Spatial technology allows CFOs and managers to drive massive improvements in financial management, reporting, and governance at local government level by analysing financial data within its real-world context, in other words on a map
I have tremendous difficulty in explaining to my former audit colleagues exactly what our company does. The few CAs(SA) that have heard the term geographical information systems (or GIS) consider it technical jargon that applies to engineers and town planners, with little bearing on what happens in the finance office. In this article I will attempt to shed some light on GIS technology and explain some of the ways in which the finance function at municipalities can benefit from maps.
In the simplest of terms, the approach entails plotting data from a spreadsheet on a map, from where users can view and analyse the data in its physical context, and perform analysis based on records’ relative position.
Municipalities exist to serve and manage citizens living in an area: providing utilities such as water and electricity, removing refuse and sewerage, maintaining infrastructure, etc. The foundation of the relationship (and any rights and obligations) between the municipality and its constituents is ownership or occupation of property within the municipal boundary. Since a municipality’s entire operation relates to a physical location of some sorts, it just makes sense to know exactly where these physical locations are.
Plotting the data on a map, or ‘geocoding’, is usually the most difficult, time-consuming, and expensive part of a project. It is also the most crucial and fundamental step to get right – many a project manager has regretted cutting corners or saving cents here. You can have the best analyses in the world, but if your data isn’t reliably mapped, your conclusions will be flawed.
The process of geocoding includes cleaning and standardising the address data on the financial system, comparing it programmatically to an already geocoded list of addresses (referred to as a national address dictionary, or NAD) and then manually geocoding exceptions. The result of the process should be that each record in the financial system is linked to a registered property (more about this later).
Take note: there are several service providers that do geocoding, but horses for courses − if you’re doing a quick-and-dirty marketing analysis, a cheap online batch geocode is sufficient. However, where accuracy is of the essence, be sure to use a company that specialises in South African, stand-level geocoding (our addressing system has surprisingly many quirks).
Once the data is geocoded, the fun starts. The data can now be viewed and analysed in a variety of tools and formats, from simple visualisations where different colours have different meanings, to more complex formulae where statistical analyses are performed on records with their relative location as an input.
REVENUE MANAGEMENT AND ENHANCEMENT
Let’s start by using the technology to analyse and improve our revenues. Not only does this starting point generate excitement (who doesn’t enjoy seeing revenues go up?), but the increased revenues help fund the project.
Targeting property rates is a good place to start, since it entails geocoding and testing the property register, and represents roughly 15% of municipal revenue.
Property rates are calculated as the value of each property multiplied by the applicable rate (based on zoning and usage). All municipalities maintain a property register that contains this information.
The first step is to verify whether every property within the municipal boundary that is registered with the Deeds Office appears in the property register.
The land parcels database maintained by the Surveyor-General contains all the surveyed properties in the municipal area. Each of these is then linked to a title deed to determine whether the property has been registered or not, since the property owner becomes liable for rates once the property is registered.
Next, each record in the municipal property register is linked to a registered land parcel, to identify registered parcels that aren’t yet being billed.
Once completeness has been verified, the accuracy of the rates category and valuation is tested, typically by doing reasonability checks like comparing each property to its nearest neighbours. Exceptions are identified and then inspected by a human operator to determine the reasonability of the valuation/category. Other tests can include testing against living standards measures or other spatial datasets.
SERVICES AND UTILITIES
The bulk of municipal revenue (usually between 40% and 60%) relates to services such as electricity, sewerage, etc.
Each service account is linked to the map, as explained above, to identify properties that aren’t being billed. Next, each account’s tariff is compared to the tariffs of surrounding properties to identify and investigate outliers. If the service depends on monthly readings, the next step is to ensure that each meter is being read on a regular basis.
A big loss of revenue for municipalities is due to bridged water or electricity meters. While it is easy to identify a fully bridged meter with a normal spreadsheet, it becomes more difficult to identify meters that have been partially bridged. This typically occurs in high-use, affluent areas, where residents would bridge their high-consumption appliances such as geysers, swimming pools, and stoves while still running lights and so on through the meter. The meter then indicates low consumption, but not enough to flag them as suspicious if analysed without context against households from poorer areas. By performing spatial analyses and comparing consumption to average neighbourhood consumption, properties with suspiciously low readings can be flagged for inspection.
It is critically important when combating a culture of non-payment, to address it in an entire neighbourhood at once. This ensures maximum effectiveness with minimum loss of community goodwill – people want to know they aren’t being unfairly singled out.
Geocoding debtors age analyses creates maps that indicate areas of poor payment where interventions need to be focused, and by comparing maps over time, receivables managers can assess and report on the effectiveness of interventions.
Reconciling the financial fixed asset register with the operational asset registers of multiple municipal departments is a nightmare. Assets are replaced by technicians, and the only notice that the finance department receives is an invoice for a new asset, without any indication of what should be impaired. Geocoding the financial asset register enables managers to reconcile it with the various operational asset registers spatially, physically verify the condition of assets, and identify indicators of impairment over an area.
Linking the municipal financial system to a GIS means that there is a treasure trove of useable data that the Auditor-General can use to gain assurance. Not only is it easier to verify assets physically or see the completeness of revenue and debtors on a map, but with spatially enabled data a plethora of new computer-assisted auditing techniques becomes available. Auditors can better identify risk, do stratified sampling, and perform spatial analytical procedures, leading to greater assurance, and fewer disclaimers or qualifications.
The benefits of GIS for audit will have to be the topic of a future article.
Jack Welch famously said, ‘Lead change before you have to.’ GIS and spatial analysis are changing the way in which we analyse data, and it is opening realms of possibility. Proper integration of GIS into our financial management workflows will undoubtedly lead to increased revenues, decreased costs, better governance, and overall improved financial health. Few engineers or scientists are ignorant of GIS and how it impacts their fields, but I fear many of us in the finance departments have lagged when it comes to adopting this new technology. Things are changing rapidly, and the sooner we get acquainted with this new technology, the sooner we will start reaping the rewards.
This has been a mouthful, and I’ve only brushed the surface …
AUTHOR: l Nicolaas Klopper CA(SA), Director of 1map Spatial Solutions (Pty) Ltd