finance policies and procedures manual volume 1

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Finance Policiesand Procedures

Utility Management Series for Small Towns

1Volume


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Finance Pilicies and ProceduresCopyright United Nations Human Settlements Programme 2012

All rights reserved United Nations Human Settlements Programme (UN-Habitat)P.O. Box 30030 - 00100 Nairobi GPO Kenya

el: 254 20 7623120 (Central Kenya) Website: http://www.unhabitat.org Email: habitat.publications.org

HS/122/12EISBN (Series) 978-92-1-133404-3ISBN(Volume) 978-92-1-132535-5

DisclaimerTe designations employed and the presentation of the material in thispublication do not imply the expression of any opinion whatsoever on the

part of the Secretariat of the United Nations concerning the legal status of anycountry, territory, city or area, or of its authorities, or concerning delimitationof its frontiers or boundaries, or regarding its economic system or degreeof development. Te analysis, conclusions and recommendations of thispublication do not necessarily reect the view of the United Nations HumanSettlements Programme, the Governing Council of the United HumanSettlements Programme, or its Member States.

AcknowledgementsPrincipal Authors: UN-Habitat Lake Victoria Water and Sanitation

Initiative team and National Water and Sewerage

Corporation teamContributors: Robert Goodwin, Rose Kaggwa and Anne MaleboEditor: Lake Victoria Water and Sanitation Initiative teamDesign and Layout: Anne Musotsi


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FOREWORD

Municipal authorities and urban serviceproviders are being increasingly challengedto deliver sustainable services in a rapidlyurbanizing world with complex problemsresulting from the interplay of climate

change, resource constraints and theadverse effects of a sluggish world economy.Te need to improve the coverage andefficiency of urban basic services, such as

water supply, sanitation, energy, drainageand transportation, has never been greater.

It is now well recognized that the essential pre-condition forimprovements in the delivery of urban services, is to establish effectiveand well run institutions within the framework of a policy environmentthat promotes investment, a commercial approach to service delivery,managerial autonomy and accountability to key stakeholders, includingcustomers and the Government.

With its mandate to promote sustainable urbanization, UN-Habitathas been in the forefront of international efforts to build the capacityof urban water utilities to face the challenges of expanding access to

water and sanitation while improving the efficiency of service delivery.Trough its regional and national programmes and the Global WaterOperators Partnership Alliance, UN-Habitat provides capacity buildingfor urban water utilities with a focus on business planning, waterdemand management, improving billing and revenue efficiency, energyaudits and planning for climate change adaptation.


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Te Lake Victoria Region Water and Sanitation Initiative is one of theregional programmes in Africa that has demonstrated the effectivenessof integrating capacity building for urban water utilities with modestinvestments to improve infrastructure. Te rst phase of the Initiativehas now been completed with impressive improvements in extendingaccess to water and sanitation while enhancing the managerial capacityand operational efficiency of the utilities in the ten pilot towns inKenya, Uganda and anzania. Te utilities which have benetedfrom the capacity building programme have experienced signicantimprovements in performance in key areas such as revenue enhancement,an expanded customer base and reductions in non-revenue water.

Te six training manuals which are included in this Compendium ofraining Materials are based on the practical experience of delivering

the capacity building programme for urban water utilities in the LakeVictoria owns. Tey encompass the key areas of utility managementand operations and it is hoped that they will contribute to the knowledge

base of training approaches and best practices in the water utility sectorin small urban centers.

Joan ClosUnder-Secretary-General, United NationsExecutive Director, UN-Habitat


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PREFACE

Small water utilities face uniquechallenges in delivering water andsanitation services to their customers. With a limited revenue base and fewopportunities to benet from economiesof scale, they often suffer from severeskill shortages and a long legacy ofunderinvestment in infrastructure andcapacity enhancement. o overcomethese challenges, the small utilities need

to maximize their operating efficiencies and ensure optimum utilizationof their assets.

Since the year 2006, UN-Habitat has been working with national andregional partners in East Africa to implement the Lake Victoria Waterand Sanitation Initiative (LVWA SAN) which seeks to address the waterand sanitation needs of small secondary towns in the Lake VictoriaBasin. A capacity development programme in utility management andoperations has become an integral component of this Initiative, which

was started in 10 towns and is now being expanded to another 15 townsin the 5 East African Countries which share the Lake Victoria Basin.

Te implementation of LVWA SAN has generated a solid body ofknowledge and experience in enhancing the capacity of small utilitiesto improve their nancial viability and operating efficiencies. Tisexperience has been applied to produce a series of Manuals which can

be used as training materials to improve the operating performance ofsmall utilities.


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Te Block Mapping Procedures Manual is part of a Compendium ofraining Manuals for Small Water Utilities, produced by UN-Habitat

in six (6) volumes, as follows:

Volume 1: Finance Policies and Procedures ManualVolume 2: Customer Services User ManualVolume 3: Block Mapping Procedures ManualVolume 4: Water Audit ManualVolume 5: Leakage Control ManualVolume 6: Reduction of Illegal Water Use Manual

Te Manuals were produced through a collaborative effort between UN-Habitat and the National Water and Sewerage Corporation of Uganda

within the framework of a fast track capacity building programme inutility management and operations which targeted seven small utilitiesin the towns around Lake Victoria.

Robert GoodwinUnit Leader, Water and SanitationUrban Basic Services BranchUN-Habitat

Nairobi, Kenya


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ABBREVIATIONS AND ACRONYMS

AIR Acceptance and Inspection Report AP Accounts Payable AR Accounts Receivable ARE Acknowledgement Receipt for Equipment ASR Accountable Stationery RegisterCA Computer and AccessoriesCAO Chief Accounting OfficerCDJ Cash Disbursements JournalCIPLC Construction In Progress Ledger CardCkDJ Cheque Disbursements JournalCR CreditCRJ Cash Receipts JournalDR DebitDV Disbursements VoucherFAM Finance and Accounts ManagerGAAP Generally Accepted Accounting PrinciplesGL General LedgerGP General PayrollGRN Goods Received NoteHF Household Furniture and EquipmentIA Internal AuditorIFAC International Federation of AccountantsIFRS International Financial Reporting StandardsIIRUP Inventory and Inspection Report for Unserviceable Property ILC Investment Ledger CardI Information echnology

JEV Journal Entry Voucher


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LR Liquidity ReportMD Managing DirectorOE Office EquipmentOF Office FurniturePC Property CardPCV Petty Cash VoucherPDU Procurement and Disposal UnitPE Printing EquipmentPO Purchase OrderPPELC Property, Plant and Equipment Ledger CardPR Purchase RequisitionPV Payment VoucherRAAF Report of Accountability for Accountable FormsRCD Report of Collections and DepositsRCI Report of Cheques IssuedRD Report of DisbursementsRIS Requisition and Issue SlipRPCI Report on the Physical Count of InventoriesRPCPPE Report on the Physical Count of Property Plant and

EquipmentRPLC Real Property Ledger CardSAI Supplies Availability Inquiry SC Stock Card

SIV Stores Issue VoucherSL Subsidiary LedgerSLC Supplies Ledger CardSRV Stores Receipt VoucherSSMI Summary of Supplies and Materials IssuedS V Stores ransfer VoucherVE Vehicles

VFM Value For Money WIP Work In Progress


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GLOSSARY

Non Revenue Water

Financial Statements

Tis is a term that is used to mean; Income & Expenditure Statement,Balance Sheet, Cash Flow Statement & Statement of Equity and Notesto the Statements. Te statements are explained in more detail below:-

Income Statement

Tis gives the operating performance (incomes & expenses includingnon-cash items like depreciation & provisions) during the timeperiod.

The Balance Sheet

Tis reports the nancial position of the business unit. It records thebusiness units assets & liabilities at current values.

Statement of Equity

Tis gives the Business owners (shareholders) interest/stake in thecompany.

Cash Flow Statement

Tis gives the companys cash activities. It reports cash receipts &payments & the net change resulting from operating activities, investing

activities & nancing activities.


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Notes to the Financial Statements

Tese explain the items presented in the main body of the nancial

statements. Tey are explanatory notes on the nancial statementsitems & Accounting policies used.


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CONTENTS

Foreword ivPreface viAbbreviations & Acronyms viiiGossary x

1. Background 11.1 General Background 21.2 Objectives of the Manual 21.3 Authority and Scope of the Manual 31.4 Financial Laws and Regulations 41.5 Manual Outline 4

2. Financial Responsibilities of Utility Ofcers 62.1 Duties of Finance and Accounts Manager 72.2 Duties of an Accountant/Finance Ofcer 9

2.3 Pecuniary Responsibility of Ofcers 112.4 Audit Inspection Duty Ofcers 12

3. Budgeting 133.1 General Budgeting Policies 143.2 The purpose of the Budgeting system 163.3 Items to be included in the budgets 163.4 Steps of Developing a Budget 19

3.5 Key factors affecting Budgeting Process 263.6 Key Budgeting Points to Note 27


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4.6.2 Maintenance of Bank Accounts 514.6.3 Security of Cash In Transit 524.6.4 Information 52

4.7 Bank Accounts and Cheques 534.7.1 Checks to be carried out before accepting

the cheques 534.7.2 Responsibility of Ofcers accepting Cheques 534.7.3 Use of Bank Accounts 54

4.8 Payment General 584.8.1 General Payment Procedures 58

4.9 Control and Use of Ofcial Receipts 684.9.1 General Information 684.9.2 General Policies 68

4.10 Safe Custody of Cash, Stamps, Accountable Documents, Etc 774.10.1 General Policies 77

4.11 Petty Cash Funds 814.11.1 General Policies 814.11.2 Operation of Cash Payments Imprest 834.11.3 Temporary Imprest 844.11.4 Petty Cash Replenishment 85

4.11.5 Information 864.12 Investment Accounts 87

4.12.1 Investments 874.13 Advances and Loans 89

4.13.1 General Information 894.13.2 Procedures 96

4.14 Creditors Accounts 984.14.1 General Policies 98

4.15 Expenditure - Control and Classication 99


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4.15.1 General Policies 994.16 Invoices and Accounts Receivable 101

4.16.1 General Policies Invoices and Provisions 1014.16.2 General Information 1024.16.3 General Policies Accounts Receivable 102

4.16.4 Procedures for handling Accounts Receivable 103

5. Asset Management 1045.1 Policies 1055.2 Information 123

6. Salaries and Pensions 1276.1 Salaries and Pensions 128

6.2 Personnel Requirements 1286.2.1 Policy 128

6.3 Personnel Standing Data 1286.3.1 Policy 1286.3.2 Information 130

6.4 Payroll Payment 1306.4.1 General Information 1306.4.2 Policies 1306.4.3 Payroll Payment Procedures 131

6.5 Handling Payroll Deductions 1326.5.1 General Policies 1326.5.2 General Procedures 133

7. Internal Check System 1347.1 General Policies 135

7.1.1 Utility Monthly Accounts 135


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7.1.2 Cheque Tampering (Forgery) 1367.2 Financial Operations of a Utility 138

8. Bank Reconciliations 1398.1 General Information 140

8.2 Bank Reconciliation Preparation Procedures 1448.2.1 Preparation of a bank reconciliation 1448.2.2 Handling Discrepancies 145

9. Financial Ledgers, Trial Balance and Year End Closing Procedures 1469.1 Financial Ledgers 147

9.1.1 General Policies 1489.1.2 Financial Ledgers General 151

9.2 Trial Balance 1529.2.1 General Policies 153

9.3 Year End Closing Procedures 1549.3.1 Accounts Receivable 1559.3.2 Accounts Payable 1569.3.3 Payroll 1569.3.4 Closing Fixed Assets Accounts 1579.3.5 Inventories 1579.3.6 General Ledger 158

10. Financial Records and Reports 15910.1 Financial Records 16010.2 Accounting Forms and Reports 16310.3 Other GFinancial Records 167


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11. Projects 17411.1 General Policies 17511.2 Management of Project Funds 176


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CHAPTER 1

Background

Sunset along the shores of Lake Victoria. Photo UN-Habitat


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W ater Utilities have an important responsibility to providesafe and reliable supplies to their customers. Tis FinancePolicies & Procedures Manual is intended to provideguidance to those engaged in execution of nance and accounts functionfor systematic and consistency in their nancial work.

Te Lake Victoria Region Water and Sanitation Initiative has providedmany useful lessons on the procedures and systems to be followed by

water utilities as nancial guidelines in their operations. Te manualcomprises of methods and measurers adopted by a utility to safeguardits assets, secure the accuracy and reliability of its accounting data andpromote operational efficiency.

Te manual also provides an introduction to nance policies andprocedures, role of key officers in nancing and accounting functions,how to budget and dealing with various nancial transactions.Demonstrates how internal accounting control extends beyond internalchecking (interlocking and checking accounting routines), internal auditand other matters relating directly to the accounting functions. Tis

also includes delegated authority, budgetary procedures and control,training programs, screening procedures of prospective employees andsafe work practices.

Small urban utilities, with all the challenges that they face are encouragedto follow and adopt the provided nancial procedures for successfulrunning of the water utilities.


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manner, ensure adherence to management policies, safeguardthe Utilitys assets, and secure the accuracy and reliability of itsrecords.

Tis manual brings together those policies and proceduresT

that relate to improving internal control structure and theaccounting activities.

1.3 Authority and Scope of the Manual

Te instructions contained in this manual are to be read inT

conjunction with the statutory provisions of relevant Acts,Decrees and Financial Regulations governing the operations of

the Utilities.Subject to such Acts, Decrees, Financial Regulations, theseT

instructions, and such other instructions as may be approvedby the Utility, the instructions in this manual are under thegeneral management and supervision of the Finance and Accounts Manager, but it is also the duty of all personnel,especially Chief Officers, Managers, section heads and all

accounting officers to take care that these instructions areobserved.

All officers concerned with the collection, disbursementT

and safe custody of Utility monies or other Utility propertyare required to observe these Accounting policies and theprocedures laid down herein which must be strictly followed.


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1.4 Financial Laws and Regulations

Te nancial operations of the Utility are governed by theT

existing Laws and Financial Regulations of the Country andthe Utility.

Tese regulations may be varied from time to time by theT

Board.

1.5 Manual Outline

Tis manual is presented in (11) eleven chapters.

Chapter 1 Provides an introduction to the Finance Policies and ProceduresManual. It provides background, highlights the regulations.

Chapter 2 Highlights the duties of the key officers involved in Financeand Accounts function.

Chapter 3 Gives details on Budgeting function, Te process,Implementation and Monitoring and Control.

Chapters 4 to 8 Deal with handling of various general nancialtransactions such as Revenue management, Receipt and safe custodyof monies, General payments, Creditors and Investment Accounts,Handled also are areas of Asset management (general policies), Payment


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of salaries and Pensions, and Internal checks and Bank ReconciliationProcedures.

Chapter 9 Provides information on Financial Ledgers, rial Balanceand year end closing procedures such as procedures for closing Accounts

Receivables and Payables, Fixed Assets, inventories & General Ledger.

Chapter 10 alks about nancial records and reports. It highlights therecommended forms and ways of keeping nancial records. It gives thenancial statements that have to be produced.

Chapter 11 Provides information on projects Accounts, treatment of

projects funds and dealing with various contributions.


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2.1 Duties of Finance and Accounts Manager

Te Finance and Accounts Manager (FAM) is responsible for theefficient and effective nancial management of the Utility and for thedevelopment and maintenance of the necessary systems to safeguard the

assets and nancial operations of the utility. Te FAMs work includesbut is not limited to: -

assisting in the formulation of the policies to be adopted by theT

utility in nancial and manpower terms;

assisting in carrying out the nancial policies of the utility;T

making recommendations concerning nancial policies;T

ensuring that proper accounts and records of the utilitys assets,T

liabilities, operations and transactions are maintained and thatstatutory objectives in this regard are discharged;

keeping under review, the structure of the Utilitys nancialT

information and accountancy systems, ensuring that theyare developed and maintained as viable and efficient systems

meeting the needs of the utility;review and development of the tariff structure; workingT

in collaboration with other key players in the utility andstakeholders.

review and development of methods to be adopted in theT

implementation of revenue collection and management ofsame;


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controlling income and expenditure and general nancialT

administration of the utility, ensuring that all revenuesdue to the utility are collected, and payments due by theutility including salaries and wages are duly made, ensuringresponsible stewardship and safe custody of cash and otherassets of the utility;

ensuring the preparation, presentation and interpretationT

of periodic management accounts and cost statements. Advising management on matters of the controls of costs andachievement of budget plans by the provision of regular oradhoc information;

drawing attention to any point of weakness in the utilitysToperations as indicated by accounting information;

operating an effective procedure for the evaluation of capitalT

expenditure proposals and assisting in submitting these to therelevant authorities.

preparing capital and operating budgets;T

ensuring that management, in general, and his/her own areaT

of responsibility in particular, operate in accordance with theapproved budgets;

providing effective nancial control records on all capitalT

projects and liaising fully with other managers;

dening the responsibilities of all senior staff under his/herT

control and ensuring that they are adequately discharged;

ensuring that training and skills development of nancial staffTis carried out; and


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assisting in the development of computerisation strategiesT

and furthering the development of computer based nancialaccounting and nancial information systems.

2.2 Duties of an Accountant/Finance Ofcer

An Accountant/Finance Officer MUS NO in any circumstance mixUtilitys and private money. He/she MUS NO apply the utilitysmoney to any purpose not duly authorised, nor must he/she lend,advance or exchange any sum for which he / she is accountable. He/she must see that all utility monies or other assets entrusted to him / herare kept in a safe place.

It is the duty of any officer having nancial responsibilities in connection with his/her official duties, to observe the following requirements in asfar as they may be applicable to his/her particular duties :-

to fully acquaint himself/herself with the Financial RegulationsT

and accounting instructions, and to take care that all are dulyobserved;

correctly assess revenue in accordance with the relevant tariffs,T

and to secure its punctual collection;

to promptly bring to account, under the proper headings ofT

the Budget and accounts, all monies collected;

to ensure that proper provision is made for the safe-keepingT

of Utility money, stamps, official receipts, requisitions, cheque


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books, Local Purchase Order Books, and all other accountabledocuments, and assets under his/her charge;

to exercise supervision over all officers under his/her authorityT

entrusted with the receipt and expenditure of Utility moneyand to take precautions, by the maintenance of efficient andregular checks, against the occurrence of misappropriation ornegligence;

to ensure that no payment is made without proper authorityT

being obtained and where applicable, quoted on the paymentvoucher;

to check daily, all cash in his/her charge and to verify theT

amounts with the balances shown in his/her records;promptly bring to account as revenue, any cash found in his/T

her charge in excess of the balances shown in his/her records,and report this to the Finance Manager;

promptly make good any deciency in cash, or otherT

Utility assets for which he/she is responsible not caused bymisappropriation and to report all other losses and decienciesin writing to the relevant Area Manager (if applicable), Financeand Accounts Manager, and Chief Internal Auditor;

to charge promptly in his/her accounts under the properT

heading and sub-heading all disbursements of Utility moneyin accordance with the current budget;

to submit any nancial statements required by Management;T


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to see that all books of account, registers, records etc, areT

maintained in accordance with Accounting Instructions andFinancial Regulations and are posted and kept up-to-date and when not in use, are kept in safe custody;

to report to the Area manager (if applicable) and FinanceT

and Accounts Manager any apparent defect in the system ofrevenue collection or any apparent waste or extravagance inexpenditure which comes to his/her notice;

to produce when required all cash, stamps, assets, securities,T

books of account, vouchers, or other documents in his/her charge for inspection by the FAM, his/her authorisedassistants, the Chief Internal Auditor or his/her officers, or anyother duly authorised personnel;

to reply promptly and fully to all nancial and other queriesT

raised by management, giving the particulars or informationrequired; and

to acquaint himself/herself with such laws, regulations, BoardT

& Management decisions and circulars as relate to his/hernancial duties.

2.3 Pecuniary Responsibility of Ofcers

All officers bear personal pecuniary responsibility for theT

due performance of their nancial duties, for the proper

collection and custody of all Utility money received by them


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or under their authority, and for any inaccuracies in accountsrendered by them. No officer should be relieved from anyportion of his/her responsibilities if he/she delegates to his/hersubordinates the performance of duties which he/she shouldhave performed himself/herself.

All board and senior management decisions relating to nanceT

must be extracted and circulated to all Accounting Officersespecially to those whose duties such decisions may affect.

Te Board may surcharge any Utility employee responsible for:T

the loss, damage or destruction of Utility property;1.the wilful failure to collect monies due to the Utility;2.

the unauthorised payment of monies belonging to the3.Utility.

2.4 Audit Inspection Duty Ofcers

Te Internal Auditor is responsible for regular checks and/orT

test checks of the nancial operations of the Utility.

Te responsibility of the Internal Auditor does not absolve anyTofficer from his/her responsibility.

Te Internal Auditor may recommend system/proceduralT

changes to management but has no authority (except as partof the Senior Management eam) to direct management/subordinate staff to carry out such changes.


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CHAPTER 3

Budgeting

Planning and budget session in the municipality. Photo UN-Habitat


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3.1 General Budgeting Policies

Budgets ApprovalT

All proposed plans and budgets should be reviewed andapproved by each successive level of supervisory management.

Budget limitsT

All spending should be within the budget limits.

Internal Accounting ControlsT

Te Finance and Accounts Manager should review accuracyand completeness of plans and budgets.

Budget Preparation ResponsibilitiesT

Each Department/section is responsible for preparing theirdraft budgets; these should be reviewed and revised as necessaryby the senior/top management, and consolidated by theFinance and Accounts Manager to produce the draft budget forsubmission to the Utilitys Board.

T Budget Preparation Process

Te budget should be prepared and approved in accordance with the budget instructions issued by Finance and AccountsManagers.

T Items to be included in the Budget

Te budget should include the anticipated revenue fromall sources, and all sums required to meet the anticipated


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expenditure during the year to which the budget relates. It mustbe constructed to show as accurately as possible the amountexpected which should actually be required to maintain theservices of the Utility and which should actually be receivableduring the year. Every cost/prot center and activity head shallinclude all items relating to that particular cost/prot centerand activity, so as to show clearly the total estimated cost andincome of that cost center and activity during the year.

T Basis of Preparing Budgets

Te Utility separates their annual budgets into two components:the operating budget and the capital budget.

T Format of the Budget

Te budget should be prepared in the prescribed format, andshould include: -

Recurrent expenditure and all that falls under this category:a.Capital expenditure budget showing: capital project, total

anticipated cost and method of nancing, etcEstimates for each department showing: department nameb.and code, detail description and code of items budgeted for,current year approved budget and budget for following year;Statement of proposed tariffs, and anticipated income fromc.each tariff classication;Estimated cash ow statement for the budget year;d.

Detailed working papers substantiating all items included ine.the budget


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3.2 The purpose of the Budgeting system

Te budgeting system is important as it:

develops realistic nancial plans that should facilitate allocationT

of resources according to utilitys activity priorities;provides a control tool to ensure that spending is in line withT

time plans and budget amounts;

provides periodic variance reports of actual and budgetT

amounts to form a basis for investigation and necessarydecision making;

can be used to compare and monitor cumulative expenditureT

by account code to the original budget allocation;

effectively supports the improvement of the annualT

comprehensive business plan and its periodic review.

3.3 Items to be included in the budgets

Below is a list of the types of expenditure that are normally includedunder each estimate sheet.

Employees

Tese are costs that can be directly attributed to employees of the companye.g. salaries, bonuses, medical costs etc.


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Premises

Fixture and Fittings. Te maintenance and purchase of minorT

items of xtures and ttings within the cost centers.

Repair and Maintenance: Te expenses for Water, theT

operating and Electricity, upkeep of the Rent and rates,premises housing Cleaning materials, of the cost center.

Insurance and Depreciation.T

Stationery Plant and Pipe Networks

Fuel & lubricants; the cost of fuel, lubricants, and powerT

required to run the stationery plant of the particular costcenter;

Repairs & Maintenance; to include all costs of repair &T

maintenance of the relevant plant, networks, includingmaterials obtained from stores, costs of contactors, directpurchases of materials etc;

Hire of ransport; to include any transport hire costs;T

Insurance and Depreciation.T

Transport and Mobile Plant

Fuel and Lubricants, costs of Repairs and Maintenance, HireT

of transport, mobile plant; Insurance, licenses, etc; vehicles,and hiring of Tird parties;

Depreciation relating to assets in this category.T


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Supplies and Services and Establishment Expenses

o include all anticipated costs for each relevant sub-head.T

Chemical costs particularly should be carefully assessed byreference to anticipated requirements.

Te travelling and subsistence code under this headingT

should include costs of travelling and subsistence which hasto be specically approved e.g. transport for travel, weekend working, lunch payments for lunchtime working etc.

Financing Costs

Tis refers to costs relating to various sources of nance used by theUtility mainly borrowing costs

Income

In most cases there should not be any separate income orT

individual cost centers, as the majority of the Utility incomederives from water and sewerage charges which are not costcenter oriented, but related to the Utility as a whole.

Details of water & sewerage charges income (separately) atT

current tariff levels need to be provided for each month andaggregated for the year on the following basis:-

Number of accounts and amounts billed for consumptiona.charges split between water & sewerage services, where

applicable; Anticipated other billings, such as nes, connection fees etc.,b.itemised for each type of income.


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Capital ExpenditureA separate statement needs to be submitted giving details of anyanticipated capital expenditure. Tis statement needs to show the totalcost of the capital project.

3.4 Steps of Developing a Budget

Step 1: Establish Goals

Goals represent the ends that a Utility wants to attain. Tey dene thedesired outcome(s) or end result(s) and are typically general in nature.Te Utility goals should be denitive and concise; e.g. Improvement of

revenue collection from 75% to 95%.

Step 2: Establish Objectives

Objectives represent the specic results desired within a xed period oftime. Tey should specify what is to be accomplished, for whom, andby what date. In terms of the budget, an objective represents a targetedachievement for the forthcoming year(s). Each objective has one ormore performance measure(s).

Objectives should reect planned achievements in service quality orservice level; thus, key words used in stating objectives includeincreas e,reduc e, expand, complet e, prevent, maintai n.


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Goals and quantiable objectives can be developed for the activities ofindividual area offices or Departments/Departments as well as for theentire Utility.

Step 3: Prepare a Budget Calendar

Te budget calendar establishes the process and schedule the Utilityshould follow in developing the budget. Te calendar helps you prepareand enact the budget in a timely way. At a minimum, the calendarshould indicate the dates when:

You should distribute budget worksheets, instructions, andT

guidelines to departments;

You should prepare revenue estimates;T

You should compile budget requests and summarize them intoT

a single budget document;

Te nance committee of the Board should review budgetT

requests and make appropriate adjustments to budgetproposals; and

Te Board should adopt the budget.T

Step 4: Dene Roles in Budget Preparation

Tere are three major administrative roles in the budget preparationprocess:

Preparing budget proposals for consideration by the Board;T

Explaining current scal conditions, scal prospects, andT

budgetary proposals to the Board; and


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Implementing the budget enacted by the Board andT

monitoring performance to ensure that scal policies arefollowed.

Te Finance and Accounts Manager (FAM) coordinates the entirebudgeting process. His/her role may be of three general types:

o serve simply as a coordinator of budgeting process.T

o perform a signicant policy guidance function and becomeT

involved in all the nancial issues relating to the budget. In thisrole, the Finance and Accounts Manager not only coordinatesall materials, but also assumes analytical and guidance

functions, such as:Issuing guidelines to Department officials regarding thea.acceptable level of service increase or decrease and expectedcost limitations;Evaluating Department requests and adjusting them to policyb.guidelines;Balancing expenditure requests with available revenues; andc.Making recommendations for budget action to the Managingd.Director.

Directly supervise budget implementation. Te specic tasksT

under this role may include but are not limited to;

Ensuring that the department does not exceed budget limitsa.by conducting periodic projections of expenditures andcomparing them to available resources;


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Maintaining a centralized position control to ensure that newb.staff are hired only into authorized positions and at salaries nogreater than the amount designated in the budget;Reviewing and approving all requests to transfer funds fromc.one budget to another;Preparing reports on budgetary performance for the use of thed.board, or board committees; andClosely monitoring budget performance to determinee.potential problems.

Step 5: Distribute Forms for use in Budget Preparation

Te Finance and Accounts Manager distributes budget preparationforms and instructions to Utility Departments. Ideally, this packageincludes the Utility goals and objectives established in Steps 1 and 2to guide managers in establishing funding priorities that are consistent

with overall Utility priorities.

Te people who manage offices should be involved in the budget process

for ownership reasons that eventually make budget implementationeasy.

Step 6: Review the Budget Requests

Te board or the nance committee is in the unique position to reviewall requests and must thus be prepared to establish priorities in light ofmajor issues or potential scal problems facing the Utility. Te review

of submissions should start by ensuring that proposals are consistent


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with the budget policies established at the beginning of the budgetprocess. ypically, the sum of all budget requests should exceed thetotal of estimated revenues plus any estimated surplus from the currentyear. Departments should compete for access to limited Utility fundingsources. Finance Department should have to make tough choices, butshould make them in the context of the Utilitys overall mission andgoals.

Te Finance and Accounts Manager should make sure that the nancecommittee and other appropriate committees receive all the materialsthey need to give full, effective consideration to the budget proposalspresented by Managers.

Step 7: Prepare the Budget Document

Te budget document is the nal product of a lengthy process, and thequality of the budget depends largely on the quality of that process. Ateach stage of development, the budget takes on a different form.

Proposed budgets are usually the most comprehensive and largest versions,

because they contain critical decision-making information. Adoption of nal budget , on the other hand, shall be a smaller summary documentthat you use to communicate nal policies and appropriations.

Te budget is a decision-making document : it is the basis for importantpolicy decisions i.e. informing participants about the implications ofspecic actions or inactions.Communicate budget decisions accurately

and clearly . At different stages of development, the budget reects


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inputs from different Departments and decisions made by Managers,management and nally, the Board. Te budget must accurately reectthe results of this process. Te budget serves as the official action planfor managers and staff charged with carrying out Utility functions andprograms.

Ultimately, the budget document is the vehicle for informing theemployees, management, and other stakeholders regarding the Utilitys

policies and priorities .

Te Finance and Accounts Manager should format and print thebudget document in a way that facilitates understanding and enhances

the utility of the budget for all stakeholders. Te document should beattractive, consistent, and oriented to stakeholders needs. o this end,include reader guides, budgets in brief, and graphs and other visualsthat should communicate these policies and priorities effectively. Tebudget should give readers an understanding of the services that theUtility is providing, the cost of these services, and the benets theyshould obtain from these services.

Step 8: Adopt the Budget

Once you submit the proposed budget, and the Board reviews it, itmay undergo more changes until the Board approves it. Adoption ofthe proposed budget by the Board establishes the legal authority foradministrative officials to incur expenditures in the scal year. Te


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adoption of the proposed budget is the culmination of an exhaustivereview of budget proposals by the Board.

Step 9: Execute and Monitor the Budget

Te main purposes of budget execution are to make the appropriationsauthorized in the adopted budget and to monitor spending. Te goalsof budget execution are to:

Provide for an orderly approach to achieve budgetary goals andT

objectives;

Ensure that funds are expended only on approved activities;T

andHave adequate stewardship over entrusted nancial resources.T

Te responsibility for budget execution rests with the UtilitysDepartments. Tey must account for the expenditures and programoutputs. Responsibility for monitoring shall rest with the Finance and

Accounts Manager, and Managing Director.

Te role of the budget department is to identify actual problems withbudget compliance and inform the implementing center(s). Te role ofthe implementing centers is to resolve the identied problems and toprovide feedback to the budget department. Te budget departmentshould then provide technical assistance and support, so that theimplementing center(s) can take necessary corrective action.


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3.5 Key factors affecting Budgeting Process

Some of the key factors, which contribute to making the budgetingprocess effective in practice include:

Transparency the budget documents provide a clear link betweenobjectives and expenditures; all participants in the budget process areclear about their roles and responsibilities; simple, well-documentedprocedures; well-dened basis of budgeting e.g., incremental, zero-based etc.;

Management effective budgeting involves more than simply preparingannual budgets; the management and monitoring of the budget areequally important, with an emphasis on results achieved.

Co-ordination and Co-operation all those involved in the budgetprocess are required to ensure links between recurrent and developmentbudgets and the processes in the nancial management system.

Integration of recurrent and development budgets: the recurrent costs

arising from the development projects need to be built into recurrentexpenditure planning and trade-offs between recurrent and developmentexpenditure considered for sustainability.

Flexibility the system allows responses to changed circumstances: theseresponses are built into the system, so that implications of any changesare sufficiently analyzed to t within the entitys overall objectives and

priorities.


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Discipline Although the system provides exibility, there is also effectivecontrol over expenditures; any changes to the budget are carefullyanalyzed and justied; only limited use of supplementary estimates;and penalties for breach of rules and regulations.

Accountability and Credibility board involvement: good links betweenthe Board and Management; involvement of accountability of seniormanagers in all stages of the process; if Management do not believe thatthey should be held to their ceilings, or if they can easily by-pass normalprocedures, the whole process of budgeting can be undermined; andbudgets are reliably close to actual outcome.

Comprehensive the budget process and documents need to include allrevenues and expenses, including aid funds; as well as information onprevious years and current years expenses.

Performance Measurement Measuring the impact of the budgetthrough output performance measurements for recurrent anddevelopment expenses. Regular budgetary performance analysis todetermine the extent of achievement of set budget goals is thereforenecessary.

3.6 Key Budgeting Points to Note

It is possible to execute badly a well-formulated budget; it is not possibleto execute well a badly formulated budget. However, budget execution is


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more than simply assuming compliance with the initial budget. It mustalso adapt to intervening changes, and promote operational efficiency.

A procedure for controls is needed, but should not hamper efficiencynor lead to altering the composition of the budget. Te controls must

focus on what is essential while giving exibility to spending agenciesin implementing their programs.

3.7 Expenditure control

Te budget system should assure effective expenditure control. Te rststep is to prepare a realistic budget and to identify measures to containpermanent commitments (such as entitlements, wages). Besides this,the budget implementation system should have the following features:

A complete budgetary/appropriation accounting system. It isT

needed to track transactions at each stage of the expenditurecycle (commitment, verication, payment) and movementsbetween appropriations or budget items (apportionment,supplementary estimates).

Effective controls at each stage of the expenditure cycle.T

A system for managing multi-year contracts and forwardT

commitments.

Adequate and transparent procedures for competitiveT

procurement and systems for managing procurement andcontracting out.


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3.8 Enforcing priorities stated in the budget

Cash rationing should be avoided (except in an extremeT

emergency).

Budget implementation and cash plans must be prepared,T

but they should be based on budget estimates and take intoaccount existing commitments

Supplementary estimates must be strictly regulated and theirT

number limited.

Changes between programs should not alter priorities stated inT

the budget.

3.9 Efcient budget implementation

Budget funds should be released on time.T

Rules for changes should allow both exibility and control overT

the major items.

Carry-over appropriations should be authorized, for allT

expenditures, but the procedure needs to be regulated.Clearly dened procedures for recording transactions (notablyT

for commitments);


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ResponsibleOfcer

Description Documents

Managers,and Heads ofDepartments

Submit departmental budget forms.6.These forms are reviewed by the FAM,for completeness and reasonableness.

Budget Forms

Finance andAccountsManager

Head ofDepartments

Hold Budget negotiations with all7. Managers DepartmentsBudget estimates


After review and consultations have8.been made with heads then thebudget are returned with relevantcomments/changes.

Adjusted/ RevisedBudget


Prepare the annual Utility draft budget9.plan

Draft UtilityBudget


Forward the Draft Budget to the Board10.which discusses and approves it.

Approved Budget


Receive the approved budget and11.makes any amendments according tocomments made by the board.

Approved Budget


Once adopted, the approved budget12.totals should be entered in the Gen-eral Ledger by the FAM for the newscal year

Approved Budget


Distribute approved budget to all con-13.cerned persons (cost centre managersand prot centre managers).

Approved Budget


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3.12 Budget Monitoring and Control

ResponsibleOfcer

Description Documents

Accountants All payments or expenses must be1.checked by the budgeting depart-ment or someone charged withthe responsibility of budget com-pliance assurance to ensure thatthey are in accordance with theapproved budget.

Monthly budgetreports

Accountants Every month, accountants prepare2.budget monitoring reports andsubmit them to the ManagementAccountant/Ofcer in charge of

budget preparation & Compliance.

Period actuala)Period budgetb)Period variancec)Cumulatived)

year to dateactualCumulativee)year to datebudgetCumula-f)tive year toend variancebudget

ManagementAccountant

The Management Accountant3.performs a variance analysis ofthe budget and provides a re-port that explains all expenditureof more than 10% variance. Thebudget variance analysis report isforwarded to the Finance and Ac-counts Manager.

Budget varianceanalysis

Finance and Ac-counts Manager

He/she reviews the budget analy-4.sis reports and makes recommen-

dations for action. The recommen-dations are communicated to allconcerned parties.

Budget varianceanalysis


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CHAPTER 4

General Financial Transactions

Sample of the revenue collection data 2008 records in Kenya. Photo UN-Habitat


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Matching Concept

Is based on the assumption that period costs are expensed as incurredand matched against related revenue in the appropriate period.

Recognition Concept

Is based on the assumption that revenue is recognized when theearnings process is virtually complete and an exchange transaction hasoccurred.

Historical Cost Concept

Is based on the assumption that GAAP normally requires assets andliabilities to be accounted for and reported on the basis of acquisitionprice.

Stable Money Concept

Is based on the assumption that the monetary unit is relevant, simple,universally available, understandable, and useful.

Going Concern Concept

Is based on the assumption that the business enterprise should have along life.

Materiality Concept

Is based on the assumption that an item is material if its inclusionor omission would inuence or change the judgment of a reasonableperson in his/her review of nancial statements.


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Cost/Benet Concept

Is based on the assumption that the costs of providing informationmust be weighed against the benets that can be derived from usingthat information.

Flexibility

Te accounting policies and procedures must undergo regular reviewand revision when changes in corporate policy or governing accountingprinciples deem it appropriate.

4.1.2 Time period

A critical point in monitoring is ensuring that transactions are recordedin the correct time period. In accrual accounting, items are recorded orbrought to account as soon as they are earned or incurred. (NO E: Incash accounting, items are only recorded or brought to account whenactual monies are received or paid.) Similarly, transactions are includedin the nancial statement for the period in which they occurrednot

when monies were received or paid.

4.1.3 Non-cash transactions

In addition, accrual accounting entails recording non-cash transactionssuch as depreciation, provisions, bad debts, etc. Non-cash transactionshave a monetary value and contribute to the business units nancialposition.


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4.3 Record keeping Policies

Accuracy accounting records must accurately and properly reect thetrue substance of all business transactions on a timely basis and inaccordance with Generally Accepted Accounting Principles (GAAP)

and International Financial Reporting Standards (IFRS).

Chart of accounts: are set in line with GAAP and are applied consistentlyon the basis of the set accounting policies.

Clearly Dened Cost/Prot Centers accounting records must reectthe costs and income of each function undertaken by the Utility or itsspecic employees or contractors.

Control actual results must be compared with budget(s) and thedifferences analyzed and evaluated in order to improve business resultsas well as future budgets in subsequent scal periods.

Records

Cash records (Cash receipt, cheque receipt register, chequeT

disbursement register);

General journal;T

General Ledger;T

Subsidiary Ledgers;T

Advance and imprest records;T

Bank account recordT

Personnel records;T


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Registers;T

Purchases Ledger andT

Stock LedgerT

Te details of these records are explained further under Financial

Records and Reports.

Other records necessary to fully document and explain the nancialtransaction of Utility are required to comply with the AccountingRegulations in relation to other nancially expressed obligations, (forexample, budgeting and annual reporting).

Subsidiary ledgers shall be reconciled with the general ledger at leastmonthly.

Tere should be adequate and appropriate supervision of employees with sufficient employee backup to ensure that accounts and ledgers areadequately maintained. Tose employees working within the accountingfunction must have the capabilities and training, commensurate withtheir responsibilities.

In no circumstances may erasures of any nature be made in accountingreturns and books. All alterations must be made by striking out incorrectgures in ink and writing the correct gures above them; the alterationsmust be initialed by the responsible officer.

Correcting uid may not in any circumstances be used to delete oramend items in the accounting records.


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All official accounting entries should be made in permanent ink,ballpoint pen or printed.

4.4 Revenue Management

4.4.1 Responsible Ofcers

Te chief accounting officer(s) is (are) directly responsible forT

the collection of all Utility revenue under their control and forthe general supervision of all revenue staff.

Tey should ensure that proper arrangements exist for theT

prompt assessment, collection and bringing to account of all

revenues and that appropriate measures are taken to collectarrears.

Tey should ensure that revenue records/charts are kept forT

each revenue officer under their charge, and should issue suchinstructions regarding the collection of revenue, as may benecessary.

Chief Accounting Officer(s) must constantly check on theirT

subordinates and are not relieved of any responsibility byreason of the checks and inspections made by the Finance and Accounts Manager or Chief Internal Auditor, or other staff ofthe Utility.

Te Finance and Accounts Manager of the Utility has a dutyT

to monitor the revenue systems and revenue collection of theUtility, and to take action to ensure that Utility policies andtargets are met.


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4.4.2 Composition of Revenue

All Revenue of the Utility should be paid into the Utility bank accountsvia Utility cash offices as necessary and shall consist of but will not belimited to:

All water consumption and sewerage charges levied by theT

Utility

All connection and re-connection fees for water and sewerageT

services

All fees for water sales, septic tank emptying, sale of compostT

and sludge, discharging into sewers, sale of tender documents.

All nes due to the Utility.T

Penalty costs and amounts recovered in respect of anyT

prosecution or action under any Act for the operation of whichthe Utility is responsible or under which the Utility exercisespowers to the extent of such powers.

Te rents and prots of all premises vested in the Utility, andT

the interest dividends and annual proceeds of all monies due,Chattels and valuable securities belonging to the Utility

All amounts paid to the Utility by the Government whether asT

a grant or endowment or otherwise

All amounts due to the Utility for the sale of Utility assetsT


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Any rents, forfeitures, receipts or proceeds lawfully derived byT

the Utility from any other sources whatever not in this sectionspecially mentioned

4.4.3 Revenue Records

Every Chief Accounting Officer should maintain or cause to bemaintained revenue records for each item of revenue in his/her currentbudget showing:

ype of revenue & amount in budget;T

Amount billed for the year to date;T

Amount collected for year to date; andT

Persons responsible for billing/collection of each item ofT

revenue.

4.4.4 Collections of Revenue

All officers charged with the supervision of the collection of revenue

should furnish the Chief Accounting Officers with a monthly Return,showing the details as in 4.3.2 above.

It is the duty of the Chief Accounting Officer to study these returns andtake any necessary action on them.

4.4.5 Accounting for Revenues

It is the duty of all persons responsible for the billing/collection ofRevenue to see that all Utility Revenue which it is their duty to bill


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Write-off of Revenue

All possible measures necessary should be taken in recoveringT

amounts due to the Utility.

Any revenue deemed to be uncollectable must be reported byT

the Chief Accounting Officer to the Finance and AccountsManager/Commercial Manager, who should verify it and ifnecessary report to the Utility Board. Any recommendationsfor write-off must be supported by full details of the debt, andthe reasons for its being irrecoverable.

No debt due to the Utility can be deleted from the books untilT

the Board or the Office in charge has so authorized.

4.5 Management of Monies Received

4.5.1 General Policies

Te following general policies regarding the receipt of money must beobserved.

Cash receipts must be complete. Each days receipts must beT

promptly collected and deposited in the bank intact the next working day.

Cash receipt vouchers should be pre-numbered.T

An employee other than the cashier should be responsible forT

preparing cash count and agreeing them to cash book totals.


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Access to cash records must be closely monitored and accessT

codes must be kept secure.

An independent check of pre-numbered receipts shouldT

be performed regularly and should be reconciled to cashcollections.

Approval should be acquired for cash refunds.T

Cash receipts should be deposited intact in the bank.T NO pettycash payment should be made out of the cash receipts.

Areas where physical handling of cash takes place should beT

reasonably safeguarded.

It must be assured that each receivable transaction recorded isT

legitimate and has supporting documentation.

Appropriate segregation of duties and access control proceduresT

regarding who makes ledger transactions should be followed.Te person who makes postings to the general ledger mustbe independent of the cash receipts and accounts receivablefunctions.

Proper safeguard measures should be adopted to restrict accessT

to the account systems.

All information included in the transaction must be veried asT

to amount, date, account coding and descriptions.

Cash must be safeguarded while in the physical possession ofT

the Utility.

Tere must be appropriate personnel responsible for overseeingT

cash control processes.


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Reconcile pre-numbered receipts to cash collections regularly.T

Te accounts receivable bookkeeper should be restrictedfrom: preparing the bank deposit, obtaining access to the cashreceipt books/registers and having access to collections fromcustomers.

Instruct banks not to cash cheques drawn to the order of theT

Utility.

Authenticated deposit slips should be retained and reconciledT

to the corresponding amounts in the cash receipt voucherrecords.

Restrict cashiers from having access to the accounts receivableT

records and bank and customer statements.Te bank deposit should be made by someone other than theT

cashier or the accounts receivable bookkeeper.

A person independent of the cash receipts and accountsT

receivable functions should compare entries to the cash receipts journal with: authenticated bank deposit slips and deposit perthe bank statements.

Copies of received cheques should be compared to the cashT

receipt vouchers journal for date, payee and amount.

Ensure that a person independent of the cashier or accountsT

receivable functions handles customer complaints.


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Details of each receipt shall be retained for the period asT

dedicated by company policies or governing laws of thecountry.

Details of each cancelled receipt shall be retained for the periodT

set down in Financial Records and Reports.

Posting to the cashbook should be promptly made andT

subsidiary ledgers updated.

Posting to the Ledgers should be done promptly.T

Maintaining Physical Security of Cash

Te following policies must be observed in maintaining physical

security of cash

Ensure proper segregation of duties of key personnel. EachT

of the following duties and responsibilities should ideally besegregated:

Cash receiptsa.Bank depositsb.

Bank reconciliationc.Posting of depositsd.Cash disbursementse.

Closely monitor access to the cash register and keep accessT

codes secure.

An employee other than the register worker should beT

responsible for preparing register count sheets and reconcilingthem to register totals.


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Review the entitys records of the numerical series of printedT

pre-numbered receipts, and verify that these receipts are usedsequentially (including voided documents).

Observe cash receipting operations of area offices.T

Prepare and analyze an inventory of all imprest and changeT

funds by purpose, amount, custodian, date and location.

Periodically use comparative analytical reviews to determineT

which functions have unfavorable trends.

Determine why revenue has changed from previous reportingT

periods.

Conrm manager responses by using alternative records orT

through substantive audit tests.

Adhere to a communicated policy of unannounced cashT

counts.

4.6 Remittances

4.6.1 Banking of Remittances Management

All money received by an officer or employee of the UtilityT

must be paid into a Utility bank account.

Money received by or on behalf of Utility must be bankedT

daily, as soon as practicable on or after the day of receipt.

Detailed records of the Utilitys banking activities must beT

kept.


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Banking shall be reconciled with receipts.T

All Utilitys banking should be collected and delivered to theT

bank on the subsequent day.

In instances where there are unavoidable delays, all bankingT

should be deposited in the overnight safe in the strong room.Banking should be carried out on a daily basis to ensure thatT

cash held on the premises is limited.

4.6.2 Maintenance of Bank Accounts

Te banking officers should obtain the bank statements fromT

the bank at the end of every week. Te statement should bescrutinized for any direct entries and any debits and credits notin the General Ledger cashbook should be posted to the correctaccounts. Tese direct entries on the bank statement normallyinclude bank charges, ledger fees and interest income.

At the end of every calendar month a bank statementT

should be obtained from the bank. Te statement should be

scrutinized for direct entries. Te direct entries, for whichdetails have been obtained, should all be posted to the generalledger and a bank reconciliation statement prepared basing onthe updated cashbook balance.


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4.6.3 Security of Cash In Transit

Te following rules must be followed for conveying cash between twopoints:-

Only the officer directly responsible for the cash is permittedT

to convey it; the cash may not be given to another officer,except in accordance with laid down handover and bankingprocedures. It must not be handed over to the messengers etcor junior staff.

A second officer must accompany the officer carrying cash, andT

where necessary police/security escort must be arranged.

Wherever possible transfers of cash to/from establishmentsTshould not be made on xed days, at xed times, or along xedroutes. Tis is intended to make predictability difficult forpeople who may wish to way lay the persons transporting thecash.

4.6.4 Information

Te entries to be passed in the cashbook are as follows:

Recording bank charges: Dr. Bank Charges, Cr Bank Account(General Ledger)

Recording of Ledger Fees: Dr Leger Fees/Bank Charges, Cr Bank Account (Ledger)


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Recording of Interest Income: Dr. Bank Account (General Leger),Cr Interest Income Accounts

4.7 Bank Accounts and Cheques

4.7.1 Checks to be carried out before accepting thecheques

Any officer accepting a cheque must ensure that:-T

the cheque is correctly dated (i.e., not out of date or post-dated).a.Stale cheques, that is, cheques that are more than 6 monthsold on date of presentation to bank, may on no account be

accepted;the amounts in words and gures agree;b.the cheque is signed by the drawer;c.the cheque is not torn or mutilated;d.alterations of any kind are signed in full by the drawer.e.

No cheque may be accepted until it has been examined in accordance with the above.

Cheques must be drawn in favour of the Utility T

Te customer number and telephone contact must be writtenT

at the back of the cheque.

4.7.2 Responsibility of Ofcers accepting Cheques

An officer of the Utility accepting a cheque, which is subsequentlydishonoured in payment of revenue, may be held responsible for any


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resulting loss, if found guilty of neglecting the guidelines describedabove.

4.7.3 Use of Bank Accounts

Te use of Utility bank accounts for other than official transactionsis prohibited. In no circumstances may Utility money be lodged ina private bank account, nor may private money be lodged in a Utilitybank account.

Signatures for Withdrawals from Utility Bank Accounts

All cheques for payment of sums due by the Utility and otherT

withdrawals from Utility bank accounts shall be signed by atleast two authorized people. A Utility may have a number ofauthorized Senior staff, two people may be designated as theprincipal signatories and others emergency signatories who signonly in the absence of the principal signatories. Te signatoriesmay include :-

Managing Directora.echnical Managerb.

Finance and Accounts Managerc.Utility Secretary d.


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If a cheque is re-issued it should be debited to the Expenditure headcredited by the journal entry.

Replacement of Lost Cheques Drawn on Utility Bank Accounts

When the cheque is reported lost, it should not be replacedT

until the Chief Accounting Officer satises himself that thecheque has not been cashed. He/she should request the bankto stop payment of such a cheque and await conrmation fromthe bank (in writing) that the cheque has not been cashed, andthat a stop has been placed upon it.

Before a cheque is re-issued, the payee must sign an indemnityT

to the effect that should it be discovered that the lost chequehad been cashed by him/her, he/she should refund to theUtility the amount paid to him/her on the replacementcheque.

Deposit of Cheques in Bank

Officers depositing cheques at a bank should enter on the bank paying

in slip:

the name of the Utility and Account number;T

the amount of each cheque;T

the name of the drawer;T

the drawers bank T


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Bank Transactions to be brought to Account

All withdrawals from or deposits in a bank account must be entered inthe cashbook for the same day whenever possible. If not possible theymust be clearly cross-referenced to the bank statement date.

Reconciliation with Bank Account

Bank accounts must be reconciled with the balance in theT

cashbook monthly within 10 days (by 10th of the next month)as soon as the complete Bank statements for any monthare received. Te reconciliation statement must detail alloutstanding cheques, outstanding debits and credits and fully

explain any differences between the balances. A copy of thereconciliation statement must accompany the monthly trialbalance.

Bank statements must be obtained as frequently as possible,T

and in any case not less than weekly. Particularly at the monthend, statements must be obtained quickly and reconciled withthe cashbook by the end of the rst week of the followingmonth.

Action must be taken to make the necessary entries in theT

accounts to rectify the differences between the bank statementand the cashbooks. In particular direct debits and credits tobank statements must be brought into the cashbook and ledgeraccounts.


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Dishonoured Cheques Initial Action

A dishonoured cheque must not be returned to the drawerT

until cash or a bank guaranteed cheque has been received inexchange. Future cheques from persons whose cheques were

returned by the bank endorsed Refer to drawer, should onlybe accepted when such a person tenders a bank guaranteedcheque - i.e. a cheque endorsed by the drawers bank to theeffect that funds are available.

Each step taken in pursuing the recovery of the amount dueT

should be noted on the R.D. cheque form, so that on at aglance record of recovery action taken is available.

Action on the clearance of returned cheques must not beT

delayed, and if clearance has not been effected within four weeks, they must be written out of the accounts.

4.8 Payment General

4.8.1 General Payment Procedures

Payment Vouchers

All payment must be supported by vouchers in the prescribed formand receipts must be obtained for all cash payments at the time ofpayment.


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Preparation of Payment Vouchers

Te following should be observed:

All payment vouchers must be numbered with the chequeT

number.

All payment vouchers should be led in numerical orderT

immediately after payment has been made. Under nocircumstances should vouchers be left unlled in the office.

Payment vouchers should be prepared in ink, ballpoint pen orT

should be printed.

Particulars Required on Payment Vouchers

All payment vouchers should contain full details to explain theT

reason for the payment, and to show that the amount is correctand properly chargeable to the specied heading

Payment vouchers must show some reference to the authorityT

for the expenditure (e.g. supporting documents, minute,

reference, contract number).Documents in Support of Payment Vouchers

All documents in support of a payment voucher including invoices,LPO, and specic authorities must be attached to payment voucher


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particular, the person certifying the voucher is responsible forensuring that:

Te services specied have been have been duly performed.T

Te rates charged are either according to contract or approvedT

scales or fair and reasonable.Te amount is correctly chargeable to the allocation codeT

quoted on the voucher.

Te computation and castings have been veried and areT

arithmetically correct.

Te person named in the voucher is entitled to receiveT

payment

All proper deductions including the repayments of advances orT

other liabilities have been duly made.

Te payment complies with Financial Regulations and anyT

other laid down procedures

Incorrect Payments

No officer should sign a payment voucher or incur any chargeTunless he is satised that there are sufficient budgeted fundsavailable to meet the proposed payment. If the need had notbeen foreseen at the time of budgeting then a budget re-allocation (foregoing an item or more in the budget to cater forthe new need) or a supplementary budget must be made.

Any Officer making, allowing or directing any disbursementT

without proper authority should be held personally responsible


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for the amount, and any officer whose duties require him torender accounts should similarly be held personally responsiblefor any inaccuracies in those accounts.

All material alterations in payments vouchers must be initialledT

by the certifying responsible officer.

Te counter signatory for payment should satisfy himself as farT

as possible that proper authority exists for payment, and he/sheshould ensure that authority is quoted on the voucher itself.

Payments by Cheque

All payments must as far as possible be paid by crossed chequesT

drawn on the Utilitys bank Account. All payments to local suppliers, Government departments andT

other institutions should be by crossed cheques, made payablein the name of the payee.

Cheques must be drawn in strict numerical order.T

Cheques should be made out to the payee exactly as per theT

payment voucher.

All cheques drawn must be listed on a cheque schedule/T

conrmation letter in quadruplicate (4 copies) in chequenumber order. Te cheque schedule must show exactly what


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is written on the cheque. Any cancelled cheques must also beshown on the schedules.

Procedure for drawing cheques:T

All vouchers for cheques to be drawn to be totalled by thea.

drawing officer to arrive at the vouchers total.Cheques are written for each voucher (or group of vouchers)b.and the cheque amounts are then totalled by the drawingofficer, to ensure that they agree to (a).Cheque schedule/conrmation letter is typed, and agreedc.total as at (a) and (b) inserted as the schedule total.Cheque schedule/conrmation letter is cross-checked by thed.

drawing officer to the cheques, and added up to ensure thatits total does agree to (a) and (b) totals.

Cheque schedules/conrmation letter (Appendix example)T

should show:

Name of the Utility.a.Columns for cheque number, payee, amount, signature andb.identity card number of person receiving cheque.

otal amount of cheque schedule in words and a summary ofc.the cheque numbers included on the cheque schedule.Bank account number on which drawn.d.Signatures of the persons signing the cheques.e.Indication of Utility seal space.f.Date of schedule.g. When a cheque schedule goes over one page, the cumulativeh.

carried forward and brought forward totals are to be put on


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each schedule. Te nal page should show the total ofthe cheques drawn (including the brought forward totals).Each page of the schedule is to be signed by the chequesignatories.

white-out amendments to any part of the cheque schedulesT

are not permitted. Any amendments must be done by crossingthrough the original entry and retyping or rewriting in thecorrected entry. All amendments must be initialled by thecheque signatories.

Salaries and wages cheques should be drawn on discreteT

schedules, so that the total of the cheques drawn agrees to the

net salaries/wages due shown on the salaries/wages summarysheets.

when signing cheques, the following should be veried:T

Payee on voucher/cheque stub/cheque/cheque schedule area.exactly the same. Amount on voucher/cheque stub/cheque/cheque scheduleb.are the same.

Words and gures on cheque agree and date is correct.c.Cheque has all necessary stamps/crossings etc on it.d.Correct cheque numbers are on schedule and voucher.e.Vouchers are properly authorised and stamped paid.f.Cheque schedule addition is correct, words and gures agree,g.and correct cheque numbers are entered.Ensure that vouchers/cheques/cheque lists etc have beenh.

audited.


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Ensure that any prior cheque signatory/signatories hasi.properly signed in all appropriate places.

Examination of Payment Vouchers

All payment vouchers should be examined by the Finance and AccountsDepartment, and by internal audit, to ensure that the requireddocumentation is present, and that the payment voucher is correctlycoded, arithmetically correct and that budgetary provision has beenmade. Te examining officer should initial the payment voucher in therelevant place.

Lost Payment Voucher

If a payment voucher is lost, a replacement voucher must be preparedand must bear a certicate to the effect that the original has been lost,

with an explanation of the circumstances & stating that payment hasnot been previously made. . If supporting documents are lost, certiedcopies must be provided.

Payees

Te following should be observed

Payments should be made only to the person/rm named onT

the supporting documents and the relevant payment vouchersor to their legal nances. In the latter case, authorities, suchas powers of attorney, letters of administration, etc, must be

presented to the certifying officer and be recorded on the


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vouchers or, if possible, the authority itself should be attachedto the voucher.

Payment vouchers should remain in the relevant les in theT

custody of Utility officers at all times, and should not bereleased to payees, or other unauthorised personnel.

Receipts for Payment

Receipts for payment made in cash (e.g. personal emolumentsT

and imprest payments) should be obtained at the time ofpayment. Receipts for crossed cheque payments should beobtained by means of a signature for the cheque on the cheque

list.Payees must identify themselves by means of an identity cardT

or similar documents.

When payment has been made on a voucher (whether byT

cheque or cash), the officer who has made the payment muststamp the voucher with the word Paid and initial it.

Identication of Payees

Paying officers must satisfy themselves that the person claiming thepayment is the person authorised to receive the amount. Te receiptsmust therefore identify themselves or be identied by the payees.

Payments by Cash or by Cheque

All payments on a single payment voucher should be made either bycash or cheque(s) but not by a combination of both methods. One


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cheque may cover any number of payment vouchers and one paymentvoucher may cover any number of invoices, provided they refer to thesame person or rm.

Contracts and Agreements

In the case of payments in instalments in respect of contractsT

for construction work etc., each payment voucher shouldshow the full contract price, reference to the contract, thenumber and amount of the instalments now to be paid, theamount of previous payments made against the contract,and a certication that the payment has been entered in theContracts Register.

In cases where a single payment is covered by a SpecialT

authority - e.g., Utility minute reference, the authority must bequoted on the voucher.

Te chief accounting officer or the person with such delegatedT

authority shall maintain a Contracts Register in the formprescribed and all contract payments must be entered in this

prior to payment.

No Officer Sign Payment Vouchers for Payment to Himself/Herself

No officer should certify and pass for payment a voucher made payableto himself/herself, unless it is in relation to his/her rights & privileges& there is another party certifying the payment.


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Payments period

All payments should be made, as much as possible, within theT

Utilitys dened payment period.

Discount allowed on any account should be deducted and theT

voucher made out for the net amount. Officers may be calledupon to refund any loss occasioned through the late paymentof an account.

Any negligence or delay on the part of an Officer in presentingT

claims or in furnishing completed vouchers may result inthe claim or voucher being totally or partially disallowed.Disciplinary action should then be taken against such a person.

Authorised Bank Account Signatories

Te Board on the advice of op Management should decide onT

the authorised bank account signatories. All cheques or otherfunds transfers to 3rd parties should require to be signed by twovalid signatories.

Te Utilitys bankers should be informed of all approvedTsignatories, and should be provided with specimen signatures.Signatories cannot be changed without the express approval ofthe Board/ op Management


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4.9 Control and Use of Ofcial Receipts

4.9.1 General Information

Denition of Ofcial Receipt

Te term official receipt covers all revenue earnings books of any kind.Tis includes all receipts, licences, certicates, permits, tickets, etc, usedfor the collection of revenue.

4.9.2 General Policies

Security of Ofcial Receipts

Receipts, when not in use, must be kept under lock and key at all times.Tey should be considered cash and should be treated as such. Teofficer to who official receipts are issued is personally responsible fortheir safekeeping and must ensure that adequate measures are taken tosafeguard them at all times.

Orders for Ofcial Receipts

Whenever revenue earning books and receipts are required, the suppliessection shall place an order only after approval by the Finance and

Accounts Manager that the items are required. Orders should only beplaced with reputable printers.

Prior to delivery of such supplies, the printer should inform theFinance and Accounts Manager of the date and time of delivery, sothat arrangements can be made for Finance Department and AuditDepartment attendance at the delivery. Only designated officers,


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authorised by the Finance and Accounts Manager should be allowed totake delivery of receipts.

Stocks of Revenue Earning Books and Receipts

Te main stocks of unused official receipt forms receivedT

should be under the control of the Finance and AccountsManager.

Te Finance and Accounts Manager should cause stock toT

be taken of all Revenue earning books and receipts on hand,at least once per month, to ensure that adequate stocks areavailable, and that minimum stock levels are being complied

with.Sufficient notice of order should be given in respect of all suchT

to ensure their availability on the required date.

Register of Unused Ofcial Receipts (Accountable Stationery Register)

Te Finance and Accounts Manager shall maintain a RegisterT

of unused Official receipts. Every receipt, issue, return and

re-issue of receipt Books, ticket books etc., must be recordedin the Register, each book being entered separately. Every issueand re-issue must be signed for separately by the recipient.

Te Register shall show the dates of receipt and issue, the serialT

numbers of each book, the officer to whom the books areissued, the date of return by those officers, the serial numbersof any cancelled receipts and maximum and minimum stocklevels. Separate folios must be used for each different type of


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receipt book, and sufficient folios must be left between eachtype to allow for future use. An up-to-date index shouldappear at the front of the Register.

Control of Ofcial Receipts

On receipt of new official Receipt Books, tickets, etc, theyT

should be individ