Financial and Accounting Areas of Improvements

2.
Financial and accounting areas of improvements
The underlying concept of the FOPIP Action Plan is the Plan Do Check Act Cycle,
organizing the various steps and aiming at continuous improvement and
standardization of processes and standards. During the first phase of the project
specific areas of performance improvement regarding Financial and accounting
issues have been identified. For each of these areas the Consultant will agree on
benchmarks, objectives and required activities on a timeline with Utility but also
with UNDP representative. To achieve benchmark performance the Utility needs
to achieve the objectives. Achieving the objectives requires carrying out the
activities. The activities include the sequential steps of the PDCA cycle.
The Consultant emphasizes the PDCA as the universal approach to each of the
identified areas of performance improvement. The PDCA provides for the same
approach to seemingly widely differing areas such as for example missing MIS for
the accounting, or tariff strategy. If management and senior staff obtain the skill
and discipline to apply PDCA in their own work, then the achieving sustainability
of operations of all three water supply utility companies is more visible.
The organizational structure is going to provide a framework for water and waste
water division. The division obtains financial and administrative services from the
Utility that hosts it. The framework will be used for all financial and accounting
areas of improvements.
For the Consultant the above means that for each of the identified areas of
performance improvement the task is to:
-
Assess the baseline and existing trends i.e. the present situation of IT
systems, finance and accounting, organization and operations
Define the potential gains and agreeing on realistic measurable targets
Define the necessary activities to be carried out
Support the implementation of measures and pilots
Design internal incentives, if applicable
Establish lines of communication
Ensure accountability (by assigning responsibilities to leaders and teams)
Measuring, analysing evaluating and presenting the progress
Support management to take corrective measures, when needed
In accordance with the Action Plans from the previous project phase, as well as
according to the experience and practice, Financial and Accounting areas of
improvements will be considered jointly as one single area for the improvement.
Each specific area, as defined within RfP, will be implemented and will have
specific individual outputs for all 9 utilities (as described in RfP), but approach will
be comprehensive and all-inclusive. Specific topics will be also considered jointly
with Legal and Institutional and HR experts, in order to coordinate all activities
and to include all topics in Public Service Agreement as well as within HR and
staffing issues.
For each of these areas the Consultant will agree with all three utilities on
benchmarks, objectives and required activities on a timeline. To achieve
benchmark performance the utilities would need to achieve the objectives.
Achieving the objectives requires carrying out the activities. The activities include
the sequential steps of the PDCA cycle. Furthermore, the Consultant will define
the potential gains and agree with the nine utilities on realistic measurable
targets.
As the first step, Financial and Accounting Experts (FE) will have deep desktop
analyses and review of all 9 Action plans from the previous stage. Experts will
prepare questionnaires with the needed, missing issues in order to be able to

update action plans for each utility. Each water utility's Action plan and
questionnaire with specific topics related to financial and accounting measures
for improvement will be sent to utilities in order to prepare themselves for the
following update and agreement of the future steps.
Two experts will pay visit to each municipality and ViK in accordance with the
previously agreed schedule of the visits. It is intention to visit both, utilities and
the respective local government in one day. At the meetings with each ViK and its
relevant LG (9 meetings); FEs will present specific topics and its importance for
common understanding. The following will be elaborated and discussed:
-
PSA with its specific topics regarding financial and accounting issues;
Tariffs and methodology;
Subsidiarization for all vulnerable social categories ;
Long term debts policies;
Cost centres;
Depreciation fund; In accordance with RfP, the Consultants will
recommend to develop a depreciation fund. In this virtual fund which is
fully controlled by the company, total annual depreciation costs will be
cumulated. On the other hand, the fund possibly may be used to fund
future capital costs, if they are available. This fund, alternatively, can also
have a joint management composed of the municipality and the company,
of course with the required written rules on the use of resources from this
fund solely for purposes of fixed assets, or for the purpose of capital
investment.
Discussion and adoption of the conclusions and Plan
All the above issues will be agreed, not necessarily on the first meeting. FEs
experts will provide the agreement on subjects for all utilities before the first
deliverables submitted, and will organize meetings as needed.
During the visit to the utilities, project team will go through the questionnaires
together with responsible persons and try to obtain deep insight in relevant
issues. Financial statements, information on the existing accounting software,
MIS, collection procedures, revenues, plans, etc., will be ask for and discussed
with utility representatives. According to Consultants previous experience on
similar projects, it is expected that utilities will not be readily prepared for the
meeting. Thus the experts will use experience and best practice assessment, in
order to obtain even the hidden data.
Data will be used for updating existing excel tables and for the monitoring of
relevant KPIs.
During the visits to local governments project team will conduct in-depth
interview with respective key responsible persons.
Together they will review and fulfill questionnaire and discuss relevant issues
concerning financial affairs and work of the utilities.
All activities for these areas of improvement will be conducted in accordance with
the horizontal principles of work which include: i) stimulate exchange of best
practices and peer-to-peer learning across utilities and localities; ii) propose
approaches which ensure that all separate activities implemented within utilities
fit within the broader local governance system, structures and processes; iii)
encourage strong ownership by utilities in all areas of work; iv) facilitate
intensified and meaningful cooperation and interaction between utilities, local
government administrations and municipal councils; v) in all cases, assistance
provided to the utilities will be done in direct interaction with relevant staff, thus
increasing learning and capacity development of beneficiaries (Fes will support
and lead work but utilities will be coached to work alone for future steps of PDCA
cycle).
2.8.1. Tariff policy

According to the results of the MEG Project Entry Phase, detailed analysis of
present state and processes in the area of setting the tariffs in the relevant 9
water utilities, as well as in legislation regulating the issue of pricing revealed the
following:
-
All water utilities have standardized tariff system with different tariffs for
water supply and wastewater disposal on the basis of consumption per m3,
for different customers' categories. Tariffs are applied mainly on the basis
of measurements of water consumption. The tariff for wastewater is
applied in accordance with the amount of drinking water that has been
invoiced. The legislation generally provides that the tariffs are determined
in accordance with the costs necessary for ensuring the provision of
services. In practice, water companies are proposing the tariffs to LGs,
which usually approves prices determined in relation to the surrounding
areas, or arbitrarily, as assessed by the municipal authorities. There is no
water utility / municipality, from 9 utilities, with transparent way, or
methodology, of establishing the appropriate tariff for services provided.
There are no written procedures for the determination of tariffs. Since
water utilities do not record their costs by cost centres, currently they are
not able to provide actual data necessary for the proper calculation of the
price of water.
All Utilities apply a tariff system with the following characteristics:
Different drinking water tariffs for different customer categories

i.e. households and legal bodies;
Different wastewater disposal tariffs for different customers

categories.
The MEG Project Entry Phase defined the Reference level of this possible area of
improvement as:
-
Tariff policy secures implementation of the full cost recovery principle, but
these costs needs to meet the principle of "economic efficiency" (costs are
recorded by cost centres, separated by services provided).
Tariff level is limited by the affordability ceiling, set to 4 % of the total
household income for the water and wastewater invoice.
There is no cross-subsidization between customer categories and/or types
of services.
The tariff adjustments mechanism is agreed and followed by local
government.
Local government adopted and implements policy for subsidizing
population in need and is regularly updating database of such people.
In order to achieve the above objectives, the Consultant will implement the
following activities (individually for each of the water utilities, except the training
which will be combined for several water utilities, where appropriate): (activities
are to be implemented during this assignment, where some of the activities will
continue after this assignment ends):
Financial and Accounting Experts will briefly assess (desktop

analysis) existing tariff formula used, as well as the tariff policy and
available legislation regulating it within 9 LGs in order to be better
prepared to persuade main stakeholders (target groups) for the
following steps. Water tariff elements should be defined aiming to
meet the full cost recovery principle, but it does not always include
costs of current and investments maintenance, or expenditures for a
repayment of loan for the communal infrastructure construction,
equipment and assets acquisition. FEs will briefly analyse whether
tariffs are calculated to cover all related costs, and if operations are
optimized in terms of these costs.
FEs will prepare presentation of the tariff methodology proposed

("Tariff setting methodology for water supply and sewerage services
in Bosnia and Herzegovina" prepared by UNDP in 2015); According
to the stated document the following will be presented:
Principles to be followed:
o
Full cost recovery: includes at least the following costs:
Operative costs generated from operation activities

(staff, electricity, maintenance, chemicals, etc.,
Depreciations costs (investment maintenance costs),
Investment costs, investments from its own funds and
Financing costs (capital costs, servicing costs of capital)
User-pays principle
Equity and equality principle
The cost per person 1.5-2% BND (or 4% of total

monthly family income), with subsidizing per registered
(socially vulnerable ) person up to 3m3 per month.
Economic efficiency principle
The obligation of the LG to ensure that all residents

have water under equal terms
Affordability principle
The price of water for all consumer categories will

become equal trough the transition period of 3-5 years
Critical to achieving the strategic objectives of the

methodology
Natural resources preservation principle (ecological

efficiency)
Fees, rising block tariffs
Tariff structure will be presented as defined within the UNDP

document;
Bookkeeping of costs anr reveues (cost center accounting); details
will be presented as defined within UNDP document;
Support discussion and adoption of the tariff methodology. For these

purposes Consultant will use the first and additional meeting with 9
ViKs and its relevant LGs in order to obtain the common vision and
understanding of the proposed methodology. The document "Tariff
setting methodology for water supply and sewerage services in
Bosnia and Herzegovina" prepared by UNDP in 2015 will be used as
basis (draft) for this activity. It will be provided to all relevant
stakeholders (LG communal affairs, general directors and
management, as well as to the finance persons) and it will be
discussed in details. Changes in the proposed methodology will be
made only on specific request of LG or the utility; it will be
documented and justified and included in documented procedures
for tariff changes procedures only after UNDPs approval. Specific
challenge will be to obtain agreement on such methodology for the
utilities from Republika Srpska since they already have some
methodology document previously prepared, but not adopted.
FEs will prepare training regarding tariff methodology proposed and

they will deliver training to delegated employees for the tariff
methodology application. Training activities will be combined for
several utilities, as appropriate.
FEs will support implementation of the affordability survey (if it will

be organized) in the LG with provision of key inputs or data needed
regarding water supply and wastewater services, support using its
results (including database of people in need for subsidy) with the
tariff methodology.
FEs together with Legal Expert will draft and support discussion and
adoption of documented and transparent procedures on subsidizing
payments for services for population in need (vulnerable groups),
monitor its implementation and provide related advises if
appropriate.
FEs will develop simple tariff model, test it and link it with the
accounting data (with costs recorded by cost centers) for each
utility. The tariff model should project the cost of providing a m3 of
drinking water or disposing of a m3 of wastewater. The tariff model
will take its data only from the cost centers of the Water and
Wastewater business units and from the allocated overhead and
direct costs of these business units. The tariff model will be fed with
accounting data either directly or through a onetime manual
copy/paste. The tariff model will therefore in fact be integrated in
financial model based on the accounting data of the company,
projection parameters, tariff schedules and socio-economic data for
affordability analysis.
In order to monitor the progress of this area of improvement, the following Key
Performance Indicators (KPI), as well as indicators that cannot be measured, will
be followed:
Documented tariff calculation methodology (YES/NO)

Tariff is representing the full-cost recovery tariff (YES/NO)
Periodic checks are done for the affordability of citizens? (YES
NO);
There is cross-subsidization between customer categories and /

or types of services? (YES NO);
There is agreed mechanism for adjusting tariffs on the basis of
documented methodologies? (YES NO);
Current ratio, as the ratio of current assets and current liabilities
in the course of 12 months;
Affordability - the ratio of water and sewage bills for one person
and gross national income per capita (%);
Affordability - The amount of the average annual bill for water
and sewage (BAM / year);
Affordability part of monthly household bills for water and
sewerage in average total income in the household (%).
Outputs will be delivered in accordance with the RfP:

Area of
improvement /
activity:
Product/deliverable
(to be attached
within the report)
Progress and
deliverables per Area
of improvement
Deliverable 1:
early December 2016
Support discussion and
adoption of the tariff
methodology. Use the
document "Tariff setting
methodology for water
supply and sewerage
services in Bosnia and
Herzegovina" prepared
by UNDP in 2015 as
basis (draft) for this
activity, make changes
in the proposed
methodology only on
specific request of local
government or the
utility; document and
justify all eventual
changes, include
documented procedures
for tariff changes
procedures.
Adopted tariff
methodology
Completed for at least 2

utilities
Deliver training to
delegated employees
for the tariff
methodology
application.
Brief training report on

tariff methodology
application

utilities
Draft and support

discussion and adoption
of documented and
transparent procedures
Draft procedures on
subsidizing payments
for services for
population in need

utilities
Area of
improvement /
activity:
Product/deliverable
(to be attached
within the report)
Progress and
of improvement
Very brief report on

linking tariff model with
the accounting data
(with costs recorded by
cost centres), also
containing present tariff
structure and
evaluation.

utilities
on subsidizing
payments for services
for population in need
(vulnerable groups),
monitor its
implementation and
provide related advises
if appropriate.
Link tariff model with

the accounting data
cost centres).
Deliverable 2:
early April 2017
supply and sewerage
by UNDP in 2015 as
in the proposed
methodology only on
government or the
changes, include
for tariff changes
procedures.
Adopted tariff
methodology

utilities
Deliver training to
delegated employees
for the tariff
methodology
application.

tariff methodology
application

utilities
Draft and support

of documented and
Draft procedures on
for services for

utilities
Area of
improvement /
activity:
Product/deliverable
(to be attached
within the report)
on subsidizing
monitor its
implementation and
if appropriate.
population in need

the accounting data
cost centres).

the accounting data
cost centres), also
structure and
evaluation.
Progress and
of improvement

utilities
Deliverable 3:
early August 2017
supply and sewerage
by UNDP in 2015 as
in the proposed
methodology only on
government or the
changes, include
for tariff changes
procedures.
Adopted tariff
methodology

utilities
Deliver training to
delegated employees
for the tariff
methodology
application.

tariff methodology
application

utilities
Draft and support

Draft procedures on
Completed for all utilities
Area of
improvement /
activity:
Product/deliverable
(to be attached
within the report)
of documented and
on subsidizing
monitor its
implementation and
if appropriate.
for services for

population in need

the accounting data
cost centres).

the accounting data
cost centres), also
structure and
evaluation.
Progress and
of improvement
2.8.2. Collection and revenue administration, billing cycle

2.8.2.1. Introduction
Effective collection is directly related to the tariff setting, if the collection rate is
low, it is often justified with lack of affordability and reflected in request for
increased tariff level. Collection administration is also highly relevant to tariff
setting procedure, since the payments are supposed to be fully separated by
services for which are actually collected and are supposed to be linked to the
exact invoices delivered.
Observing the problems existing in water supply companies in BiH, most obvious
in great water losses and inadequate tracking of lost water, inadequate tracking
of expenses of services water supply provides, as well as inadequate tracking of
payment for given services, which alone makes further financial losses.
In the majority of water utility companies there is no such system that would
integrate buyers and services in integral database. Also, there is no adequate
interaction between consumption/payment system, accounting system and
system of debt collection (ie. incoherence of bills and payments) which leads to
inability to review real expenses and payment of provided services, inability to
detect the debts and inability to ask for court-ordered debt collection because of
lack of billing and bill-payment relations.
In accordance with the results of previous project phase revenue collection
procedures in all have to be improved, primarily because none of the WU has
written procedures for the billing process, both for regular and delayed payments.
There are no written procedures on relations with non-payers. The custom

methods are used. Recently, the legal provision enabling suing on a debt before
the date for obsolescence expires (which is one year) is generally respected.
Users are disconnected if deemed necessary. Penalty rate is not charged on the
unpaid bills. The software does not allow debt review by its maturity, which
certainly should be the option. Lot of outstanding debts are more than 180 days
old.
2.8.2.2. Goals
Administration of debt payment for every customer related to period and

service type on which debt is related.
Determine the acts that will lead to increased rate of payments, which
includes notices, improvement of data shown on bill, exclusion from
network, use of legal instruments such as court-ordered payments,
calculation of interests on late payments, implementation of campaigns on
raising consciousness about need for payment of given services.
Preparation of communicational operational plan in case the tariff needs to
be increased, as a way of securing it will not influence the pace of revenue
collection.
Decisions on optimal payment cycles.
For listed goals to be achieved, following activities need to be implemented

particularly for each of water supplies:
Data collection, analysis of claims and revenue by the type of service

provided and payment arrival. Providing advices.
Proposal of techniques for payment improvements and better coherence
with issued bills. Also, proposal for optimal invoicing cycle.
Proposals and discussion on acts for increasing level of service and debt
collection.
Analysis of different payment cycles and adoption of optimal ones.
Preparation of Plan of communication in case of price increase; discussion
and adoption of this plan;
Implementation by Water Utility Company, monitoring of results and
monthly reporting
2.8.2.3. Methodology
Primarily, financial analysis of current conditions in water utility companies needs
to be done. It should be spoken about techniques that can improve conditions in
means of getting timely and high-quality information regarding payment of
provided services.
2.8.2.3. Financial analysis
Financial analysis is important tool used in making business decisions in
company. It precedes to management process, or, more precisely, precedes the
process of planning which is integral part of management. Depending on the
interests of the subject there are various types of analysis. Within these analysis
different analytical means and methods are used, and data from financial reports
is converted in usable informations relevant to management.
Core instruments and processes which will be used in analysis of financial reports
are:
1. comparative financial statements,
2. structural financial statements,
3. analysis through indicators.
Comparative financial statements will serve as a basis on which horizontal
analysis is conducted. Respectively, it will provide overview of changes during
certain time intervals ( multiple billing periods).
It follows that we need to be in dispose of data from minimally last two years
(2014.,2015.), as well as for the 6 months of current year, for every water supply.
Usually, one year is taken as basis and the rest are compared to it. Through
horizontal analysis, tendencies and dynamics of changes in certain positions of
core financial report is noticed. Key variable in horizontal analysis is time.
Comparing elements of financial reports, shown in currency units, between two or
more periods, the conclusion on changes in observed period is brought and
problematic areas are determined.
In structural financial statements, elements of the report are given in
percentages. Structural financial reports serve as basis on which vertical analysis
is conducted. Vertical analysis means comparing elements of financial reports
within one year. Structural financial reports are considered in context of analysis,
while comparative financial reports are considered in means of comparation.
Indicators of financial analysis are rationals, i.e.. numbers, i.e.. Financial
indexes which set in certain measures in relation and show the successfulness of
company's business activity.
Biggest part of data used to calculate indicators is found in core financial reports
balance, profit and loss count, payment and report on money flow.
The purpose of forming and calculating financial indicators is establishing
information basis needed for making certain decisions. Indicators are
informations for managing company and making decisions, so they make
connection between empiricism and rationalism as key sources of knowledge.
Choice of indicators that will be calculated and interpreted depends on decision
that needs to be made.
In this case, it is important to pay special attention on the economy indicators
which measure relation between income and expenses, billing and payment, and
within them following needs to be analyzed:
1.
2.
3.
4.
5.
6.
7.
Average revenue on m3 (KM/ m3)

Average yearly revenue on connection (KM/connection)
Average revenue on m3 , water only (KM/ m3)
Average revenue on user of waste water service (KM/ m3)
Average term of payment (days)
Ratio of payment (%)
Internal subsidizing between user categories
Ways of gathering data for processing:

Above all, quantity and quality analysis of existing data in system related to
claims and revenues by the service type needs to be done for every water supply.
Primarily, it it necessary to find out which way evidence of relevant data needed
for predicted analysis is being done in water supplies. This analysis ultimately
needs to give real indicators of condition.
To get this information it will be necessary to make detailed analysis of existing
information systems in all water supplies with special regards to following:
Whether all relevant data is found in one information system with integral
database or there is several independent system in which data processing is
done
Database which is used by information system
Structure of data found in database;
Whether all data necessary for getting real and high-quality reports is being
recorded in system
Detailed insight in current state
Level and quality of information acquirable using reports from existing

systems
Quality of set relations in system
Unity of information about client and service types in system
After analysis of current state of information systems is done and after finding out
about quantity and quality of data needed for further processing an analysis,
detailed methodology for data processing will be made for every watersupply
separately.
In the goal of obtaining real situation procedures for data processing will be done.
These procedures will rely on data gathered from existing information systems,
but also on collection of data complemented with data not acquirable from
existing systems, low-quality data or data not showing real condition.
After consultations with key partners in water supply about the way calculation
and payment by type of provided service is done, analysis of information system
and learning about quality of information acquirable from these systems, then
documentation with detailed description of all observed weaknesses in current
system, as well as weaknesses of current method of billing and payment, will be
made.
Documentation would be furtherly presented in water supplies where all
indicators of current state, obtained with earlier analysis of business methods,
analysis of gathered data with detailed description of spotted weaknesses and
with recommendations for improvement of current state to satisfactory level of
payment and for lowering risk of losses, would be shown.
Finally, it is important to raise level of knowledge in water supplies in what way
one up-to-date information system, which integrates data about clients and types
od provided services, which contains relations between billing and payment,
which takes care of deadlines and enables timely reaction and collection, which
enables whole series of reports that give true information needed in everyday
business and has many other beneficial functions which will be mentioned in
consultations during projects, leads to positive results.
Achieving the objectives mentioned above requires that a number of procedures
and policies are considered, documented and implemented. The Consultant is
going to support the following:
A new outline of the Payment Policy (including consideration of rewards for

early payment);
Penalties and interest charges for late payments;
Discontinuation of service for continued non or late payment;
Establishing criteria, in coordination with the relevant LG, and identifing
the customers (natural persons) unable to afford full cost recovery tariff
and incorporate procedures to assist them with payment options. Define
options to be applied (payment voucher, direct subsidy or other), related
parameters (quantity of water to be subsidized per capita) and
implementing mechanisms in close coordination with the Municipality;
Developing disconnections strategy for the multi-apartment buildings
having only one common water meter - strategy should define applicable
measures before the individual water meters would be eventually installed
so as should propose technical solution for the installation of water meters
per individual apartments at later specified period;
Reduction of levels of service for continued non or late payment;
Use of the courts to enforce payment;
Remark on payments relation to the invoices;
Strategy for billing customers in multi-apartment buildings (including to
initiate a campaign for apartment families to encourage the establishment
of an ad hoc building management group);
Proposal for changes in policies on bill preparation, delivery and collection;
Suggested strategy to overcome non-payment by public customers
(including making an Action Plan to improve collections from public service
customers);
Recommendation for changes in data presented on bills (with detailed
structure and data format provided).
Suggested changes in regulation to the authorities such as the legal basis
for disconnection, the application of the 1,000 KM fee for illegal
connections/bypasses and the application of a re-connection fee.
To monitor the performance on revenue collection, discern trends and to

continuously strive to increase revenue collection it is necessary to monitor the
following indicators, at least on a monthly basis, through the MIS:
INDICATOR
DEFINITION
Average Revenue W&WW*
Total annual W&WW operating revenues

expressed by ratio of annual amount
invoiced and the number of billing points.
Average Revenue water

only
Operating revenues (W only) expressed by

annual amount of water sold.
Revenue Split - % water
Percentage split of total revenue into water

and wastewater
Revenue Split - %
wastewater
4
Water revenue by
customer type
Percentage split of water revenue by

customer type
Collection Period
(Year-end accounts receivable/Total annual

operating revenues) * 365
Collection ratio
Cash income / Billed revenue (as a %)
*Note : W = water service, WW = wastewater / sewerage service

Area of
improvement /
activity:
Product/deliverable
(to be attached
within the report)
Progress and
of improvement
Deliverable 1:
early December 2016
Analyse all debts and
revenues by the type of
service provided and
maturity and provide
advises accordingly
Document with analysis

of all debts and
maturity and related
advice

utilities
Draft and discuss

procedures leading to
increased collection,
support their
implementation and
monitor achieved
results (update
procedures if the results
are weak, having in
mind all abovementioned measures).
Draft procedures leading

to increased collection

utilities
Draft the
Communication
operational plan to be
used when tariff
increase is needed
Draft Communication
used when tariff
increase is needed
Discuss drafted
Communication
Final Communication
used when tariff

utilities
Area of
improvement /
activity:
used when tariff
increase is needed with
the utility and
accordingly revise.
Product/deliverable
(to be attached
within the report)
Progress and
of improvement
increase is needed
Deliverable 2:
early April 2017

advises accordingly

of all debts and
advises

utilities
Draft and discuss

support their
implementation and
monitor achieved
results (update
are weak, having in

Discuss drafted
Communication
used when tariff
the utility and
accordingly revise.
Final Communication
used when tariff
increase is needed

utilities
Deliverable 3:
early August 2017
advises accordingly
Draft and discuss
support their
implementation and
monitor achieved
results (update

of all debts and
advises

utilities
Area of
improvement /
activity:
Product/deliverable
(to be attached
within the report)
Progress and
of improvement
are weak, having in

Discuss drafted
Communication
used when tariff
the utility and
accordingly revise.
Final Communication
used when tariff
increase is needed

utilities
2.8.2.4. Accounting procedures and MIS (Management Information

System):
The Project entry phase defined the Reference level and objectives of this
possible area of improvement as:
Accounting related rulebooks are adopted and implemented:

Rulebook on accounting policies, Rulebook on Financial
operations, Rulebook on operations with cash, Rulebook on data
archiving, Rulebook on bookkeeping of costs and revenues by
cost centres.
Bookkeeping of costs and revenues is done by cost centres,
reports are regularly prepared separately by cost centres and are
used cost optimisation.
Documented accounting policies are in place and followed, e.g.
policy of evaluation and disclosure of intangible assets; policy of
evaluation and disclosure of properties, facilities, equipment and
investment properties; policy of valuation and presentation of
inventories; employees' salaries; government grants; the effects
of changes in exchange rates of foreign currency; borrowing
costs; impairment of assets; reserves and accruals; financial
instruments; the recognition of liabilities and claims; construction
contracts; evaluation policy and reporting expenditures;
correcting errors from earlier periods; changes in accounting
policies.
Hardware and (secured) network infrastructure are regularly
maintained, data stored on servers are protected from abuse and
regular procedures to ensure backup data are conducted, all
modules of accounting software are integrated and enable
bookkeeping of revenues and costs by cost centres, the software
allows (automatic) preparation of necessary reports (separately
for each service, types of consumers, cost centres, specified
period...).
Chart of accounts is tailored to the special needs of water utility.
At least basic MIS is in place and regularly used, valuates
selection of key performance indicators that are regularly
monitored.
In order to achieve the above stated, the Consultant will carry out a detailed
assessment and analysis of the present state and processes in the field of MIS
and accounting in each of the 9 Utilities, in order to obtain updated status in
accordance with the relevant Action Plans from the previous project phase. For
this purposes combination of desktop analysis, questionnaires obtained from the
utilities and field visits will be used.
The following will be reviewed:
-
Present accounting system and procedures including staffing and finance

departments;
Available software in each of 9 utilities;
Existing legal regulations regarding accounting, respecting International
Accounting Standards, International Reporting Accounting standards, as
well as Entity specific requirements and its application in the Utility;
Existing chart of the accounts;
Procedure and book-entry;
Revenue and Cost analysis;
Present Management Information System and procedures;
Available Hardware and Network Infrastructure in the Utility;
Available Software in the Utility.
After the above review, the Consultant will implement the following activities:
Develop or amend and improve all internal accounting rulebooks in line

with the IFRS and legal regulations in FBiH or RS including:
-
Rulebook on accounting policies;
Rulebook on financial operations;
Rulebook on operations with cash;
Rulebook on data archiving.
The first draft of these legally prescribed documents will be prepared

jointly for several utilities (at least two drafts since there are different
legislations regulating it in two BiH entities). Drafts will be discussed
individually with each utility, amended and adopted individually.
Develop and implement tailored chart of accounts. Preparation of the

proposal for the framework chart of the accounts in accordance with Cost
Centres accounting (for all utilities from the same BiH entity the same);
Chart of accounts will be tailored for the specific Utilitys needs, and
adopted individually.
A Consultant will propose an improved model chart of accounts
development and its implementation.
The primary purpose of the model chart of accounts is to allow the
preparation of more detailed balance sheets and income statements, so
as other tailor-made financial reports needed for operational or
strategic management, and to provide a basis for operational and
capital budgeting. This should follow international accounting practices
established to prepare financial reports on a monthly basis. It will allow
capture of income and expenses in more details, and also will permit
utilities to distinguish between costs in different departments and
functions. The pricing of tariffs and other services will also be facilitated
by the model chart of accounts, as costs will be more accurately
disclosed.
The new model of a chart of accounts should use a flexible coding

structure and introduces and adopts cost-center accounting. Utility
should be able to decide the level of details in operational and capital
accounts as well as with cost-centers to be established.
The existing accounting legislation includes a chart of accounts which is
required to be used by all public and private entities. The chart of
accounts has a specific numbering system or set of codes. In this
numbering system, a three-digit code is used to separately identify
each account. The new model of chart of accounts should expand this
numbering system in key accounts (to six digits) that relate to income,
expenses and fixed assets.
It is necessary to define clearly separated cost centers separated
recording of the expenditures and income also to enable reporting on
expenditure and income by operating units, with summary reporting for
company. Some of the proposed alternatives may be as follows:
Alternative 1:
o
10 Engineering Water & Wastewater Division
100 Planning
200 Construction
300 Laboratory, Environment
400 Survey
500 Leak detection
20 Operation & Maintenance Water Division
30 Operation & Maintenance Wastewater Division
40 Technical Administration Division
50 HR- Management Division
60 Customer Service & Public Relation Division
90 Accounting & Budgeting Division
Alternative 2:
o
VIK. Water Utility
VIK.10 Technical Sector
VIK.10.10. Engineering Water & Wastewater Division
VIK 10.10.100. Planning
VIK.10.10.200. Construction
VIK.10.10.300. Laboratory, Environment
VIK.10.10.400. Survey
VIK.10.10.500. Leak detection
VIK.10.20. Operation & Maintenance Water Division
VIK.10.30. Operation & Maintenance Wastewater Division
VIK.10.40 Technical Administration Division
VIK.90. Administration Sector
VIK.90.10 HR- Management Division
VIK.90.20 Customer Service & Public Relation Division
VIK.90.30. Accounting & Budgeting Division
Develop a draft proposal on cost centres that will allow not only
separation of costs and revenues for each service provided, but will also
enable costs' optimization; It will be developed for each 9 utilities
separately. It will be discussed with the utility management and revised
accordingly.
The above will be implemented in accordance with the following

objectives:
-
Develop new detailed chart of accounts so that the costs and

revenues are registered at the lowest agreed level of defined cost
centres;
Define the cost centres that will allow not only the separation of
costs and revenues per service provided, but also control over the
optimization of all costs;
The following direct costs should be entered solely on the accounts

for cost-related centres:
salaries and allowances for those employed with the business

units (e.g. Water Supply and Sewage System),
fixed assets depreciation,
electricity costs,
fuel and lubricants costs,
costs of production material, from the monthly material

expenditure report,
costs of registration and insurance for the relevant vehicle,
costs of maintenance of the relevant assets
service agreements relevant to business units, and alike.
Define and implement indirect costs distribution pattern, agreed

with business units, so that respective costs are easily recognised.
Indirect costs should be distributed using agreed distribution

pattern, defined based on direct costs generated by a respective
business unit, as follows:
Employees salaries
Number of employees
Depreciation
Other operating costs (electricity, equipment maintenance,

insurance and similar)
The distribution pattern of indirect costs must be defined in

agreement with business units, at least at the level of Water Supply,
Sewage System (WSSS) and other services. Indirect costs also
include part of the costs generated by department of common

affairs that should be shared between units.
The Consultant will support improvements of existing accounting software
to enable fully analytical monitoring and delineation of costs by cost
centres; if such software development is not feasible, the Consultant will
prepare purchase order (ToR) for appropriate accounting software.
Information system for the accounting should be integrated and needs to
cover collection and processing of data, and other accounting procedures
related to financial bookkeeping, collection and processing of data, and
other accounting procedures related to financial bookkeeping, billing and
invoicing of utility services, payroll accounts, material bookkeeping,
bookkeeping of basic tools. Application software should be integrated in
technical and functional sense, so that it should be scalable and open for
possible enlargements, and based on some of the modern RDBMS
(systems for database management).
Since main book (financial bookkeeping) represents a core of every
accounting information system, to which all information from all other
bookkeeping sub-units should come, an overview of general requirements
that need to be fulfilled by one accounting information system will be
given for each of 9 utilities, as well as an overview of specific requests
that need to be filled in by accounting software program for management
of financial bookkeeping.
Business Information system for water utility should contain at least the
following modules:
o
Coding module, allowing setting internal codes for

procedures, units etc
Module Financial Bookkeeping which allows for the

configuration of cost centres,
Financial operations module
Module Invoicing services
Material bookkeeping module and inventory
Bookkeeping of fixed assets module
Module Payroll and
Staff register module
Security/data protection module, allowing setting users and

their privileges.
Additionally Module on Metering, billing and invoicing should have, at

least, the following sub-modules:
o
Coding module, allowing setting internal codes for tariffs and

tariff groups, supply zones, consumption tolerance etc.;
Water meters database module, allowing defining water

meter types, locations, diameters, producers, present
condition and related reports;
Water meters readings and installations module, recording

regularly readings and installations or un-installations of
water meters, providing related reports;
Collection/payment module, recording payments, opening and

closing daily collections, updating customers analytics, linking
payments with issued invoices, providing reports on payments
by customers, customers types etc.;
Consumers database module, recording customers and

allowing automatic distribution of consumption to several
consumers sharing the same water meter, enabling related
reports;
Billing module, calculating invoice amounts based on provided

data related to the consumption metering, tariffs, consumers
type, with automatic control if all input parameters are
provided (where customers with incorrect or missing
parameters would be separately listed in the report). Module
also provides printing of individual invoices for the customers,
so as reports e.g. by types of customers;
Court cases module, which is based on billing and collection

module data, enabling to list customers with outstanding
debts with all needed data to bring them to the court, so as
records data on existing court sues, achieved judgements or
received payments.
Security/data protection module, providing control over the

data integrity and security, so as data protection using
backup.
Taking into consideration requirements that one accounting information

system should fulfil in the general sense, and especially its specific and
central part (financial management), proposals for improvement of
existing software will be given and implemented (if visible) or a detailed
terms of references for development of full accounting software package
(Accounting Information System AIS) will be provided for utilities whose
software will not be able to support proposed changes.
In addition to these software modules Integrated business information
system needs to include also module for generating of analytical reports,
which allows the user to independently prepare analytical reports in any
application module, as well as a separate module to transfer data from
remote locations (eg. In the case of collection in other locations).
Consultant will give brief overview of all the above software modules and
needed improvements.
The Consultant will prepare and deliver training on use of new chart of
accounts and bookkeeping of costs and revenues by cost centres (both
theoretical and practical hands-on training using existing accounting
software) individually for utilities which will continue to use existing,
improved software, and jointly for the utilities which will purchase new
software.
The Consultant will support continuous bookkeeping of costs and

revenues by cost centres (monitor and support recording of all costs and
revenues by defined cost centres). Monitoring will be done both, via field
visits and via e-mail communication.
Consultant will propose list of PIs, including the evaluation methodology,

which will be discussed with each of 9 utilities separately and decided on
KPIs to be regularly monitored.
The Consultant will Establish MIS information system in agreement with

UNDP which will include monitoring of the KPIs;
Some of the following measurable and descriptive key performance
indicators will be selected jointly with each of 9 utilities and UNDP for this
area:
-
New developed chart of accounts in place (YES/NO);
Cost centres defined and costs and revenues recorded at

appropriate level of cost centre (YES/NO);
Reports based on cost centres structure, used for efficient

management and tariff setting? (YES/NO);
Indirect costs distribution pattern defined, adopted and in use

(YES/NO);
New improved accounting software in place and in use (or indicators

per modules, are they integrated?) (YES/NO);
Unit operating costs for water and sewage (KM/m3, in relation with
total water billed);
Unit operating costs for water and sewage (KM/m3, in relation with
the total water abstraction);
Unit operating cost for water only (KM/m3, compared to the total
invoiced water);
Unit operating costs for sewage only (KM/person, compared to the

total population-users of this service);
The share of labour costs in operating expenses (%);
The share of energy costs in operating expenses (%);
The share of outsourcing costs in operating costs (%);
Area of improvement /
activity:
Product/deliverable
(to be attached
within the report)
Progress and
deliverables per
Area of
improvement
Deliverable 1:
early December 2016
Develop or amend and
improve all internal
Rulebook on
Completed for at
least 6 utilities
activity:
accounting rulebooks
including:
- Rulebook on
accounting
policies;
- Rulebook on
financial
operations;
- Rulebook on
operations with
cash;
- Rulebook on
data archiving.
Product/deliverable
(to be attached
within the report)
Progress and
deliverables per
Area of
improvement
accounting policies
Rulebook on
financial operations
Rulebook on
operations with
cash
Rulebook on data
archiving
Develop and implement

tailored chart of accounts.
Tailored chart of
accounts
Completed for at
least 6 utilities
Draft proposal on cost centres

that will allow not only
separation of costs and
revenues for each service
provided, but will also enable
costs' optimization; discuss it
with the utility management,
revise accordingly.
Cost centres
documented
Completed for at
least 6 utilities
Support improvements of
existing accounting software
to enable fully analytical
monitoring and delineation of
costs by cost centres; if such
software development is not
feasible, prepare purchase
order for appropriate
accounting software.
Brief report on existing

accounting software
ability to analytical
monitoring and
delineation of costs by
cost centres
Completed for all

utilities
Deliver training on use of new

chart of accounts and
bookkeeping of costs and
revenues by cost centres
(both theoretical and practical
hands-on training using
existing accounting software).
Brief training on use of

new chart of accounts
and bookkeeping of
costs and revenues by
cost centres
Completed for at
least 6 utilities
Propose list of PIs, including

the evaluation methodology,
discuss and decide on KPIs to
be regularly monitored
List of PIs, including

the evaluation
methodology, to be
regularly monitored
Completed for at
least 6 utilities
activity:
Product/deliverable
(to be attached
within the report)
Progress and
deliverables per
Area of
improvement
Deliverable 2:
early April 2017
Develop or amend and
improve all internal
accounting rulebooks
including:
- Rulebook on
accounting
policies;
- Rulebook on
financial
operations;
- Rulebook on
operations with
cash;
- Rulebook on
data archiving.
Rulebook on
accounting policies
Rulebook on
financial operations
Rulebook on
operations with
cash
Rulebook on data
archiving
Completed for all

utilities
Develop and implement

tailored chart of accounts.
Tailored chart of
accounts
Completed for all

utilities
Draft proposal on cost centres

that will allow not only
separation of costs and
revenues for each service
provided, but will also enable
costs' optimization; discuss it
with the utility management,
revise accordingly.
Cost centres
documented
Completed for all

utilities
Support improvements of
existing accounting software
to enable fully analytical
monitoring and delineation of
costs by cost centres; if such
software development is not
feasible, prepare purchase
order for appropriate
accounting software.
Brief report on existing

accounting software
ability to analytical
monitoring and
delineation of costs by
cost centres
Completed for all

utilities
Deliver training on use of new

chart of accounts and
bookkeeping of costs and
revenues by cost centres
(both theoretical and practical
hands-on training using
existing accounting software).
Brief training on use of

new chart of accounts
and bookkeeping of
costs and revenues by
cost centres
Completed for all

utilities
For deliverable no. 3, only KPIs will be delivered in provided excel tables.
2.8.2.5. Budgeting and business planning

The MEG Project Entry Phase has detected that most water utilities approach the
financial management and planning in a traditional manner, which implies that
this function in the company is an activity imposed by the regulations, serving
primarily as a support to other activities. Planning is often performed on the
principle of proportional increase of financial results (increasing the amount from
previous years by a selected percentage), without any specific additional
assessments of activities or forecasts of business performance. Due to the legal
obligations, medium-term three-year plans are prepared, mainly by a default and
on the above-mentioned principle, for the utility as a whole. Budgeting on the
basis of detailed analyses and plans is not done. Performance reports are often
only excerpts from the balance sheet and profit-and-loss statement, thereby only
the book values, without any specific analyses and real performance indicators.
Current practice does not include developing operational plans by coast centres
(departments) and consolidated, or comparing the plan with the actual costs
through departments. Utilities from LOT1 do not have developed procedures for
preparing the plans for operational activities. In addition to preparing an annual
operational plan, reports on implementation of the operational plan should be
made too, what is not present practice, in order to supervise the actual
realisation of revenues and expenditures against the forecasted ones. The
Business Plan, along with the financial goals, has to include all the aspects of
utility plans for the upcoming period, including the operational objectives, human
resources development, or relations with customers and other persons.
According to RfP the Project entry phase defined the Reference level for this area
of improvement and the following objectives:
Train utility management, including leaders of each sector, on the

fundamentals of budgeting and business planning.
Prepare annually consolidated budget and the budget by cost centres,

and 1/2/3/6- monthly and used to improve management.
Analyse Business Plan and budget implementation and decide on

necessary corrective actions.
Prepare basic module for the capital budget as part of the tariff model.
Include valuation and projections of selected KPIs within the Business

Plan.
In order to achieve such objectives, the Consultant will implement the following
activities during the assignment, but most of the activities will be continued after
this assignment ends:
Analyse the existing situation with planning (from Action Plans);
Prepare and Deliver training for management and leaders of each sectors
on the fundamentals of budgeting and business planning (it will include at
least Training for the preparation of the individual cost centres budgets
and the consolidated budget, Creating Procedures for the consolidated
budget)
One-day training will be organised jointly for several utilities and will be
delivered to utility management, including leaders of each business unit.
It will contain at least the following topics:
o
Key issues of business planning and budgeting;
Relationship: FOPIP Action Plan and Business plan (BA);
Recommended structure in accordance with the document

"Tariff setting methodology for water supply and sewerage
services in Bosnia and Herzegovina" prepared by UNDP in
2015;
Preparation of the individual cost centres budgets and the

consolidated budget;
Procedures for the consolidated budget;
Three components of planning process: Strategic Plan, Annual

Operating Plan, Capital Investment Plan
Revision of the existing business plans and proposal of the corrective

measures.
This activity will be done jointly with the utilities relevant staff,
individually for each of 9 utilities. Proposals will be made in accordance
with the relevant good practice and with the training provided before.
Support preparation of the consolidated operational budget and the

budgets by cost centres for the year 2017 (includes investment
maintenance costs), so as preparation of the capital investments budget;
these budgets are to be used with the relevant decided tariff model and
they will be discussed also with the relevant LG (mayor, council
representatives, relevant administration).
This activity will be implemented individually for each 9 utilities, and it
will be done simultaneously, during the field visits and meetings with
utilities management and LG representatives, as well as revising the
budget prepared by utilities.
Apart from the partial analysis of service based income, WUs do not
prepare financial forecasts. The tariff analysis is not prepared every year.
Thus, WUs neither prepare annual budget nor they analyse and
harmonize budget based on actual costs. The accounting systems do not
have module for budgeting. However, the implementation of the
accounting system based on the cost centres precedes the budget
implementation on the level of cost centres. In this situation, the
implementation will wait until the reports from the cost-based accounting
system are systematically prepared and until managers starts to identify
themselves with their direct and indirect costs. The development of the
operating budget on the level of cost location logically follows the
implementation of the cost centres. However, the implementation should
be delayed until managers first get familiar with the cost locations.
Furthermore, there is a need for consolidated budget as well. Such budget
will be prepared based on individual budgets of cost centres.
Support preparation of the three-years Business Plan (for 2017-2019) that

includes all needed activities for costs optimization (underlining
optimizing electricity costs and related NRW management, and staffing
costs), so as valuations and projections of selected KPIs.
This activity will be implemented individually for each 9 utilities, and it
will be done simultaneously, during the field visits and meetings with
utilities management and LG representatives, as well as revising the
budget prepared by utilities.
Support monitoring of six-month implementation (mid-2017) of the

prepared budgets and business plan, provide written advises for
eventually needed corrective actions
Although it is difficult to determine measurable indicators of success for
this area of improvement; nevertheless they can be descriptive as
follows:
o
Operating budget and projections of the cash flows are

established per cost centre and on the cumulative basis?
(Yes/No)
Three year plan is established per cost centre? (Yes/No)
Capital budgets are established at the cost centres and on the

cumulative basis? (Yes/NO)
Is the cycle of the annual business planning implemented?

(Yes/No).

Area of
improvement /
activity:
Product/deliverable
(to be attached
within the report)
Progress and
of improvement
Deliverable 1:
early December 2016
Support preparation of
the consolidated
operational budget and
the budgets by cost
centres for the year
2017 (includes
investment
maintenance costs), so
as preparation of the
capital investments
budget; these budgets
are to be used with the
decided tariff model and
they have to be
discussed also with the
local government
(mayor, council
representatives,
relevant administration)
the three-years
Business Plan (for 20172019) that includes all
needed activities for
costs optimization
(underlining optimizing
electricity costs and

the fundamentals of
budgeting and business
planning
Draft consolidated
the budgets by cost
2017

utilities

utilities
Area of
improvement /
activity:
Product/deliverable
(to be attached
within the report)
Progress and
of improvement
related NRW
management, and
staffing costs), so as
valuations and
projections of selected
KPIs
Deliverable 2:
early April 2017
Deliver training for
management and
leaders of each sectors
on the fundamentals of
budgeting and business
planning (includes
Training for the
preparation of the
individual cost centres
budgets and the
consolidated budget,
Creating Procedures for
the consolidated
budget)
Draft consolidated
the budgets by cost
2017
the consolidated
the budgets by cost
2017 (includes
investment
maintenance costs), so
as preparation of the
capital investments
budget; these budgets
are to be used with the
decided tariff model and
they have to be
discussed also with the
local government
(mayor, council
representatives,
relevant administration)
Draft three-years
Business Plan (for 20172019)
For deliverable no. 3, only KPIs will be delivered in provided excel tables.
2.8.2.6. Financial management
Financial management covers a broad range of activities and they will be considered
individually within different sections of this Proposal.Financial management is
comprehensive area for the improvement and it includes at least the following aspects:
MIS and Accounting

Revenue collection and administration
Tariff policy
Operating budgeting
Capital budgeting
Cost budgeting
Within this area of improvement, the Consultant will review the public procurement
procedures implementation and procedures for internal work orders (that also have
financial consequences). Improved financial management leads to the increased
accountability both towards the Local Government (as the water supply and wastewater
system owner) and towards the consumers.
Project Entry Phase has detected most of the utilities do have capacities for the
implementation of procedures as prescribed by the Public Procurement Law. There are
differences in the way the Public Procurement Law is implemented - some utilities created
permanent work groups, while in other utilities groups are forming by necessity (on an ad
hoc basis). The procedures for the issuance and use of work orders are defined in most of
the utilities, but there is space for practical improvements.Work orders are issued only in
relation to the use of materials and resources. Such system is not used for use of human
resources.
Project entry phase defined the Reference level as well as the objectives of this possible
area of improvement as to:
Prepare and adopt public procurement procedures, respect and effectively apply
them.
Document workflow of work orders, monitor the implementation and apply control
measures.
In order to achieve such objectives, Legal Expert and Institutional and HR Expert, with
support of FE will implement the following activities during the assignment, but most of
the activities will be continued after this assignment ends:
Review the existing processes regarding the public procurements procedures

Draft legal provision on procedures ( regulations ) for implementation of Public
Procurement Law, support discussion, revision of existing system and finally
adoption and implementation of these procedures.
Mapping of the business processes;
Institutional and HR expert, with support of Financial Expert, will, during the
preparation of the proper organizational structure revise all existing business
processes, and will map it and document it. Such documents will be developed for
each of 9 utilities separately, and will be given to utility management, in order to
obtain comments, as well as to improve it. Final documents will be agreed and
documented as workflow.
Draft and discuss procedures for internal work orders, support implementation in
daily operations.
It should be prescribed when working order is opened and by whom, who and how
monitors its implementation and how it is certified. An employee, usually need a
certain material that should be exempted in accordance with the prescribed
procedure, and delivery note as supporting document. Working orders also should
be directly booked in accordance with cost centres for all services, as well as for all
business units.
This activity will be done in accordance with Action Plans for all 9 utilities in close
cooperation with utilities responsible staff.
Monitoring of the implemented procedures: This improvement phase has numeric
and descriptive indicators of success:
o Is the system of public procurement implemented? (YES/NO);
o Is the internal system of the work orders documented and implementation?
(YES/NO).
Area of
improvement /
activity:
Product/deliverable
(to be attached
within the report)
Progress and
of improvement
Deliverable 1:
early December 2016
Draft procedures for
implementation of
Public procurement law,
support discussion,
revision and finally
adoption and
implementation of these
procedures.

implementation of Public
procurement law

utilities
Draft and discuss

procedures for internal
work orders, support
implementation in daily
operations.

internal work orders

utilities
Deliverable 2:
early April 2017
implementation of
support discussion,
adoption and
procedures.

procurement law
Draft and discuss

operations.

internal work orders
Deliverable 3:
early August 2017
implementation of
support discussion,
adoption and
procedures.
Brief report on
implementation of
procedures for
procurement law
Draft and discuss
Brief report on
Area of
improvement /
activity:
operations.
Product/deliverable
(to be attached
within the report)
Progress and
of improvement
implementation of
procedures for
implementation of
work order
2.8.2.7. Inventory and fixed assets cycle, including infrastructure ownership and
depreciation:
Since local governments as owners of the entire communal infrastructure on their
territory are responsible for keeping the accounts of all fixed assets and calculation and
separation of depreciation. It is conveniently considered (but not legally documented)
that local governments transfer responsibility to the water utility. Thus, there is a general
perception that water utilities should keep and update the accounts of all fixed assets, as
well as calculate depreciation; separate the depreciation accounted and use it for regular
investments maintenance (regular replacements of fixed assets, in line with their worklife expectancy). Most of the utilities from LOT1 do not have complete and updated fixed
assets book, with revalorized values of the assets. Thus, direct consequence is that not all
financial costs are registered in books of water utilities. Depreciation of fixed assets is
often considered a high cost for the utility and therefore avoided, mainly with not
recording assets in the book. This is enabled by less than fully defined responsibility
namely the fixed assets, i.e. all municipal infrastructure is owned by the local community,
which in most cases failed to properly delegate the obligation of calculating depreciation
to its own utility by a clear agreement.
Since the Project entry phase defined the Reference level of this possible area of
improvement as:
Book of fixed assets is complete and contains records of all fixed assets of the
water supply and wastewater network, recorded analytically by cost centres.
Value of fixed assets is updated (revalued).
Depreciation of all fixed assets is regularly and fully calculated and incorporated
into the tariff model; related revenue collected is distinguished and used only and
exclusively for the purpose of assets maintenance (investment maintenance,
regular replacement of obsolete infrastructure).
All fixed assets should also be thoroughly recorded analytically and per business unit. The
records of assets include facilities intended for various purposes. Without clear and
accurate recording of all assets managed by the Utility, there will be no correct recording
of these assets, calculation of depreciation and financial balance.
The Consultant will support each of 9 utilities in achieving the following objectives for this
area of improvement:
Implement revaluation of fixed assets, update the fixed assets book.

Calculate depreciation appropriately for all fixed assets.
Incorporate calculated depreciation into the tariff model.
Allocate funds related to depreciation (of collected revenues) to the special subaccount and use them exclusively for assets maintenance.
According to all 9 Action Plans for relevant LOT, utilities (relevant responsible employees)
will be directly responsible for the implementation of the all of the above activities, but
Consultant will deeply support them, and monitor the implementation during the
assignment duration.
The following activities will be implemented by the Consultant:
Support making agreement between the municipality and the utility on

responsibilities regarding updating inventory of all fixed assets and their
revaluation, so as on responsibilities over decision making for expenditures using
"depreciation fund".
The above will be considered and discussed, and agreed, within the negotiations
regarding the PSA agreement between water utility and its relevant LG. The
Consultant will support making of an agreement on responsibilities regarding
updating inventory of all fixed assets and their revaluation, so as on
responsibilities over decision making for expenditures using "depreciation fund".
Support water utility in updating inventory of all fixed assets and their revaluation,
use outputs of other activities implemented (e.g. mapping), prepare draft update
of complete fixed assets book (assigned to cost centres) before end of the year
and use it for Business Plan preparation and tariff evaluation.
Utilities will be instructed and guided to make an update of all fixed assets
together with the representatives of the relevant LG. After the update of the
existing assets, they will have to carry on the revalorization, since the values
within the existing books (either within the companies or within the LGs are
outdated or not presenting the real values. Also all assets donated from different
source have to be included on the same manner. All assets should be also
assigned to the proper cost centre previously defined.
Supervise the utility in calculating depreciation or all fixed assets of the updated
book of records, analyse if the existing software enables automatic calculation of
the depreciation based on predefined depreciation classes, as well as its
integration with the other (accounting) modules.
Water Utilities should have a software module for bookkeeping of fixed asset. The
module should be capable to provide definition of nomenclature structure of fixed
assets, with defined depreciation rates, provide home records of fixed assets,
provide calculation of depreciation of one, group or all fixed assets (for different
time periods), provides inventory accounting procedures, as well as procedures of
transfer of sales of assets into the next accounting period, provide management of
fixed assets according to customer-based definition of organisation structure,
provide recording of all standard documents of fixed assets bookkeeping
(specifications of procurement costs, calculation of purchase price, receipt of fixed
asset, transfer to other organisation units, sale of a fixed asset, shortage, excess,
inventory, asset order etc.), retirements, putting out of use, putting into use,
opening balance, generates standard reports of bookkeeping of fixed assets
(individual documents, registration lists, lists of inventory process accounting, card
of fixed assets, books of fixed assets, lists by organizational structure, accounts or
depreciation groups etc.).
Consultant will review the existence of the above mentioned software module, and
will propose its improvement for all utilities who need it.
The Consultant will supervise depreciation calculation, at least in some testing
modules, in order to provide deliverables for this assignment on time. Depreciation
is usually done at the end of the year, as a legal prerequisite, and for the purposes
of this assignment, it will have to be done for at least 7 utilities firstly
probationary, unless UNDP allows it to be done after the early December of 2016.
Supervise the utility in tariff evaluation using adopted tariff model that includes
fully accounted depreciation.
As explained earlier within the Tariff policy area of improvement, depreciation cost
will be induced within the costs for calculating the tariffs for water and for
wastewater. Tariff model will use data directly from the fixed asset module (if
such software exists) or data will be used half- manually, with copy/paste option.
Consultant will supervise and monitor whether proper calculated depreciation is
included in the composition of costs which constitute the total cost of the water
and total cost of waste water.
Supervise the utility in allocation part of revenues, proportionally related to the

depreciation within the tariff, to the "depreciation fund" (what could be separate
account or sub-account of the utility, or even of the municipal administration).
As explained earlier, the Consultant will support an agreement between utilities
and its relevant LGs regarding the formation of the depreciation fund. Such
agreement will be a part of PSA agreement. Revenue collected from water and
waste water tariffs will be transferred on a separate account (or some account
within the LG as it is such agreed). Transfers will be done periodically and it will be
a matter of PSA agreement. Such fund will be used only for the way to keep the
fixed assets in function and renew them.
The Consultant will monitor transfers and accumulation of funds within
depreciation fund.
Provide support to the management on deciding for optimal use of the
"depreciation fund"
As explained above, the issue will be explained by Consultnat on the joint
meetings with utilities and LGs, and also within the negotiations regarding the PSA
agreement, but also during the trainings, and suring the on-site visitis. Optimal
decision and agreement will be included within the PSA, but these funds cannot be
used for any other purpose except investment maintenance this includes
programmes for reducing non-revenue water, i.e. detection of leakages and
repairs and replacements of pipes and other infrastructural components.
The following indicators will be used to monitor the progress of this improvement area:
Is the regular stocktaking of the fixed assets carried out? Is the Book of the capital
assets updated? (YES/NO);
Is the revaluation of all fixed assets carried out periodically when needed, and
regulated with the internal regulation? (YES/NO);
Is the software module for the Book of capital assets in use, integrated with the
other modules, and enables automatic calculation of depreciation based on
predefined classes of depreciation? (YES/NO);
Is the realistically calculated depreciation part of the tariff model? (YES/NO);
Is the regular control of the status of reserves carried out? Are the procedures for
use of materials from the stock documented and implemented? (YES/NO);
Annual fixed assets depreciation value (in BAM);
Status of reserves (in BAM),
The average number of days of material stocking.
Area of
improvement /
activity:
Product/deliverable
(to be attached
within the report)
Progress and
of improvement
Deliverable 1:
early December 2016
Draft and support
discussion, revision and
final adoption of
agreement between the
municipality and the
utility (can be part of
previously mentioned
PSA) on responsibilities
regarding updating
Final agreement
between the
regarding updating
inventory of all fixed
assets and their

utilities
Area of
improvement /
activity:
Product/deliverable
(to be attached
within the report)
Progress and
of improvement

assets and their
revaluation, so as on
responsibilities over
decision making for
expenditures using
decision making for
expenditures using
"depreciation fund"
Support water utility in

updating inventory of all
fixed assets and their
revaluation, use outputs
of other activities
implemented (e.g.
mapping), prepare draft
update of complete
fixed assets book
(assigned to cost
centres) before end of
the year and use it for
Business Plan
preparation and tariff
evaluation.
Draft update of
complete fixed assets
book (assigned to cost
centres)

utilities
Supervise the utility in

calculating depreciation
or all fixed assets of the
updated book of
records, analyse if the
existing software
enables automatic
calculation of the
depreciation based on
predefined depreciation
classes, as well as its
integration with the
other (accounting)
modules.
Recorded depreciation
updated book of records

utilities
Decision on use of the

"depreciation fund"

utilities
Provide support to the

management on
deciding for optimal use
of the "depreciation
fund" (these funds
cannot be used for any
other purpose except
investment
maintenance this
includes programmes
for reducing nonrevenue water, i.e.
detection of leakages
Area of
improvement /
activity:
Product/deliverable
(to be attached
within the report)
Progress and
of improvement
and repairs and

replacements of pipes
and other infrastructural
components).
Deliverable 2:
early April 2017
Draft and support
discussion, revision and
final adoption of
agreement between the
regarding updating
assets and their
decision making for
expenditures using
Final agreement
between the
regarding updating
assets and their
revaluation, as well as
on decision making
responsibilities for
expenditures using
"depreciation fund"
Support utility in
updating inventory of all
fixed assets and their
revaluation, use outputs
of other activities (e.g.
mapping), prepare draft
update of complete
fixed assets book
(assigned to cost
centres) before end of
the year and use it for
Business Plan
preparation and tariff
evaluation.
Draft update of
complete fixed assets
book (assigned to cost
centres)
Supervise utility in
calculating depreciation
updated book of
records, analyse if the
existing software
enables automatic
calculation of the
depreciation based on
predefined depreciation
classes, as well as its
integration with the
Recorded depreciation
updated book of records
Area of
improvement /
activity:
Product/deliverable
(to be attached
within the report)
Progress and
of improvement
other (accounting)
modules.
management on
fund" (these funds
investment
maintenance this
includes programmes
and repairs and
components).

"depreciation fund"

utilities
Deliverable 3:
early August 2017
Supervise the utility in
allocation part of
revenues, proportionally
related to the
depreciation within the
tariff, to the
"depreciation fund"
(what could be separate
account or sub-account
of the utility, or even of
the municipal
administration.
management on
fund" (these funds
investment
maintenance this
includes programmes
and repairs and
Brief report on allocation

part of revenues,
proportionally related to
the depreciation within
the tariff, to the
"depreciation fund"

"depreciation fund"

utilities
Area of
improvement /
activity:
components).
Product/deliverable
(to be attached
within the report)
Progress and
of improvement

Financial and Accounting Areas of Improvements

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Financial and Accounting Areas of Improvements

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2.

Financial and accounting areas of improvements

prepare questionnaires with the needed, missing issues in order to be able to

2.8.1. Tariff policy

Different drinking water tariffs for different customer categories

Different wastewater disposal tariffs for different customers

Financial and Accounting Experts will briefly assess (desktop

FEs will prepare presentation of the tariff methodology proposed

Full cost recovery: includes at least the following costs:

Operative costs generated from operation activities

Depreciations costs (investment maintenance costs),

Investment costs, investments from its own funds and

Financing costs (capital costs, servicing costs of capital)

Equity and equality principle

The cost per person 1.5-2% BND (or 4% of total

Economic efficiency principle

The obligation of the LG to ensure that all residents

The price of water for all consumer categories will

Critical to achieving the strategic objectives of the

Natural resources preservation principle (ecological

Fees, rising block tariffs

Tariff structure will be presented as defined within the UNDP

Support discussion and adoption of the tariff methodology. For these

FEs will prepare training regarding tariff methodology proposed and

FEs will support implementation of the affordability survey (if it will

Documented tariff calculation methodology (YES/NO)

There is cross-subsidization between customer categories and /

Outputs will be delivered in accordance with the RfP:

Completed for at least 2

Brief training report on

Completed for at least 2

Draft and support

Completed for at least 3

Very brief report on

Completed for at least 3

Link tariff model with

Completed for at least 5

Brief training report on

Completed for at least 5

Draft and support

Completed for at least 6

Link tariff model with

Very brief report on

Completed for at least 6

Completed for at least 8

Brief training report on

Completed for at least 8

Draft and support

Completed for all utilities

for services for

Link tariff model with

Very brief report on

Completed for all utilities

2.8.2. Collection and revenue administration, billing cycle

There are no written procedures on relations with non-payers. The custom

Administration of debt payment for every customer related to period and

For listed goals to be achieved, following activities need to be implemented

Data collection, analysis of claims and revenue by the type of service

Average revenue on m3 (KM/ m3)

Ways of gathering data for processing:

Database which is used by information system

Structure of data found in database;

Detailed insight in current state

Level and quality of information acquirable using reports from existing