such as grain levy, market levy parking fees etc. These are normally printed in books and are numbered consecutively. They are usually at least in triplicate with the original going to payer, the duplicate submitted to the


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revenue section for bookkeeping purposes and the triplicate retained in the receipt book for audit purposes.

b) Machine Receipts, which are machine printed, with a print out issue to the payer while a till roll is retained for bookkeeping. In point of sale receipting, the bookkeeping entry is made directly by the receipting machine which is normally connected to a computer.

c) Special Receipts, which can be manual, or in recent times in respect of road licences for motor vehicles, machine issued which are meant to be displayed as compliance with some laws or rules such as Health Permits, Trading Licences and Fire Inspection Certificates.

11.2.2 Payment Vouchers Payment Vouchers are the official documents on which a council, through its various spending authorities, authorises payment to be made for services or goods received. The payment voucher will normally have the following information:

a) Name of the council

b) Purpose for which payment is being made (ledger account description or expenditure code)

c) Authority for payment such as council minute number, service contract or order number.

d) Date

e) Voucher number

f) Cheque number

g) Payee’s details

h) Amount to be paid

i) Identity of person raising the voucher

j) Identity of person authorising payment

k) Identity of person validating the completeness of information

l) A place for the person actually collecting the payment to sign.

In a manual system four copies of the payment voucher should be made to be distributed as follows

1. Payee, for their records.

2. Accountancy, to support the bookkeeping entries to be made.

3. In a numerical order file by cheque number, to ensure that there are cheques that have been issued without appropriate supporting documents.

4. In alphabetical file by payee for purposes of grouping all payments according to payee.

5. Book, for audit purposes.


In a computer based system only the payee needs to have a hard copy as the rest can be accessed on line.

The payment voucher must be accompanied by supporting documents such as proforma invoices, minute number authorising payment, goods received notes for goods received and fee notes for services rendered. A sample format is given below: Figure 29: Payment Voucher

To Name of Payee Date: ………………………Address of Payee Voucher no: …………………

Cheque no:…………………

Authourity Description Account Head Sub Head Item Folio AmountOrder No

67459Being payment for the

preparation of the accounting Finance Dept Supplies and services Consultancy 67 200,000,000.00

Voucher Raised by:……………………. Voucher Certified by: …………………….. Audit Approval:……………..

I certify that I have received the above amount in respect of the above quoted goods / services.

Date:………………………. Received by:……(name of receiver)………

……………(Signature of receiver)……………………

Name of CouncilPayment Voucher

Signed:

Ledger Account Details

11.2.3 Journals In circumstances where there is no receipt or payment voucher to support the entries for bookkeeping journals are used. Unlike the previous two documents in which the double entry is to the cash account, the journal must explicitly state the accounts to be debited and credited. Some of the entries that are likely to be initiated by journal entry are:

a) write off of bad debts

b) Correction of posting errors

c) Creation and transfer to funds and provisions

Journals should be numbered consecutively throughout the year. As journals represent the primary document from which bookkeeping entries are made, they should have the same details as the other primary documents, receipts and payment vouchers. These details are:

a) Date

b) Journal number

c) Purpose for which the entry is being made

d) Which account is being debited and by how much

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e) Which account is being credited and by how much

f) The initiating officer

g) The authorising officer

Journals should have the formats shown below.

Figure 30: Journal – Manual Accounting System

Date: ……….. Journal Voucher

Voucher no: ……….

Description Account Head Sub Head Folio Debit CreditCorrection of misposting from City Engineers to Town Clerks Salaries 67 20,000.00 Town Clerks salaries accounts Engineers Salaries 69 20,000.00

Initiated By: ……………………. Authorised By: ……………………

Name of Council

Ledger Account Details

Figure 31: Journal – Computer based accounting system

Date: ……….. Journal Voucher

Voucher no: ……….

Description Code Debit CreditCorrection of coding errors from City Engineers salaries 010101 20,000.00 Town Clerks salaries accounts 050101 20,000.00

Initiated By: ……………………. Authorised By: ……………………..

Name of Council

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11.3 Custody of Prime Documents As the prime documents form the basic data records for a councils accounts, all prime documents must be serially numbered and a register of these accountable documents should be kept which will show to whom each document, such as receipt book, was issued and when.

When they have been used, copies must be securely kept, in serial number sequence, for audit purposes. These should not be lost or destroyed until the audit of the final accounts for the year to which they relate has been conducted and at least five years after the year to which they relate.

If therefore the accounts are finalised and audited within six months of the end of the year, the prime documents must be kept for five years. If however, the accounts have not been finalised and audited, the prime documents should be kept until after the accounts are finalised and audited, even if this is done 10 years after the end of the year to which they relate. Failure to observe this will result in an audit report which is:

Qualified, stating that except for a few receipts that are missing, the accounts, in the opinion of the auditor, present a true and fair view of the financial activities of the council during the year under review or

Disqualified, stating that the records are disqualified as the state of records and record keeping were in such that the auditor could not form an opinion.

11.4 Receipting Procedures All monies received by council must be receipted. All monies received by each cashier must be analysed and summarised. The format of the daily cashier’s summary is shown in Figue32: Daily Casher’s Summary on page 56. The daily summary must be supported by:

Copies of individual receipts in respect of each entry on to the summary and

Bank deposit slip(s) or receipt issued to the cashier by the supervising officer responsible for banking the daily collections in respect of the total collections.

For purposes of obtaining an overview of the daily total cash collections of the council from all its cashiers, the analysed totals from the individual cashiers daily cashiers summaries must be transferred to a Grand Summary showing the collections from all the cahiers for any particular day.. The format for such summary is shown in Figure 33: Grand Summary of Daily Collection-. on page 57. The Grand Summary should be supported by:

Cashiers summaries and

Deposit slips


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11.5 Payment Procedures In order to effect payment there must be legitimate authority for such payment. Each payment must be supported by:

Authority for payment, such as a council minute number or council order duly signed by an authorised officer

A goods or services received note duly signed by an authorised officer acknowledging receipt of goods or services

An invoice or fee note from the supplier of the services or goods

A payment voucher quoting details of authority, invoice or fee note and goods or service received notes.

11.6 Main Accounting Books - The Ledger The ledger is the main book of accounts. It has all the accounts entries of the organisation. A general ledger is a comprehensive set of accounting records which contains up-to-date information on the accounting aspects of a specified legal entity. For purposes of ease of maintenance the Ledger can be divided into:

The Nominal Ledger into which Personal Accounts are kept such as debtors and creditors accounts which are kept in the name of a person or company.

The Real Ledger into which all other accounts, called Impersonal Accounts, such as Fixed Assets, Cash and investments

An account may be defined as, "A record of a group of transactions which are of a similar nature for which the collective value provides a piece of information of use to the entity’ A general ledger must be maintained as it provides a permanent and complete auditable record of the Financial transactions of an entity, which will facilitate the production of up-to-date financial information and financial statements. The Ledger forms the only comprehensive collection of financial information for each year for the council. It should be divided into the parts indicated in the table below: Table 5: Ledger Parts

Part Accounts Type

I Recurrent Income Impersonal II Recurrent Expenditure Impersonal III Capital Income Impersonal IV Capital Expenditure Impersonal V Creditors including:

Deposits Provision for Doubtful Debts

Personal Personal Impersonal

VI Debtors Advances Investments

Personal Personal Impersonal


For convenience purposes in manual systems, various other books that feed into the ledger are devised. The major ones are the cash book, a separate one for each bank account, and journals. These are described below and how they relate to each other is shown in the figure below: Figure 34: Main Books of Accounts Match figure and text on the same page!!

Receipts Cash Book Cash Book

Bank Account 1

Journals

Personal (Nominal)

Ledger

Impersonal (Real) Ledger

Ledger Cash Book

Bank Account 2

Petty Cash Book

Payments Cash Book

11.7 Tracing Bookkeeping Errors A major tool for tracing some bookkeeping errors is a Trial Balance. The basic logic for this tool is that as each financial transaction has a debit and a corresponding credit of equal magnitude, the total debits must equal the total credits. The Trial Balance is, therefore, a listing of all the ledger balances in which, if the bookkeeping has been correctly done, the debits should equal the credits.

A Trial Balance should be in the format presented in Figure 35: Trial Balance Format on page 60.

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Figure 35: Trial Balance Format

Trial Balance As At: …………………….

Description Code Ledger Folio DR CR

Income AmountRates AmountRents AmountGovernment grants Amountetc Amount

Creditors AmountProvisions AmountCapital Discharged AmountAccumulated Fund Surplus Amount

Expenditure AmountEmployees AmountPremises AmountEstablishment Amountetc Amount

Long Term Assets AmountInvestments AmountCurrent Assets AmountAccumulated Fund Deficits Amount

Total K xxxxx K xxxxx

Name of Council

11.7.1 Why a Trial Balance may not balance There are several reasons why a trial balance may fail to balance. The reasons for this, and the actions that may be taken to remedy the situation are indicated in the table below:14 Table 6: Reasons for Trial Balance Errors

Reasons Action Incorrect addition Check the additions Missing balance Check that all balances have been listed A balance is in the wrong column of the trial balance

Check that all balances are in their correct Debit or Credit columns

An account in the ledger has not been added up correctly

Check all additions and balances in the ledger

Postings to the ledger are not correct Check entries from all primary books of entry to ensure accuracy.

Postings to the ledger have been omitted Check primary books to ensure accuracy of bookkeeping

14 Adapted from the Grant Thornton manual


11.7.2 Errors that will not be reflected by a Trial Balance Some errors will not be reflected by a trial balance. Among these are those reflected in the table blow: Table 11: Errors that will not be reflected by the Trial Balance

Type of Error Description

Error of omission Where records have been completely missed out of the books

Error of commission Where the wrong value of the transaction is posted to the ledger.

Error of principle Where one side of the transaction is posted to the wrong account in the ledger

Compensating errors Where two or more errors which may otherwise have been individually reflected compensate each other and balance out.

12 Cashbook Maintenance As a considerable proportion of financial transactions eventually involve exchange of cash, cashbook maintenance and the bookkeeping that goes with it forms a major component of any accounting system. For this purpose the subject is dealt with in this section rather than in the section that deals with balance sheet items where it rightly belongs.

First and foremost, there must be a separate cashbook for each bank account. As part of internal control a separate cashbook should be kept for receipts and for payments, maintained by separate people. The balance on the cashbook should always be reconciled at the end of each month with the balance on the bank account to which the cashbook relates.

A Petty Cashbook should also be maintained in which petty cash transactions are entered.

Balances from one page of the cashbook must be carried forward to the next page and the pages must be numbered sequentially. In an analysed cashbook, the cashbook column headings must relate to corresponding ledger accounts. The totals of each column must be ruled off at the end of each month and posted to the appropriate ledger account. There should be reference in the cash book to the appropriate ledger page or folio (we will refer to ledger folio as LF 01 to refer to page 01 of the ledger, for instance) to which the column relates so that posting is simplified.

12.1 Receipts Cashbook Because in the normal conduct of business money may be received from many different income sources, by different cashiers sometimes scattered in many different places, on any particular day, the initial entries recording these diverse receipts are made in the cashiers daily summaries as described in 11.2.1 Receipts on page 51. The Analysed receipt summaries are posted to the cashbook. The examples below illustrate the process.

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Figure 36: Daily Collection Summary Kasempa – Cashier 1

Daily Cash Collection - Cashier's SummaryPage: 4… of …4….

Date: 25th July 2003 Name of Cashier: Andrew Chitembo

Rec. No Rates Trade P/Levy Honey

Levy Rent Market Levy GRZ Grant Capital

receipts Misc. Total Remarks

B/f 200,000.00 750,000.00 789,000.00 8,877.00 8,099.00 233,456.00 112,333.87 557,888.11 2,659,653.98 009874 - 009875 556,667.00 556,667.00 009876 88,888.00 88,888.00 009877 43,333.80 43,333.80 009878 454,566.01 454,566.01 009879 22,344.90 22,344.90 009880 64,444.80 25,400,034.45 25,464,479.25 Sale of Buchi Hall009881 745,000.87 745,000.87 Retirement of imprest TC009882 - 009883 - 009884 789,900.45 789,900.45 009885 667,709.00 667,709.00 009886 300,000.00 300,000.00

500,000.00 1,306,667.00 877,888.00 116,655.60 1,152,718.91 - 1,023,356.45 25,512,368.32 1,302,888.98 31,792,543.26

Market levy cuurentlyby market co-op

Total C/f

Kasempa City Council

Income Type

Figure 37: Daily Collection Summary Kasempa – Cashier 2

Daily Cash Collection - Cashier's SummaryPage: 1… of …1….

Date: 25th July 2003 Name of Cashier: Stanford Mschili

Rec. No Rates Trade P/Levy Honey

Levy Rent Market Levy GRZ Grant Capital

receipts Misc. Total Remarks

B/f 109450 585,885.00 585,885.00 109451 556,667.00 556,667.00 109452 87,633.00 87,633.00 109453 99,055.00 99,055.00 109454 125,353.00 125,353.00 109455 - 109456 200,000.00 200,000.00 Marriage licence fees109457 200,000.00 200,000.00 Marriage licence fees109458 200,000.00 200,000.00 Marriage licence fees109459 25,000.00 25,000.00 Burial permit

- 1,454,593.00 - - - - - - 625,000.00 2,079,593.00

Total C/f


Income Type

If there are many cashiers, their daily summaries should be consolidated into one to give an overview of the council’s daily collections. This is illustrated in the following example. Note that in the example, the heading ‘Misc.’ representing miscellaneous has been analysed into the various components income types ready for posting to the cashbook.

Each cashiers summary must be supported by a bank deposit slip or a receipt from the supervising officer or council chief cashier to show where the money received has gone. This trail should eventually lead a bank deposit evidenced by a bank deposit slip. These should be made in triplicate and distributed as follows:

1 With the bank for their posting

2 With supervisor responsible for the revenue collection activities of the council and

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3 In the deposit book with the person responsible for daily banking.

All copies must be kept secure for audit purposes. Figure 38: Kasempa Daily Collection Summary

Daily Cash Collection - Grand SummaryPage: … of …….

Date: 25th July 2003 Name of Supervisor: ……B. Chunga

Cashier Rates Trade P/LevyHoney Levy Rent

Market Levy GRZ Grant

Capital receipts

Marriage Licenses

Burial Permit

Retirement of Imprest Total

B/f Chitembo 500,000.00 1,306,667.00 877,888.00 116,655.60 1,152,718.91 - 1,023,356.45 25,512,368.32 1,302,888.98 31,792,543.26 Msicili - 1,454,593.00 - - - - - - 600,000.00 25,000.00 - 2,079,593.00 Chitala 475,000.00 2,623,197.00 833,993.60 110,822.82 1,095,082.96 - 972,188.63 24,236,749.90 570,000.00 23,750.00 30,940,784.92 Lungu 150,000.00 828,378.00 263,366.40 34,996.68 345,815.67 - 307,006.94 7,653,710.50 180,000.00 7,500.00 200,444.46 9,971,218.64

1,125,000.00 6,212,835.00 1,975,248.00 262,475.10 2,593,617.55 - 2,302,552.01 57,402,828.72 1,350,000.00 56,250.00 1,503,333.44 74,784,139.82

Total C/f

Kasempa Cit Council

Income Type

The daily posting to the Receipts cashbook will for the 25th of July 2003 will be as highlighted below: Figure 39: Kasempa Income Cashbook

Date Payer Rates Trade P/Levy Honey Levy Rent GRZ Grant Capital receipts

Marriage Licenses Burial Permit Retirement

of Imprest1-Jul-03 All Cashiers 843,750.00 4,659,626.25 1,481,436.00 196,856.33 1,945,213.16 1,726,914.01 43,052,121.54 50,000.00 1,127,500.08 2-Jul-03 All Cashiers 970,312.50 5,358,570.19 1,703,651.40 226,384.77 2,236,995.13 - - 200,000.00 4,510,000.32 3-Jul-03 All Cashiers 1,115,859.38 6,162,355.72 1,959,199.11 260,342.49 2,572,544.40 - 400,000.00 125,000.00 2,818,750.20 4-Jul-03 All Cashiers 1,283,238.28 7,086,709.07 2,253,078.98 299,393.86 2,958,426.07 200,000.00 45,000.00 1,014,750.07 5-Jul-03 Saturday 50,000.00 6-Jul-03 Sunday 5,000.00 7-Jul-03 Holiday 5,000.00 8-Jul-03 Holiday 10,000.00 9-Jul-03 All Cashiers 1,257,573.52 6,944,974.89 2,208,017.40 293,405.99 2,899,257.54 25,000.00 563,750.04 10-Jul-03 All Cashiers 1,232,422.05 6,806,075.39 2,163,857.05 287,537.87 2,841,272.39 40,000.00 902,000.06 11-Jul-03 All Cashiers 1,207,773.60 6,669,953.89 2,120,579.91 281,787.11 2,784,446.95 8,000.00 180,400.01 12-Jul-03 Saturday 330,000.00 13-Jul-03 Sunday 20,000.00 14-Jul-03 All Cashiers 905,830.20 5,002,465.41 1,590,434.93 211,340.33 2,088,335.21 6,000.00 135,300.01 15-Jul-03 All Cashiers 679,372.65 3,751,849.06 1,192,826.20 158,505.25 1,566,251.41 4,500.00 101,475.01 16-Jul-03 All Cashiers 509,529.49 2,813,886.80 894,619.65 118,878.94 1,174,688.56 25,000.00 76,106.26 17-Jul-03 All Cashiers 382,147.12 2,110,415.10 670,964.74 89,159.20 881,016.42 85,000.00 57,079.69 18-Jul-03 All Cashiers 286,610.34 1,582,811.32 503,223.55 66,869.40 660,762.31 20,000.00 42,809.77 19-Jul-03 Saturday 55,000.00 20-Jul-03 Sunday 75,000.00 21-Jul-03 All Cashiers 289,476.44 1,598,639.44 508,255.79 67,538.10 667,369.94 20,200.00 43,237.87 22-Jul-03 All Cashiers 361,845.55 1,998,299.29 635,319.73 84,422.62 834,212.42 25,250.00 54,047.33 23-Jul-03 All Cashiers 452,306.94 2,497,874.12 794,149.67 105,528.27 1,042,765.52 31,562.50 67,559.17 24-Jul-03 All Cashiers 565,383.67 3,122,342.65 992,687.09 131,910.34 1,303,456.91 44,000.00 84,448.96 25-Jul-03 All Cashiers 1,125,000.00 6,212,835.00 1,975,248.00 262,475.10 2,593,617.55 2,302,552.01 57,402,828.72 1,350,000.00 56,250.00 1,503,333.44 26-Jul-03 Saturday 250,000.00 27-Jul-03 Sunday 40,000.00 28-Jul-03 All Cashiers 1,181,250.00 6,523,476.75 2,074,010.40 275,598.86 2,723,298.42 25,000.00 1,578,500.11 29-Jul-03 All Cashiers 1,240,312.50 6,849,650.59 2,177,710.92 289,378.80 2,859,463.35 25,000.00 1,657,425.12 30-Jul-03 All Cashiers 1,302,328.13 7,192,133.12 2,286,596.47 303,847.74 3,002,436.51 27,000.00 1,740,296.37 31-Jul-03 All Cashiers 1,367,444.53 7,551,739.77 2,400,926.29 319,040.12 3,152,558.34 600,000.00 2,000.00 1,827,311.19

Total 18,559,766.88 102,496,683.81 32,586,793.26 4,330,201.48 42,788,388.50 4,029,466.02 100,454,950.26 2,550,000.00 1,729,762.50 20,086,081.06

12.2 Payments Cashbook The payments cashbook is supposed to record all payments made out. In order however to provide a mechanism for keeping track of the available cash balance at any time, the proposed format has been adjusted to record the daily collections as well. This is shown in the figure below:

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12.3 Bank Reconciliation The bank reconciliation process is the process of reconciling the cashbook balance with the balance shown on the bank statement for any particular month. These balances may differ for various reasons among which the major ones are:

1 Unpresented cheques, these are cheques that have been issued to various payees but which have not yet been presented by the payees to the bank for payment.

2 Direct debits or credits that were not captured in the cashbook, in which case the cashbook should be updated before posting to the ledger or.

3 Uncredited deposits, in some cases deposits might not be reflected in the council’s bank statement.

The recommended format for the Bank Reconciliation Statement, for each cashbook and each bank account is shown below: Figure 41: Bank Reconciliation Format

Bank Reconciliation Statement for the Month of: …………………….

K K1 Balance as per Bank Statement bbb2 Add Uncredited deposits on:

Details e.g. 28/12/02 yy 29/12/02 zz yyzz

bbbyyzz3 Less Unpresented Cheques:

Details e.g. Cheque no. dated 21/12/02 aa Cheque no. dated 24/11/02 cc aacc

4 Balance as per Cashbook acy

Prepared By: ………………………………………. Checked By: ……………………………………….

Name : ……………………………………………… Name : ………………………………………………

Designation: ……………………………………….. Designation: ……………………………………….

Signature: ………………………………………….. Signature: ………………………………………….

Date: ………………………………………………… Date: …………………………………………………

Name of Council

For instance if the cashbook balance shown in Figure 23: Kasempa City Council -July 2003 Bank Reconciliation of K 95,850,351.27, does not agree with the bank statement which may show a balance of K 104,248,196.48. Then the bank reconciliation statement may appear as shown in the example below:

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Figure 42: Kasempa City Council – July 2003 Bank Reconciliation

Bank Reconciliation Statement for the Month of: July 2003

K K1 Balance as per Bank Statement 104,248,196.48 2 Add Uncredited deposits on:

Cashiers collections deposited 28/07/03 14,381,134.54 Cashiers collections deposited 31/07/03 17,221,020.25 31,602,154.79

135,850,351.27 3 Less Unpresented Cheques:

Chq 033, dated 31/07/03 Mak Motors 25,000,000.00 Chq 034, dated 31/07/03 Makungu Contractors 15,000,000.00 40,000,000.00

4 Balance as per Cashbook 95,850,351.27

Prepared By: Checked By:

Name : Andrew Chitembo Name : …Stanford Msichili……

Designation: Chief Accountant Designation: …Council Treasurer

Signature: ………………………………………….. Signature: …………………………………………

Date: ……06/08/03 Date: …08/08/03


Before the reconciliation is made, it must be ensured that entries made directly by the bank such as interest charges and commissions are entered into the cashbook so that the areas that need to be reconciled are reduced. In some literature this is called the updated or revised cash book.

If for some reason this is not done, then the direct entries will have to be shown on the bank reconciliation statement and efforts made to ensure that these are brought into book at the earliest possible time in the following month.

12.4 Petty Cashbook The Petty Cash book should be kept on an imprest system for the various minor expenditures that need to be made in the operations of the council. The council’s main cashbook will have a column called Petty Cash. All payments made to the petty cashier should be recorded in the expenditure cash book.

On exhausting the money earlier received the petty cashier will present the claim for re-imbursement of imprest to a supervising officer with receipts to account for the money earlier received. The authorising officer will vouch for these receipts and authorise a replenishment of the petty cash to the value of the receipts presented and accepted.

At any time the cash balance with the petty cahier should be equal to the imprest amount given to the petty cashier less the receipts in hand which have not yet been reimbursed. The petty cash book should also be analysed to indicate the ledger accounts to be debited with the various payment made by the petty cashier.

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Where the petty cash is paid out in advance, the amount given out will stand as an advance against the receiving officer until that officer retires the advance by delivering the goods or services for which the petty cash was given and submitting appropriate supporting documents such as receipts and goods received notes. The petty cash voucher will generally have the same format as the payment voucher given in Figure 29: Payment Voucher on page 53.

13 Posting to the Ledger Entries to the ledger must correspond with the summarised analysed totals from the cashbooks. Additional entries will be made by journals for those financial activities that did not arise from the cashbook. When the monthly cashbook entries are posted to the ledger, the cashbook must be initialled under each column and dated for the date of posting.

As each source posting to the ledger, should, if the bookkeeping is correctly done, balance, it is good practice to check the validity of the bookkeeping before posting by creating a Trial Balance for each source. For the Cashbook entries indicated in Figure 39: Kasempa Income Cashbook and Figure 40: Payment Cashbook. The Trial Balance for these would be as in the example below: Figure 43: Kasempa –Cashbook Ledger Posting

Cash Book Ledger Posting for: July 2003

Description Code Folio DR CRReceipts

Rates LF 85 18,559,766.88 Trade LF 86 102,496,683.81 P/Levy LF 87 32,586,793.26 Honey Levy LF 88 4,330,201.48 Rent LF 89 42,788,388.50 GRZ Grant LF 90 4,029,466.02 Capital receipts LF 91 100,454,950.26 Marriage Licenses LF 92 2,550,000.00 Burial Permit LF 93 1,729,762.50 Retirement of Imprest LF 94 20,086,081.06

Bank Account (Total Receipts) LF 99 329,612,093.78 Payments

Employees LF 01 16,850,723.78 Premises LF 02 2,750,000.00 Supplies & Services LF 03 350,000.00 Transport and Plant LF 04 1,500,000.00 Establishment LF 05 10,265,432.12 Miscellaneous LF 06 7,500,000.00 RCCO LF 07 25,000,000.00 Debt Charges LF 08 13,500,000.00 Imprest LF 09 200,000.00 Capital LF 10 15,000,000.00

Bank Account (Total Payments) LF 99 92,916,155.90

Total 422,528,249.68 422,528,249.68


The other sources to the ledger are journals. As these are self balancing, they create their own checking mechanism.

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14 Management Accounting Management Accounting refers to activities undertaken and reports produced to enable officers carry out the day to day decision making as opposed to the statutory obligations such as annual accounts. Management Accounting forms the basis for monitoring and budgetary control as well for the preparation of annual accounts.

14.1 Importance of Recharges Both Management and Financial Accounting in public finance are primarily concerned with the prudent management of the cost of service delivery. In the budgeting discussions above, in the management accounting in this section and in the financial accounting in the next section, the question of recharges, which has been sidelined in the recent past, is discussed in some detail as this forms the basis for establishing the actual cost of service delivery as this process allocates all council expenses in some logical predetermined manner to a service. In commercial accounting this is referred to as absorption costing.

Activity Based Budgeting cannot be fully implemented if the primary activities of council, i.e. service delivery, are not fully costed to show the actual cost of service delivery. This concept is key to public finance as it also creates a basis for considering outsourcing arrangements as the cost of the proposed service to be outsourced can be compared between in-house and ou-thouse delivery. Without the full costing of council services, the basis for comparison is lost and inefficient service delivery, such as ten people fixing one window pane, is possible.

In order for the management accounts to form a proper link between the budgeting and planning aspect and the financial accounting, as well as create a framework for control, it is necessary to ensure that the records are kept in the same format in all these financial documents so that the financial activities of the year can be compared to budgeted levels both during the year, management accounting, and after the year end, financial accounting.

14.2 Importance of Management Accounting If as earlier defined ‘Financial Management implies the taking of actions to optimise achievement of organisational goals relative to the (financial) resources used, then the key tool for this purpose must surely be management accounts.

Because management accounts track financial activities as they happen, they provide the main tool for:

Monitoring, since the financial activities as they occur can be noted and compared to the budget.

Control, since when the output of the management accounts are compared to budget, variances can be highlighted. This gives the managers the information they require to take corrective action, when variances are adverse, to reduce the adverse effect of the variance.

Learning, since variances can sometimes be positive, management accounts can give the managers the tool to evaluate their initial planning assumptions and what and how the variance has come about as an input into their planning.


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Performance appraisal, comparison of actual performance to planned performance can form the basis of performance appraisal in the absence of justifiable external influences.

14.3 Current Status In the sense that councils report regularly to the Finance and General Purposes Committee, some form of management accounts are kept. What it is true is that the format of these accounts may be below the expected standard. As, however, the format for management accounts are not standardised, this is not surprising. In standardising this format it is recommended that the format adapted from a report by Grant Thornton15 should be followed. This is shown in Figure 25: Recommended Management Accounting Report:

The next sections explain in some detail how the bookkeeping necessary to keep track of council financial activities should be done. While bookkeeping is a fairly mechanical process, it is the however, the foundation upon which both the management and financial accounts are based. It therefore forms a major component of good financial management.

15 Grant Thornton Financial Processing Desk Procedures for Local Authorities – August 2001


Figure 44: Recommended Management Accounting Report

Financial Management Report for the Period to: ……………….. Section or Department

Annual Estimate

Year to Date

Estimate

Year to Date

ActualVariance Remarks

1 2 3 4 5=col2-col3

ExpenditureEmployeesPremisesSupplies and ServicesTransport and PlantEstablishment ExpensesMiscellaneous ExpensesDebt ChargesRCCOTotals

IncomeGovernment GrantsRatesRentPersonal LevyOther LeviesInterestLicencesMarket Rents and FeesRents - Other than HousingMiscellaneous IncomeTotals

Surplus / (deficit)

Name of Council

15 Recurrent Transactions Recurrent transactions relate to those financial transactions that relate to the normal operational requirements of council such as Salaries, Wages or Levies and charges. These transactions, which are also called Operational or Revenue transactions, are differentiated from Capital transactions which are transactions relating to the acquisition, construction, disposal and alienation of assets whose utility exceeds one financial year.

This difference in classification is extremely important as to treat long term transactions as if they were recurrent operational transactions and vice versa can cause serious difficulties in the financial management of organisations. One of the world’s largest utility undertaking (power), Enron, has just filed for bankruptcy because they were overstating their financial status by Four billion United States Dollars for sometime by classifying recurrent operational expenses as if they were capital investments. The same fate has befallen another utility major undertaking (telecommunications), World.com.

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Their auditors, one of the worlds big five, before this debacle have collapsed with them.

15.1 Objective The objective of the bookkeeping undertaken to keep track of recurrent activities is to form the basis primarily for management accounting and subsequently for financial accounts. The timely and accurate processing of financial transactions is crucial to good financial management as these records are the foundation for the subsequent reports, such as the order on the treasurer, the variance analysis and the income and expenditure accounts, upon which managers base their decisions. This also creates a basis for controlling the financial activities of the council and for rendering account to the public for the stewardship of the public funds entrusted in their custody.

15.2 Expenditure Expenditure activities occur when council creates the legal situation in which the council receives something of value in exchange for money or money’s worth. This normally occurs when:

a) The council places an order for goods and services, such as stationery or grass cutting services, and these goods and services are duly supplied;

b) When council enters an ongoing contract, for instance for utility supplies such as electricity or wages, and the bill for consumed services is presented or in case of wages, the due period has been worked.

c) Council makes an off the shelf direct purchase.

15.2.1 The Bookkeeping

As described in 11 Bookkeeping starting on page 50, the bookkeeping for expenditure is:

Debit (DR) the expenditure account and

Credit (CR) Cash (Bank account in the Cashbook),

However in the sense that in most cases the legal obligation arises before, sometimes long before, payment is made, for good financial management purposes it is recommended that the expenditure be recognised in the books at the time the obligation arises. The bookkeeping is therefore as follows:

On receipt of the goods or service ordered or contracted for, i.e. on actualising the legal obligation.

Dr expenditure account

Cr Creditors nominal ledger account

At time of payment i.e. at the point at which the legal obligation is liquidated)

Dr Creditors nominal ledger account

Cr cash


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Note:.: At this stage the balance on the creditors account is zero as the credit created at receipt of goods stage is cancelled out by the debit on payment for the goods.

The final position after payment has been made,

Debit (DR) the expenditure account and

Credit (CR) Cash (Bank account in the Cashbook),

16 Recurrent Expenditure – CIPFA Structure The above description of bookkeeping holds true even for local government. However some of the nomenclature used in Local Government is peculiar to Local Government. In following the standard CIPFA structure, it is hoped that all the necessary topics which could arise under the subject of recurrent accounting will be covered.

The standard CIPFA recurrent expenditure headings are listed below with some explanations of what they mean and, where necessary, some additional detail for the bookkeeping transaction.

16.1 Employees This category relates to all employee related expenses details of which are listed below:

16.1.1 Salaries Salaries are the remunerations paid to council officers. These become due monthly and are sometimes not paid or not paid in full. For instance, the Times of Zambia of 9th June 2003, reported that, Kasempa Council workers had not been paid for more than 2 years

Appropriate bookkeeping, as recommended in this manual; would keep track of all these legal obligations and avoid such instances as creditors for statutory payments such as PAYE and LASF surprising the council with unaccounted for arrears. The bookkeeping for salaries is as follows:

On the legal obligation arising (at the end of each month):

Dr the expenditure revenue accounts (say the Salaries accounts in the various sections such as the printing section, the Council Secretaries Department, the Finance Department, The Refuse collection Section etc.) with the GROSS salaries payable to employees in each of these sections.

Cr the Salaries Control Account, in the ledger. with the gross amount

Then

Cr the PAYE Control account (with employees PAYE deductions, because technically the employee at this stage has paid his tax obligation)

Cr the LASF / NAPSA Control Account ( with the employees pension contributions again because technically they have paid)


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Dr the Salaries control account with the total tax deductions and employee contributions.

At this point:

The balance on the Salaries control account will show the council’s total debt to its employees.

The balance on the PAYE Control account will show the deductions from the employees which have not yet been remitted and

The balance on the LASF / NAPSA Control accounts will show the employees pension contributions deducted but not yet remitted.

On payment of the net salaries to the employees

Dr the Salaries Control Account

Cr Cash

If only part of the salaries is paid, this will leave a balance on the control account to show council’s debt to its employees. If the full amount is paid, there will be no balance on the control account indicating that the council does not at that point owe its employees any outstanding salary arrears.

When the PAYE payment is made to ZRA, the entries are as follows

Dr the PAYE Control Account

Cr Cash

When all the payments have been made, the Salaries and PAYE control accounts are cleared to zero. If the payments are not made, it means the council still has an outstanding legal obligation either to it employees or to the tax authorities. Until these are cleared, the books must reflect them from year to year. There is no alternative as this represents the true status of the council’s financial position relative to its employees and the Zambia Revenue Authority.

We will deal with clearing the LASF / NAPSA control account in the section on LASF / NAPSA below.

16.1.2 Wages Wages are the remunerations paid to the council’s general workers rather than officers. The bookkeeping for these is similar treatment to salaries except the Wages Control Account is used instead of the Salaries Control Account..

16.1.3 Overtime Overtime is the cost of employees working beyond their contracted for time. The bookkeeping for this are:

On the overtime being worked and becoming due.

Dr the expenditure revenue accounts (say the Overtime accounts in the various sections such as the printing section, the Council Secretaries Department, the Finance Department, The Refuse collection Section etc.) with the overtime payable to employees in each of these sections.


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Cr the Salaries Control Account, in the ledger. with the gross amount

16.1.4 LASF / NAPSA This relates to the employer’s contributions towards the pension of the employees as the employees contributions have already been recorded in Salaries and Wages above. On the commitment arising at the same time as salaries and wages obligations are recorded, the employer’s pension contribution obligation .is recorded as follows:

Dr the LASF / NAPSA revenue accounts in the various sections and departments.

Cr the LASF / NAPSA Control Account ( with the employers pension contributions because the employers legal obligation has arisen)

At this stage the LASF / NAPSA Control account has both the employees and employers contributions credited to it. The balance on this account will show the pension contributions, both employees and employers, not yet remitted.

On paying these contributions to LASF or NAPSA, the following entries are made:

Dr the LASF / NAPSA Control Account ( with the payment made)

Cr the LASF / NAPSA Cash.

If all payments have been made, the balance on the control accounts should be zero.

16.1.5 Personal Levy This is not a separate expenditure item for council as the personal levy is a component of gross emoluments already. However, since this is a council income the bookkeeping is a book transfer from the Salaries and wages control accounts to the income account as follows:

On the legal obligation to pay salaries and wages arising(at the Personal Levy payment months)

Dr the expenditure revenue accounts (say the Salaries / wages accounts in the various sections such as the printing section, the Council Secretaries Department, the Finance Department, The Refuse collection Section etc.) with the GROSS salaries / wages payable to employees in each of these sections.

Cr the Salaries / wages Control Account in the ledger.

And then to record the deduction from the employees and the payment of the levy.

Dr the Salaries Control Account with the total Personal Levy Deductions

Cr Personal Levy Income Account.

At this stage, the council have received, by deducting from the employee, the Personal Levy Income.


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16.1.6 Leave Benefits Leave benefits accrue monthly and are liquidated either by going on leave, while still earning a full salary / wage or by commutation. The bookkeeping entries are:

Monthly when personal emoluments become payable

Dr the expenditure revenue accounts (Leave Benefits accounts in the various sections.) with the leave benefits arising for the month.

Cr Leave Benefits Control Account.

When employees go on leave and are still paid a full salary or wage, or employees commute

Dr Leave Benefits Control Account.

Cr Cash.

16.1.7 Training Expenses These are the expenses that relate to employee training. The bookkeeping is as follows:

On going for training:

Debit Training Expenses

Credit Nominal Ledger Creditors Account for the College or school

On payment

Debit the college

Credit Cash.

16.1.8 Appointment and recruitment Expenses These relate to all expenditure incurred in the appointment and recruitment of employees. .The bookkeeping is to debit this account and credit cash when the expenditure is incurred and paid.

16.1.9 Gratuity Gratuities are payments made to contracted officers at the end of their contract period. As the obligation accrues, as the officers work during their contract period, the bookkeeping for this is as follows:

As they work each month:

Dr the expenditure revenue accounts (Leave Benefits accounts in the various sections.) with the leave benefits arising for the month.

Cr Gratuities Control Account.

At the end of the contract and on paying the employee his / her gratuity:

Dr Gratuities Control Account.

Cr Cash.


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16.1.10 Other Staff Expenses These relate to any other employee related expenditure that may be legitimately incurred but which has not been specified.

16.2 Premises These are expenses that relate to the maintenance of municipal buildings allocated to each section or department, or even the central civic offices. The expenditure incurred related to these are debited to the Premises Account of the departments or sections that occupy or utilise those buildings. Where more than one department or section occupies the same building, as is the case with most Civic Centres, the expenditure related to the whole building, including employee expenses and debt charges if any, are grouped under one main account and subsequently recharged on some pro-rata basis, usually floor area occupied, to the occupying departments or sections.

16.2.1 Repairs and Maintenance – Buildings This relates to the cost of repairing and maintaining buildings. This cost can relate to the actual payment made for repairs or can relate to a revenue contribution to a Repairs and Renewals Fund.

When it relates to the payments directly made, the bookkeeping is as follows:

Dr Repairs and Maintenance – Buildings account and.

Cr Cash.

When this is a contribution to a general repairs and renewals fund, usually made at the end of the year as part of the procedure for creating provisions in the finalisation of accounts process, the bookkeeping is as follows:

On creating the provision:

Dr Repairs and Maintenance – Buildings account and.

Cr Repairs and Renewals Fund

On actual repairs being carried out and being paid for:

Dr Repairs and Renewals Fund and.

Cr Cash.

The logic for creating a Repairs and Renewals fund is that with so much property owned by even the smallest council, it is prudent to undertake systematic preventive maintenance for which some standard amount can be allocated each year, while at the same time creating a reserve for unplanned for emergence repairs and renewals. This is some sort of internal insurance.

16.2.2 Repairs and maintenance – grounds This relates to the cost of repairing and maintaining grounds. This cost can relate to the actual payment made for maintenance or can relate to a revenue contribution to a Repairs and Renewals Fund.

When it relates to the payments directly made, the bookkeeping is as follows:


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Dr Repairs and Maintenance – Grounds account and.

Cr Cash.

When this is a contribution to a general repairs and renewals fund, the bookkeeping is as follows:

On creating the provision:

Dr Repairs and Maintenance – Grounds account and.

Cr Repairs and Renewals Fund

On actual repairs being carried out and being paid for:

Dr Repairs and Renewals Fund and.

Cr Cash.

The logic for creating a Repairs and Renewals fund has already been described in the previous section.

16.2.3 Repairs and maintenance – Furniture and Fittings This is similar to the previous two sections but relates to Furniture and Fittings. The bookkeeping is exactly the same..

16.2.4 Electricity This relates to the payment for electricity used by the council it its buildings, streets, public places and so on.

The bookkeeping is as follows:

On the bill being received:

Dr Electricity Accounts of each of the various premises for which the bills are received and.

Cr Nominal Ledger Creditors Account (ZESCO, or whatever the name of the utility company may be)

On payment:

Dr Nominal Ledger Creditors Account (ZESCO, or whatever the name of the utility company may be)

Cr Cash

16.2.5 Water This relates to the payment for water utilised by the council. The bookkeeping is the same as that for electricity. In the past when some councils used to run both electricity and water undertakings, the income and the expenditure would both have been to councils.


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16.2.6 Cleaning Materials This relates to the cost of cleaning materials which can be a direct purchase or a receipt from stores. For a direct purchase the bookkeeping is as follows:

Dr Cleaning materials account for which ever section or department

Cr Cash

For goods issued from stores the bookkeeping is as follows:

Dr Cleaning materials account for which ever section or department

Cr Store Control Account

16.2.7 Rates Rates are a tax on real property levied by councils to non exempt property owners within their jurisdiction. Councils are not exempt by law from paying rates. They are therefore legally obliged to pay this tax. As however the tax is payable to council, the entries are as follows:

When rate become due

Dr Rates account for each premises.

Cr Rates Income Code.

Payment is assumed to be made simultaneously with the income.

16.2.8 Rent Rent is normally paid for premises occupied by council which does not belong to council, otherwise it would be paying rates. The bookkeeping treatment is similar to that for utilities, i.e. Electricity and Water..

16.2.9 Railway Siding Charges Some councils, especially the major line of rail councils, pay for railway sidings to Zambia Railways or perhaps even Tanzania Zambia Railways, for the maintenance of railway sidings that go into their properties for delivery of bulk goods by railway. The current financial position of most councils now is such that bulk purchases are non existent. The need for these services should be re-examined as councils may still be legally obliged to pay for services they do not utilise.

The bookkeeping treatment is similar to that for utilities, i.e. Electricity and Water..

16.3 Supplies and Services This expenditure grouping relates to the expenses incurred in the purchase of various supplies and services by councils. These are normally categorised as listed below:

16.3.1 Equipment and tools

Councils undertake various functions for which they require various equipment and tools. These range from equipment for bricklayers, carpenters, mechanics, health inspectors and so on. The bookkeeping is:

Dr Equipment and Tools account for which ever section or department


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Cr Cash

16.3.2 Chemicals Councils use a lot of chemicals in their various operations, especially so when they used to run water undertakings. The bookkeeping:

Dr Chemicals account for which ever section or department

Cr Cash

16.3.3 Uniforms and Protective Clothing For some of the work that councils undertake, such as refuse collection, cleaning of storm water drainages and so on, it employees require uniforms and protective clothing. The bookkeeping:

Dr Uniforms and Protective Clothing account for which ever section or department

Cr Cash

16.3.4 Repairs and Maintenance of Office Equipment Councils use various office equipment ranging from simple calculators, through sophisticated telephone exchanges to computers. The expenses related to maintaining these equipment is booked under this heading.

16.3.5 General Supplies Sometimes there are supplies that are required but which are not categorically provided for under any of the previous headings. This headings gives some flexibility for classifying those.

16.4 Transport and Plant This heading relates to expenses related to the operation of various transport and plant as used by councils in the discharge of its functions. These include motor vehicles, bicycles and earth moving equipment. These are normally detailed as shown below:

16.4.1 Fuel and Lubricants The cost of fuel and oils required for the various transport and plant. The bookkeeping:

Dr Fuel and Lubricants account for which ever section or department

Cr Cash

16.4.2 Motor Vehicle and Plant Expenses This relates to the cost of operating motor vehicles and plant such as insurance, road tax, repairs and so on. The bookkeeping:


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Dr Motor Vehicles and Plant account for which ever section or department

Cr Cash

16.4.3 Car and cycle Allowances These relate to allowances paid to council employees for using their personal vehicles or bicycles in carrying out council duties. The rates for these are normally included in the conditions of service.

16.5 Establishment Expenses This heading refers to the various operating expenses of councils that are necessary for meeting the establishment needs of councils. These are normally listed as follows:

16.5.1 Printing and Stationery The council is obliged by law to make various reports, issue permits and licences, maintain various documents, such as the building plans of all buildings in their jurisdiction and publication of by laws. The cost of these and that of communicating internally and externally is booked under this heading.

16.5.2 Advertising Councils are obliged by law to advertise for certain things such as inspection of audited accounts, closure of public’s highways, alterations to zoning, burial of destitute and so on. These costs are booked under this heading.

16.5.3 Telephone This heading includes telephone, telefax and E-mail operating costs.

16.5.4 Postage This heading is self explanatory and the bookkeeping is

Dr Postage account for which ever section or department

Cr Cash

16.5.5 Books and Periodicals Councils are supposed to maintain public libraries and are staffed by various professionals who must keep their skills regularly updated. The cost of books, professional magazines and periodicals are booked under this heading.

16.5.6 Travelling, Subsistence and Conference Councils being a government, thrive on meetings and conferences. The costs of these are booked here.

16.5.7 Insurance

This heading relates to all insurances, internal and external, for the various insurable interest of councils.


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16.5.8 Audit Fees Councils have always been obliged to pay for the external audit of their accounts. In the past when, especially for the smaller councils, the Local Government Auditors used to undertake this work, almost free, some councils did not explicitly recognise this cost. However since now councils have been specifically advised that although the Minister will appoint the external auditor for them, they have to pay the cost of the audit and as councils are expressing interest in the issuance of municipal bonds for which professionally audited accounts are a prerequisite, this expenditure heading will become more significant even though it will appear in only one council department, probably Finance.

16.5.9 Legal Fees In running the councils, it is almost inventible that legal costs have to be incurred. These may arise from legal actions initiated by the councils themselves or by that initiated by other parties, especially these days for non payment of creditors.

16.5.10 Bank Charges In operating bank accounts, councils incur various bank charges including, but not restricted to, interest on overdrafts. These charges and commissions are booked under this heading.

16.5.10.1 Other General Office Expenses

This covers any other establishment expenses not specifically stated above.

16.6 Miscellaneous Expenses Councils undertake various functions which give rise to a miscellany of expenses that cannot logically be grouped under any of the above categories. These headings differ greatly from council to councils, as do the functions they undertake. However generally these cover the following sub categories:

16.6.1 Grants in aid Councils sometimes give grants to community projects that compliment council activities. These are booked under this heading.

16.6.1.1 Subscriptions

Councils belong to various associations while their professional officers also belong to various associations. The subscriptions to these associations are booked under this heading.

16.6.2 Entertainment This is self explanatory


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16.6.3 Sitting Allowances In order to operate councils must hold meetings. In fact the legal definition of Council is Councillors in a Meeting. For these meetings, the officials (Councillors) rather than (normally) the officers, receive a sitting allowance. This is booked under this heading.

16.6.4 Other Miscellaneous Expenses Any other expenditure that does not fit anywhere else.

16.7 Debt Charges This relates to the annual payment for loans. These are normally broken down into two sub categories as follows:

16.7.1 Redemption This relates to the capital element of the debt charges. The accounting treatment for this is given in so much detail in the section on finalisation of accounts.

16.7.2 Interest This relates to the interest element in the debt charges. The accounting treatment for this is given in so detail in the section on finalisation of accounts

16.8 Revenue Contributions to Capital Outlay (RCCO) The term relates to the acquisition of small capital assets by direct contribution from the revenue account. The bookkeeping treatment for this is:

To record the cash aspect of the transaction:

Debit RCCO in the account of the section or department buying the asset.

Credit Cash

To record the funding of the asset and introduce the asset to the accounts:

Debit Capital Outlay.

Credit Capital Discharged RCCO Applied

For other details on accounting for fixed assets see the section on capital transactions below.

17 Types of Recurrent Income Income occurs when a legal right arises to council for services rendered, for tax demanded or levy charged. This normally occurs when:

a) The council sends out the bills for services or;

b) People apply for specific permits or licences

c) People undertake an activity for which they have to pay the council, such as parking in Lusaka’s Central Business District or

d) Council wins a legal case or


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e) Government decides to give a grant

17.1.1 The Bookkeeping

As described in 11 Bookkeeping starting on page 50, the bookkeeping for income is:

Debit (DR) Cash (Bank account in the Cashbook and

Credit (CR) The income account such as Rates

However in the sense that in most cases the legal right arises before, sometimes long before, payment is received, for good financial management purposes it is recommended that the income be recognised in the books at the time the right arises. The bookkeeping is therefore as follows:

On the legal obligation arising, i.e. the bill being raised:

Dr the Debtors control accounts

Cr the Income Account

On receiving the money

Cr the Debtors Control Account

Dr Cash

The balance on the control account will therefore show how much is still outstanding at any given time.

Because of the different circumstances of the different councils, the income headings of councils differ more greatly that do the expenditure headings. However some common headings are listed below:

17.2 Government Grants Government is obliged by law to give certain grants to councils. In the recent past these have become erratic. As grants are given without a bill being raised the bookkeeping treatment is:


Cr the Government Grant Income Account

Dr Cash

17.3 Rates Rates are a tax on property within a council’s jurisdiction. These are a major and stable income source in most commonwealth local authorities. In Zambia however frequent changes in the Rating Act relating to exemptions has made this source less stable. The bookkeeping for rates is:

On the sending the rate bills

Dr the Rates Debtors control accounts

Cr Rates Income Account


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Cr the Rates Debtors Control Account

Dr Cash

17.4 Levies Personal levy is an income tax charged by councils on all people in formal employment earning above a certain limit within their jurisdictions. In the absence of a reliable industrial and business databases, most councils do not send out Personal Levy bills as they do not know who operates in their towns, let alone how many people they employ. In these circumstances the bookkeeping is as follows:

For council employees, already described above. For other payers:


Cr Personal Levy Income Account

Dr Cash

In the circumstances where a proper database does exist, bills can be sent out. In this case the bookkeeping is as follows:

On the sending the Personal Levy bills

Dr the Personal Levy Debtors control accounts

Cr Personal Levy Income Account


Dr Cash

Cr the Personal Levy Debtors control accounts

17.5 Other Levies Other levies such as Fish Levy, Grain Levy and Charcoal Levy, for which there are no bills cannot be accounted for on an accrual basis as the bills are paid at the same time they are raised. For instance Grain Levy is payable on the road as one passes from one district to another with the grain bags. The bookkeeping for


Cr the Income Account

Dr Cash

17.6 Interest This is the income that arises from interest due to councils from loans or from bank deposits. Since interest can be calculated before hand, it is possible to record it before it is received in which case the entries would be as follows:

On interest becoming due

Dr the Interest Debtors control account

Cr Interest Income Account


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Dr Cash

Cr the Interest Debtors control accounts

As however in most cases interest from the bank is payable as it becomes due and interest on loans such as staff loans is deducted at source as it becomes due, the most likely entries will be as follows:

Cr Interest Income Account

Dr Cash

17.7 Leases Because councils are normally one of the major property owners in their jurisdictions and in view of their reduced operating capabilities recently, they have opportunities for leasing out their various properties for which some income can be generated. In some case some of these properties are idle and are costing council money: These include:

Buildings

o With housing for rental currently off councils functions, what are the housing offices and housing maintenance depots doing?

o With no capacity to buy in bulk what are the councils’ stores buildings doing?

o What is the economic return of some of the trading premises that councils still operate, sometimes in prime areas of towns?

Grounds, where the head lease system still operates

Park and open Spaces

Roadside Advertising spaces and Bollards

Equipment

Since leases are legal agreements providing for the payment of a given amount at specified intervals, the bookkeeping for these is as follows:

On the period maturing and the bill being raised:

Dr the Lease Debtors control account

Cr Lease Income Account


Dr Cash

Cr the Lease Debtors control accounts

17.8 Market Rents and Fees Legally councils are obliged to provide markets. They are also entitled to receive rental income from them. During the period of the one party state, councils lost control of this source of income. This is more a matter of politics than financial


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management. However given the financial implications and the implications of a multi party state, the current Minister’s efforts to restore councils position regarding markets should be supported.

17.9 Bus Stations Similar to market rents and fees. In this case too, councils have abrogated their right to this income.

17.10 Rents – Other than Housing Estates Similar to leases.

17.11 Licences and Permits Councils issue various licenses and permits for which fees are paid. These include:

Building permits

Plan Scrutiny fees

Building Inspection fees

Health Inspection fees

Trading Licences

Fire certificates

Professional Practice fees

Health Permits

Nursery School Inspection Fees

Burial Permits

Most of these fees are payable at a point where the permit is issued either at the instigation of the council, such as Health Inspection fees, or at the instigation of the payer, such as payments for burial permits or plan scrutiny fees. In either case liability arises and payment is due at the same time. The bookkeeping is therefore:

Dr Cash

Cr the Permit or Licence fee accounts

For purposes of good financial management each of these income sources should be accounted for separately.

17.12 Sale of Goods and Services Because of the combination of skills that councils have, they are capable of producing various goods and services that can be sold to the public. The common ones being:

Plants

Coffins

Council minutes


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Architectural Services

Valuation Services

17.13 Miscellaneous Income This heading refers to all other sources that are either too small to be accounted separately and / or which do not occur on a regular basis.

18 Capital Transactions Capital transactions relate to those financial transactions that relate to the acquisition, construction, disposal and alienation of fixed assets whose utility exceeds one financial year.

18.1 Purpose The objective of the bookkeeping undertaken regarding capital assets is to keep track of activities of the council’s physical assets, their whereabouts, financing and disposal of these assets. In accounting for capital assets in local government there are always two sets of entries that are made. These are:

On Acquisition

a) To record the financial or cash transaction involved and

b) To record the funding aspect of the asset.

On disposal

a) To record the financial or cash transaction involved and

b) To alienate the asset from the books.

18.2 Expenditure Capital expenditure relates to the acquisition, building or development of physical assets that increase the amount of the council’s capital outlay.

18.2.1 Acquisition of Assets Assets are acquired in various ways. These include:

a) Loans

b) Revenue contributions to Capital Outlay (RCCO)

c) Capital Receipts Applied

d) Grants

e) Renewal and Replacement Funds Applied

In each of these cases, the bookkeeping entries must reflect both the fact that the asset has been acquired and the method of funding. These are described below:


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18.2.1.1 Loans

In acquiring assets by way of loans, the entries that have to be made are as follows:

On receiving the loan:

Cr Long Term Liabilities

Dr Cash

On acquiring the asset

Cr Cash

Dr Long Term Outlay

So that if a trial balance was to be drawn at this stage it would have the following figures: Figure 45: Trial Balance After Asset Acquisition by Loan

Dr Cr

Long Term Loans K 10,000,000

Long Term Outlay K 10,000,000

This means that the council has assets of K 10,000,000 financed by loan which is still out standing.

When debt charges become due (assuming the loan is payable in five equal annual instalments, therefore redemption K10,000,000/5 = K 2,000,000; at an interest rate of 10% per year therefore K10, 000,000x10%= K1, 000,000), the entries would be as follows:

When charges are due, create a current liability because the component of the loan, principal and interest, that is due is no longer long term. This is done as follows:

Dr Revenue Account – Redemption K 2,000,000 (this refers to 16.7.1 Redemption)

Dr Revenue Account – Interest K 1,000,000 (this refers to 16.7.2 Interest)

Cr Current liabilities (in the ledger) K 3,000,000

This also means that not the whole Long Term Liability is still outstanding in total. To show this reduction in the long-term liabilities, the long term liabilities must be reduced by the amount of the debt redemption (principal) i.e. K 2,000,000, since a portion of the loan is no longer long term but current. This is done as follows:

Dr Long Term Liability K 2,000,000

Cr Capital Discharged – Loans Redeemed K 2,000,000

If a trial balance were made at this stage it would look as follows:


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Figure 46: Trial Balance After Loan Charges Become Due

Dr Cr Long Term Loans K 8,000,000 Current Liability – Debt Charges Outstanding K 3000,000 Long Term Outlay K 10,000,000 Capital Discharged – Loans Redeemed K 2,000,000 Revenue Account Balance – Accumulated Deficit K 3,000,000

Total K 13,000,000 K 13,000,000 Note 1: The accumulated deficit arises because the revenue account (Profit and Loss Account in the commercial world) has been debited with the Full Debt Charges, Redemption and Interest of K 3,000,000 with (as far as we know so far) no income!

Note 2: As both redemption and interest is charged to the revenue account (the equivalent of the profit and loss account) the concept of depreciation is taken care of as the capital redemption charged to the revenue account, is more or less equivalent to depreciation as it deals with a reduction in the capital value of an asset as does depreciation. The accounting for the above transaction in councils and in commerce (assuming 20% depreciation rate for commerce) is given for comparison purposes in Appendix 30: Accounting for Capital Assets – Council Versus Commercial on page 175.

On payment of the loan charges, the current liability is liquidated and it therefore disappears, to be replaced by a bank overdraft of K3, 000,000, again, since we have paid the loan apparently with no income.

18.2.1.2 Grants, Donations and Bequests

Councils can acquire assets by way of grants, donations and bequests. In recognising these assets in the accounts, the Capital Outlay Account is Debited, thereby increasing the value of assets in the balance sheet. As this additional asset has no external claim on it, the credit side cannot be represented by say a long term Liability, the credit is instead to Capital Discharged – Grants and Donations Applied. If such assets were valued at k 10 million, the trial balance would appear as below: Figure 47:Trial Balance After Donation of Capital Asset

Dr Cr Capital Outlay K 10,000,000 Capital Discharged – Grants and Donations Applied K 10,000,000

Total K 10,000,000 K 10,000,000 The interpretation of this statement would be that capital assets of K 10 million were funded by grant or donation.

18.2.2 Service Charges - Expenditure Service Charges or Plot Premium refers to the development costs for (or income from, for which see 18.3.4 Service Charges 18.3.4 below) the developments of land. In this case the council sets aside some funds over time or borrows funds that it uses to create a revolving fund which it uses to develop property for sale, at a premium, to interested parties.


As this is used as a revolving fund, the practice is for phases to be named differently so that the accounting for each phase is separate. This enables the Managers to compare:

a) The costs and income from each phase and

b) The costs and income from the different phases.

Lusaka for instance has Libala Stage 1, Stage 2 etc while Kitwe has Riverside Phase I up to Riverside Phase VB. The bookkeeping entries for the various capital payments are described in the section below on contractors’ payments as the accounting treatment is the same whether the project is undertaken by council direct labour or by an outside contractor.

18.2.3 Contractors’ Payments These are payments made to contractors for the construction of physical assets such as buildings, roads, bridges and culverts.

Councils are tender authorities with power to award contracts up to different levels for different sizes of contracts.

Above these limits other authorities such as the District Tender Committee, the Provincial Roads Engineer and the Zambia National Tender Board become involved. It is necessary for the Treasurer to be aware of these limits and procedures for each council from its Standing Orders and Financial Regulation as non compliance in these matters can lead to prosecution. Currently various senior citizens are in court for flouting tender regulations

A register of details including minute number, description of contract and retention money and period if any, called a contractors register, should be kept for all such contracts. A contracts’ register must be maintained which lists all contracts, serially numbered. All contracts must be entered in this register. An example of the register is given below Figure 48: Contract Register

Page Number

SN Ref. No. Authority Contract Start Date

Contract End Date

Contractors Name Services Provided

Funding Amount Retention Retention Period

Actual Completion Date

Remarks

1234567891011121314151617181920

Name of Council

Contract Register

Total Values Carried Forward to Next Page

Total Values Brought Forward from Previous Page

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The contract, the legal document establishing the relationship between the council and the contractor, will normally specify the basis of the various payments that have to be made.

The trigger for contract payments is normally a certificate issued by the supervising architect or engineer. This will normally be issued for every stage, according to the contract and will have the following format: Figure 49: Certificate for Interim Contractors Payment

Contract (or Project): …………………………… Contractor: …………………………………….

Stage: …………………………… Contract No,: ………………………….

Signed: …………………….. Name: ……………………….

Title: …………………………… Date: ……………………..

Name of Council

Certificate of Contractors Payment

‘I certify that I have personally inspected the work done on this project and have found that the stage covered by this payment has been completed satisfactorily and in accordance with the contract documents. The interim payment of K ….. …. Is accordingly due to the contractor.

On receipt of a completion report from the contractor, the supervising architect or engineer will issue a completion certificate in the format indicated in Figure 50: Certificate for Final Contractors Payment below.

Many contracts have a provision for a certain percentage of the contract price to be retained for a specified period, (six months to five years depending on the asset, the period for a bridge might even be longer). If this is the case, the amount, usually called ‘Retention Moneys’ and period of this retention, usually called ‘Retention Period’ or ‘Maintenance Period’, should be stated on the certificate.

The bookkeeping for this sort of work is similar to that described in 18.2.1 18.2.1 Acquisition of Assets above with the addition that two additional stages are added these being:

a) The interim period when the project is undergoing constructions. At this stage the payments do not get debited to the Capital Outlay Account but to an interim account ‘Capital Works in Progress’. At the end of the period, the full amount is then transferred ‘to Capital Outlay’.

b) The accounting for the retention money.

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Figure 50: Certificate for Final Contractors Payment

Contract (or Project): …………………………… Contractor: …………………………………….

Stage: …………………………… Contract No,: ………………………….

Signed: …………………….. Name: ……………………….

Title: …………………………… Date: ……………………..

Certificate of Contractors Payment

‘I certify that I have personally inspected the work done on this project and have found that it has been completed satisfactorily and in accordance with the contract documents. The final payment of K ….. …. Is accordingly due to the contractor.

Name of Council

The full set of entries is as follows:

Assuming it is the same K 10, 000, 000 asset financed from ‘Renewal Fund’ rather than from loan and that the project has a Retention of 10% for one year.

On Creating the fund: Dr Revenue Account – Repairs and Renewals (this happens over several

years as the fund is being built up, say in this case 4 years at K 2,500,000 per year)

Cr Repairs and Renewals Fund Account in the ledger, with the same amounts yearly.

If these were the only transactions the trial balance of the council after 4 years would look as follows: Figure 51: Trial Balance After Repairs and Renewals Fund Contributions – Year 4

Dr Cr

Repairs and Renewals Fund K 10,000,000

Revenue Account – Accumulated Deficit

K 10,000,000

Note: The accumulated deficit arises because every year, the revenue account has been debited with (charged) the annual contributions when, as far as we know, there has been no income, and as far as we know, no other expenditure.

On paying the various stages To record the cash transactions

Dr Capital Works in Progress (with each payment, up to K9,000,000 as K1,000,000 will be kept as retention)

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Cr Cash with K 9,000,000

To record the Retention

Dr Capital Works in Progress (with the retention amount K 1,000,000)

Cr Current Liabilities – Contractors Retention with K 1,000,000

Since retention has been deducted, the construction is finished and the work is no longer Capital Works in Progress (CWIP). It is now Capital Outlay. To record this and to record the funding of the assets, a transfer must be made from CWIP to Capital Outlay, and the Repairs and Renewals Fund must surely have been depleted by the amount, therefore a corresponding transfer must be made from the Repairs and Renewals Fund. The entries are as follows:

On Completion of the project To record the transfer from CWIP

Dr Capital outlay with the full amount K 10,000,000

Cr CWIP with K 10,000,000

To record the funding:

Dr Repairs and Renewal Fund

Cr Capital Discharged – Repairs and Renewals Fund Applied

The trial balance at this stage will be as follows: Figure 52: Trial Balance After Completion of Project – Year 4

Dr Cr

Long Term Outlay K 10,000,000

Capital Discharged – Renewals Fund Applied K 10,000,000

Revenue Account Balance – Accumulated Deficit K 10,000,000

Current Liabilities – Contractors Retention K 1,000,000

Bank Overdraft K 9,000,000

Total K 20,000,000 K 20,000,000

Note: The bank overdraft arises because the revenue account (Profit and Loss Account in the commercial world) has been debited over the years with the full payment to the contractor of K 9,000,000 with (as far as we know so far) no cash income)!

18.2.3.1 Bid Security

Bid security refers to the money that council, as tender authority, may levy on bidders in order for the bidders to qualify to bid. Where this is refundable, it is reflected in the ledger as current liability, where it is not, it would reflect in the revenue account probably as Miscellaneous Income. The need for bid security is to ensure that as the preparation of technical bid documents is a complex and expensive matter, only serious bidders apply.

The book keeping entries will be as follows


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Dr Cash

Cr Current Liabilities

If the bid moneys are not refunded the entries will be

Dr Cash

Cr Miscellaneous income code

18.2.3.2 Performance Bonds

Performance bond refers to the money that councils may ask contractors to pay as a guarantee for ensuring that performance of their contracts is up to the contracted standard. Performance Bonds are treated as Current Liabilities because when the contractor performs to the agreed standard, the bonds are redeemed paid back to the contractor.

18.2.3.3 Retention

Many contracts have a provision for a certain percentage of the contract price to be retained for a specified period, (six months to five years depending on the asset, the period for a bridge might even be longer). If this is the case, the amount, usually called ‘Retention Moneys’ and period of this retention, usually called ‘Retention Period’ or ‘Maintenance Period’, should be stated on the certificate.

The accounting for this has been given in 18.2.3 Contractors’ Payments above.

18.2.3.4 Capital Discharged - Capital Receipts Applied

This relates to the usage of capital receipts for the acquisition of other capital outlay. See also 18.3.3 Capital Receipts – Unapplied below.

18.3 Capital Receipts The creation of capital assets by council can be funded by capital receipts of various types. Some of these are listed below with some explanatory notes were necessary.

18.3.1 Government Grants Government (not the Minister in this case) shall give specific loans for capital development as provided for in the Local Government Act, section 45(3). This is reproduced below:

(.3) The Government shall make specific grants to the council concerned for— (a) water and sanitation; (b) health services; (c) fire services; (d) road services; (e) police services; (f) primary education; (g) agricultural services; (As amended by Act No. 19 of 1992 and Act No. 30 of 1995)


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18.3.2 Loans Under section 47 of the Act the Council may borrow money in all or any of the following ways

by loan under section forty five

by the issue of stock or bonds

by mortgage

by temporary loan or overdraft from a bank or other source

by loan from any other source

The Councils are however not allowed to borrow money or receive grant of money from a foreign government or foreign organisation

18.3.3 Capital Receipts – Unapplied Capital Receipts – Unapplied refer to the amount of money realised from the sale of capital assets which is unutilised for the purposes of purchasing or building another asset. According to the Public Finance tenets it is improper to divert such proceeds to finance recurrent expenditures such as salaries as was the case following the sale of Council houses. The proceeds should instead be utilized to acquire other assets in accordance with the Councils’ Strategic and Annual Work Plans. The entries are made as follows:

To record the cash transaction Dr Cash with the amount received

Cr Capital Receipts unapplied

To record the alienation of the asset, i.e. to write it off from the books of the council

Cr Capital Outlay, with purchase price of the asset sold

Dr Capital Discharged (depending on the initial funding, if the asset was initially funded say by loan then the debit is to Capital Discharged – Loans Redeemed Account.)

As soon as the proceeds from such sales are utilised to acquire other assets, the amount so spent is transferred from Capital Receipts Unapplied to Capital Receipts-Applied in the Balance Sheet, as it is no longer available to finance the acquisition of another capital item. This is done as follows:

To record the funding of the acquisition Dr Capital Receipts unapplied, with amount used to buy another asset

Cr Capital Receipts Applied with the same amount

To record the cash transaction Dr Capital Outlay, with the purchase price

Cr Cash with the same amount


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18.3.4 Service Charges - Income Service Charges refer to payments made by prospective developers to a local authority as a contribution towards the cost of servicing an area for the developers’ subsequent use. This expenditure may include provision of services such as demarcation of the plots, obtaining individual title to each of the plots, provision of roads, storm water drainage, water, electricity and sewerage reticulation.

The total estimated expenditure for these services is pooled and apportioned to developers on a prorata basis depending on the size of the plot allocated to each developer. The amount is adjusted on completion of the project. This is another form of financing of capital expenditure.

After the works department calculates how much the development will cost, a standard cost per area of development is calculated. This amount is applied to each plot on a prorata basis with allowances and discounts for parks and open spaces and places for worship. The plots are then advertised, applicants interviewed, plots allocated. Each of the successful applicants is then advised of the service charges or plot premium relating to their plot.

As these charges relate to the development of assets which will not be for council use, the accounting does not involve the council’s Capital Outlay account. The transactions are as follows:

On payment of the service charges to council by the developer, the revolving fund is created. Normally for accounting purposes the fund is named after the project, so that transactions relating to that project can be identified:

On receipt of money:

• Dr Cash

• Cr Project Account – Current Liability Plot Premium (or Service Charges)

On developing the project,

Dr Project Account - Capital Works in Progress (with each payment)

Cr Cash

On Finalisation of the project the council has on its books the full value of the project as an asset, while it still has the full value of service charges received as a Current Liability. On handing over the asset to the developers the liability is liquidated as follows:

Cr Project Account - Capital Works in Progress (with the total project cost)

Dr Project Account – Current Liability Plot Premium (or Service Charges)

It is good practice to ensure that the total service charges received are more than the cost of the development as this creates a basis for sustainable development.


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18.4 Asset Register For purposes of good financial management, councils should keep an asset register which should have the following information:

On Purchase Authority or minute number

Name of Asset

Type of Asset

Method of Financing

Date of Purchase or Completion

Value

Location

Transactions during the year Additions during the year, with similar information as above including work in

progress

Disposal Authority or minute number

Capital receipts

Date of alienation

In a manual accounting system the assets must be arranged by Fund and within Fund by Type as this is the way they would appear in the council balance sheets.

The total values of all the assets in the register are what should appear in the consolidated balance sheet as capital outlay.

A proposed layout is indicated in the example below.


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19 Control Accounts Control Accounts are a set of accounts which are kept in a summary form to track, and provide an overview of, the movement of various accounting entries in the course of the year. They provide a quick method of understanding the net effect of many transactions and provide a means for checking the validity of transactions.

For instance, if the council has 1000 houses whose rentals are K 1000 per month each. The control account should show in one place that K 1,000,000 rental; bills were raised for any given month. In conducting a check, one should be able to pick up the individual bills and they should add up to K 1,000,000. Alternatively if the control account shows bills for one month to be K 999,999.99 one should be aware immediately that this does not reconcile with the control total and therefore institute a check to find who was under billed by 1 ngwee.

Control Accounts are normally required in the cases where:

• The number of individual transactions is high, such as the Cash Control Account, which may summarise various transactions relating to cash and even relating to several bank accounts into one statement with one entry or two per month. These entries will be supported by detailed analysis elsewhere, see for instance, Figure 39: Kasempa Income Cashbook on page 63 in which the cashbook entry for 25th Julys is represented by one line, supported by various underlying documents and details.

• The number of individual accounts (clients) is high, for instance the rates billing system in which several hundred individual accounts each conducting transactions at a different rate are to be maintained, but for which, for management accounting purposes, it is necessary to have an overview, such as total debits raises, total amounts received and so on.

For the rates control account for instance, the following will be the overview, from the control account:

• Balance brought forward from the previous year. [This figure should tally with individual debtors’ balances of all ratepayers].

• Total of the two half year debits rose. [This figure should be supported by individual bills raised on each rateable property in the rates database].

• Total cash received from the rates debtors during the year as reflected in the Cash Book [This total cash received should also equal the sum of the individual cash received from rate payers].

• Total authorised adjustment made in the year as reflected in the Journal Register [This figure should be supported by the individual authorised adjustments.]

• The balance is carried forward to the following year and is the figure which is reflected as Current Assets – Rates Debtors reflected in the Balance Sheet [If everything was done correctly, this figure should be the arithmetical result of the Total balance brought forward plus the Total debits raised during the year less the Total cash received during the year plus or minus the total of all the adjustments made. It should be reconciled with the sum of the individual


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balances of all the ratepayers so that for external audit purposes, that schedule can be produced in support of the Current Assets – Rates Debtors figure presented in the balance sheet].

At the very least, the following control accounts should be kept:

• Cash Control Account

• Debtors Control for each service provided

• Creditors control Account

• Stores Control Account, where councils has an active material stores

• Advances control accounts, to keep track of advances and Imprests

• Salaries Control Accounts

• Wages control Accounts

19.1 Purpose The purpose is to ensure the following

• .Summaries in Control Accounts equal to individual balances on the accounts or bills raised by the Council. This should cover all accounting entries whether cash or otherwise so that wrong entries are identified and investigated

• .To avoid possibilities of frauds which may arise by posting credits to the accounts either through cash posting not matched with cash received as reflected in the Cash Book or through wrong journals

• Ensure that all debits which are a basis of revenue generation are raised If not this could lead to loss of revenue

The demise in the use of control accounts has led to under billing and fraudulent adjustments to client accounts, both of which are easily detectable with control accounts. Shown below is an example of the Rates Debtors Control Account.


Figure 54: Rates Debtors Control Account

LF 85

Original 1st Revision 2nd RevisionBudget Amount: K K K

Date Details Ref DR CR BALJan-01 Balance Brougth Forward FN 75 15,000,725.00 15,000,725.00

Jan First Half Debit LF 99 110,000,000.00 - 125,000,725.00 Jan Cash Receipts LF 99 25,519,679.47 99,481,045.53 Feb Cash Receipts LF 99 51,039,358.93 48,441,686.60 Mar Cash Receipts LF 99 7,145,510.25 41,296,176.35 Apr Cash Receipts LF 99 2,551,967.95 38,744,208.41 May Cash Receipts LF 99 12,759,839.73 25,984,368.68 Jun Cash Receipts LF 99 3,062,361.54 22,922,007.14 July Second Half Debits FN 75 105,700,000.00 128,622,007.14 Jul LF 99 18,559,766.88 110,062,240.26

Rates Control Account Account Code

General Ledger

See the double entry for the Rates Income Account Figure 61: Rates Income Account on page 120. Figure 55: Electricity Creditors Control Account

Folio N0: .199

Original 1st Revision 2nd RevisionBudget Amount: K K K

Date Details Ref DR CR BALJan-01 Brought Forward LF 190 20,000,000 20,000,000 Jan-31 Civic Centre LF 191 150,725 20,150,725 Jan-31 Kasempa Tavern LF 192 200,000 20,350,725 Jan-31 Mkinge Play house LF 193 235,000 20,585,725 Jan-31 Council Chamber LF 194 15,000 20,600,725 Jan-31 Street Lights LF 195 1,075,000 21,675,725 Jan-31 Water Works LF 196 7,525,000 29,200,725 Jan-31 Cash Account (Zesco paid) LF 100 22,500,234 6,700,491

Electricity Supply Control Account Account Code

General Ledger

Since the council will have several electricity bills to pay for its various premises, the creditors control account is credited with the bills received and the different premises debited with the amount consumed by each premises. On payment, the control account is debited and the cash account credited. In this manner council can keep track of its major creditors.

20 Recharges If the major function of councils is to provide services to their residents, then it is in the interest of councils and their residents for councils to cost the provision of those services properly. In order to provide service the councils are structured into:

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• Service Departments and sections, these being those departments that internally service the council in order for the council to operate, these include the Council Secretary, Administration and Treasury.

• Operating Departments and Sections, these being those departments that provide services to the residents. These include the Engineering or Works Departments, Housing, Health and in the past the Water, Electricity and commercial undertakings.

For the Works Department to provide a service, such as a road, the finance department should have some input, even if it’s only bookkeeping, so too will the Council Sectary and Administration Department. The cost of the service should therefore include portions of the cost of these service departments and sections. Recharges are the process by which the cost of providing service to the operating departments and sections is apportioned to those departments and sections. This is the commercial account equivalent of overheads costing.

20.1 Purpose The basic intension of recharges, are to fully cost the service delivered and to see to which extend department are utilized as internal service providers. This becomes even more important to know when the budgets are activity based.

The current practice of recognising only inter fund recharges distorts the real position does not fully cover the logic of recharges as recharges can happen even within departments. A case in point may be a road maintenance crew, from the roads section of the engineering department. For the crew to work will require some input from the Director of Works, so a recharge from the central administration of the department to the roads maintenance team would seem to be logical.

20.2 Basis for Recharges There are many ways in which the apportionment or recharge could be made. The total cost of maintaining the Civic buildings or Centre will, for instance, be apportioned to departments which are housed in the Civic Centre on the basis of the floor area occupied. As regards professional services provided by the Legal and Finance departments the costs will be pooled and charged on the basis of estimated time spent in addressing matters relating to the operating departments.

20.3 Accounting With reference to the recharge between the Finance and Engineering Departments referred to above the entries will be as follows

Credit Finance department – Central Administration Recharge

Debit Engineering department – Central Administration Recharge

with the amount the Finance department incurred in providing the professional accounting services, which otherwise the Engineering department could have sought from the private sector.


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20.4 Common Recharges The common recharges in councils are:

• Central Administration Recharge, this relate to the recharge of the cost of the central service departments to the operating departments.

• Departmental Recharge, this relates to the recharge of the cost, or part of the cost, of the departmental administration to the sections within the department.

• Civic Centre Recharge, this relates to the allocation of the cost of running the civic centre to the various occupants

21 Balance Sheet Items

21.1 Introduction The balance sheet provides a snapshot of the state of financial affairs of the council related to assets, liabilities, surpluses, deficits and reserves at a particular date, usually the end of the financial year, which for councils is 31st December. The standard details found in council balance sheet are given below and examples are given starting from section 25.9 25.9 Transferring Revenue Account Balances to the Balance Sheet on page 134 in the section dealing with the finalisation of accounts.

21.2 Purpose The council is an institution that conducts business from day to day in perpetuity from the time it is created. The financial activities of councils, as are those of other institutions, continue as long as the council continues to operate. For purposes of convenience the accounting profession has established, and the Local Government Act has confirmed that it would be useful for the:

• The council to have a financial year.

• That the financial year will be from January, 1 to December 31.

• That at the end of the financial year, the financial activities of the council shall be summarised in the form of annual accounts which will have:

o An operating statement, i.e. Revenue Account (Profit and Loss Account in the commercial setup) which will show the councils total income for the year, total expenditure for the year and the resulting surplus or deficit for the year and

o A balance sheet which will state the accumulated financial position of the council from the date it was incorporated to the date, 31st December, of the year for which the accounts are being written.

Between them, the Revenue Account and Balance Sheet, give a picture of the activities of the council for the year and the cumulative position to the end of that year.

The balance sheet is traditionally arranged in two parts, the credits on one side, normally the left and the debits on the other, normally the right.

A summarised format of the Balance Sheet is given below:


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Figure 56: Balance Sheet Format

Summarised Balance Sheet Format

Liabilities and Surpluses - Credits Assets and Deficits - Debits Long-term Liabilities Capital outlay

Current liabilities Current Assets Funds and Surpluses Deficits

In computer based systems, the balance sheet can be in columnar form with the Credits at the top and the debits below, rather than side by side as shown in this traditional setup above.

The functions and bookkeeping procedures for each of the items in the balance is discussed below in the sequence within which they appear in the balance sheet.

21.3 Liabilities and Surpluses These represent the Credit side of the Balance Sheet. The details on this side of the balance sheet are included, liabilities, funds and provisions, capital discharged and accumulated revenue account surpluses. These are itemised below:

21.3.1 Long Term Liabilities Long Term Liabilities are loan raised for the development of capital assets. These are normally repaid over a period in excess of one year and depending on the nature of the asset being developed. Housing stock development loans in the past had very low interest rates and repayment periods of up to forty years.

The items indicated in this part of the balance sheet relate to the portions of those loans that have not yet become due for redemption. This is different from loans that have not yet been redeemed. When loans become due for redemption the portion that is due for redemption must be transferred from the long-term liability class in the balance sheet to the current liabilities class as that portion is now a current liability until it is redeemed.

For purposes of supporting documents and external audit, this part of the balance sheet must be supported by a loan schedule. The recommended schedule format is shown below together with Figure 58: Loan Schedule with Sample Details on page 106.

In the example given below, the Total for the columns ‘Redemption 03’ and ‘Interest 03’ would appear in the revenue accounts under the main heading “Debt Charges”. The total showing under the column ‘OS 31/12/03’ representing the principal amounts outstanding (OS) as at the date 31st December 2003, would be the amount appearing in the balance sheet under the heading “Long-term Liabilities”.


Figure 57: Loan Schedule

SN Source Project Date Principal Amount Repayment Period Interest Rate Os 01/01/00 Redemption 00 Interest 00 Os 31/12/00

001002003004005006007008009010011012013014015016017018019

995996997998999

Totals

Prepared By: Checked By:

Name :…………….. Name :……………..

Designation: …………… Designation: ……………

Signature: ………………………………………….. Signature: …………………………………………

Date: …… Date: ……

Name of CouncilLoans Register

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In the detailed balance sheet, the loans can be grouped by source. The major sources of loans to councils in Zambia are normally classified as follows:

21.3.1.1 Government Loans

Under section 45 of the Local Government Act the government can give loans to Councils for capital expenditure. The bulk of the current infrastructure was funded under the defunct Loan Sanction system. Loan sanctions were first and foremost, permission from government for a council to borrow and secondly a guarantee by the government for the loan.

These loan were long term, sometimes for forty years, at low interest rates. Many of these loans are still outstanding in Council Balance Sheets. The loans were utilised for the creation of capital items such as roads and houses.

21.3.1.2 Other External Loans

These relate to long-term loans outstanding from Financial Institutions other than Government. These institutions amongst many others include NAPSA, LASF, Workers Compensation Fund, Africa Development Bank and Fund [under guarantees from the Ministry of Finance], the World Bank and so on. The loans were utilised for the purchase or construction of assets.

Lusaka had a major site and service upgrading project funded by the World Bank some thirty years ago while Kitwe has just had a water reticulation upgrading project funded by the Africa Development Bank.

Commercial Banks can also lend, but their current high interest rates would make it difficult for councils to repay long-term loans from these banks. Short-term loans, normally less than 2 years are their forte.

21.3.1.3 Internal Loans

Councils used to be able to, and can probably to do so again in the future, create internal loan funds which were used for undertaking relatively minor capital works. The funding would normally be inter-fund, for instance, the General Rate Fund, or District Fund, lending the commercial undertaking fund the resources to build a motel or tavern. The accounting treatment of these loans, on the receiving fund, would be as outlined above, were as for the giving fund, an asset, Debtors account would be created. In the consolidated balance sheet, these would cancel each other out.

A preferred method was the creation of a Consolidated Loans Fund, from which any section of the council could borrow, after justifying its project.

21.3.2 Current Liabilities As opposed to Long Term Liabilities, current liabilities are liabilities which are current on which the creditor has a legal right to walk in and demand immediate redemption, or redemption at short notice. These would include:

• trade creditors, such as suppliers of stationery and fuel,

• service creditors such as supplies of utilities, elect city and water for instance

• statutory creditors such as ZRA, NAPSA and LASF and


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• internal creditors such as unpaid employee emoluments..

These all have a common feature, they can demand payment now.

Councils should always keep track of it Current Liabilities as losing sight of these can cause serious financial embarrassment as bailiffs may pounce with demands that council was not specifically aware of and / or with demands that are non existent or incorrect. By the time the council proves that the demand may have been incorrect, damage may already have been done regarding the financial credibility of the council.

Some of the major classifications of creditors in the council’s balance sheet would include:

21.3.2.1 Municipal Bonds

Section 47 [b] of the Local Government Act empowers Councils to issue bonds as a tool for raising capital finance. These are short-term borrowings from the public redeemable at a specified future date. These could be issued through the Lusaka Stock Exchange as this offers better facilities. It is a mechanism to solicit funds from the public in order to finance various activities including those of a capital nature.

This issue is currently academic because of the general public perception of bad financial management in councils and lack of professionally audited and current final accounts, both of which are prerequisite of a successful bond issue.

We currently do not have a market for Junk Bonds, which is a high risk / high interest bond which was popularised in America, on which, the councils here, with their current lack of audited accounts and their negative public image regarding financial management would qualify for.

The situation does not have to be like this. In Germany Municipal Banks started because local communities initially felt the local authorities were a stable local institutions they could trust with their money.

21.3.2.2 Contractors’ Liability (Retention)

This relate to the amount of money deducted from the contractors payments [for works already executed] so as to cover the unforeseen or possible defects to the contract. It is a percentage on all stage payments. This amount is released at the end of the retention period on satisfaction of pre-agreed standards of performance.

21.3.2.3 Loan Charges Outstanding

These relate to the portion of long-term loans which have become due for payment but which, for whatever reason, have not actually been paid. In the Books of Account the amount due would have been transferred from Long Term Liabilities, as that portion is no longer log term but due on demand. This helps to determine the liquidity status of the council.

21.3.2.4 Sundry Creditors

These relate to a range of various amounts owed by council to outside bodies for supply of goods and services. These may be including:

• Unpaid utility bills such as electricity bills


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• Unremitted statutory contributions such as LASF for pension and ZRA for PAYE deducted

• Unpaid invoices for goods and services received by council, such as fuel, stationary, audit fees and so on.

21.3.2.5 Deposits

This relates to moneys paid to council as security for service rendered which is over and above the amount of the service and which council holds on behalf of the payer subject to the payer meeting a given condition. Examples would include:

• Housing rental deposit held as cushion for possible default. This is refunded on the vacation of a house in good condition.

• Library membership which is kept in the event of loss of books. This is refunded on successful completion of the contract.

21.3.2.6 Receipts in Advance

Receipts in advance relate to income which is received by the council for service yet to be rendered. This money is not held by council to be repaid to the payer at some future date, as is the case with a deposit, it is held by council until council provides the required service. At the point the service is provided, the Receipts In Advance are transferred to the appropriate income account. Examples would include:

• Housing rental paid in advance for one year. If the accounts are closed after three months of receipt of this amount, then nine months worth, or three quarters of the money paid, should be reflected as receipts in advance. If this is not done, then the council would have lost track of its current liabilities with all the consequences outlined above.

• Rates bills paid in advance, maybe because the rate payer has received rent in advance for five years and does not want to have to find money from elsewhere in the future to pay rates.

While in theory, the number of people in arrears is always higher than the number of people who have paid in advance, it might be possible to say that these received in advance could be covered in the net debtors outstanding. This is a dangerous assumption as there is no guarantee that if a person who paid in advance, demanded money before the council executed the service, the council could get this money from the people who owe money to council.

21.3.2.7 Collections on Behalf of GRZ

This relates to the amounts that councils collect as agents of the government. In the past these used to include, market fees, motor vehicle road taxes and head lease / sub lease rentals among others.

Councils were obliged to keep a portion of this money, called Agency Fees, and to remit the balance to the government. In most cases councils did not remit these monies and government has generally, withdrawn the agency.


However, until government agrees to write off these amounts, they remain, technically, a current liability as government can demand the money or even offset it against some future grant as a way of payment.

21.3.2.8 Bank Overdraft

This is the amount by which council, either in agreement with the bank or without such agreement but with the banks indulgence, operates its bank account below the minimum level, which is usually Zero for current accounts. This is a Current Liability as, normally even for authorised overdrafts, the bank would require to have the operations of the account normalise as quickly as possible. Failure to do this may result in council cheques being returned to drawer.

21.3.3 Provisions and Reserves Provisions and reserves are the accounts were funds are transferred to in order to cover some possible future eventuality. In Local Government Accounting the following are the main provisions and reserves.

21.3.3.1 Bad Debt Provisions

These are reserves set aside to make good the possible inability of the debtor to pay for what is due to the Council. The creation of a provision is normally made as a percentage of total debtors outstanding. Depending on circumstances and past experiences, a provision of 5% is reasonable for such services as rates and rents, the major billable incomes of council. This is a provision, and it is cumulative. An example of a calculation is given below. Figure 59: Bad Debts Provision Calculation

Debtors Rate ProvisionNote 1 Balance As At 01/01/03 2,587,860,000.00 5% 129,393,000.00 Note 2 Bad Debts Actually Written of in 03 25,789,000.00 Note 3 Available Provision 103,604,000.00 Note 4 Debtors Balance 31/12/03 3,578,905,500.00 4% 143,156,220.00

Note 5 Required Charge to Revenue Account 39,552,220.00

Bad Debts provision Computations

Note that:

a) The amount actually written off in the year will require council approval in giving this approval councils will have to scrutinise each of the accounts proposed to written off and the reasons for this. It may be that the Debtor has died or has left town.

b) The rate for the computation of the provision has to be approved only once by council. In the above case however where the rate has changed, council approval has to be sought for the change. In this case, since it is a positive change, it may be that the council’s debt collection efforts have been improved so there is less delinquency by debtors.

c) The amount to be charged to the revenue account is the difference between what has remained in the provision and what the new provision ought to be.

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21.3.3.2 Gratuity Reserve

This relates to financial provision towards the payment of end of contract gratuity to contract officers on completion of the predetermined contract period. This amount is accumulated from year to year over the contract period.

The method of calculation of the gratuity is determined as part of the contract and logic for accruing it is that even though it is paid in a lump sum at the end of the contract period, it is calculated on the basis of period worked so every month or year there is a portion of the gratuity which relates to that period which should therefore be charged to the period to which it relates.

21.3.3.3 Accumulated Leave Reserve

As the term implies this is the provision towards payment of leave benefits earned in the course of the year but paid at a later date when people actually go on leave or when they commute leave days. This reserve is similar to the Gratuity Reserve, except it applies to permanent employees.

21.3.3.4 Renewal and Repairs Funds

These funds, also called Replacement, Renewals and Repairs Funds, are provisions charged to the Recurrent Budgets and Accounts towards the renewal, replacement and / or repair of existing of capital assets. For instance the following are common.

Replacement of vehicles.

Renewal of Furniture and Fittings.

Maintenance of buildings, plant and equipment.

The purpose is to cushion the high costs which otherwise could not be met from one financial year. As these funds operate like an internal insurance fund, the following rates charged to the revenue account annually per class of assets is recommended. Table 12: Recommended Renewals Fund Contribution Rates

Asset Class Provision Rate

Buildings 5% Equipment and Plant 15% Furniture 25% Vehicles 33% Computers 33%

The rate is applied to the cost of the asset.

21.3.3.5 Sinking Funds

While the Repairs and Renewals Fund described above relates to existing assets, the sinking fund operates on the same basis but relates to some future specific event.

For instance, there used to be the so called ‘bullet loan’, normally from Workers Compensation Fund Control Board, in which only interest is paid annually. The


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Principal is redeemed in full at the end of the loan period, which could be five or six years. If a sinking fund was not created, the principal amount would have to be charged to one financial year, the final year and yet the benefits of the loan would have been accruing through out the preceding years.

21.3.3.6 Consolidated Loan Fund

This is a fund comprising of a total of all loans available which are pooled together, from which financing is made available for capital expenditure. This will enable the Council staff to determine at a glance the overall picture of the Debt. For instance under a Company Financed Housing scheme various companies will loan council money in order to construct houses for employees occupation which loans to be repaid The Councils interest will be the rental income, or if the properties are sold, rates income. The loans obtained are pooled under this Fund.

21.3.3.7 Provision for Depreciation (Commercial Fund)

As the title entails this relates to the depreciation of assets on an agreed timetable based on the assets life span and for utilisation. The amount is a charge on the Profit and Loss Account. It is recommended that actual investment representing the accumulated depreciation fund be made to ensure that at the end of the asset life, resources are available for replacing the asset. These transactions apply to commercial ventures under Councils as depreciation is treated differently in respect of other council assets. See Renewal and Repairs Funds and Capital Transactions above.

21.3.3.8 Tariff Equalisation and Stabilisation Fund

This is a fund that is built up during surplus years in which the fees charged for a service are higher than the costs of providing the service and is drawn down during the deficit years in which the fees charged for a service are less than the costs of providing the service, in order to avoid excessive fluctuations in fees charged for a service from year to year.

21.3.3.9 Other Provisions

This covers the creation of reserves for meeting unforeseen circumstances which may have not been captured in any of the above listed provisions or the occurrence of a one-off situation or irregular circumstance, such as the outbreak of cholera.

21.3.4 Capital Discharged Capital Discharged is the term applied to the portion of capital assets held by council on which there is no outside indebtedness, or the proceeds of capital assets that are awaiting utilisation in the acquisition of other capital assets. Capital Discharged is normally broken down into the following sub categories:

21.3.4.1 Capital Receipts Unapplied

The above is a summary of the total proceeds received by Council following the sale or disposal of the Council assets, before it is used for the acquisition of other assets. For instance the income derived on the sale of Council houses should have been recorded under the above. The accounting aspects are covered in section 18 Capital


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Transactions 18starting on page 87 in general and 18.3.3 Capital Receipts – Unapplied on page 95 in particular.

21.3.4.2 Capital Receipts Applied

Capital Receipts Applied refer to a summary of the portion of total proceeds received by Council following the sale or disposal of the Council assets (Capital Receipts Unapplied) which has now been used for the acquisition of other assets. Before these proceeds are used they are Unapplied, after they are used they are Applied.

21.3.4.3 Loans Redeemed

In the balance sheet this term means the total of the Long Term Loans that have been repaid but for which the assets acquired from those loans are still on the council books. When these assets are finally sold or destroyed, as part of the process of alienating the asset from the books of the council, the amount that relates to the asset that is being alienated is written out of the books.

21.3.4.4 Grants Applied

This covers the usage of grants towards the acquisition of capital items There are various sources from which grants could come. These include the Central Government as stipulated under the Local Government Act, Local service and community organisation, sister cities or any other benefactor.

21.3.5 Revenue Account Fund Balances - Surpluses The standard Local Government accounting places great emphasis on determining the source of funding services with the view of establishing the actual cost of the service so provided, relative to the revenue earned from that source. The Accumulated Fund Surpluses are similar to Reserves and Accumulated Profit and Loss Account balances in the commercial accounts.

Traditionally councils have had the following funds in Zambia.

General Rate Fund (GRF), this is the fund used for financing the provision of Public Goods and services, which cannot be specifically funded by any particular source. These days it is also called the District Fund.

Housing Fund

Water Fund

Commercial Undertakings Fund

Activities i.e. both expenditure and income inclusive of recharges are recorded. At the close of the year summaries are made. The excess of income over expenditure, after taking into account all adjustments, is regarded as the surplus for the year which is added to the accumulated balances brought forward from previous years. This is what appears under this heading in the balance sheet.

The Councils net worth is determined through the aggregated value of all Funds. This class represents the last category on the credit side of the balance sheet.


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21.4 Assets and Deficits These represent the Debit side of the Balance Sheet. The details on this side of the balance sheet include, capital outlay, capital works in progress, investments, current assets and accumulated revenue account deficits. These are itemised below:

21.4.1 Capital Outlay This term refers to assets of a long-term nature, which cannot be easily realised into cash. A fixed asset register should always be kept listing the cost of all fixed assets held by council, the dates when they were acquired and how they were funded. These assets are classified as follows.

21.4.1.1 Long Term Outlay

These are a class of assets on account of their peculiar nature, which are intangible unrealisable and for which there is no precise day of alienation or falling out of use and for which expenditure is written out of the accounts at the end of a nominal loan sanction period. These may include;

Roads

Water and Sewerage Reticulation

Street lights

Storm water drainages

Refuse pits

21.4.1.2 Other Long Term Outlay

These are realisable assets which are written out of the books when they physically cease to exist. These can include;

Office buildings e.g. the Civic Centre

Houses and other buildings

Furniture Fittings

Plant and Machinery

21.4.2 Investments

There are various types of investments and the following are common in Councils. Due however to the current financial problems of councils, and the unattractive real rates of interest, very few councils, if any, have any investments. However these are discussed in the causes:

they form the standard nomenclature of accounting and appear in the balance sheet at this point. Omitting them would defeat the intention of making this manual comprehensive and

it is expected that at some time in the future, it may be possible to have investments again.


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An investment register, showing which investments are kept where, what the interest rates are and when, if necessary they mature must be kept. The actual investment certificate is a key accountable document which must be kept in a safe or strong room by the Treasurer and handed over to his or her successor formally and in writing. The investment certificates together with the investment register forms the supporting documents for external audit.

21.4.2.1 Fixed Deposits

The above are types of investment of cash in the commercial banks for a fairly long time in order to attract a good return on interest income. Normally the longer the period the higher the investment income, even though the interest rates may not, in Zambia, be correspondingly higher. It should be noted that, although a blanket approval has been given to invest surplus moneys, council approval should be sought where the maturity period exceeds ninety days from the date of investment.

21.4.2.2 Shares

The Councils can also invest in shares floated by the Lusaka Stock Exchange. The value and the accrued gain are reflected in the Balance Sheet under the above heading.

21.4.2.3 Notice Deposits

These are amounts invested for an indefinite time. The only condition they have is that an agreed number of days notice must be given in order to liquidate the investment. If the council has a crisis and wants to liquidate the investment without due notice, a penalty is charged by the bank.

21.4.2.4 Term Deposits

These are similar to notice deposits except that they are invested for a fixed term. Liquidation of these before the end of the agreed term normally attracts a penalty.

21.4.3 Other Assets This is a general classification which covers other types of assets. The other type of assets is listed below.

21.4.3.1 Internal Loans

These relate to internal loans given to staff which are outstanding at the close of the year and may include;

Car Loans

Staff Housing Loans

Staff Furniture Loans

21.4.3.2 Capital Works in Progress

These are forms of assets which are under construction. Once completed they are transferred to either Long Term outlay or Other Long Term Outlay.


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21.4.3.3 Mortgages

Mortgages are methods of lending out money, in this case by council, to a borrower for the acquisition of fixed asset, normally buildings. The mortgager retains a financial interest in the asset until the financial liability is liquidated by the mortgagee.

In the past some community assets were funded in this manner by councils. The Kitwe Playing Fields, a sports complex, is one such example.

21.4.4 Current Assets These are a set of assets which could easily be converted into cash as compared, e.g. to the Capital Outlay category. The types of current assets and are listed below.

21.4.5 Stocks Stocks refer to items kept either at stores, such as stationary and protective clothing, for distribution to council departments or those kept in trading undertakings prior to being sold, such as unsold beer or school uniforms.

When values appear here in the balance sheet, it means that at the close of the accounting year, these were the stocks in hand. This is called the closing stock. At the end of every financial year, most institutions, not only councils, undertake a stock verification exercise (stock taking). This produces a list of items (on stock sheets) in stores which forms the supporting document for this figure in the accounts. Stock sheets are of particular interest to external auditors as they verify the underlying composition of the items whose value appears in the balance sheet.

21.4.5.1 Debtors for Services

This refers to the arrears outstanding from persons or institutions who have received some service from council for which payment has yet to be received. This will include unpaid bills or accounts for:

Rates

Personal levy

Housing and Shop rental

Site Rentals

Bill Boards

Personal Levy

Control Accounts and individual accounts for the debtors must support this figure for audit. It is common practice for auditors to circularise some of the debtors for the debtors to confirm their indebtedness.

21.4.5.2 Sundry Debtors As title implies, this title refers to debtors such as:

Outstanding imprests and advances


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Refuse collection fees

Abattoir fees

21.4.5.3 Deposits and Prepayments This reflects deposits councils would have paid for services or goods yet to be received. Compare this with 21.3.2.5 Deposits and 21.3.2.6 Receipts in Advance on page 109, which relates to monies councils have received rather than paid, in advance.

21.4.5.4 Advances This may reflect such short term advances as council may have given out which had yet to redeemed such as staff advances. These advances, also called imprests, because they operate on an imprest system, that is they remain outstanding in the books until they are redeemed by either:

a) Refunding the amount if the purpose for which they were intended has not occurred, such as a journey that has been cancelled or

b) Refunding part of the amount, with supporting receipts for the part that is not refunded if the purpose for which the advance was intended was partially executed, such as coming back from an official trip earlier than originally planned or

c) Presenting receipts and supporting documents to the full value of advance received. Such supporting documents may be proof of having been out of station for a given number of days for instance.

The regulations stipulate that these advances should be retired within 48 hours of return to station. Enforcing this rule should be a simple matter but this is not regularly done and is a favourite topic for external auditors.

21.4.5.5 Cash at Bank These are balances held by various banks which are not overdrawn as at the close of the financial year. These should be supported by reconciled cashbook balances.

21.4.5.6 Cash in Hand Cash in hand refers to the cash and cheques, held by various council cashiers which is counter checked at the close of business i.e. at the end of the year. This may include:

Cash held by cashiers responsible for receiving cash from the public

Cash in transit at the end of the year, where the council has out of station cash collection points

21.4.5.7 Petty Cash and Imprests This is cash held by authorised imprest holders such as Petty cashiers. At the end of the financial year, this should be counted, the receipts and cash held should add up to the imprest amount. The receipts should then be booked to the appropriate accounts and the cash is recorded under this heading.


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21.4.6 Other Balances This will cover any other balances of value not specifically indicated above. These would normally include the following:

21.4.6.1 Revenue Account Fund Balances-Deficits When cumulative income on a fund exceeds cumulative expenditure, A Revenue Account Surplus occurs and is recorded on the credit side of the balance sheet, see 21.3.5 Revenue Account Fund Balances-Surpluses on page 113. When, however, the cumulative expenditure on a fund exceeds the cumulative income, a Revenue Account Deficit occurs and is recorded on the debit side of the balance sheet. This is what appears under this heading.

21.4.6.2 Suspense Accounts A suspense account is a temporary account to record a transaction for which the actual accounting head or code has not been identified. In the event of a discovery or failure to ascertain the amount so found will be recorded under this heading pending investigations.

As part of the process for finalising the accounts, these must be cleared by writing them to an appropriate account. These cannot be cleared by writing them directly off through the revenue account, as is the case for say, Bad Debts Provision, as their purpose is to hold amounts pending allocation to the appropriate code, even if this eventually turns out to be a general code like Other Expenses.

22 Budgetary Control

Now that the various bookkeeping aspects and nomenclature has been defined, it is possible to discuss in some detail budgetary control systems, as an aspect of Management Accounting, in Local Government. Control happens when two sets of data, normally planned performance and actual performance, are compared and action is taken to minimise variances between the two. Budgetary Control is the process of monitoring actual budget implementation performance against budget provision and taking the necessary action to ensure that variances are minimised. As regards expenditure, the following are to be observed:

Only expenditures provided for in the approved Annual Work Plans and Budgets should be incurred. The provided amounts should not be exceeded, without:

o Specific council resolution and

o Proposal for expenditure Virement or other methods of financing the over expenditure.

Any departure from the budget requires prior approval by the Full Council Meeting as it will be illegal to do otherwise. Please refer to sections 39[2] and 39[4] of the Local Government Act.

In regard to income the emphasis is that all the income due is collected, efficiently, economically and in time, and preferably exceeded through collection. The use of


Control accounts and variance analysis forms a basis for optimising revenue collections

The above mentioned budgetary control is achieved through preparation of periodical management accounting reports and statements which compare the budget to actual performance with the view of establishing and investigating variances at an early stage.

22.1 Purpose The objective or purpose of budgetary control is to achieve the efficient, effective and economic utilisation of budgeted financial resources. It is also intended to comply to the legal requirement as stipulated above so that the budget approved by Council is not exceeded in as far as expenditure is concerned either by accident or wilful intent. As regards income Council to ensure that budgeted income is collected in full and preferably exceeded.

On practical ideas for optimising revenue collection and widening the council’s revenue base please see ‘Widening the Resource Base of Kitwe City Council’ a publication by the Institute for Housing and Urban Development Studies, 1999, written by Ndeke, Chitembo, Dauskaardt. This report can be down loaded in PDF format from www.ihs.nl/sinpa.

22.2 Variance Analysis A key tool of budgetary control is variance analysis which highlights variances. Both positive and especially, negative variances should be investigated. The example below shows such an analysis. Figure 60: Variance Analysis

Financial Management Report for the Period to: 31/07/03 Finance

Annual Estimate

Year to Date Estimate

Year to Date Actual Variance Remarks

1 2 3 4 5=col2-col3

ExpenditureEmployees 2,436,875.0 1,421,510.4 3,000,000.0 (1,578,489.6) Unbudgeted housing allowancesPremises 61,833.1 36,069.3 27,052.0 9,017.3 Supplies and Services 222,937.5 130,046.9 97,535.2 32,511.7 Transport and Plant 285,193.8 166,363.0 124,772.3 41,590.8 Establishment Expenses 768,750.0 448,437.5 336,328.1 112,109.4 Miscellaneous Expenses 41,875.0 24,427.1 18,320.3 6,106.8 Debt Charges 7,500.0 4,375.0 3,281.3 1,093.8 RCCO 14,625.0 8,531.3 6,398.4 2,132.8 Totals 3,839,589.4 2,239,760.5 3,613,687.5 (1,373,927.1)

IncomeGovernment GrantsRates 225,000,000.0 225,000,000.0 215,700,000.0 9,300,000.0 Fraudulent write off being investgatedPersonal Levy - Interest 10,000,000.0 5,833,333.3 - 5,833,333.3 no investment due to shortage of fundsTotals 235,000,000.0 230,833,333.3 215,700,000.0 15,133,333.3

Surplus / (deficit) K238,839,589 K233,073,094 K219,313,688 K13,759,406


The remark on the negative variance from rates income would arise from an examination of the underlying data in the control account. A possible scenario is presented below.

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22.3 Underlying Data From the variance analysis, which is a summarised statement, variances can be investigated in detail by analysing the underlying data. The analysis for rates might show the results in the example below: Figure 61: Rates Income Account

FN 75

Original 1st Revision 2nd RevisionBudget Amount: K275,000,000 K225,000,000 K

Date Details Ref DR CR BALJan First Half Debit LF 85 110,000,000.00 (110,000,000.0) July Second Half Debits LF 85 105,700,000.00 (215,700,000.0)

General Ledger

Rates Income Account Account Code

From the above information it may be possible to make various observations for further investigation. Among these would be:

a) If the original estimate was based on the actual rateable property on council’s property database and on the application of the approved rate levy, why has it been changed?

b) If the second half debits are significantly lower than the first half debits what has happened between the first and second half?

(Please send possible explanations to [email protected] . We look forward to receiving imaginative explanations and additional questions which would arise from such figures. We shall respond to all submissions.)

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mailto:[email protected]

FFiinnaanncciiaall aanndd AAccccoouunnttiinngg PPrroocceedduurreess ffoorr LLooccaall AAuutthhoorriittiieess iinn ZZaammbbiiaa.. Section 4: Final Accounts and Other Reports

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Section 4: Final Accounts and Other Reports

23 Finalisation of Accounts While management accounting has to do with keeping track of the financial affairs of council as they happen, financial accounting has to do with external reporting of the financial activities of councils for a particular financial year.

23.1 Purpose Councils are institutions assigned the responsibility of providing a conducive atmosphere in their districts, towns and cities for the benefit of their residents. To do this councils mobilise and utilise public resources on behalf of the residents. Preparation and presentation of annual accounts are a process by which the councils account to its stakeholders regarding their management and stewardship of the public resources entrusted to them.

The annual accounts and external auditing of such accounts gives an independent assessment as to the accuracy of the statements. The statements summarise:

How much was spent and on what.

How much was raised and from where.

The cumulative financial state of affairs of the council at the end of the financial year.

23.2 Legal Provision - Accounts The Local Government Act, Section 43(3) stipulates that the accounts should be ready within six months of the end of the year to which they relate. This section is reproduced below:

43. (1) A council shall cause true accounts of its revenues and expenditure to be kept.

(2) The accounts of a council, together with all books, deeds, contracts, vouchers, receipts and other documents relating thereto, shall at all reasonable times be open to the inspection of any councillor and of any interested person.

(3) The accounts of a council shall be made up and balanced for each financial year of the council and a summarised statement thereof certified under the hand of the treasurer of the council shall be presented to the council at a meeting to be held within six months after the end of the financial year of the council, or within such longer period as the Minister may determine.

23.3 Legal Provision – Annual audits Sections 52 to 54 of the Local Government Act provides for the Minister to appoint an auditor to audit the annual accounts of councils. Unfortunately, the Act does not stipulate a time period within which such appointment should be made.


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Since audits have to be paid for, it is obligatory and logical for councils to provide for Audit Fees in their budgets. This is already provided for in the structure proposed in this manual under Establishment Expenses, see 16.5.8 Audit Fees on page 81.

Finalising the accounts and having them audited in time has several advantages. Among these are:

a) Since the audited accounts are prepared for the sake of accounting to the public, the owners of the money, the earlier this is done the better as it is likely to build public confidence in the management of the affairs of councils.

b) Councils would be able to access more financing if they could show early what they have done with previous financial resources. Audited accounts afford the council with an opportunity to do this. Banks and the stock exchange will be reluctant to lend money to or float bonds for councils respectively if the councils do not have audited accounts.

c) Fraudulent activities could be discovered earlier and dealt with promptly thereby saving the councils further financial loss.

d) It is illegal not to have the accounts prepared on time and as the general public is getting more and more enlightened and more and more litigatious, councils may soon begin finding themselves dragged to courts of law for breaking the law by irate residents.

e) Since audited accounts form a basis for planning future activities, the lack of such accounts deprives council of a major management tool which can be used to improve the operations of council. For instance negative financial trends might not be spotted until after the damage is done.

23.4 Current Status The current state of affairs as regards the preparation and audit of the annual accounts, especially for the major councils, is that arrears in excess of 5 years seem to be the norm. This is completely unacceptable as it defeats the whole purpose of preparing the accounts, which is to report to the owners of the money in a timely fashion how their money has been spent and to provide a planning tool for management It also leads to the various other problems listed above.

The benchmarking exercise undertaken by the Provincial Local Government Officers and ddp/GTZ in three provinces shows that the matter of preparation of annual accounts is a major weakness in the financial management of councils. The process of preparing annual financial statements is fairly easy and straight forward. This is described in some detail in the sections that follow.

23.5 The Process of Finalising Accounts The process of finalisation of accounts and preparation of annual accounts should be a relatively easy process if the bookkeeping and management accounting has been correctly done during the year. This is because the final accounts will basically be the November management accounts plus the December transactions. At the most, the process should just be the transfer of revenue account balances to the balance sheet.


In practice however various errors are allowed to accumulate and various transactions remain in suspense accounts during the year to the extent that in some cases the various statements have to be recast to arrive at the necessary correct financial position. This has led to major backlogs of accounts for various councils. This should not be so.

The Process basically involves:

a) Bringing forward the balances from the previous year

b) Ensuring that the Income and Expenditure Transactions for the year are properly recorded.

c) Creating the closing balance sheet

The steps to be taken in each of these activities are the subjects of the next three sections. The hypothetical Kasempa City Council is used to illustrate the points made.

24 Bringing Forward Balances The process of finalising the accounts starts with the bringing forward of balances from the previous year. This is logical as no financial transactions are likely to take place in the split second between midnight 31st December and one second later which is the beginning of the following year. The closing balance sheet of the previous year is brought down as the opening balance of the following year.

Both in the manual and automated system, this is done by an opening journal. However some of the more current automated systems can bring forward balances and can maintain control accounts in the balance sheet itself as the capacity of these systems to summarise, drill down, aggregate and disaggregate is such that there is no benefit to having separate control accounts.

An example of a summarised closing balance sheet for a Kasempa City Council for the year2002 is given below: Figure 62: Closing Balance Sheet 31/12/02

Consolidated GRF Housing Commercial Water

Liabilities and SurplusesLong-term Liability 1,925,025,558 1,250,000,000 125,000,543 - 550,025,015 Current Liabilities 83,255,130 20,000,000 25,000,000 25,754,674 12,500,456 Provisions and Funds 726,023,142 199,899,850 449,389,067 200,000 76,534,225 Capital Discharged 1,842,475,192 1,500,000,000 324,999,457 10,000,000 7,475,735 Revenue Fund Surpluses 658,940,859 550,300,950 65,402,541 43,237,368 Total Liabilities and Surpluses 5,235,719,881 3,520,200,800 924,389,067 101,357,215 689,772,799

- Assets and Deficits - Capital Outlay 3,767,500,750 2,750,000,000 450,000,000 10,000,000 557,500,750 Investments 54,567,210 20,000,000 - 34,567,210 - Current Assets 1,336,094,392 750,200,800 454,321,567 56,790,005 74,782,020 Revenue Fund Deficits 77,557,529 - 20,067,500 - 57,490,029

Total Assets and Deficits 5,235,719,881 3,520,200,800 924,389,067 101,357,215 689,772,799

Funds

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Figure 63: Opening Journal 1/1/03

Description Account Fund Debit CreditBalances B/f 1/1/03 Long-term Liabilities GRF 1,250,000,000

Housing 125,000,543 Commercial - Water 550,025,015

Current Liabilities GRF 20,000,000 Housing 25,000,000 Commercial 25,754,674 Water 12,500,456

Provisions and Funds GRF 199,899,850 Housing 449,389,067 Commercial 200,000 Water 76,534,225

Capital Discharged GRF 1,500,000,000 Housing 324,999,457 Commercial 10,000,000 Water 7,475,735

Revenue Fund Surplus GRF 550300950HousingCommercial 65402541Water 43237368

Capital Outlay GRF 2,750,000,000 Housing 450,000,000 Commercial 10,000,000 Water 557,500,750

Investments GRF 20,000,000 Housing - Commercial 34,567,210 Water -

Current Assets GRF 750,200,800

Housing 454,321,567 Commercial 56,790,005 Water 74,782,020

Revenue Fund Deficits GRF - Housing 20,067,500 Commercial -

Water 57,490,029

5,235,719,881 5,235,719,881 Total

When this journal is posted to the year 2003 ledgers, the year 2003 opening balance sheet will be a replica of the closing balance sheet for the year 2002.

25 Finalising the Income and Expenditure Accounts The process of finalising the Income and Expenditure Account is the process of ensuring that:

a) Bookkeeping errors if any, have been corrected

b) Accruals are accounted for

c) Provisions are made

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d) Control accounts are cleared and

e) Recharges are made

f) Departmental summaries are created and

g) Fund summaries are made

The process is described in the rest of this section. The steps that are described below relate to each council section, which is then summarised to each department, to the fund and finally to a grand summary. The examples given in the explanations that follow are given at departmental level in order to simplify the process. What is described below should be done at the section level before the summarisation to departments, funds and the grand summary is attempted. The procedures at each section are exactly as described below even though the examples given refer to departments.

25.1 Correction of Posting Errors During the year various errors of posting and coding are committed. Normally these should be corrected during the year, however sometimes they are not. When these are noticed, they should be corrected. Such errors might be:

Debiting employee costs to wrong departments

Debiting expenditure to wrong accounts

Crediting income to wrong accounts

Spotting these errors is easier done as they happen. However even at closing it is possible to spot some errors analysing the underlying data for any accounting entry that appears illogical. Among the obvious signs for investigation are:

• A credit balance on an expenditure code or account head

• A debit balance on an income code

• Excessive variances between budget and actual

• Incidents booked to non existent codes or accounting headings

• Major deviations between control data and actual (for instance if council has 100 houses rented at K 10000 each per month, then income that deviates materially from the expected K 1 million per month or K 12 million per year, needs to be investigated)

Some of these errors are deliberate such as the unauthorised writing off of debtors’ balances and can be spotted with little forensic effort.

25.2 Accounting for Accruals If the bookkeeping and accounting has been maintained correctly during the year, as recommended in this manual, this is not an issue as the accruals would already have been accounted for. Usually, however, this is not the case.


25.2.1 Accrued Income Accrued Income does not raise many difficulties for closing as on raising the bills, the income account would have been credited and the debtors control accounts would have been debited. On payment, or part payment by debtors, the amount so paid is debited to the cash account and credited to the debtors control account. The balance on this control account is therefore the debtors balance carried forward. Figure 64: Journal in respect of income On raising the rate bills

Description Account (or Code) Debit CreditBeing rate debits raised for the year 01 Rates debtors Control Account 2,900,450,000 Being rate debits raised for the year 01 Rates Income Account 2,900,450,000

In respect of cash receipt from rate payersDescription Account (or Code) Debit Credit

Being cash received from rate payers Cash Control Account 2,175,337,500 Being cash received from rate payers Rates debtors Control Account 2,175,337,500 In the above example, the accrued income is K2.9 billion against cash receipts of K2.17 billion (a 75% collection efficiency), leaving a debtors balance of 0.73 billion.

25.2.2 Accrued Expenditure Accrued expenditure, when the accrual system is improperly maintained normally needs some attention. In most accounting systems in local government this is done by running parallel books of accounts at the beginning of the year as follows:

a) One to record the new year transactions and

b) The second set to record previous years transactions being liquidated in the new year, as if there were a thirteenth or even a fourteenth month to the previous year. In the computerised systems of the major cities, the monthly tabulations were named after the month to which they related. In Lusaka the main tabulation, ledger, called the Comprehensive Tabulation would have after the December tabulation an XA, XB, XC tabulation and so on until the accounts are finally closed.

Expenditure which is paid in the earlier part of the year relating to obligations relating to the previous year together with any other major obligations that may not have been liquidated in the previous year are booked to the previous year in this manner. This means that as the debts are liquidated in the subsequent year, the revenue account expenditure code for the previous year is debited and yet, the cash for the subsequent year is credited (because the cash went out in the subsequent year). This is dealt with by the interposition of the Creditors Control Account as is shown in the example below:

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Figure 65: Accruing for expenditure

On accruing expenditure for year 00 liquidated in the year 01 done in XA or XB tab explained aboveDescription Account (or Code) Debit Credit

Being supplies and services for year 00 paid in year 01

Supplies and Services (year 00) 234,556,705

Being supplies and services for year 00 paid in year 01 Creditors Control Account 234,556,705

When part payment is made in year 01 Description Account (or Code) Debit Credit

Being payment for for year 00 Supplies and sevices Creditors Control Account 175,917,529 Being payment for for year 00 Supplies and sevices Cash (year 01) 175,917,529

25.3 Creating Provisions In the process of closing the accounts, some provisions, such as Provisions for Bad and Doubtful Debts are made. See 21.3.3.1 Bad Debt Provisions on page 110 for details regarding how this is done.

25.4 Clearing the Control Accounts Control accounts are temporary devices for tracking events during the year. The debtors control account, for instance, tracks the debtors position, while motor vehicle running expense accounts track the expenditure of each individual vehicle. At the end of the year these are transferred to their appropriate operating account or balance sheet account as the case may be. Again in automated systems this may be automatically done thereby obviating the need for the control accounts.

25.5 Recharges Various recharges are necessary to arrive at the cost of the council’s provision of specific services, such as roads and street lighting, to its residents. This is one of the major objectives of financial management in councils. The issue of recharges arises because while councils’ major objectives are to provide services to their residents, councils themselves need, in order to manage the delivery of these services, to be serviced.

The Director of Works provides engineering and administrative expertise to the units providing roads and streetlights. The Treasurer provides financial management services, while the Principal Officer provides coordination and legal/secretarial expertise. To arrive at the cost of providing roads and street lights, for instance therefore, the cost of the time and skills of the Director of Works, The Treasurer and the Principal Officer in creating the environment for the service delivery units to operate, needs to be allocated to those units. This is the essence of recharges, to arrive at the full cost of delivering services to the residents

There are various common recharges. Among these are the ones described below:

25.5.1 Civic Centre Recharge In most councils, various departments are housed in the Civic Centre. The cost of operating the Civic Centre, Salaries and Wages for the cleaners and security

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personnel, electricity, water, rates, telephones etc, are normally captured under the Civic Centre heading. To arrive at the full cost of operating the departments that are housed at the civic centre, the cost of operating the civic centre must be recharged on some basis, in this case maybe floor area occupied, to the occupant departments.

The Revenue Account for Year 2003 of Kasempa City Council before the Civic Centre recharge might appear as follows: Figure 66: Revenue Account before recharges

Housing Fund

Commercial Fund

Water Fund

Civic Centereouncil Secreta Finance Works Housing Commercial WaterExpenditureEmployees 20,000,000 200,000,000 350,000,000 750,000,000 250,000,000 7,500,000 56,708,750 Premises 75,000,000 250,000 150,000 25,000,000 350,000,000 25,000,000 8,873,540 Supplies and services 250,000 650,000,000 350,000,000 1,750,225,173 6,753,219 1,758,530,000 850,000,009 Transport and Plant 150,000 75,000,000 45,000,000 250,000,000 383,877 53,535,000 76,235,300 Establishment 200,000 1,500,000 2,500,000 7,407,733 536,380 7,654,000 4,359,900 RechargesMiscellaneous 20,000 7,903 3,456 7,893 726,224 735,452 987,543 Debt Charges 4,500,000 340,500 456,500 75,567,001 200,000 45,000,500

Total Expenditure 100,120,000 927,098,403 748,109,956 2,858,207,800 608,599,700 1,852,954,452 1,042,165,542

IncomeGovernment Grants 45,033,333 250,000,000 Rates 2,900,450,000 Levies 5,600,000 966,816,667 Rent Housing 755,008,000 Rent - Other Civic Bu 25,000,000 Water 1,242,165,575 Commercial Undertakings 2,456,745,007 Recharges

Total Income 25,000,000 5,600,000 3,912,300,000 250,000,000 755,008,000 2,456,745,007 1,242,165,575

Surplus (Deficit) (75,120,000) (921,498,403) (2,608,207,800)3,164,190,044 146,408,300 603,790,555 200,000,033

General Rate Fund / District Fund

If, after taking into account the space occupied by outsiders, like ZANACO at Lusaka City Council for instance, the remaining space is occupied as follows: Figure 67: Space Occupied

Council Secretary 20%Finance 15%Works 25%Housing 19%Commercial 21%Then the recharge of the cost of the civic centre would be as follows: Figure68: Recharges calculations

Department Space Occupied Recharge

Council Secretary 20% 15,024,000Finance 15% 11,268,000Works 25% 18,780,000Housing 19% 14,272,800Commercial 21% 15,775,200

Total Recharge 75,120,000

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The journal would then be as follows: Figure 69: Civic Centre recharge

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Department Debit Credit Description Council Secretary 15,024,000 Being Civic Centre Recharge

Being Civic Centre Recharge Finance 11,268,000 Being Civic Centre Recharge Works 18,780,000 Being Civic Centre Recharge Housing 14,272,800 Being Civic Centre Recharge Commercial 15,775,200

Civic Centre 75,120,000Being Civic Centre Recharge 75,120,000 75,120,000Total

After the Civic Centre Recharge the Revenue Account would look as shown in the example below. Figure 70: Revenue Account – After civic centre recharge

Housing Fund Commercial Fund Water Fund

Civic CentreCouncil

Secretary Finance Works Housing Commercial Water

ExpenditureEmployees 20,000,000 200,000,000 350,000,000 750,000,000 250,000,000 7,500,000 56,708,750 Premises 75,000,000 250,000 150,000 25,000,000 350,000,000 25,000,000 8,873,540 Supplies and services 250,000 650,000,000 350,000,000 1,750,225,173 6,753,219 1,758,530,000 850,000,009 Transport and Plant 150,000 75,000,000 45,000,000 250,000,000 383,877 53,535,000 76,235,300 Establishment 200,000 1,500,000 2,500,000 7,407,733 536,380 7,654,000 4,359,900 Recharges - 15,024,000 11,268,000 18,780,000 14,272,800 15,775,200 - Miscellaneous 20,000 7,903 3,456 7,893 726,224 735,452 987,543 Debt Charges 4,500,000 340,500 456,500 75,567,001 200,000 - 45,000,500 Total Expenditure 100,120,000 942,122,403 759,377,956 2,876,987,800 622,872,500 1,868,729,652 1,042,165,542

IncomeGovernment Grants - - 45,033,333 250,000,000 - - - Rates - - 2,900,450,000 - - - - Levies - 5,600,000 966,816,667 - - - - Rent Housing - - - - 755,008,000 - - Rent - Other Civic Buildings 25,000,000 - - - - - - Water - - - - - - 1,242,165,575 Commercial Undertakings - - - - - 2,456,745,007 - Recharges 75,120,000 Total Income 100,120,000 5,600,000 3,912,300,000 250,000,000 755,008,000 2,456,745,007 1,242,165,575

Surplus (Deficit) 0 -936,522,403 3,152,922,044 -2,626,987,800 132,135,500 588,015,355 200,000,033


25.5.2 Departmental Recharges

Within departments, such as the Engineering or Works Departments, there are sections, like Street Lighting or Roads, that are supervised and serviced by the Engineers based at the Department headquarters. The cost of this supervision is recharged as Departmental Recharge to the sections so supervised. This is allocated on an estimated time basis.

25.5.3 Central Administration Recharge There are some departments, called Central Administration Departments, like Town Clerks, Finance and Legal whose primary function is to service the departments, sometimes called Operating Departments, that provide service to the public. In order to arrive at the cost of providing that service, the cost of these central administration departments are recharged as Central Administration Recharge. Again this is normally


based on the estimated time spent by the Central Administration Departments attending to the work of the Operating Departments.

In theory the time spent by the finance department on the Council Secretary’s department should be recharged to the Council Secretary’s Department. However, using the same theory, the time spent by the Council Secretary’s Department on Finance Department should be recharge to the Finance Department. This creates a cyclic relationship as it will not be possible to recharge the Finance Department to the Council Secretary’s Department until the full cost of operating the Finance Department is known. But the full cost of operating the Finance Department will not be known until the Cost of the Council Secretary’s recharge is made.

In practice this is resolved in one of two ways as follows:

a) One of the recharges, say the Finance Recharge is considered the primary recharge and is recharged to the other departments including the Council Secretary’s Department. Then having established the full cost of the Council Secretary’s Department, this is now recharged to all the other departments other than the Finance Department which is fully recharged already or

b) Both Central Departments are recharged to the operating departments in full without recharging to each other.

If in the example in Figure 70: Revenue Account – After civic centre recharge one third of the cost of operating the finance department is in respect of the Revenue Section responsible for all that general income, then the remaining two thirds must relate to servicing the other departments. This is then recharged to the other departments. Using the second recharge option, the recommended option, if the time allocation between the departments were given, as in the table below, then a recharge matrix could be constructed as follows: Figure 71: Central Administration Recharge - Basis

Council Secretary Finance

Works 50% 25%Housing 23% 20%Commercial 20% 40%Water 7% 15%

Amount to recharge 936,522,403 506,251,971

Central Administration

Ope

ratin

g

Then the actual recharge would be as follows: Figure 72: Central Administration recharge - journal

Journal for Central Administration RechargeDescription Account (or Code) Debit Credit

Being Central Adminstration Recharge Works 594,824,194 Being Central Adminstration Recharge Housing 316,650,547 Being Central Adminstration Recharge Commercial 389,805,269 Being Central Adminstration Recharge Water 141,494,364 Being Central Adminstration Recharge Finance 506,251,971 Being Central Adminstration Recharge Council Secretary 936,522,403

1,442,774,374 1,442,774,374

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The Income and Expenditure Account after this recharge would be as shown in the example below. Figure 73: Revenue Account – After Central administration recharge

Housing Fund Commercial Fund Water Fund

Civic CentreCouncil

Secretary Finance Works Housing Commercial Water

ExpenditureEmployees 20,000,000 200,000,000 350,000,000 750,000,000 250,000,000 7,500,000 56,708,750 Premises 75,000,000 250,000 150,000 25,000,000 350,000,000 25,000,000 8,873,540 Supplies and services 250,000 650,000,000 350,000,000 1,750,225,173 6,753,219 1,758,530,000 850,000,009 Transport and Plant 150,000 75,000,000 45,000,000 250,000,000 383,877 53,535,000 76,235,300 Establishment 200,000 1,500,000 2,500,000 7,407,733 536,380 7,654,000 4,359,900 Recharges - 15,024,000 11,268,000 613,604,194 330,923,347 405,580,469 141,494,364 Miscellaneous 20,000 7,903 3,456 7,893 726,224 735,452 987,543 Debt Charges 4,500,000 340,500 456,500 75,567,001 200,000 - 45,000,500

Total Expenditure 100,120,000 942,122,403 759,377,956 3,471,811,994 939,523,047 2,258,534,921 1,183,659,906 - - - - - - -

Income - - - - - - - Government Grants - - 45,033,333 250,000,000 - - - Rates - - 2,900,450,000 - - - - Levies - 5,600,000 966,816,667 - - - - Rent Housing - - - - 755,008,000 - - Rent - Other Civic Buildings 25,000,000 - - - - - - Water - - - - - - 1,242,165,575 Commercial Undertakings - - - - - 2,456,745,007 - Recharges 75,120,000 936,522,403 506,251,971 - - - -

Total Income 100,120,000 942,122,403 4,418,551,971 250,000,000 755,008,000 2,456,745,007 1,242,165,575

Surplus (Deficit) 0 0 3,659,174,015 -3,221,811,994 -184,515,047 198,210,086 58,505,669


At this stage fund summaries are created. This is explained below:

25.6 Funds The term fund relates to a collection of activities generally funded from the same source. An illustration of the revenue accounts by fund and as consolidated into a Grand Summary is shown below:

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Figure 74: Fund Summary before recharges

Grand Summary GRF Housing FundCommercial

Fund Water Fund

ExpenditureEmployees 1,634,208,750 1,320,000,000 250,000,000 7,500,000 56,708,750 Premises 484,273,540 100,400,000 350,000,000 25,000,000 8,873,540 Supplies and services 5,365,758,401 2,750,475,173 6,753,219 1,758,530,000 850,000,009 Transport and Plant 500,304,177 370,150,000 383,877 53,535,000 76,235,300 Establishment 24,158,013 11,607,733 536,380 7,654,000 4,359,900 Recharges - - - - - Miscellaneous 2,488,471 39,252 726,224 735,452 987,543 Debt Charges 126,064,501 80,864,001 200,000 - 45,000,500

Total Expenditure 8,137,255,853 4,633,536,159 608,599,700 1,852,954,452 1,042,165,542

IncomeGovernment Grants 295,033,333 295,033,333 - - - Rates 2,900,450,000 2,900,450,000 - - - Levies 972,416,667 972,416,667 - - - Rent Housing 755,008,000 - 755,008,000 - - Rent - Other Civic Buildings 25,000,000 25,000,000 - - - Water 1,242,165,575 - - - 1,242,165,575 Commercial Undertakings 2,456,745,007 - - 2,456,745,007 - Recharges - - - - -

Total Income 8,646,818,582 4,192,900,000 755,008,000 2,456,745,007 1,242,165,575

Surplus (Deficit) 509,562,729 (440,636,159) 146,408,300 603,790,555 200,000,033 Figure 75: Fund Summary after recharges

Grand Summary GRF Housing FundCommercial

Fund Water Fund

ExpenditureEmployees 1,634,208,750 1,320,000,000 250,000,000 7,500,000 56,708,750 Premises 484,273,540 100,400,000 350,000,000 25,000,000 8,873,540 Supplies and services 5,365,758,401 2,750,475,173 6,753,219 1,758,530,000 850,000,009 Transport and Plant 500,304,177 370,150,000 383,877 53,535,000 76,235,300 Establishment 24,158,013 11,607,733 536,380 7,654,000 4,359,900 Recharges 1,517,894,374 639,896,194 330,923,347 405,580,469 141,494,364 Miscellaneous 2,488,471 39,252 726,224 735,452 987,543 Debt Charges 126,064,501 80,864,001 200,000 - 45,000,500

Total Expenditure 9,655,150,227 5,273,432,353 939,523,047 2,258,534,921 1,183,659,906

IncomeGovernment Grants 295,033,333 295,033,333 - - - Rates 2,900,450,000 2,900,450,000 - - - Levies 972,416,667 972,416,667 - - - Rent Housing 755,008,000 - 755,008,000 - - Rent - Other Civic Buildings 25,000,000 25,000,000 - - - Water 1,242,165,575 - - - 1,242,165,575 Commercial Undertakings 2,456,745,007 - - 2,456,745,007 - Recharges 1,517,894,374 1,517,894,374 - - -

Total Income 10,164,712,956 5,710,794,374 755,008,000 2,456,745,007 1,242,165,575

Surplus (Deficit) 509,562,729 437,362,021 (184,515,047) 198,210,086 58,505,669 After recharges are allocated, it is clear that the cost of providing certain services, such as commercial were understated initially, because there was no full cost allocation. If the major thrust of public finance is to optimise the cost of service delivery, then knowing the true cost of service delivery should be of paramount importance to public finance practitioners.

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In the recent past the practice of recharges has been discouraged while the concept of activity based budgeting has been encouraged. But as activity based budgeting involves the identification of the actual cost of undertaking the delivery of council services, activity based budgeting cannot be fully implemented without taking into account recharges. For the purpose of undertaking activity based budgeting, the process recharges for the purpose of establishing the cost of providing these activities is indispensable.

25.7 Grand Summary The Grand Summary is a one-page summary of the council’s financial activities. Traditionally, this has been presented in the format shown below: Figure 76: Grand Summary – Traditional format

Expenditure Income Surplus (Deficit)

GRF 5,273,432,353 5,710,794,374 437,362,021Housing Fund 939,523,047 755,008,000 (184,515,047)Commercial Fund 2,258,534,921 2,456,745,007 198,210,086Water Fund 1,183,659,906 1,242,165,575 58,505,669

Total 9,655,150,227 10,164,712,956 509,562,729 It is probably more informative to present the summary in the manner indicated in the first column of Figure 75: Fund Summary after recharges above.

25.8 The Trial Balance At this stage it should be possible to prepare a trial balance for the activities of the year. This would appear as follows: Figure 77: Trial Balance After Recharges

Folio Description Debit CreditEmployees 1,634,208,750 Premises 484,273,540 Supplies and services 5,365,758,401 Transport and Plant 500,304,177 Establishment 24,158,013 Recharges 1,517,894,374 Miscellaneous 2,488,471 Debt Charges 126,064,501 Government Grants 295,033,333 Rates 2,900,450,000 Levies 972,416,667 Rent Housing 755,008,000 Rent - Other Civic Buildings 25,000,000 Water 1,242,165,575 Commercial Undertakings 2,456,745,007 Recharges 1,517,894,374 Increase in net current assets* 509,562,729

10,164,712,956 10,164,712,956 Note: The increase in current assets arises because for all expenditure, net current assets decrease either by way of cash going out or by way of creditors increasing, while for every income, net current assets increase either by way of cash coming in or by debtors going up. In this case since we have a surplus, the net current assets increase.

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The principles involved in finalising the accounts hold true whether in a manual or computer based system. The names of the various reports may sound somewhat different but the purpose is exactly the same.

25.9 Transferring Revenue Account Balances to the Balance Sheet After finalising the revenue accounts, the surpluses and deficits are transferred to their respective balance sheet account headings or codes. This is done by a journal as follows: Figure 78: Journal for the transfer of revenue balances to balance sheet

Debit Credit437,362,021

437,362,021184,515,047

184,515,047198,210,086

198,210,08658,505,669

58,505,669878,592,823 878,592,823

Water Fund Surplus Debit Revenue AccountWater Fund Surplus Credit Balance Sheet Revenue Account Surpluses

Transfer of Revenue Account Balances to Balance SheetGRF Surplus Debit Revene AccountGRF Surplus Credit Balance Sheet Reveenue AccountSurplusesHousing Deficit Credit Revenu AccountHousing Deficit Debit Balance Sheet Revenue Account DeficitsCommercial Fund Surpluses Debit Revenue AccountCommercial Surpluses Credit Balance Sheet Revenue Account Surpluses

25.10 Balancing the Balance Sheet The effect of these transfers on the balance sheet would be as follows: Figure79: Effect of items transferred to balance sheet

Debit Credit0 437,362,021

184,515,047 00 198,210,0860 58,505,669

184,515,047 694,077,776509,562,729

Water Fund Surplus Credit Balance Sheet Revenue Account Surpluses

Housing Deficit Debit Balance Sheet Revenue Account DeficitsCommercial Surpluses Credit Balance Sheet Revenue Account Surpluses

Difference

Effect on Balance SheetGRF Surplus Credit Balance Sheet Reveenue AccountSurpluses

Since the opening balance sheet was balanced, transferring unbalanced items will obviously unbalance the balance sheet. However, the difference looks suspiciously like the grand summary surplus. As this surplus would have been represented by net increase in current assets, the following changes would all represent an increase in current assets:

a) Increase in cash, bank balances stocks or debtors.

b) Decrease in sundry creditors, loan charges due but not paid or unremitted to ZRA / LASF / NAPSA dues.

Assuming that the sundry creditors (Current Liabilities) went down by the debit of 175,917,529 arising from the journal entry made under Figure 65: Accruing for expenditure on page 127, then it would be logical to assume that the other transactions that would have unbalanced the balance sheet would have been an increase in Current Assets (Cash, Debtors or stocks). The net effect would as shown below:

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Figure 80: Movement in Net Current Assets

175,917,529 333,645,200 509,562,729

Decrease in current liabilitiesIncrease in current assets

The two unbalanced items balance each other out and therefore the closing balance sheet, which is made up of the opening balance sheet plus the effect on the balance sheet of the transactions for the year, which are also balanced as follows: Figure 81: Final Effect on the balance sheet

Debit Credit- 437,362,021

184,515,047 - - 198,210,086 - 58,505,669

175,917,529 333,645,200 694,077,776 694,077,776

Commercial Surpluses Credit Balance Sheet Revenue Account SurplusesWater Fund Surplus Credit Balance Sheet Revenue Account SurplusesDecrease in current liabilitiesIncrease in current assets

Effect on Balance SheetGRF Surplus Credit Balance Sheet Reveenue AccountSurplusesHousing Deficit Debit Balance Sheet Revenue Account Deficits

The balance sheet should therefore also balance. This is shown below: Figure 82: Closing Balance Sheet

Surplus Deficit Current AssetsLiabilities and SurplusesLong-term Liabilities 1,925,025,558 1,925,025,558 Current Liabilities 83,255,130 175,917,529- 92,662,399- Provisions and Funds 726,023,142 726,023,142 Capital Discharged 1,842,475,192 1,842,475,192 Revenue Fund Surpluses 658,940,859 694,077,776 1,353,018,635

Total Liabilities and Surpluses 5,235,719,881 694,077,776 - 175,917,529- 5,753,880,128 -

Assets and Deficits - Capital Outlay 3,767,500,750 3,767,500,750 Investments 54,567,210 54,567,210 Current Assets 1,336,094,392 333,645,200 1,669,739,592 Revenue Fund Deficits 77,557,529 184,515,047 262,072,576

Total Assets and Deficits 5,235,719,881 - 184,515,047 333,645,200 5,753,880,128

Balance Sheet as at 1/1/03

Blance Sheet As At 31/12/03

Year 2003 Effect

25.11 Fund Balance Sheets Normally individual balance sheets are kept for each fund. The examples given above would apply to each balance sheet individually. Each balance sheet would then be balanced before summarising them to the Consolidated Balance Sheet.

25.12 Consolidated Balance Sheet The consolidated balance sheet is the summary balance sheet of all the different fund balance sheets.

25.13 The Annual Financial Statements The annual financial statements, or final accounts, for an accrual based accounting system would then appear as shown in Appendix 11: Abstract of Accounts starting on page 176.

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25.14 Development Fund The treatment of the development fund or commercial undertakings in the council accounts depend to a large extent on their legal status. Where the commercial entities are sections or departments of council, the foregoing procedures apply and the entity accounts are incorporated in the council accounts as indicated in this manual so far. The entities activities will be presented in the balance sheet as shown in the shaded area in the figure below: Figure 83: Development Fund in the Balance Sheet

Consolidated GRF Housing Commercial Water

Liabilities and SurplusesLong-term Liabilities 1,925,025,558 1,250,000,000 125,000,543 - 550,025,015 Current Liabilities 83,255,130 20,000,000 25,000,000 25,754,674 12,500,456 Provisions and Funds 726,023,142 199,899,850 449,389,067 200,000 76,534,225 Capital Discharged 1,842,475,192 1,500,000,000 324,999,457 10,000,000 7,475,735 Revenue Fund Surpluses 658,940,859 550,300,950 65,402,541 43,237,368

Total Liabilities and Surpluses 5,235,719,881 3,520,200,800 924,389,067 101,357,215 689,772,799 -

Assets and Deficits - Capital Outlay 3,767,500,750 2,750,000,000 450,000,000 10,000,000 557,500,750 Investments 54,567,210 20,000,000 - 34,567,210 - Current Assets 1,336,094,392 750,200,800 454,321,567 56,790,005 74,782,020 Revenue Fund Deficits 77,557,529 - 20,067,500 - 57,490,029

Total Assets and Deficits 5,235,719,881 3,520,200,800 924,389,067 101,357,215 689,772,799

Funds

Where the entities are separate legal such as a limited liability company, then the accounts of the entity will be prepared separately on a commercial basis. Commercial accounting is not the subject of this manual. However the council’s interest in the commercial undertaking will be represented the value of the investment held, on the asset side of the balance sheet and dividend received from the profits of the undertaking in the revenue accounts of the council.

25.15 External Audit The Minister appoints an external auditor to audit the final accounts and to verify whether in effect they represent a true and fair vie of the financial affairs of the council.

26 Other Reports A council primary objective is to provide or facilitate the provision of services. While the Annual Financial Statements give an abstract of the financial transactions during the year under review and the state of affairs at the end of that year, other reports should be produced which supplement the financial statements. These reports will normally have some highly summarised financial information based on the annual financial statements in addition to a description of the physical work actually performed. Some of these reports are described below:

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26.1 Annual Reports Annual reports summarise both the financial as well as the physical activities of councils during the year under review. An outline of the relationship between the financial statements and the annual reports is given in Figure 84: Reporting Linkages below.

The Annual Report reviews the councils activities relative to the AWPB prepared before the beginning of the year. It is therefore necessary that the Annual Report should address the specific targets set for the year in the AWPB.

In the sense that the AWPB, is a product of a multi year strategic plan, the annual report will need to address the performance of the council within the context of the multi year strategic plan. The report will therefore usually have a multi year approach giving information, statistics and trends relating to more than the financial year reported in the financial statement and to actual activities especially the Key Performance Indicators (KPIs) such as for instance per capita water produced for the residents, or per capita general rate fund expenditures. Thus information like the population and population growth rates for the jurisdictions being serviced become a key component of the annual report.


Figure 84: Reporting Linkages

A classic example still available is the Ndola City Council1968 Finance report which has massive amounts of financial and none financial data such data as:

a) cost of municipal services to ratepayers

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b) General Rate Fund Expenditure and Income 1959 – 1968 in graphs

c) Monthly cost of cost of local government services to typical households in high cost housing areas

d) Monthly cost of services to tenants of low cost houses

e) Council employment data by gender

f) Volume of water sold 1958 – 1968

g) Total debt per head of population (K113.83!)

At that time they did not even have the computing power that is now generally available for statistical analysis. Some key aspects of such a report would in addition to the above information also cover the issues discussed below:

26.1.1 Trend Analysis Council activity does not happen in a vacuum. Analysis of trends such as population and employment trends, inflation rates are essential. This provides a major input into the strategic planning process.

26.1.2 Benchmarking This involves the comparison of the levels and costs of service delivery to some norm. The work currently being undertaken in Southern and Central provinces, even though they cover only internal procedures and do not specifically cover service delivery, are steps in the right direction..

26.1.3 Key Performance Indicators The achievement or none achievement of Key Performance indicators as outlined in the various strategic plans.

26.1.4 Economic Profile

Councils must keep track of the changing economic profiles in their jurisdictions in order to be able to contribute effectively to Local Economic Development (LED) initiatives.

27 Miscellaneous Activities This section briefly discusses other issues that have financial implication and are key to the performance of the finance management function in councils but which have not been specifically covered in the preceding parts of the manual.

27.1 Handing over Correct handover and takeover of different financial offices is a key issue of financial management as due various financial discrepancies can be taken over or handed over if inappropriate methods are used. Sections 121 to 124 of the Financial Regulations covers this aspect in some detail and is a must read for financial officers who do not wish to be encumbered with pre-existing discrepancies.


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27.2 Discipline General personal discipline is a key component of the finance officers’ behaviour as inappropriate behaviour even outside the office can have negative implications on the officers’ capacity to operate efficiently. The list of inappropriate behaviour ranges from being grossly in debt to bouncing cheques to awarding contracts in ways that are contrary to the laid down regulations.

Needles to say in order to ensure proper conduct at all times the finance officer must be conversant with all the rule and regulations that apply to their office. Lack of this kind of knowledge can easily lead to situations where, for instance, open cheques for K 2 billion are drawn and cashed over the counter, without the responsible officer pointing out the irregularity of such action.

27.3 Surcharges The financial regulations provide for various penalties and surcharges for conduct out of the prescribed form. It would be in any finance officer general interest to be acquainted with these regulations to avoid suffering undesirable consequences.


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28 Implications for a Computerised System Given the standard structure of councils as outlined in Figure 19: Council Budget Structure on page 36, and the CIPFA accounting structure as indicated in Appendix 4: Proposed Chart of Accounts on page 158, the financial information system that council uses must be capable of summarising and expanding information both horizontally and vertically and also for drilling down from a global picture to an individual transaction. This is much easier done on a computer based system but the system must have a coding structure that can support these facilities. Such a coding system is proposed at the end of this section but before that a description of what the system must facilitate will help to highlight the merits of the proposed coding structure.

28.1 Capacity and Facilities The system must be able to summarise the council financial information to one page as follows: Figure 85: Summarised Council Information

Council Accounts Expenditure Employees 1,634,208,750 Premises 484,273,540 Supplies and services 5,365,758,401 Transport and Plant 500,304,177 Establishment 24,158,013 Recharges 1,517,894,374 Miscellaneous 2,488,471 Debt Charges 126,064,501

Total Expenditure 9,655,150,227 - Income - Government Grants 295,033,333 Rates 2,900,450,000 Levies 972,416,667 Rent Housing 755,008,000 Rent - Other Civic Buildings 25,000,000 Water 1,242,165,575 Commercial Undertakings 2,456,745,007 Recharges 1,517,894,374

Total Income 10,164,712,956 -

Surplus (Deficit) 509,562,729

28.1.1 Horizontal Expansion The system should then also be able to expand the above information horizontally as follows in order to show the allocation of the summarised statistics to each council department and section as shown below:


Figure 86: Horizontally Expanded Information

Housing FundCommercial

Fund Water Fund

Civic Centre Council Secretary Finance Works Housing Commercial Water

ExpenditureEmployees 20,000,000 200,000,000 350,000,000 750,000,000 250,000,000 7,500,000 56,708,750 Premises 75,000,000 250,000 150,000 25,000,000 350,000,000 25,000,000 8,873,540 Supplies and services 250,000 650,000,000 350,000,000 1,750,225,173 6,753,219 1,758,530,000 850,000,009 Transport and Plant 150,000 75,000,000 45,000,000 250,000,000 383,877 53,535,000 76,235,300 Establishment 200,000 1,500,000 2,500,000 7,407,733 536,380 7,654,000 4,359,900 Recharges - 15,024,000 11,268,000 613,604,194 330,923,347 405,580,469 141,494,364 Miscellaneous 20,000 7,903 3,456 7,893 726,224 735,452 987,543 Debt Charges 4,500,000 340,500 456,500 75,567,001 200,000 - 45,000,500

Total Expenditure 100,120,000 942,122,403 759,377,956 3,471,811,994 939,523,047 2,258,534,921 1,183,659,906 - - - - - - -

Income - - - - - - - Government Grants - - 45,033,333 250,000,000 - - - Rates - - 2,900,450,000 - - - - Levies - 5,600,000 966,816,667 - - - - Rent Housing - - - - 755,008,000 - - Rent - Other Civic Buildings 25,000,000 - - - - - - Water - - - - - - 1,242,165,575 Commercial Undertakings - - - - - 2,456,745,007 - Recharges 75,120,000 936,522,403 506,251,971 - - - -

Total Income 100,120,000 942,122,403 4,418,551,971 250,000,000 755,008,000 2,456,745,007 1,242,165,575

Surplus (Deficit) 3,659,174,015 -3,221,811,994 -184,515,047 198,210,086 58,505,669


In the quest to undertake proper activity based financial management, departments such as finance should be able to be broken down into sections such as computer section and revenue section so that the cost of providing these services can be isolated and properly recharged to their various users.

The Engineering or Works department will have even more sections. The coding structure must provide for this.

28.1.2 Vertical Expansion The system should also be capable of vertical expansion to show the details under each major heading as shown for the major heading ‘Employees’ below: Figure 87: Vertically Expanded Information

Salaries 326,841,750.00 Salaries Overtime 16,342,087.50 Wages 490,262,625.00 Wages Overtime 40,855,218.75 Pension Contributions / LASF / NAPSA 245,131,312.50 Personal Levy 99,686,733.75 Leave Benefits 163,420,875.00 Training Expenses 1,634,208.75 Appointment and recruitment Expenses - Gratuity 4,902,626.25 Other Staff Expenses 245,131,312.50

Total Employees 1,634,208,750.00

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28.1.3 Drill Down The system should also have the capacity for drilling down to the individual transactions that make up any of the summarised reports. For instance the training expenses could be drilled down to provide the following details: Figure 88: Drilled Down Data

Date Payee Chq No. Code Amount01/01/2003 NIPA 15 408,552.19 14/02/2003 UNZA 37 490,262.63 17/06/2003 CBU 48 163,420.88 29/09/2003 NCMDS 98 245,131.31 01/12/2003 Evelyn Hone 109 326,841.75

1,634,208.75

28.2 Proposed Coding Structure Lusaka, Kitwe, Ndola, Luanshya and Kabwe councils used to have coding structures that could accommodate the foregoing facilities. The code structure could be as follows:

Assuming that most councils would not have more than ten funds, currently only the District and Development funds seem to be common, the structure could have a one digit character to describe the fund. For instance:

0 = District Fund

1 = Development fund and so on.

Again on the assumption that none of these funds is likely to have more than ten departments, the second double digit code could represent the departments: For instance codes 00 to 09 could be the departments in the District fund and 10 to 19 could be departments in the Development fund.. Say :

00 Council Secretary

01 Works

02 Finance

03 Administration and so on

The main accounting headings such employees could be represented by a double digit code while the sub code could be a triple digit code below them.

Additional detail such as personal number or creditors and debtors control details could have the addition four digits. The outline would be as follows: Fund Dept Main Account

Head Sub Head Detail

0= (District Fund?)

00 = Council Secretary?

00 Employees 000Salaries 0000 Man number

The main code and sub codes in the CIPFA structure could then be as indicated in Appendix 17: Suggested Coding Structure on page 183.

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The full salary coding for Mr Chitembo of the finance department for instance whose personal number used to be 1725, and for electricity bills for the civic centre would then be as follows:

Fund Dept Main Account

Head Sub Head Detail

0= (District Fund? 02 = Finance 00=Employees 000 =Salaries 1725 Man number

0= (District Fund? 09 = Civic Centre 01 Premises 103 Electricity Xxxx Zesco’s Creditors control code

As however councils do not have exactly the same funds, departments and sections each, it is unlikely that they could all have a uniform coding structure in that regard. However as the accounting heads are standard, councils could, with the assistance of the Finance Committee of the Local Government Association have standard coding for these. Such a system would make the aggregation of public expenditure across councils extremely easy.

FFiinnaanncciiaall aanndd AAccccoouunnttiinngg PPrroocceedduurreess ffoorr LLooccaall AAuutthhoorriittiieess iinn ZZaammbbiiaa.. Appendices

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Appendix 1: Glossary of Terms:

Term Description

Accounting The process of keeping track of money, both income (receivable and received) and expenditure (payable and paid).

Accrual Accounting Accounting system in which rights and obligations are accounted for at the time they arise rather than at the time they are liquidated.

Accumulated Surplus

(deficit)

The total financial surplus (deficit) accumulated since the

Local Authority began operations, usually recorded by fund.

Activity Based Budgeting A budgeting process where the full cost of service delivery is fully recognised and charged to the service. In council this is done through recharges.

Alienation The process of writing off capital assets from the councils’ balance sheet.

Annual Work Plan A schedule of activities to be undertaken in any civic year in the delivery of services as prioritised in the council’s strategic plan.

Assets Property belonging to the council.

Audit Inspection of accounts and testing of internal control systems. Can be internal or external audit

Bank Reconciliation The process of agreeing the balances of the cashbook as kept by the council and the bank statement as produced by the bank

Budget Financial plan

Budget Rigidities Pre-existing commitments that have budget implications.

Business Plan Descriptive report of the councils objectives, how they are to be achieved through action plans that show target dates, resources required, people responsible and how success will be measured.

Capital Assets Resources whose use exceed a year, such as vehicles, bridges and buildings Also referred to as Capital Outlay.

Capital Budget Budget for capital assets

Capital Discharged The amount representing the funding of capital outlay on which there is no continuing outside indebtedness

Capital Discharged – Capital Receipts Applied

The amount representing capital outlay which was funded by capital receipts from the sale of council assets – see also Capital Discharged - Capital Receipts Unapplied


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Term Description

Capital Discharged - Capital Receipts Unapplied

The amount representing receipts from the sale of council capital assets which have not yet been utilised to acquire other capital assets. See also Capital Discharged – Capital Receipts Applied

Capital Discharged – Loans Redeemed

The amount representing the portion of loan repaid for capital outlay which was initially funded by way of loan

Capital Expenditure Expenditure on capital assets

Capital Outlay Resources whose use exceed a year, such as vehicles, bridges and buildings Also referred to as Capital Assets

Control Account Control Accounts are a set of accounts which are kept in a summary form to track, and provide an overview of, the movement of various accounting entries in the course of the year. They provide a quick method of understanding the net effect of many transactions and provide a means for checking the validity of transactions.

Cross-subsidisation When one group of people (say Riverside Residents) pays more for the same service than another group.

Deficit Loss. When expenditure exceeds income

External Audit The compulsory audit of the annual financial statements by outside professionals appointed by the Minister. Section 52

Financial Management Described elsewhere in this paper

Financial Statements Final accounts for any particular year

Financial Year The period for which the financial statements are drawn up. In Zambia’s case the 12 months ending 31st December of any year. Section 38

Fixed Asset Same as capital asset

Folio Page number Fund The accounting grouping of activities funded from the same source.

The common ones are the General Rate Fund, the Water undertaking Fund and previously the Commercial Undertaking Fund and Low Cost Housing Fund.

Fungibility of Money The necessary quality that makes one specimen of money (say a K10 000 note) indistinguishable from another. This creates the problem that money budgeted or lent for one purpose can be used for a totally different purpose.


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Term Description General Rate Fund (GRF) or District Fund

The councils general fund which finances the provision of Public Goods and Services. Other funds include:

Housing Fund

Commercial Undertaking Fund

Liquor Undertaking Fund and

Water Undertaking Fund

Grant Money transferred to council from Central Government

Incremental Budgeting Making a budget by increasing what was provided or what was actually spent in the previous period.

Insolvent Unable to pay suppliers or staff

Key performance factors Statistics used to measure the performance of a department or service.

Liabilities An obligation on council to other legal entities.

Loan redemption fund A fund created by making annual contributions to repay a loan at some future date

Loan Sanction Approval and guarantee of a loan by government athorising a council to borrow for a specific purpose.

Long Term Outlay Expression used to refer to Capital Outlay, such as roads and bridges which are unlikely to be sold.

Management Accounts Monthly reports to councillors that compare budgeted income and expenditure against actual

Operating or Revenue Budget

The budget that deal with recurrent income or expenditure (as opposed to capital budget)

Other Long Term Outlay Expression used to refer to Capital Outlay, such as motor vehicles and equipment which could be sold.

Premium An expression used both for the description of the cost of servicing land for development and for the fee that the developer has to pay to council for acquiring rights to the serviced property. Also referred to as Service charges or Plot Premium

Programme Budgeting This involves budgeting for activities grouped by objective rather than by department (organisation structure).

Property Tax Taxes rose based on property value, rates.

Property Valuation The value of property entered in the council’s valuation roll

Rate Poundage The rate expressed as ngwee per Kwacha which is multiplied by the property value to calculate the property tax or rates payable

Rates Rebate Discount of rates for special categories of property owners


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Term Description

Real Rates of Interest Rates of interest charged or given by the bank relative to inflation

Recharges The costing practice of transferring expenditure initially incurred elsewhere, such as Civic Centre operating expenses, to the final users of the service, such as occupant departments of the Civic Centre on a prorata basis, depending, in this case, on floor area occupied.

Retention The amount, usually a percentage of the contract price, retained on the completion of a capital project to be paid to the contractor after a specified retention / maintenance period.

Revenue Synonymous to Recurrent or Operating income or expenditure

Revenue Contributions to Capital Outlay (RCCO)

The financing of capital purchases from recurrent expenditure.

Service Charges An expression used both for the description of the cost of servicing land for development and for the fee that the developer has to pay to council for acquiring rights to the serviced property. Also referred to as Premium or Plot Premium

Surplus Profit. The excess of income over expenditure

Tariff The price of council service

Virement A process for financing a specific budget item by using the unused budget provision of another.


Cap. 281 Local Government Act Appendix 2: Financial Provisions of the Local Government Act

PART VI

FINANCE

General

38. The financial year of a council shall be the period of twelve months ending on the 31st December in each year.

Financial year

39. (1) A council shall cause to be prepared and shall adopt estimates (to be called annual estimates) of revenues and expenditure of the council and shall, at least sixty days before the commencement of a financial year, submit such annual estimates for the approval of the Minister.

Estimates of revenues and expenditure

General and special funds

Arrangements for handling receipts and payments

(2) Where in any financial year it appears to a council that expenditure for a special purpose is desirable and that no provision or insufficient provision has been made for it in annual estimates for that year, the council may cause to be prepared and adopt supplementary estimates in respect thereof for the approval of the Minister.

(3) All annual and supplementary estimates of a council shall be prepared in such form and contain such information as may be prescribed by financial regulations.

(4) A council shall not incur any expenditure which is not included in the annual estimates of the council:

Provided that if the annual estimates of the council have not been approved by the Minister, the council may continue to incur expenditure on charges which become due in respect of inescapable commitments.

(5) The annual estimates of a council shall, at all reasonable times, be open to the inspection of any interested person.

40. (1) All receipts of a council shall be carried to a general fund and all liabilities falling to be discharged by the council shall be discharged out of that fund.

(2) A council may, in accordance with financial regulations, establish special funds as part of the general fund, and shall establish any such fund if required by or under financial regulations to do so.

41. Subject to the provisions of financial regulations, a council shall make safe and efficient arrangements for the receipt of moneys paid to it and the issue of moneys payable by it and those arrangements shall be carried out under the supervision of the treasurer of the council.

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Cap. 281 Local Government Act

42. (1) A council shall open and keep in its name a banking account and may, by resolution open and keep such additional banking accounts as may be necessary.

Banking accounts

(2) Save as otherwise provided by financial regulations, all receipts of a council shall be paid into the banking account or accounts kept by the council and all amounts payable by a council shall be paid there from.

(3) A cheque drawn upon any banking account kept by a council shall be signed by such officers of the council, not being less than two in number, as may be authorised in that behalf by resolution of the council.

(As amended by Act no. 19 of 1992)

43. (1) A council shall cause true accounts of its revenues and expenditure to be kept.

Accounts

(2) The accounts of a council, together with all books, deeds, contracts, vouchers, receipts and other documents relating thereto, shall at all reasonable times be open to the inspection of any councillor and of any interested person.

(3) The accounts of a council shall be made up and balanced for each financial year of the council and a summarised statement thereof certified under the hand of the treasurer of the council shall be presented to the council at a meeting to be held within six months after the end of the financial year of the council, or within such longer period as the Minister may determine.

44. A council may invest any moneys not required for immediate use in such securities as it may by resolution determine and may, as occasion requires, realise any investment so made:

Investments

Provided that no council resolution shall be required for any investment where maturity period shall not be more than ninety days from the date of investment.

45. (1) The Minister may, on such terms and conditions as he may determine, make constituency development grants or loans of money to a council for the purposes of the discharge by the council of any of its functions.

Government Grants and loans

(2) Any constituency development grant or loan made by the Minister under this section shall be paid out of moneys appropriated by Parliament for the purpose.

(.3) The Government shall make specific grants to the council concerned for—

(a) water and sanitation;

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(b) health services; (c) fire services;

(d) road services;

(e) police services;

(f) primary education;

(g) agricultural services;


46. The Minister shall, by statutory instrument, make regulations for the control and management of the finances of councils and in particular, for—

Financial regulations

(a) the keeping of the accounts of councils, including separate accounts of any undertaking or service established and maintained by the council, and the form of, and information to be included in, the account of councils and the summarised statements thereof;

(b) the payment of moneys into and from banking accounts;

(c) the form of, and information to be included in, the annual and supplementary estimates of councils;

(d) the establishment of special funds and the payment of moneys into and the withdrawal of moneys from such funds;

(e) the composition or remission of debts due to councils.


Borrowing

47. A council may, borrow such sums of money as may be required for the purpose of discharging its functions in all or any of the following ways:

Authority to borrow and modes of borrowing

(a) by loan under section forty-five;

(b) by the issue of stock or bonds;

(c) by mortgage;

(d) by temporary loan or overdraft from a bank or other source;

(e) by loan from any other source. Foreign borrowing prohibited

48. Notwithstanding the provisions of section forty-seven, no council shall borrow money or receive grant of money from a foreign government or foreign organisation.

49. (1) All moneys borrowed by a council shall be charged on the general fund of the council and all securities therefore shall rank equally without any priority.

Security for Borrowing and priority of securities

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(2) Nothing in this section shall affect any priority existing at, or

any right to priority conferred by a security created before, the commencement of this Act.

(3) The interests for the time being payable in respect of any moneys borrowed by a council shall be a first charge on the general fund of the council.

50. Where any sum of money is borrowed by a council, it shall be lawful for any annual provision required to be made by the council for the repayment of the sum so borrowed to be suspended, with the consent of the lender, for such period (not exceeding five years) as the Minister may determine.

Suspension of repayment of sums borrowed

51. A person lending money to a council shall not be bound to inquire whether the borrowing of the money : or was legal or regular, or whether the money raised was properly applied, and shall not be prejudiced by an illegality or irregularly in the matters aforesaid or by the misapplication of any such money.

Lenders Relieved from certain inquiries

Audit

52. (1) The Minister shall in respect of each financial year, appoint a public officer or other person to be the auditor to the council,

Appointment and remuneration of each auditor (2) There shall be payable by a council in respect of the services of

the auditor to the council such fee as the Minister may determine and that fee shall be paid into the general revenues of the Republic or, if the auditor is not a public officer, to the auditor.

53. It shall be the duty of the auditor to a council— Function of auditor (a) to audit the accounts of the council for the financial year in

respect of which he is appointed;

(b) to investigate such specific matters, if any, relating to the accounts of the council for that financial year as the Minister or the council may direct;

(c) to report to the council on his audit and investigations;

(d) to report to the council any case in which it appears to him that—

(i) any expenditure has been incurred contrary to law;

(ii) any sum has not been duly brought into account;

(iii) any loss or deficiency has been incurred.

54. (1) The auditor to a council may, for the purpose of discharging his functions— Production of

document and taking of evidence

(a) by summons under his hand, require all such persons as he may think necessary to appear personally before him for examination at a time and place to be specified in the

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summons and to produce all such books, deeds, contracts, vouchers, receipts and other documents relating to accounts of the council as may be specified in the summons and

(b) hear and receive evidence and examine witnesses upon or affirmation, which he is hereby empowered to admin

(2) Any person summoned to appear before the auditor to a council who, without sufficient cause—

(a) refuses or fails to comply with the summons; or

(b) having appeared before the auditor, refuses to be examined on oath or affirmation or to take such oath or affirmation

(c) having taken such oath or affirmation, refuses to answer such questions pertaining to the accounts of the council as are put to him;

Shall be guilty of an offence and liable on conviction for every refusal or failure, to a fine not exceeding one hundred and penalty units or to imprisonment for a period not exceeding months or to both.

(As amended by Act No. 13 of 1994)

55. (1) Before completing his audit of the accounts of a council the auditor to the council shall, by notice in writing to the principal officer of the council, fix a period commencing at least thirty days thereafter and extending for not less than seven days during which representations regarding the accounts of the council may be made to him.

Deposit of accounts and representation there on

(2) During the period fixed under subsection (1) for the making representations and for seven clear days preceding the commencement of such period, the accounts of the council, together with all books, deeds, contracts, vouchers, receipts and other documents relating to the accounts of the council, shall be deposited at all the offices of the council and shall at all reasonable times be open to the inspection of any interested person.

(3) The principal officer of a council shall, not less than four days before the deposit of the accounts of the council, give public notice of—

a) the deposit of the accounts of the council required by this section and the right to inspect such accounts;

b) the period during which representations regarding accounts of the council may be made to the auditor to the council; and

c) the name and address of the auditor to the council.

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(4) During the period fixed under subsection (I), any interested person may make representations regarding the accounts of the council to the auditor to the council—

(a) in writing; or '

(b) by arrangement with the auditor, in person or by his representative.

56. (1) After completing his audit of the accounts of a council and his investigations, if any, the auditor to the council shall make his report to the council in pursuance of paragraphs (c) and (d) of section fifty-three.

Report of Auditor

(2) Within sixty days after the receipt by a council of the report of the auditor, the council shall take the report into consideration and shall transmit to the Minister—

(a) a copy of such report, together with the comments of the council thereon; and

(b) a copy of the audited summarised statement of account of the council.

(3) The report of the auditor and the audited summarised statement of accounts of a council shall, at all reasonable times after copies thereof have been transmitted to the Minister, be open to the inspection of any interested person.

(4) The Minister may give to a council such directions as he thinks necessary to ensure that the council acts in conformity with any recommendations contained in the report of the auditor.

(5) Without limiting the operation of section eighty-eight, where a council fails to transmit to the Minister, within the time allowed under subsection (2), the report and statement of accounts referred to in that subsection, the Minister may, for as long thereafter as the council continues to fail to transmit them, suspend or withhold grants due to the council


57. (1) The Minister shall cause any part of the report of the auditor to a council made in pursuance of paragraph (d) of section fifty-three to be brought to the notice of any councillor or officer or employee of the council who may be affected thereby and shall afford to every such person an opportunity of furnishing an explanation to the Minister.

(2) After considering any explanation furnished to him under sub

section (1), the Minister shall—

(a) disallow any expenditure which has been incurred contrary to law;

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(b) surcharge the amount of any expenditure disallowed upon the person or persons responsible for incurring or authorising the expenditure;

(c) surcharge any sum which has not been duly brought into account upon the person or persons by whom that sum ought to have been brought into account;

(d) surcharge the amount of any toss or deficiency upon any person or persons whose negligence or misconduct the loss or deficiency has been incurred;

(e) certify the amount due from any person upon whom he has made a surcharge and cause a copy of the certificate to be furnished to such a person:

Provided that, if the Minister is satisfied that—

(i) "any person upon whom a surcharge might be made under this subsection acted reasonably by or in the belief that his action was authorised by Law or

(ii) the act or omission which might have involved the making; of a surcharge under this subsection took place in such circumstances as to make it fair and equitable that a disallowance or surcharge should not be made;

the Minister may abstain from making a disallowance or surcharge

or make any such reduction in such disallowance or surcharge as he

deems equitable.

(3) The Minister may direct a council to make such adjustments to its accounts arising from any disallowances made in pursuance of paragraph (a) of subsection (2) as he thinks necessary.

58. Any person who is aggrieved by a disallowance or surcharge made by the Minister, where the disallowance or surcharge relates to an amount exceeding twenty thousand kwacha, may appeal to the High Court, and may in any other case appeal to the High Court or to a subordinate court of competent jurisdiction.

Appeals against disallowances and surcharges

(2) The High Court or subordinate court, as the case may be, may, on such an appeal—

(a) confirm, vary or quash the decision of the Minister;

(b) remit the case to the Minister with such directions as it thinks fit for giving effect to the decision on appeal;

(c) make such other order as to costs or otherwise as may to it seem just.

(3) The Chief Justice may, by statutory instrument, make rules providing for the period within which appeals under this section may be brought and otherwise regulating such appeals.'

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59. (1) Subject to the provisions of subsection (2), the amount of every surcharge certified by the Minister to be due from any person shall be paid by that person to the council within thirty days after a copy of the certificate has been furnished to him, or, if an appeal with;

Payment and recovery of surcharges

respect to the surcharge has been made, within thirty days after the appeal is finally disposed of or abandoned or fails by non-prosecution thereof.

(2) The Minister may authorise the payment of a surcharge in instalment:

Provided that if default is made in the payment of any instalment the balance of the surcharge outstanding shall thereupon become payable.

(3) The amount of any surcharge which is not paid shall be recoverable by the council as civil debt.

(4) In any proceeding for the recovery of the amount of a surcharge, a certificate signed by the Minister shall be conclusive evidence of the facts certified and a certificate signed by the treasurer of the council that the sum certified to be due has not been paid to him shall be conclusive evidence of non-payment unless it is proved that the sum certified to be due has been paid since the date of the certificate.

60. (1) In addition to the ordinary audit of the accounts of a council required by the foregoing provisions of this part, the Minister may at any time direct that an extraordinary audit of all or any of the accounts of a council be conducted and for that purpose may appoint a public officer to be the auditor to the council.

Inspection and extra ordinary audits

(2) The provisions of—

(a) sections fifty-three and fifty-four, and

(b) sections fifty-seven, fifty-eight and fifty-nine;

shall, with the necessary modifications, and subject to the provisions of this section apply in relation to an extraordinary audit of the accounts of a council conducted under this section as they apply in relation to an ordinary audit of such accounts (3) An auditor shall, after completing an extraordinary audit of the accounts of a council and his investigations, if any, make his report to the Minister and shall submit a copy of the report to the council- (4) The Minister shall, within sixty days of the receipt of the report under subsection (3), consider the report and shall thereafter take such action as he may consider appropriate in the circumstances. (5) The Minister may, at any time, appoint a person to inspect all or any of the accounts of a council and the provisions of subsection (4) shall apply accordingly.


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Appendix 3: Annual Work Plan and Budget Contents

1. Introduction. This part will normally contain two major sections:


• A restatement of the councils vision and statement, objectives, key targets for the year and conditions and assumptions made in the proposed achievement of those targets and objectives which may not be directly in the control of council.


This section should also have bar charts representing the timing of the various activities.

3. Procurement Plan. This is a List of what goods and services need to be procured and when in order to implement the plan.




Page: 158

Appendix 4: Proposed Chart of Accounts

Revenue Account Items Expenditure

Employees Salaries Salaries Overtime Wages Wages Overtime Pension Contributions / LASF / NAPSA Personal Levy Leave Benefits Training Expenses Appointment and recruitment Expenses Gratuity Other Staff Expenses

Premises Repairs and Maintenance – Buildings Repairs and maintenance – grounds Repairs and maintenance – Furniture and Fittings Electricity Water Cleaning Materials Rates Rent

Supplies and Services Equipment and tools Chemicals Uniforms and Protective Clothing Repairs and Maintenance of Office Equipment Purchase of Trading Items General Supplies

Transport and Plant

Fuel and Lubricants Motor Vehicle and Plant Expenses Car and cycle Allowances

Establishment Printing and Stationery Advertising Telephone Postage Books and Periodicals Travelling, Subsistence and Conference Insurance Audit Fees Legal Fees


Page: 159

Bank Charges Other General Office Expenses

Miscellaneous Grants in aid Subscriptions Entertainment Sitting Allowances Other Miscellaneous Expenses

Debt Charges Redemption Interest

Revenue Contributions to Capital Outlay (RCCO)

Income Government Grants Rates Levies Interest Licences Market Rents and Fees Rents – Other than Housing Estates Miscellaneous Income

Balance Sheet Items Liabilities and Surpluses

Long Term Liabilities

Government Loans Other External Loans Internal Loans

Current Liabilities Municipal Bonds Contractors’ Liability (Retention) Loan Charges Outstanding Sundry Creditors Deposits Receipts in Advance Collections on Behalf of GRZ Bank Overdraft


Page: 160

Funds and Provisions Bad Debt Provisions Gratuity Reserve Accumulated Leave Reserve Renewal and Repairs Funds Sinking Funds Consolidated Loan Fund Provision for Depreciation (Commercial Fund) Tariff Equalisation and Stabilisation Fund Other Provisions

Capital Discharged Capital Receipts Unapplied Capital Receipts Applied Loans Redeemed Grants Applied

Revenue Account Surpluses

Assets and Deficits Capital Outlay

Long Term Outlay Other Long Term Outlay

Other Capital Outlay Internal Loans Capital Works in Progress Mortgages

Investments and Advances Fixed Deposits Shares (Stock Exchange) Notice Deposits Term Deposits

Current Assets Stocks Debtors for Services Sundry Debtors Deposits and Prepayments Advances Cash at Bank Cash in Hand Petty Cash and Imprests


Page: 161

Other Balances Revenue Account Fund Balances – Deficits Suspense Accounts Control Accounts


Page: 162

Appendix 5: Budget Preparation Process – Key Factors

Transparency

the budget documents provide a clear link between objectives and expenditures',

all participants in the budget process are clear about their roles and responsibilities;

simple, well-documented procedures;

well-defined basis of budgeting e.g., incremental, zero-based etc.; and

departmental / entity targets and resources are allocated, clearly indicated and explained.

Management

effective budgeting involves more than simply preparing annual budgets;

the management and monitoring of the budget are equally important, with an emphasis on results achieved.

Decentralization

all decision making taking place at the centre is potentially inefficient and. may undermine the budget system .

Co-ordination and co-

operation

all those involved in the budget process are required to ensure links between recurrent and development budgets and the processes in the financial management system.

Integration

of recurrent and development budgets: the recurrent costs arising from the development projects need to be built into recurrent expenditure planning and trade-offs between recurrent and development expenditure considered for sustainability.

Flexibility

the system allows responses to changed circumstances: these responses are built into the system, so that implications of any changes are sufficiently analysed and still fit within the public sector entity's overall objectives and priorities.

Discipline

although the system provides flexibility, there is also effective control over expenditures;

any changes to the budget are carefully analysed and justified;

only limited use of supplementary estimates; and

penalties for breach of rules and regulations.

Link to medium term

framework (MTF)

link between the resource framework of the MTF and the annual budget; and

link between the policies and priorities of the MTF and the budget allocations.


Page: 163

Accountability and

credibility

governing body involvement', good links between the governing body and the Executive;

involvement of accountability of senior managers in all stages of the process;

if the Executive do not believe that they will be held to their ceilings, or if they can easily by-pass normal procedures, the whole process of budgeting can be undermined; and

budgets are reliably close to actual outcome.

Comprehensive

the budget process and documents need to include all revenues and expenses, including aid funds; as well as information on previous year's and current year's expenses.

Performance measurement

measuring the impact of the budget through output performance measurements for recurrent and development expenses.


Page: 164

Appendix 6: Budgeting – Other Factors

There are several factors which should be considered in preparing and approving the budget. Among these are:

a) Review line items- you should review the line items of the income and expenditure and question any amounts which do not appear reasonable or which differ significantly from the previous year for no apparent reason.

b) Surpluses and Deficits – Councils are normally requested to prepare a balanced budget, i.e. to cut their coats according to their cloth. Find out what the budgeted surplus or deficit is.

c) The income, which needs to be raised – Unlike most organisations which start their budgets with an estimation of their incomes, councils begin their budgets with how much it would cost to deliver the required services. When this is known, then the revenue which will be included in the budget is determined. This is known as expenditure-led budgeting. If councillors are reluctant or unable to increase estimated income to prevent a deficit, then estimated expenditure must be reduced.

d) Setting the rate levy – The rate levy is set at such a level as to enable the council deliver the required services without a deficit. This is done by taking into account the following:

As council expenditure increases the rate levy increases

Property revaluation will affect the rate levy (normally downwards), without necessarily affecting the amount payable by the rate payer

Affordability

e) Impact on business organisations – Rates and service charges can be a significant cost to business organisations. How do ours compare with neighbouring councils?

f) The extent of cross subsidisation – Who is paying for what and at what rate? Is everybody paying at the same rate for the same service?

g) Collectability of revenue – If income is billed, can it be collected? This should take into account:

Ability to pay: can the residents afford to pay

Clear policy on non-payment: does the local authority have and implement a clear policy in respect of non-payment of charges?

h) Working capital requirements – Rates are payable twice per year, how does the council survive in between?

i) Comparison with inflation – both for income and expenditure

j) Economic factors – how will the budget result in the promotion of the council’s economic policies (see the council’s corporate goals in the strategic plan). Such factors as:

Investment incentives

Support for local business

k) Capital Budget – has sufficient provision been made for acquisition of the necessary capital goods to undertake the planned activities to be carried out. Have the recurrent aspects of the capital budget been included in the operating budget?


Page: 165

Appendix 7: City Dayton – Finance Department Budget 2001

Department of Finance

Mission Statement

Provide quality financial services that meet the needs of City of Dayton citizens and customers.

2000 Accomplishments • Customer Service Improvements

- Increased utility customer service telephone hours by 37% (to 7:00 AM - 7:00 PM from 8:00 AM - 4:45 PM)

- Added telephone credit card acceptance for utility bill

payments - Consolidated two customer service queues (for billing

assistance and bill payment) into one queue by combining two areas into one

- Provided ADA compliant accessibility at payment windows - Provided private areas to discuss sensitive issues with

customers - Selected a financial institution to provide depository,

disbursement, lockbox, procurement card and other cash management services

• Ongoing Process Improvement Discussion, Charting and Implementation

- Treasury process improvements - Tax Processing improvements - Tax Compliance improvements - Utility Customer Service improvements ~ Purchasing process improvements - Financial Analysis CAFR process improvements

• Completed Phase 1 City Hall First Floor Remodeling

- Treasury - Utility Customer Service Call Center - Finance payment and customer service lobby

2001 Performance Plan • Enhance delinquent income tax revenue collections to meet 2001

budget challenge


Page: 166

• Implement portions of GASB 34 (new accounting reporting model) for the 2000 Comprehensive Annual Financial Report

• Complete meter reading study and recommend improvements • Complete Banner software system post implementation review • Complete Financial Policy Manual • Conduct comprehensive customer service survey to benchmark

customer attitudes toward Finance Department services • Improve customer service in utility billing, municipal tax

administration and internal City of Dayton transaction areas • Begin implementation of individual staff performance measures • Implement multi-rater feedback evaluations tor Finance

Department supervisors,professionals and clerical and/or blue collar DPI Leadership Team members

• Continue Finance staff cross-training programs • Provide appropriate training for all Finance staff to improve

individual performance and customer service • Complete Phase II (Financial Analysis and Fund Records) and

begin Phase 111 (Tax Compliance, Tax Processing and Water Billing) of the first floor remodeling

Major Issues • ACT Program (Aggressive Collection Techniques) tor delinquent

income tax revenues • Allocation of scare technology resources to support, maintain

and enhance five major financial systems • Debt issuance (general obligation, Aviation, Sewer) • Meter reading process improvement • Succession management planning for key staff positions • Successful organizational change management • Staff training, development and evaluation improvement • Increased utilization of financial best practices • Establishment of linkage between individual performance

measures and individual performance evaluations • Continuous customer service improvement


Page: 167

(Then the actual Budget plus Personnel summary then)

Performance 1999 2000

Actual 2000 Target

Year to date yield on investment 5.4% 5.66% >index $ interest earned on investment 12.3 m 12.7m 12 m % $’s processed via lockbox 61% 34.84 >60% Number of new rate payers identified

3,425 42,240 3,000

etc Note: l)Lockbox statistics are low due to scan line problems that caused a large number of rejects.


Page: 168

Appendix 8: City of Dayton – Public Works Department Budget 2001

Department of Public Works

Mission Statement

Provide quality essential transportation, solid waste, vacant property, green spaces, and engineering services necessary in

protecting and promoting the fundamental health, safety and viability of the city. This is accomplished through an efficient and sensitive caretaker philosophy focusing on daily urban needs while ensuring long term infrastructure responsibilities are met. To manage and

maintain city owned land and buildings. To provide essential vehicle and equipment maintenance services.

2000 Accomplishments • Implementation of waste container fee • Increased participation in recycling program by 15% • Installation of playground equipment in 18 parks.

Etc etc

2001 Performance Plan • Issue recommendations on bridge improvements based on

assessment completed in 2000. • Implement program together wit City and County wide

organisations to successfully prosecute illegal dumping and littering

• Participate in Activity Based Costing Initiative to enhance

business practices

Etc etc Major Issues • Implement initiatives to reduce lost time due to employee

injuries • Improve facilities, roadways and infrastructure • Revise waste collection schedule


Page: 169

(Then the actual Budget plus Personnel summary then)

Performance Measures 2001 Performance Measures FY 2001 Target Complete bridge assessment and issue recommendations on need and timing of infrastructure improvements

Issue summary report by 1/4/01

Average tons of recyclable collected weekly per crew

>2000

Revenues => expenditures – fleet operation Revenue > expenses

etc


Page: 170

Appendix 9: Financial Benchmarking Questions

Activity Max. Score

Covered in the manual

DISTRICT FUND ACCOUNT 1. Payment Voucher Preparation 25 1.1 Are payment vouchers prepared for every payment made? 15

1.2 Is all expenditure authorised and duly approved? 10 2. Control of Receipts 25 2.1 Are receipts issued for all moneys received? 3 2.2 Is banking of cash made at the earliest opportunity? 6

2.3 Is there a local bank, and if not how is the money secured 3

before banking it? 2.4 Are all monies collected, banked? 5 2.5 Are bankings and receipts reconciled promptly? 5 2.6 Are spot checks done independently on cash held at the Council? 3

3. Cash Books 200 3.1 Is there a separate cash book for each bank account? 20

3.2 Are cash book transactions going over the page? 10 3.3 Is cash book showing the current balance at any given date? 50

3.4 Does treasurer or another senior person review cash books? 30

3.5 Are cash books balanced and ruled off every month end? 20

3.6 Are cash book totals posted to the ledger on a monthly basis? 20

3.7 Are bank statements received from banks on a regular basis? 10

3.8 Are bank reconciliation statements done 5 – 10 days after 30

close of business the previous month? 3.9 Have cheques been returned to drawer on any of the 10

bank accounts 4. General Ledger 140 4.1 Is a general ledger maintained? 20 4.2 Does the ledger contain the following features? 4.2.1 Balance brought forward from previous year 20 4.2.2 Budget amount for each account. 15 4.2.3 Running balance on each account. 35 4.2.4 Separate page for each account. 20 4.2.5 Name and code of account 10 4.3 Is the ledger in balance? 20


Page: 171

Activity Max. Score


5. Imprest Management 35 5.1 Number of returnable imprests outstanding 4 5.2 Number of multiple imprests issued to persons having 8

more than one un-retired imprest 5.3 Is an imprest sub – ledger maintained? 2 5.4 Are imprest retirements made when they fall due? 3 5.5 Is the imprest register agreed to the general ledger on a monthly basis? 3

5.6 Has disciplinary action been taken against officers who 15

have not settled imprests? 6. Loans & Advances 20 6.1 Is a loans and advances register maintained? 5 6.2 Number of advances outstanding. 5 6.3 Are recoveries being made? 5 6.4 Is register agreed to general ledger? 5 7. External Debtors Control 20 7.1 Are debtors registers maintained for different types of accounts? 2

7.2 Are debtors aged? 3 7.3 What action has been taken to collect debts over 120 days 2

and above, including council’s use of money from commercial ventures?

7.4 Is the debtors’ register agreed to the general ledger? 4

7.5 Is a provision for bad and doubtful debts made? 4 7.6 Is the external debtors’ status discussed in council meetings 5

and/or F&GP committee 8. Fixed Assets Records 20 8.1 Is a fixed assets' register maintained? 2 8.2 Is there evidence of ownership of fixed assets? 4 8.3 Is there evidence of physical verification of fixed assets? 4

8.4 Does the fixed assets' register have the following? 8.4.1 Original cost. 3 8.4.2 Separate page for each type of asset 2 8.4.3 Additional details during the year 3 8.4.4 Depreciation rates applicable. 2 9. Insurance 10 9.1 Are the following insurance covers present? 9.1.1 Fidelity guarantee 2 9.1.2 Fire 4 9.2 Are all insurance premiums paid? 4


Page: 172

Activity Max. Score


10. Stores Management 20 10.1 Are stores records kept up-to-date? 2 10.2 Are Goods Received Notes and Store Requisitions raised 3

for receipts and issues of goods? 10.3 Are stores physically verified at least twice a year? 5

10.4 Are differences between stores register and physical verification 7

reported to management for action? 10.5 Is there separation between the buying and stores functions? 3

11. Accountable Documents 5 11.1 Does a register exist for accountable documents? 1 11.2 Is there a separate page for each type of document? 1

11.3 Are they recorded in serial number order? 1 11.4 Are they issued in number order? 1 11.5 Is the register reviewed periodically? 1 12. Investment Register 10 12.1 Is an investment register kept? 2 12.2 Is there a separate page for each investment? 1 12.3 Are details of interest rates and maturity dates recorded? 2

12.4 Is there a record of the original investment? 1 12.5 Is interest charged and recorded? 2 12.6 Are repayments received and current balances shown? 2

13. Financial Indicators 35 13.1 What is the current ratio? 4 13.2 Has the council been in overdraft? 4 13.3 How often have salaries been paid late in the last 12 months? 4

13.4 Are statutory salary deductions paid within due dates? 4

13.5 Are other creditors paid when amounts fall due for payment? 4

13.6 Have there been internal borrowings between accounts 5

e.g. transfers from water account, DDF, housing revolving

fund and commercial ventures? 13.7 Is there a payment plan for your creditors, including statutory 5

bodies, staff creditors for unpaid wages and salaries?

13.8 Is an up-dated register of payments against salary arrears maintained? 5


Page: 173

Activity Max. Score


14. Management Accounts 80 14.1 Are monthly receipts & payments accounts produced? 20

14.2 Is a report on variance between budget and expenditure included? 20

14.3 Are management meetings held to discuss performance? 20

14.4 How many internal audit queries remain unresolved? 20

15. Annual Accounts 90 15.1 Are the Receipts and Payments Accounts for December produced 40

within six months after end of year? 15.2 Are the Final Accounts (Income & Expenditure Accounts / Profit & Loss 20

Accounts) produced inclusive of Balance Sheet, within 6 months

after end of year? 15.3 Are final accounts of previous year audited? 10 15.4 How many external statutory audit & inspection queries remain unresolved? 20

16. Budgeting 90 16.1 Are budgets based on realistic assumptions? 20 16.2 Are there proper procedures in place to prioritise expenditure 40

when revenue is less than budgeted? 16.3 Is the budget linked to a council strategic plan and work plans? 10

16.4 Is there a description of specific services the council is 10

to provide along with expected sources of financing the delivery of these?

16.5 Is the budget timing in line with MLGH requirements? 10

17. Organisation 40 17.1 Is a current organisation chart available? 10 17.2 Do all staff have up-to-date job descriptions? 10 17.3 Is there a training programme for finance staff? 10 17.4 Is there evidence of segregation of duties? 10 18. Service Provision 85 18.1 Expenditure on services same as budget for services? 45

18.2 Has expenditure on service provision led to improved services? 40


Page: 174

Activity Max. Score


COMMERCIAL VENTURES 19. Financial Statements for Commercial Ventures 50 Does the accounting system allocate the full cost and revenue to these operations individually, in respect of: 19.1 Payroll costs 10 19.2 Overheads 5 19.3 Financing costs 5 19.4 Council use of commercial venture. 20 19.5 How many make a profit before corporate tax? 10

Page: 175

Page: 175

Page: 176

Appendix 41: Abstract of Accounts

Abstract of Revenue and Expenditure for:

Name of Council

For the year ended 31/12/01

Page: 177

Revenue Account - Grand Summary xpenditure

Employees Premises Supplies and services 5,381,533,601 Transport and Plant Establishment Miscellaneous 2,488,561 Debt Charges 126,064,501

Total

E 1,634,208,750 543,618,340

500,304,177 1,466,932,387

Expenditure 9,655,150,317 Income Government Grants 295,033,333 Rates 2,900,450,000 Levies 972,416,667 Rent - Housing 755,008,000 Rent - Other Civic Buildings 25,000,000 Water Charges 1,242,165,575 Commercial Undertaking 2,456,745,007 Recharges 1,517,894,374

Total Income 10,164,712,955 Surplus Transferred to Fund Balances 509,562,639

Consolidated Balance Sheet Long Term Liabilities 1,925,025,558 Current Liabilities 94,837,145 Provisions and Funds 726,023,142 Capital Discharged 1,842,475,192 Revenue Fund Surpluses 1,353,018,544 Total Liabilities and Surpluses 5,941,379,582 - Capital Outlay 3,767,500,750 Investments 54,567,210 Current Assets 1,669,739,502 Revenue fund Deficits 449,572,120

Total Assets and Deficits 5,941,379,582

Page: 178

Revenue Account – General Rate Fund

1

2

lant

iscellaneous

ebt Charges 80,864,001

Expenditure Employees ,320,000,000

Premises 145,472,000

Supplies and services ,750,475,173

Transport and P 370,150,000

Establishment 606,431,927

M 39,252

D

Total Expenditure 5,273,432,353

Income

2

Rent - Other Civic Buil

Total Income 5,710,794,373

Government Grants 295,033,333

Rates ,900,450,000

Levies 972,416,667

dings 25,000,000

Recharges 1,517,894,374

Surplus transferred to GRF 437362020

Page: 179

Revenue Account – Housing Fund

Expenditu

Housing Fund re

,000 ,800

,219 lant ,877

,927

,000 7

Employees 250,000Premises Supplies and services

364,272 6,753

Transport and P 383Establishment 317,186Miscellaneous Debt Charges

726,224 200

Total Expenditure 939,523,04 - Income -

using 755,008,000 Total Income 755,008,000

Rent - Ho

- Deficit Transferred to Housing F 7)

Account – Comme ing

mployees 7,500,000 Prem 25,000,000

upplies and services 1,774,305,200 ransport and Plant 53,535,000 stablishment 397,459,269

Miscellaneous 735,542 Total Expenditure 2,258,535,011

und (184,515,04

Revenue rcial Undertak

Expenditure E

ises STE

- Income - Commercial Undertaking 2,456,745,007 Recharges -

Total Income 2,456,745,007 - Surplus Transferred to Commercial Undertaking Fund 198,209,996

Page: 180

Revenue Account – Water Undertaking

Expenditure mployees 56,708,750

8,873,540 services 850,000,009

and Plant 76,235,300 145,854,264 987,543 45,000,500

Total Expenditure 1,183,659,906

E Premises Supplies and Transport Establishment Miscellaneous Debt Charges

- Income -

ater Charges ,242,165,575 ial Undertaking -

- 242,165,575

W 1Commerc Recharges

Total Income 1, - Surplus Transferred to Water Undertaking Fund 58,505,669

rs after they have completed eir work and may cover the following:

ccounts:

. The Council (some description of the counci ities.

ting Policies

of Preparation, the financial statem on the ly with the applicable Public

Fixed Assets: The fixe financial statement in accordance with Public Sector .

alued at ……..

Revenue Recognition, revenue is recognis e raised for tax revenues and services

Bad debts provision is set at % of debtors outstanding in accordance

These notes will normally be added by the external auditoth

Notes to the A

1 ls and its main activ

2. Accoun

Basis ents are prepared historical cost convention and compSector Accounting Standards

d assets are indicated at cost in theAccounting Practice

Stocks are v

ed when the bills arrendered

with council resolution number xxx of date???


Appendix 12: Some books of interest

Authors Year Title

1 TreaFinan

sury Management in Local Authorities: A Guide for Ccial Officers

1992 hief CIPFA

2 Perspectives on LoCouncillors

cal Government: A Handbook for lican 1995 International repubInstitute

3 Financial Accounting Reporting and Auditing Handbook 1995 World Bank

4 Urban Aege (a quarterly World Bank publication free tont practitioners in developing countries)

local World Bank governm

5 Study 13: Governance in the PuPerspective (Down loadable fro

ration

2001 blic Sector: A Governingm the IFAC Website)

Body Public Sector Committee International Fedeof Accountants (IFAC)

6 Occasional Paper 3: Perspectives on Accrual Accounting IFAC

Appendix 13: Some website addresses of in

Organisation Address

terest

International Federation of Accountants ifac.org

International City Management Association icma.org

Chartered Institute of Public Finance Accountants cipfa.org

Appendix 14: International City Management Association Webpage

Page: 181


Appendix 15: CIPFA Shop front

Appendix 16 Part of an ICMA Shopping guide on local government budgeting

Page: 182


Page: 183

Appendix 17: Suggested Coding Structure

Funds:

Main Sub Description

Expenditure 00 Employees

000 Salaries 001 Salaries Overtime 002 Wages 003 Wages Overtime 004 Pension Contributions / LASF / NAPSA 005 Personal Levy 006 Leave Benefits 007 Training Expenses 008 Appointment and recruitment Expenses 009 Gratuity 010 Other Staff Expenses

01 Premises 100 Repairs and Maintenance – Buildings 101 Repairs and maintenance – grounds

103 Electricity 104 Water 105 Cleaning Materials 106 Rates 107 Rent

02 Supplies and Services 200 Equipment and tools 201 Chemicals 202 Uniforms and Protective Clothing 203 Repairs and Maintenance of Office Equipment 204 Purchase of Trading Items 205 General Supplies

03 Transport and Plant 300 Fuel and Lubricants 301 Motor Vehicle and Plant Expenses 302 Car and cycle Allowances

04 Establishment 400 Printing and Stationery 401 Advertising 402 Telephone 403 Postage

102 Repairs and maintenance – Furniture and Fittings


Page: 184

Main Sub Description 404 Books and Periodicals 405 Travelling, Subsistence and Conference

Insurance

4 4 s

neral Office Expenses

0 neous

es s Expenses

0 rges

6

0 tal Outlay

0

9

s pluses

2

0 oans

2 abilities l Bonds

406 407 Audit Fees 08 Legal Fees 09 Bank Charge 410 Other Ge 5 Miscella 500 Grants in aid 501 Subscriptions 502 Entertainment 503 Sitting Allowanc 504 Other Miscellaneou 6 600 Debt Cha 601 Redemption 02 Interest

7 Revenue Contributions to Capi(RCCO)

700 - 799

9 Income

ment Grants 900 Govern 901 Rates 02 Levies 903 Interest 904 Licences 905 Market Rents and Fees 906 Rents – Other than Housing Estates 907 Miscellaneous Income Balance Sheet Item Liabilities and Sur0 Long Term Liabilities 000 Government Loans 01 Other External L 002 Internal Loans 1 Current Li 210 Municipa


Page: 185

Main Sub Description 211 Contractors’ Liability (Retention)

ditors

dvance Behalf of GRZ

isions isions ve eave Reserve

s Funds

2 onsolidated Loan Fund preciation (Commercial Fund)

ation and Stabilisation Fund ovisions

ischarged

apital Receipts Unapplied 2 apital Receipts Applied 2 eemed

2 e Account Surpluses

2

2 ther Long Term Outlay

2 2

gress

27 vestments and Advances 2

hange)

212 Loan Charges Outstanding 213 Sundry Cre 214 Deposits 215 Receipts in A 216 Collections on 217 Bank Overdraft

22 Funds and Prov 220 Bad Debt Prov 221 Gratuity Reser 222 Accumulated L 223 Renewal and Repair 224 Sinking Funds 25 C 226 Provision for De 227 Tariff Equalis 228 Other Pr

Capital D23

230 C 31 C 32 Loans Red 233 Grants Applied 4

240 -Revenu

249 Assets and Deficits 5 Capital Outlay 250 Long Term Outlay 50 O 6 Other Capital Outlay 60 Internal Loans 261 Capital Works in Pro 262 Mortgages

In 70 Fixed Deposits 271 Shares (Stock Exc


Page: 186

Main Sub Description 272 Notice Deposits 273 Term Deposits

2 ssets

2 eposits and Prepayments 2

2 nt Fund Balances – Deficits

8 Current A 280 Stocks 281 Debtors for Services 282 Sundry Debtors 83 D 84 Advances 285 Cash at Bank 286 Cash in Hand 287 Petty Cash and Imprests 9 Other Balances 290 Revenue Accou 291 Suspense Accounts 292 Control Accounts