A.

MACRO CASH FLOW

1 BACKGROUND
Due to cash shortfalls in various Local Authorities, it became necessary to find a solution to manage cash flow
in order for local authorities to survive. During a Budget process a Treasurer would normally budget for income
based on levies levied. This would mean that outstanding debtors would increase if non-payment in that specific
area continues, which will at a certain time, end up in a total shortfall of cash.
No cash means that a Local Authority will not be in a position to pay any of its creditors including salaries to its
employees. It is with this background, that a cash management team was introduced in Council X
M.L.C. It Is important to establish a cash management team which will consist of top management, and not
treasury staff members only, this Will give total commitment and ownership if a plan is decided upon.
There are certain steps, which should be taken to establish how serious a cash shortfall in a organisation is :
2 INTERNAL FUNDS
A Capital budget is compiled with external as well as internal funding. If one would like to establish whether there
are any cash available in the internal funds, one should use the following steps :
2.1 Step one
Make the following calculations : R
Outstanding debtors 0
Plus : Any stock held 0
Plus : Accumulated deficit 0

Total operational capital (2.1.1) 0
Internal Funds 0
Plus : Reserve funds 0
Plus : Accumulated C.D.F. Fund 0
Less : Outstanding C.D.F. loans to Departments 0
Plus : Any kind of Capital Reserves or Funds 0
Plus : Accumulated surplus 0
Total accumulated Funds (2.1.2) 0
2.2 Step Two
2.2.1 Cash available after operations
If there is cash on hand after operations (see 4.6 and 4.8), it can be utilised and you can proceed to
step 2.3
2.2.2 Cash shortfall after operations
If there is no cash available after operations (see 4.6 and 4.8) go to step 2.3
33. CASH MANAGEMENT PLAN : 2000/01 FINANCIAL YEAR
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2.3 Step Three
Use 2.1.2 and 2.1.1 in the calculations
If (2.1.1) = (2.1.2)
No internal Capital funding can be utilised, and there is no cash available to invest in the C.L.F.
Ignore cash available in step 2.2.1.
If (2.1.1) > (2.1.2)
No internal Capital funding can be utilised and there is no cash available to invest in the C.L.F.
Ignore cash available in step 2.2.1.
If (2.1.1) < (2.1.2)
Internal capital funds can be utilised to a maximum amount of the difference between (2.1.1) and (2.1.2).
Rather be conservative when doing this. This difference can be used to finance capital from the C.L.F.
as well when funds are invested in the C.L.F.
Take note of 2.2.1 and 2.2.2. If no cash is available (2.2.2), no capital should be financed internal.
If cash is available (2.2.1) rather use this for internal funding than the difference between 2.1.1 and 2.1.2
calculated

2.4 Step Four
It must be realised that cash on hand should be the positive balance after all cash required for operations
is subtracted .
3 EXTERNAL FUNDS
To establish whether a Local Authority borrowed in excess, the following calculation can be done.
3.1 Step one R
Outstanding advances to borrowing Departments 0
Less : Outstanding External loans 0
Less : Internal funds (cash available) (See step 2.3) 0
3.1 0
3.2 Step Two
If (3.1) is positive, a local Authority can still borrow external cash to finance capital, provided the necessary
cash is available in operations to service the loan. See 4.8
If (3.1) is negative, a Local Authority borrowed in excess externally.
If (3.1) is 0, no more cash can be borrowed to finance capital.
3.3 Step Three
Any capital projects financed out of Grants or Subsidies can continue on the basis of cash actually received.
3.4 Note
It must be realised that Council should have a policy with regard to Interest and Redemption as percentage
of the total operational budget. A good indicator is that Interest and Redemption should be between 16% up
to 20% (maximum) of the total operational budget. This Interest and Redemption consist of charges from
the CDF and CLF or any other type of loan from specific funds.
Where a Council is in a situation where there are a fast growing business compliment it can increase the
20%, through were there is a slow growing business compliment it should go lower than 16%.
Increase in normal residential compliments should not be taken to increase these percentages.
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4 OPERATIONAL CASH MANAGEMENT
To establish whether cash required for operations will be enough for the financial year, the following calculations
must be done :
4.1 Step One
First establish how much cash will flow into the operations from debtors payments.
E.g. : Debtors payment level (average %) for the past three months multiplied with budgeted levies.
Levies budgeted for the financial year - ( Multiply with Average payment % )
= Debtors cash for the financial year (4.1) 0
4.2 Step Two
Debtors cash inflow (4.1) 0
Plus : Other cash related income (This will include License fees, ect.) 0
Plus : Cash on hand (excluding cash for Creditors on capital projects) 0
Plus : Investments (short-term)(12 months) 0
Cash available for operations (4.2) 0
4.3 Step Three
Bank overdraft 0
Plus : Creditors - operational only 0
Plus : Cash required outside operations (This will include Interest and
Redemption payable to financial institutions, Insurance, VAT, etc.) 0
Cash required for external purposes (4.3) 0

4.4 Step Four
Cash available for operations (4.2) 0
Less : Cash required for external purposes (4.3) 0
Nett cash available for operations (4.4) 0
4.5 Step Five
Budgeted expenditure 0
Less : Non-cash transfers (This will include interest and redemption, provisions
for internal funds, administration charges, charge-outs, internal labour
charges, etc.) 0
Cash required for operations (4.5) 0
4.6 Step Six
Nett Cash available for operations (4.4) 0
Less : Cash required for operations (4.5) 0
Cash (Shortfall) / Surplus (4.6) 0
If (4.6) is positive, no problem and the surplus can be used for Capital, (see step 2.2) else invested for future
funding.
If (4.6) is negative - Revise your budget - follow Step Seven.
If (4.6) = 0 Execute your operational budget but rather keep a portion cash available for ad-hoc expenditure.
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4.7 Step Seven
Nett cash available for operations (4.4) 0
Less : Committed expenditure 0
Current Human Resources total bill 0
Current Councillor allowances 0
Current Bulk water purchases 0
Current Bulk electricity purchases 0
Current Bulk sewer purchases 0
Current Bulk refuse purchases 0
Current Rental agreements 0
Current Repayments of long term operational debts 0
Any other committed expenditure 0
Cash (Shortfall) / Surplus (4.7) 0
If shortfall in (4.7) - you have a serious problem
If (4.7) = 0 you will not be in a position to use any other operational cash
If surplus in (4.7) - follow step eight
4.8 Step Eight
Cash required for operations (4.5) 0
Less : Committed expenditure (See step 4.7) 0
Cash required for other operational expenditure 0
Less : Answer in (4.7) (if surplus) 0
Cash (Shortfall) / Surplus (4.8) 0
If shortfall in (4.8) - you will have to revise your budget - follow step nine.
If (4.8) = 0 you will be in a position to execute your total budget
If surplus in (4.8) - use excess to finance capital. (See step 2.2)
4.9 Step Nine
To revise your budget use the following as examples:
Moratorium on vacant positions
Revise repairs and maintenance (excluding internal labour transfers)
Cut back on other expenditure up to the amount you require
5 CONCLUSION
If you have an operational cash shortfall you should not execute any capital projects from internal funds.
B. CONCLUSION
The various steps followed to establish capital and operational cash might not be in the normal accounting manner with
specific reference to the C.L.F. Fund, though the indicators will assist Local Authorities in Cash Flow Management.
If a Council is experiencing cash flow difficulties, all internal loans (vehicle, computer, etc) to employees should be
stopped and outsourced.
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