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Financial Strategy for Municipal Corporation*

CASE STUDY, FINANCIAL MANAGEMENT
ET Cases - GSMC, 12 Pages
AUTHOR(S) : Amitava Basu, President, Intercontinental Consultants and Technocrats (P) Limited, Delhi

Case Preview

Financial Strategy for Municipal Corporation

 

With rapid urbanization, the government at all levels are confronted with urgent demand to improve the city’s infrastructure and services and livelihood of the public for harmonious development of the society. However, under the circumstance of fiscal difficulties, the generous government grants and loans cause great fiscal pressure and debt risk. Funds are always a bottleneck for urban development.

As part of urban reform strategy, it is necessary to strengthen the financial information system, which is an effective tool in achieving organizational goals. It is crucial for the healthy performance and financial status of an organization. Hence, strong steps are required to build the Urban Local Body’s (ULB’s) governance system and to take up reforms in various aspects like – resource mobilization, e-governance, service delivery, disclosure and financial management. The factors that fostered the reforms in accounting are:

  • • Emphasis on information needs: Timely, Accurate, Relevant and Validated information
  • • Changing role of ULBs: Better transparency, Accountability, etc.
  • • Need for Institutional Development: Better Financial management through sound financial information system

 

Thus, for economic development of urban area, which is the engine of economic growth, accounting and financial reform for ULBs has assumed significant importance..........

Teaching Note Preview

Financial Strategy for Municipal Corporation

 

Synopsis

The case study is premised on the fact that urbanization is rapidly increasing in India; but, the civic services are not coping up with the needs and demands of the city residents, and are deteriorating in service quality delivery. A major reason for such state of affairs is the poor financial health of Urban Local Bodies (ULBs) and maintenance of accounts on cash-based system that does not provide comprehensive financial information for appropriate decision making. Hence, to improve the situation and strengthen the ULBs so as to enable them to provide adequate and quality civic services, Government of India and the State Governments have initiated municipal accounting and financial reforms. As a result, there is urgent need for professionals who can assist the ULBs in their capacity building through directing accounting and financial reforms in right perspective.

This case study is developed based on data, information and figures from different ULBs and synchronized into one municipal body. The summary of the case is given below for the understanding of the faculty.

Case Summary

The Municipal Corporation of Hastinapur faced severe financial strains during 2010–2014, resulting from diminishing streams of revenue, poor collection efficiency, and rising establishment costs. Besides, the accounts of the Municipal Corporation of Hastinapur were in arrears and timely and proper financial information were not available for appropriate decision-making.

As a cumulative result of these deficiencies, the municipal infrastructure and services deteriorated and could not cope up with citizens‘ needs and demands.

The State Government appointed a new Municipal Commissioner primarily with the intention of addressing the current situation and improving the financial status and services of the Municipal Corporation of Hastinapur.

The new Municipal Commissioner planned to draw up a strategy to improve the financial position of the Municipal Corporation of Hastinapur through identifying and accessing new sources of revenue such as user fees, parking charges, vending fees; improving collection efficiency through timely billing, and customer friendly payment mechanism such as online payment, payment at designated bank branches, payment by credit card, mobile collection vans, etc. Also, rationalization of expenditure through outsourcing, public-private partnership needs to be explored......................

Expected Learning Outcomes

  • • Familiarize with the municipal accounting and financial management system
  • • Make conversant with cash- based and double-entry accrual-based accounting system and their differences
  • • Understand the sources of municipal revenue and identify potential sources of revenue that have hitherto been not explored
  • • Develop means of expenditure rationalization

 

In the process, it will facilitate the students to familiarize with the development of accounting and financial strategic planning that could be helpful for application in financial revamping of other organizations as well.

Assignment Questions

  • I. What is the difference between cash based and double-entry accrual-based accounting system?
  • II. What are the main features of budget preparation on incremental approach and past trend basis?
  • III. ............................

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Abstract

The Municipal Corporation of Hastinapur faced severe financial strains during 2010-2014, resulting from diminishing streams of revenue, poor collection, and rising establishment costs. Besides, the accounts of the Municipal Corporation were in arrears and timely and proper financial information were not available for appropriate decision-making. As a cumulative result of these deficiencies, funding became a challenge and the municipal infrastructure and services deteriorated and could not cope up with citizens' needs and demands.

The State Government appointed a new Municipal Commissioner primarily with the intention of addressing the current situation and improving the financial status and services of the Municipal Corporation of Hastinapur. The new Municipal Commissioner planned to draw up a strategy to improve the financial position of the Municipal Corporation through identifying and accessing new sources of revenue such as user fees, parking charges, vending fees; improving collection efficiency through timely billing, and customer friendly payment mechanism such as online payment, payment at designated bank branches, payment by credit card, mobile collection vans, etc. Also, rationalization of expenditure through outsourcing, public-private partnership was explored. The new Municipal Commissioner also considered the need for simple but adequate financial reporting system for proper and timely decision making; and requirement of training and capacity building of staff to implement the financial strategy on a sustainable basis. To assist him in developing a financial strategic plan for revamping of the municipal corporation; the new Municipal Commissioner sought expert advice from an external agency. This case study deals with scope, opportunities and way forward for municipal accounting and financial reform.



Pedagogical Objectives

  • To familiarize with the municipal accounting and financial management system
  • To make conversant with cash- based and double-entry accrual-based accounting system and their differences
  • To understand the sources of municipal revenue and identify potential sources of revenue that have hitherto been not explored
  • To develop means of expenditure rationalization

Case Positioning and Setting
This case study can be used in MBA Programs in Financial Management course to discuss the Financial Strategies module


* GSMC 2016, IIM Raipur

This Case Pack Includes:
- Abstract
- Case Study
- Teaching Note (**ONLY for Academicians)
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