TITLE: ASSESSING THE IMPACT OF TECHNOLOGY ON MANAGEMENT ACCOUNTING IN WATER SERVICE UTILITY COMPANIES

Transcription

1 TITLE: ASSESSING THE IMPACT OF TECHNOLOGY ON MANAGEMENT ACCOUNTING IN WATER SERVICE UTILITY COMPANIES Case for Nairobi City Water & Sewerage Company limited, Kenya AUTHOR: KELVIN MWANGI WAMBUI, Nairobi City and Sewerage Company Ltd, Nairobi-Kenya, ; P a g e

2 ABSTRACT The role of information technology in the business arena has continuously shifted over the last decades and it has become an important part of how companies manage and control their resources. User satisfaction in IT usage is critical especially in water service utilities because this construct is often viewed as a surrogate for IT success. Decisions regarding the building of the technical IT architecture should be closely linked to the organizational design of the water company itself. So, IT plays a crucial role in the organization, especially regarding the accounting function and its billing & revenue collection functions. The purpose of this paper is to contribute to the body of knowledge in the extent to which IT affects the ability to solve accounting tasks. I ll measure the impact of IT on accounting information use and accounting and billing tasks. The findings suggest that user satisfaction in IT usage and the use of accounting techniques and accounting information increases with new IT investments. There is also a tendency for change in the decentralization of management accounting tasks. 2 P a g e

3 Introduction Nairobi City Water & Sewerage Company Limited (NCWSC) was incorporated in December, 2003 under the Company s Act (CAP 486). It is a wholly owned subsidiary of Nairobi City County. The Company s formation arose from the enactment of the Water Act, 2002 which created new institutions to manage water resources and services in Kenya. The Company as a WSP is mandated to provide water and sewerage services to the residents of Nairobi in accordance with the relevant laws. The company has four sources of water namely Thika dam which supply (80%),Sasumua dam( 16%) Ruiru dam (4%) and kikuyu spring According to the charted institute of management accounting (CIMA), Management accounting is the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its Resource (economics) resources. With the above concept in mind this research paper aims at establishing as to how adoption of information technology either adversely or positively affects the preparation and presentation of management accounts reports of a service utility serving the whole of Nairobi i.e. Nairobi City Water and Sewerage Co. LTD. Problem Statement This research looks to investigate how exactly technology changes affects collecting, processing and communication of the data which is used in formulating a management plan control for a service utility company partly owned by the county government, taking into account all the challenges and variables the company faces. These variables include but not limited to design capacity for supply of water being overstretched beyond 5%, non-consistent rainfall patterns and technical losses (NRW) 3 P a g e

4 Objectives of the study The specific objectives for this study are: To establish whether technology changes influence control of managerial activities of Nairobi water. To investigate the influence of technology on the development of management accounting in Nairobi water. To investigate on measures that can be developed in facing management accounting challenges so as to enhance its role in Nairobi water functions. Scope of The study The research was limited to investigating the impact of improved information technology on management accountant s performance in public organization s with particular reference to Nairobi City Water & sewerage co. ltd since it is the largest water service provider in the country. Research Design & Methodology A descriptive survey of the snowball sample was used to obtain information concerning the current phenomena so as to establish what exists to situational variables. A qualitative approach was also used to gain a better understanding and clearer insight of the results from the study. 4 P a g e

5 2. RESEARCH METHOLOGY Research Design For the purpose of this research, a case study was used. This is because of how the company has computerized all of it billing & revenue functions and some of its O&M functionalities as well thus presenting Nairobi city water & company ltd as the perfect snowball for this research due to its wide coverage, cost structure and general operations. Sample Frame The company has an average production level of 550,000m³/day against a normal water supply to the city of about 550,000m³/day but this still does not meet the city s daily demand of 760,000m³/day. Sample size and sampling method Nairobi Water Co. water services for the financial year 2017/2018 are based on the projected billing volume of million m³. Sewerage services provided by the company use 90.5 million m³ of water. Therefore, based on an average tariff rates for water and sewer, the sales amount to $ Million whilst the probable amount for the previous financial year 2016/2017 is $ Million showcasing an increase of 11 % Instrumentation Both primary and secondary data instruments were used in the study. Interviews This method was used to collect data from the company s management accountant, Mr. Kenneth Mwihia, employees working in the informal settlements region, Mrs. Habiba Roba- community Development Officer and staffers engaged in the Non-Revenue Water department, Mrs. Elenah Wangui- NRW cordinator 5 P a g e

6 Secondary sources The researcher consulted the company s Management Accountant, Mr. Kenneth Mwihia, who was hugely helpful in disseminating information available in the company library. The researcher consulted extensively on printed materials and research done in by others in the field. Printed materials were also obtained from Nairobi City water & Sewerage co. Ltd library. Secondly comparison on what is in record and what was happening on the ground was made possible through this. Research assumptions During the study, the following assumptions were made in order to carry out the research effectively and efficiently: i. There will be no significant un-projected environmental and demographic/social changes. ii. iii. iv. The country will continue to enjoy reasonable social-economic and political stability The weather conditions will be favorable. There will be no interference with the existing water sources. v. The customers will pay their bills on time. vi. vii. There will be continued support from the Government, development partners and other stakeholders. The Company will continue to practice sound financial discipline 6 P a g e

7 3. NEW INNOVATIONS In order for a utility company like Nairobi water to be able to maintain its O&M whilst also catering for the ever growing capital expenditure, the company needs to capitalize on its water & sewer sales while at the same time reducing its operations and maintenance costs so as to enable an adequate allocation to cater for CAPEX. Nairobi Water Company has enacted some useful ICT tools which have in turn propelled the company to greater heights in terms of growth and revenue generation. They include: i. Mobile Field Assistant This is a system that the company uses for some of its billing functions. The system has meter reading functions, disconnections and reconnection modules which have made the company capitalize on billing and revenue collection efficiencies. The MFA application is currently available on android devices which are availed to Meter reading and revenue collection assistants who use the system to collect data uploaded electronically and also generate a summary of all the defaulters. (see the overview of the UI and some modules) 7 P a g e

8 Picture showing the user interface and the various regional divisions Picture showcasing how all the company accounts are read & downloaded per region divisions in every itinerary and the staff who did the task 8 P a g e

9 Picture showing the various accounts per every itinerary, the status and geographical location of the various accounts Picture giving a comprehensive summary of the various account details read and submitted including exact physical location of the account, approximated at 4 meters The MFA as showcased above has proved to be a very effective and efficient tool for the revenue and billing functions in the utility and service provision 9 P a g e

10 ii. Jisomee Mita Billing System This billing system that was developed to serve the informal settlements regions where the clients in these areas are low income earners and most of water services provisions are run by CBO s. This system has led to service provision in this areas being substantially improved and also revenue collection efficiency as well since even their tariff structure and bill repayments have been strategically aligned to their social-economic status. See overview Picture showing the basic UI of the system and the various system modules available 10 P a g e

11 Picture showing a comprehensive summary of a customer account also detailing the subsidized tariff structure of This system has enabled the company to be able to maintain O&M costs required to supply water to these informal settlements whilst not overburdening the residents with very high charges. 11 P a g e

12 iii. Upgrade of Oracle financials R12 The company uses java based oracle financials to maintain its payables; this vastly includes budget control, bank reconciliation, financial reporting and asset management. Previously the company used the 11i application which has since been phased out and included the now more efficient oracle R12. The R12 has more modules than its predecessor; it can also be scripted to generate better detailed reports and journals and this has in turn led to better budget planning and expenditure controls. General UI overview of the old 11i application 12 P a g e

13 All the modules under the old 11i application 13 P a g e

14 UI of the current upgraded oracle R12 14 P a g e

15 New and improved HTML forms available used in viewing all required data & information keyed in and queried Data showcased using the R12 showing all the various functionalities of the system including all the relevant journal entries and chart of accounts entries The oracle R12 has indeed been the game changer for the managerial accounting efficiency experienced in the company. With its wide range the users of information are able to extract, import, match and script all the reports that the users require. It has especially proved very effective in budget control functionalities since its normally a going concern and business processes rarely cease even upon end of a financial period, the system is able to control and allocate O&M funds for the company adequately. 15 P a g e

16 iv. Network Distribution Model- GIS Platform The GIS platform has substantially increased reading and billing efficiencies for the company. It has enabled the various regions to be able to solve some of the billing anomalies that they face that encompass i.e. difficulty in matching meters in the system with physical location, it also assists in dealing with gate locks. Solving these billing anomalies has led to significant company debt reduction and has significantly improved on the company revenue. See below This showcases all the various itineraries up to an approximation of 4meters, the various sewer network, major rivers and premises boundaries 16 P a g e

17 This network distribution model has in fact proved to be very effective and has managed to boost the company reporting standards and identification of problems staff on the ground encounter. It has also enabled the management to be able to prepare accurate management report on all the challenges that the organization encounters during the undertaking of it operational activities. 17 P a g e

18 4. IMPACT OF THE TECHNOLOGY ON MANAGEMENT ACCOUNTING REVENUE GROWTH Budgeted and actual revenue for the past couple of years have indicated steady growth of revenue realized since the company enrolled the 4 system into its operational activities. This is mainly attributed to the efforts being made by the company towards improving the billing system for the customers through use of technology. COLLECTION $100,000, $90,000, $80,000, $70,000, $60,000, $50,000, $40,000, $30,000, $20,000, $10,000, $- COLLECTION 18 P a g e

19 CAPITAL DEVELOPMENT EXPENDITURE The general efficiencies experienced in the company have led to the company freeing up finances to support CAPEX at 26% of the total budget. Asset renewal will be invested in replacing dilapidating water and sewer infrastructure being the only expenditure in dire need of upgrade, the company has seen very significant changes over the years with technology being a key instigator to this. $30,000, CAPEX $25,000, $20,000, $15,000, ACTUAL BUDGET $10,000, $5,000, $- 2011/ / / / / / P a g e

20 ASSET MANAGEMENT The company has been able to manage its vast size of assets and their amortizations throughout the financial period. Under the old oracle 11i, it was an uphill task to track depreciation and accumulated depreciation for each financial period and the various amortizations. The identification of this has been very substantial in what the management accountant submits in the draft and final budget to the stakeholders. With the new oracle R12, the company has also been able to monitor mass asset additions in the stores since it is linked with the stores and procurement management system instead of the previous version whereby one had to import manually through Comma Separated Value files from spreadsheet solutions. Schedule of Intangible Assets Intangibles as at 30 th June 2017 COST OR VALUATION INTANGIBLES $US As at opening 1,420,959 Additions at Cost 4,435,922 As at closing 5,856,881 opening 1,172,976 Charge for the Period 114,553 Accum. Depreciation 1,287,529 closing 4,569, P a g e

21 5. CONCLUSION Nairobi City Water Company has invested heavily on ICT applications and subsequent infrastructure which in turn has led to the company significantly improving on its asset management, revenue growth and leaving a hefty allocation for an increase in capital expenditure. The company has also seen catalyst for becoming a world class service provider like organizational change and financial performance and agents for motivation of institutional growth like product technology propel the company to a new threshold newly experienced in sub-saharan Africa and new in East and Central Africa 21 P a g e