Transcript Document

Financial Management Reforms:
The Regulation of a “Standard Chart of
Accounts” (SCOA) for local government
Presented by National Treasury: Chief Directorate Local Government Budget Analysis – 8 October 2012
Outline
1. Problem Statement
2. Envisaged Improvements
3. Legal Framework
4. The Budget Reform Programme
5. Technical Aspects and Project Lifecycle
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Problem Statement (1)
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278 different municipal ‘charts of accounts’ (COA) aggregation of budget and
other information extremely difficult with inconsistent use of account labels and definitions
across municipalities
Quality of municipal information is compromised due to lack of uniform
classifications for revenue and expenditure items (posting level)
Lack of consistent information across the IDP, Budget, SDBIP, IYM and AFS
Compromises monitoring and oversight by Councils, DCoG, treasuries and
legislatures. In illustrating, 4th Quarter results – 2011/12 municipal MTREF:
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Aggregate under spending of the adjusted operating budget – R22.3 bn or 10.2%
Aggregate under spending of the adjusted capital budget – R14,8 bn or 32.3%
Under spending of conditional grants was R5.1 bn or 25.3%
Can this be attributed to ineffective budgeting and financial management
practices? Over ambitious expenditure appropriations; unfunded budgets; lack of
credibility in reporting (S71) – pure compliance; or a mixture)
Compromises government’s ability to formulate coherent policies affecting local
government, and its ability to use the budget as a redistribution tool to address
poverty and inequality
Municipalities continuously change and amend detail COA – No consistency
year-on-year
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Problem Statement (2)
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In the absence of meaningful and credible management information
municipal councils make uninformed decisions; considerable risk
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Contributing factor to weak audit opinions
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Lack of ownership by finance practitioners; inconsistency in the application
of leading financial management practices corrupting the “chart”
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COA information not easily obtainable in a useful format
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Metadata not defined
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Multi-year budgeting is a relatively new concept; constant changes to the
COA impedes the ability to plan over the medium-term
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Electronic budget returns and in-year reporting not aligned to the adopted
budget and budget information published by municipalities
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Envisaged Improvements
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Guided by the Constitution and the MFMA
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Promote transparency and accountability
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Strengthens the link between policy priorities, planning, budgeting,
implementation and reporting
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Forms the basis for the Medium Term Revenue and Expenditure
Framework for municipalities (MTREF)
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Facilitates inter-local government comparability (to demonstrate the
effective use of resources and to inform allocation decisions)
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Consistent budget and reporting formats that will support GFS
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Improve golden thread of reporting - adopted budgets, in-year
reporting, AFS and Annual Report
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Legal Framework - Constitutional Requirements
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Section 216(1) of the Constitution states that:
national legislation must establish a national treasury and
prescribe measures to ensure both transparency and
expenditure control in each sphere of government, by
introducing (a) Generally recognised accounting practice
(GRAP – OAG)
(b) Uniform expenditure classifications; and
(Standard Chart of Accounts / General Leger)
(c) Uniform treasury norms and standards
(MFMA, Regulations, Circulars and Guidelines)
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Legal Framework - MFMA Requirements
• Section 168 (1) of the MFMA states that:
The Minister (of Finance), acting with the concurrence of the
Cabinet member responsible for local government, may
make regulations for, among other things –
(a) any matter that may be prescribed …and…
(p) any other matter that may facilitate the enforcement and
administration of the Act
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The Budget Reform Programme
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Improve LG sphere’s ability to deliver basic services to all through:
– Improved financial sustainability
– Facilitation of medium term planning and policy choices on service delivery
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The SCOA will achieve this by formalising financial classification norms and
standards. This will, in turn, improve:
– Credibility, Sustainability, Transparency, Reliability, Relevance; and
– Comparability of budgets and in year reports of municipalities and entities
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Forms part of MFMA financial management reforms and is directly aligned to the
MBRR and in-year reporting framework (Section 71 and 72 reporting)
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Contributes to evidence-based financial management and decision-making
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More predictable financial classification system for financial practitioners
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The Budget Reform Programme – Initiatives
• We have embarked on the long-term local government financial reform
programme
– MFMA Implementation in 2003
• We have issued a suite of regulations:
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Draft Municipal Finance Misconduct Regulation (July 2012)
Municipal Budget and Reporting Regulations (April 2009)
Municipal Asset Transfer Regulations (August 2008)
Municipal Regulations on Debt Disclosure (June 2007)
Municipal Supply Chain Management Regulations (May 2005)
Municipal Investment and PPP Regulations (April 2005)
• We have developed a comprehensive budgeting system (Municipal Budget
and Reporting Regulations)
• We have developed a conditional grant monitoring system
• Institutionalized annual engagements with the 17 non-delegated
municipalities; PT’s need to replicate these processes
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The Budget Reform Programme - WIP
We are finalising a SCOA for Local Government while undertaking other
financial management reforms in the following areas:
• Research into systems solutions and financial applications that support
SCOA
• Revenue value chain
• Financial modeling and costing methodologies informing tariff setting
• Reviewing the LG equitable share and conditional grants
• Exploring options for a differentiated approach in funding municipalities
• Developing a “early warning system” for identifying municipalities at risk
• Publishing of payment schedules for provincial conditional grants
• Reviewing the guidance and formats given on the SDBIP, with a view to
establishing a basis for implementing a system of quarterly performance
reporting that will be aligned to the section 71 reports
• Reviewing the guidance and formats given on the Annual Report
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We publish information routinely…
• Consolidated MTREF budget information for all municipalities
– Once a year and it takes 5 months to complete
• Quarterly Section 71 reports
– 2 month process
• State of Municipal Finances report – annually
– Used for Parliamentary oversight
• Over and under expenditure report to Parliament
– Annually
• Local Government Budgets and Expenditure Review
– Biennial and it takes 18 months to complete
• Report on the Tabling of budgets to Parliament
– Compliance with deadlines for the tabling and approving of municipal budgets
– annually
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Technical Aspects and Project
Life-cycle of SCOA
Municipal Accountability Cycle
5 year Strategy
IDP
Three year Budget
Focus of MBRR
Budget
Annual Plan to Implement
SDBIP
Next Project
Focus of MBRR
In-year
Reporting
Monitoring
Annual
Financial
Statements
Oversight
Reports
Annual
Report
Standard Chart of Accounts (SCOA)
Understanding SCOA
• Detailed Classification System
– Not GFS, GRAP or Budget Formats but classification system (Posting Level Detail) =
SCOA
– Provide sufficient detail for reporting through combining/selecting from segment detail
into reporting formats prescribed by recognised stakeholders
– Reporting Formats – Provides report writer within financial systems application or
stakeholder databases
• What does this mean?
– Provide for detail to be added by municipalities
– Clearly defined account labels (Metadata)
– Accounts to be standardised for all Munics/ME/Agencies
– Comprehensive “Design Principles” for segments and account groups
– “Grid” to select what is applicable to the municipality
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Overall Design Principles for SCOA
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Classification framework limited to financial information
International standards, guidance and best practices
Comply with legislative framework for local government
Labels and accounts to be clearly defined
Comprehensive framework (grid) to satisfy stakeholders needs
Information to be easily extracted
Alignment of financial and budget reporting formats
Integration of GRAP standards
Standardisation of terminology
Standardisation of transaction classification
Reporting on “whole-of-local government and government”
Simple classification
Financial system integration with optimised business and programme
rules
Segments of SCOA for Municipalities
“Against which source of funding should the
payment be allocated?”
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Funding
Standard
Classification:
Org Structure
Function
“To which cost centre does the
transaction get allocated?”
“Against which function/subfunction should the
transaction be recorded?”
Categories
“What is being bought or
money received for?”
“In which region does the
service get delivered?”
Regional
Indicator
Item
Project
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“Does the transaction relate to a specific
project and if so, what type of project?”
Project Phases (1)
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Phase I: January to October 2010
– Version I completed
– Compiled primarily through desktop review and consultation
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Phase II: Completed September 2011
– Version II completed
– Consultation based on External Stakeholders Communication Plan
– Various charts interrogated
– Greater understanding of municipal financial systems
– Broader understanding of Standards of GRAP and impact on SCOA
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Phase III: Completed 5 October 2012
– Definitions to be provided for accounts taken up in segment of SCOA
– Drafting of SCOA Reference Guide
– Version III of SCOA to inform second engagement with stakeholders being:
• Provincial Treasuries and Municipalities
• National Departments
• Professional Bodies (SAICA, IMFO, ASB)
• SALGA and COGTA
• Regulatory Institutions (NERSA and SARB)
• System Vendors
• Professional Advisors and Consultants
• AGSA Project Champions
• National Treasury – Internal Stakeholder
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Project Phases (2)
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Phase IV: Pre-regulation
– Consolidate comments, evaluate and update SCOA
– MBRR and GRAP (AFS) reporting and terminology alignment
– Financial modelling integration
– Business process integration
– Conclude NERSA engagement; aligned of reporting
– SQL Database:
• Develop
• Record typical transaction “current information” and historic budget information
• Test report extraction to confirm SCOA design
– Financial systems minimum requirements
– Drafting of Regulations
– System Development
– Pilot Sites Running
– Other Municipalities Implementation
– Change Management (Guidelines, Training and Simulations, Call Centre,
Technical Committee, etc)
– LG Data Base Upgrade
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Timelines
Milestones
Draft Regulations
completed
Formal consultations ito
Regulation (3 months)
Finalisation of Regulation
•Parliamentary process
tabling of regulation
completed
•Systems development by
vendors
•Implementation at Pilot
Sites
•Change Management
•LG DB Upgrade
Full implementation
Feb’ 13
May ‘13
Jul ‘13
Jun ‘14
Jul ‘15
What do we expect from you?
• Local government finance practitioners to internally workshop SCOA Version
3; involving all municipal departments
• Provide comments on the adequacy and completeness of the classification
framework together with the definitions provided e.g. catering versus
entertainment
• Municipalities need to indicate if they interested in piloting SCOA prior to
implementation
• Must not be concerned about implementation issues; focus on technical
aspects
• Do not start with refinements to the financial application/systems; premature
changes will not facilitate implementation
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THANK YOU