IMFO – July 2016

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mSCOA and GRAP – Accounting Update:

IMFO – July 2016

Reporting Pack and mSCOA V5.5 Technical Release

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Content:

REPORTING

• Background

• The Problem Statement

• What is considered to be included in reporting?

• Proposed design Principles

 Phase 1: Current Reporting Formats linked to mSCOA

 Phase 2: Revised/Updated/New Reporting Formats

VERSION 5.5 FOR TECHNICAL REVIEW

• Changes made Version 5.4 take 5 to Version 5

• Where are we?

• Position Papers

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BACKGROUND

• Key Design Principles in Setting-up mSCOA Classification Framework:

– Central source of data for local government information to be used by different users, e.g. provincial treasuries, National Treasury, sector

departments, STATSA, SARB, NERSA.

– Improvement of Data Quality and Integrity – uniform classification

framework with definitions to assist in the understanding of the classification of similar transactions throughout local government.

– Initiative supported by a modernised system application to facilitate the adoption and implementation of the mSCOA Classification Framework.

– Reporting relates to internal and external information requirements for local government in the context of the municipality or municipal entity.

• Internal to the municipality:

– management’s needs for information from the systems application for day-to-running – vary depending on the size and complexity of the municipality/municipal entity

– excluded from the Position Paper

• External – wider user group (See Annexure A to the Position Paper for a Comprehensive list):

– Municipal Budget and Reporting Regulations – In-year reporting

– Reporting of audit outcomes

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BACKGROUND (CONTINUE)

• Financial and Non-financial Information

– Reporting in the context of mSCOA confined to financial information and do NOT address non-financial information.

– Once the financial information stabilised further consideration will be given to non-financial information in improving the collection and reporting on these important indicators.

– The design framework inherent to mSCOA considered the reporting

outcomes and envisage improvements to be made to existing reports.

– mSCOA tables for release subsequent to the technical review is an important land mark in the project development life cycle.

– Locking down the chart, path the way for finalising the review, revision and update of the set of reports for Local Government.

– The data imports will contain sufficient information to extract these reports.

– By no means the accountability responsibility placed on the local government governance structures will be removed.

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THE PROBLEM STATEMENT

Problem 1

Requests raised through the training initiatives, practioners, consultants, professional bodies, etc on the revision of the existing reporting sets to compliment the mSCOA Classification Framework.

Need?

In progress, consultation already commenced. Discussion Paper released for comments.

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THE PROBLEM STATEMENT (CONTINUE)

Problem 2

Rational and varying opinions expressed does not necessary align to current thinking at National Treasury.

Uncertainty?

Continuous consultation and engagement with stakeholders and practioners.

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THE PROBLEM STATEMENT (CONTINUE)

Problem 3

More detailed mSCOA information require update of historical information.

Most critical aspect in this dimension of the project life cycle – take-on balances and restatement of comparatives.

Retention of a complete Audit Trail to substantiate the unbundling, regrouping and restatements.

How?

Position Paper: Comparatives, Historical Information and Restatement

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THE PROBLEM STATEMENT (CONTINUE)

Problem 4

Regulation of Annual Financial Statements necessary?

Need?

 Far less than initially anticipated considering that budgeted and actual financial information from reporting entities will be uploaded to the LGDRS providing for seamless alignment between budget and actual information for statistical reporting by National Treasury.

 Management discretion and judgment underpinned in the Standard of GRAP is not compromised as the management and governance structure of the reporting entity has full discretion on presentation and disclosure made in the annual financial statements.

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WHAT IS CONSIDERED TO BE INCLUDED IN REPORTING?

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Schedule Description of Report Frequency

A Municipal Annual Budget and MTREF

Supporting Tables 1 July

SDBIP Service Delivery and Budget

Implementation Plan 1 July

Tabled and Adopted Budget

Returns

OSB: Statement of Financial Performance

CA: Budgeted Capital Acquisition CFB: Budgeted Cash Flow

GSR: Grants and Subsidies Received GSG: Grants and Subsidies Given SP: Strategic Plan with links to Budget AM: Asset Management

BS: Budgeted Balance Sheet

Monthly

Schedule D

Budget schedule for municipal entities To parent

municipality for consolidation

To National Treasury

Municipal Entity Annual Budget and

MTREF Supporting Tables 1 July

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WHAT IS CONSIDERED TO BE

INCLUDED IN REPORTING? (Continue)

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B Municipal Adjustment Budget and

Supporting Tables 10 working days after approving the adjusted budget Municipal Entity

• To Parent Municipality

• For Consolidated Budget

• To National Treasury

Adjusted Budget Return

OSR – Statement of Financial Performance Revised

CAR – Capital Acquisition Revised Budget

CFR – Cash Flow Revised Budget BSR – Balance Sheet Revised Budget AMR – Asset Management Revised E

Budget Schedule Municipal Entity

• To Parent Municipality

• For Consolidated Budget

• To National Treasury

Municipal Adjustment Budget and Supporting Tables – Municipal Entities

10 working days after approving the adjusted budget

C Municipal In-year Reporting and

Supporting Tables Monthly Section 71

Reports

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WHAT IS CONSIDERED TO BE

INCLUDED IN REPORTING? (Continue)

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F

Municipal Entity

• To Parent Municipality

• For Consolidated Budget

• To National Treasury

Municipal Adjustment Budget and

Supporting Tables 10 working days after approving the adjusted budget

Monthly Reporting AC: Age Analysis of Creditors AD: Cash Flow Accruals

CFA: Cash Flow Actuals

CAA: Capital Acquisition Actuals OSA: Statement of Financial Performance Actuals

BSAC: Balance Sheet Actuals (this is a snapshot of municipal finances at the end of the month)

RME: Repairs and Maintenance

Operating Actual (this is a new return similar to the grant returns used and concentrates on any operating

expenditure incurred for repairs and maintenance during the month of reporting

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WHAT IS CONSIDERED TO BE

INCLUDED IN REPORTING? (Continue)

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Monthly Reporting

Grants: FMG – Finance Management

DRG – Drought Relief

MDRG – Municipal Drought Relief

EEDG – Energy Efficiency and Demand Site Management

INED – Integrated National Electrification Program

MIG – Municipal Infrastructure

MSIG – Municipal Systems Improvement NDG – Neighbourhood Development Partnership

PTIG – Public Transport Infrastructure and Systems

RTSG – Rural Transport Service and Infrastructure

WSOG – Water Service Operating Subsidy ISDG – Infrastructure Skills Development

PWPG – Expanded Public Works Programme Integrated

Monthly

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WHAT IS CONSIDERED TO BE

INCLUDED IN REPORTING? (Continue)

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Reporting on Audited Figures OSAA – Statement of Financial Performance

CAAA – Capital Acquisition CFAA – Cash Flow Audited BSA – Balance Sheet Audited ACA – Aging Creditor Figures AMA – Asset Management Audited

From 1 December onwards

Reporting on Restated Audited

Figures OSAA – Statement of Financial

Performance

CAAA – Capital Acquisition CFAA – Cash Flow Audited BSA – Balance Sheet Audited ACA – Aging Creditor Figures ADA – Aging Debtor Figures AMA – Asset Management Audited

Restated figures during preparation of next year’s AFS (Period 15)

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Proposed Design Principles – Phase 1

• Minimal changes in terminology, layout and presentation in existing reports

• Technical Work Group to give consent on the alignment, potential

inconsistencies and “best fits” that could apply. Proposed to be included in the Project Summary Document for completeness.

• Challenges in achieving seamless alignment in reporting (planning – budgeting – in-year reporting and annual financial statements) in the accountability cycle during this transitional phase. ULTIMATE GOAL

• mSCOA alignment to existing reports based on reporting links to be available in the final release for 2017/18 budgeting with report extraction from the LGDRS.

• Illustrated financial statements (potential revision) – seamless alignment between budgeted information – in-year – monthly and annual reporting.

• Accountability responsibility of governance structure to be maintained.

• LGDRS is as statistical system using commonality as base

• Existing reporting formats need to be available from the system application (preferable) used by the municipality

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Proposed Design Principles – Phase 1 (Continue)

• System application need to drive month and year-end procedures.

– If these procedures did not complete data may not be submitted to the LGDRS

– Transitional arrangement – provide for resubmissions

– Complete Annual Financial Statements / Budget Reporting may not

necessary be directly extracted from the system application. End GOAL

• SARS Returns

– First workshop held based on Version 5.4 take 1 in January 2016 – indicators added.

– Second workshop envisage for 3

^rd

week in August 2016 – update of indicators final version.

– Input draft for the VAT 419 Guide Revision released by SARS.

– PSD to be drafted to explain the VAT Indicators.

– Minimum requirements for VAT reports to substantiate returns with layout

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Proposed Design Principles – Phase 1 (Continue)

• NERSA Regulatory Reporting Returns

– PPE and Intangible Assets aligned to CIDMS. (Consent by NERSA) – Service Charges revised.

– Discussion Paper presented to NERSA on various other changes.

– Design to commence on these reports on a consultation basis with NERSA.

– Require a revised regulation from NERSA.

• DWS Reporting Requirements

– PPE and Intangible Assets aligned to CIDMS. (Consent by the Department)

– Service Charges revised.

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Proposed Design Principles – Phase 1 (Continue)

• Exception:

– During the testing of the envisage reporting position, the pilot municipalities will be subjected to dual reporting.

• Recommended to pilot municipalities and early adopters to focus on

correct classification of transactions than envisage and design of future reporting.

• Users external to national and provincial Treasuries:

– SARB, STASTA, COCTA, SARS, AGSA, NERSA, DWS, etc – Registered users with limited access to reports.

– Municipalities are NOT relieved from submitting reporting information to these stakeholders.

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Proposed Design Principles – Phase 1 (Continue)

• Period:

• 1 July 2015 / 2016 – pilot site testing

• 1 July 2017 – all municipalities

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Proposed Design Principles – Phase 2

• Revision of reports defined early to give credit to the extensive detail added in mSCOA.

• Analytical reports to be signed for oversight responsibilities.

• The cumulative effect of the monthly reporting upload with the three additional periods; 1) final year-end period, 2) pre-audit and 3) audit and restated figures – effectively becomes the official information hosted in the LGDRS.

• If needed changes to be effect coinciding with the release of the budget circular for 2017/18 of changes to the mSCOA Tables required from finalising the reporting formats.

• AFS prepared as usual by reporting entities.

• LGDRS:

– Accountability ito governance structures remain – Oversight and stakeholder information

– Seamless alignment between budget – in-year reporting – AFS – Enable to extract AFS but will not extract for reporting entities

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Proposed Design Principles – Phase 2 (Continue)

• AFS prepared by management is a distinctive process for general use in the municipalities annual report.

• Achieving of AFS compliant to the Standards of GRAP.

• Retaining comparable, similar detail and comprehensive yet flexible information in the LGDRS.

• Customised reporting abilities providing for AFS with notes, budget reporting and in-year reporting.

• Other Stakeholder reporting to be concluded and reporting requirements communicated.

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Proposed Design Principles – Phase 2 (Continue)

Summary of this Phase:

• Consultation, comments and more request for comments

• Reporting formats concluded.

• Process for retaining accountability measures by governance structures concluded.

• Other reporting formats finalised.

• Any changes required in mSCOA Tables made to coincide with the Budget Circular for 2017/18.

• Proposed Date:

• 1 July 2019

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SUMMARY OF CHANGES MSCOA:

Version 5.5

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Costing Segment

Change Posting

Level and Breakdown

Principle/

Application Definition Account

If Breakdown is not required principle changed to “N/a” for

consistency throughout mSCOA.

Detail is discussed in Design Principles within the PSD

Yes Various

Definitions improved mostly within

“Recoveries”. Yes Various

Changes to PSD:

1. Design Principles following update of comments received – applicable to all sections of the PSD.

2. Comments received to update and clarify content of the PSD (ASB/Invictus/Guest) 3. Not done yet – 30 June 2016.

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Function Segment

Principle/

Application Definition Account

VAT Indicators added/changed. All Posting Level

If Breakdown is not required principle changed to “N/a” for consistency

throughout mSCOA. Detail is

discussed in Design Principles within the PSD

Yes Various

Definitions Revised/Updated for:

• Libraries and Archives

• Museums and Art Galleries

• Markets

• Recreational Facilities (added Swimming Pools)

Yes

Sub-sub-functions removed for

Swimming Pools – see above Deleted

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Function Segment

Principle/

Removed breakdown required as

information is not standardised and this not relevant for LG DB purposes.

Level 5 changed to be the posting level

Breakdown

optional All

Removed Sub-functions duplication in Public Safety for “Police Forces, Traffic and Street Parking”. [Included in

Roads]

Deleted

Sub-functions added for Health (Norms and Standards Gazetted by the

Minister of Health – Core for District Municipalities) for:

• Food Control

• Health Surveillance of Premises

• Surveillance and Prevention of

Communicable Diseases, excluding Immunizations

• Vector Control

• Chemical Safety

No Yes Yes Added

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Function Segment

Principle/

Changes to PSD:

1. Design Principles following update of comments received – applicable to all sections of the PSD.

2. Comments received to update and clarify content of the PSD (ASB and comments/clarification from Public Finance)

3. Late comment received on “Health Service” justifying consideration.

4. Not done yet – 30 June 2016.

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Regional Segment

Principle/

Application Definition Account

Regional Indicators updated from:

• FAQ DB

• Information received following specific request to municipalities from emails/FAQ DB

   

Changes to PSD:

None

Outstanding:

Information received in FAQ DB and by emails after 25 May 2016.

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Funding Segment

Change Comment

Revenue: Revised classification to provide for “all source of revenue” in accordance with the Revenue Segment.

Equitable Share Removed detail and changed to a posting-level Interest, Dividends and Rent on Land • Added Rent on Land to agree with the

classification principle applied in the Revenue Segment

• Added Dividends to the description Interest categories changed to:

• Current and Non-current Assets

• Receivables

Changed from:

• External Investments

• Outstanding Debtors

Rent from Fixed Assets Changed the description from “Rental of Facilities and Equipment.

Added:

• Operational Revenue

• Sales of Goods and Rendering of Services

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Funding Segment (Continue)

Transfers and Subsidies:

• Reviewed all definitions and posting levels (including breakdown required)

• Checked table to other segment for consistency/completeness

• Updates from FAQ DP impacted on all classifications

District Municipalities Changes made as per requests received Provincial Government Changes made as per requests received

• Departmental Agencies and Accounts

• Foreign Government and International Organisations

• Households

• Non-profit Institutions

• Private Enterprise

• Public Corporation

• Higher Educational Institutions

Compared and made changes in alignment with SCOA Departments [SCOA COR 4.17.02 6 April 2016]

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Funding Segment (Continue)

Borrowing

• Reviewed all definitions and posting levels (including breakdown required)

• Checked table to other segment for consistency/completeness

• Updates from FAQ DB impacted on all classifications

• Added further classification to align to LG DB Return Formats

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Project Segment

Change Impact

ASB: Impacting on PSD more than mSCOA Tables

CIDMS: Significant Impact on the Classification Structure and Level of Detail

Capital Projects: Infrastructure/Non- Infrastructure

Rehabilitation and Refurbishment replaced with Renewal

Definition: Expenditure on an existing asset that returns the service potential of the asset or expected useful life of the asset to that which it had originally.

Upgrade and Additions replaced with Upgrades Definition: The replacement of an asset or addition/replacement of an asset component, which materially improves the original

service potential of the asset.

Terminology changes to align CIDMS Electrical Infrastructure Solid Waste Infrastructure Rail Infrastructure

Water Supply Infrastructure Sanitation Infrastructure

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Project Segment (Continue)

Classification for “Roads, Pavements, Bridges and Storm Water removed and replaced

Roads Infrastructure

Storm Water Infrastructure

Airports removed Refer to Community Assets

Level of detail Add Level 4 Asset Group from CIDMS

Removed “Transfers” No further distinction required.

Classifications added: ^• Coastal Infrastructure

• Information and Communication Infrastructure

NON-INFRASTRUCTURE

Removed Buildings and Other Structures

Replaced with:

• Community Assets

• Other Assets

Level of detail Add Level 4 Asset Group from CIDMS

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Project Segment (Continue)

MAINTENANCE Change as per the above discussion for CIDMS

Planned and Unplanned Maintenance replaced/expanded

Preventative Maintenance [Definition:

Maintenance carried out at predetermined

intervals, or corresponding to prescribed criteria, and intended to reduce the probability of failure or the performance degradation of an item.

Preventative maintenance is planned or carried out on opportunity.]

• Interval Based

• Condition Based

Corrective Maintenance [Definition:

Maintenance carried out after a failure has occurred and intended to restore an item to a state in which it can perform its required function.

Corrective maintenance can be planned or unplanned.]

• Planned

• Emergency

Level of detail Add Level 5 Asset Type from CIDMS

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Project Segment (Continue)

TYPICAL WORK STREAMS

Environmental Added two further sub-projects at the request of municipalities:

• Nurseries

• Biodiversity and Climate Control

Health and Welfare ^Added:

• Municipal Health Service

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Project Segment (Continue)

FAQ DB:

In Progress: 11

Consultation in Progress: 1

Changes made except for Q5042 that need to be considered in updating the PSD.

PSD:

Major Changes Not started.

Definitions, Posting Levels, Application and Breakdown Required

Significant changes made following the impact of the above discussion.

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Item Segment: Liabilities

Change Progress

ASB: Considered except for changes to be made in PSD

CIDMS Not applicable

FAQ DB:

In Progress:

• Expenditure General – 4

• Contracted Services – 4

• Operational Expenditure – 9

Consultation in Progress:

• Expenditure General – 8

• Inventory – 1

• Contribution Provision - 8

Considered except for matters to be addressed in the next version.

NERSA: Not applicable

PSD:

Changes – comments received to be considered except for Depreciation and Impairment

Not started.

Transfers and Subsidies Movement on Balances

Update completed

Completed subsequent to technical release of Version 5.5.

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Item Segment: Liabilities

Consumer Deposits ^Added:

• Way leave

• Refuse

Financial Liabilities Combined in Current and Non-current under single group.

Annuity and Bullet Loans Changed description and definition.

Financial Institutions Added in Current and Non-current Borrowings.

Provision and Impairment Changed in Current and Non-current Borrowings “Leave Accrual to Leave”.

Change Landfill Sites to be Posting Level within

Decommissioning, Restoration and Similar Liabilities and added a Posting Level for Unspecified.

Control, Interface and Clearing Accounts

More accounts added.

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Item Segment: Liabilities

Trade and Other Payables from Exchange

Transactions

Added:

• Goods/Invoices Received

• Prepaid Electricity

• Cash and Bank

• Licensing and Regulation

• Inventory Stores

• Fair Value Adjustment

Transfers and Subsidies Updates to accounts, definitions and posting levels for payables and unspent.

Major Changes: Unspent to be used also for receivables as these are essentially the same account. Classification

depends on Credit or Debit Balance at the end of a reporting period. System Requirements to accommodate this principle.

Movement on Balances – Outstanding to be addressed in Budget Circular Release.

Defined Benefit Obligations Movement analysis added

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Item Segment: Assets

ASB: Comments considered except those impacting on PSD.

CIDMS Major Changes to Non-current Assets

FAQ DB:

In Progress:

• Current Assets – 9

• Property Rates – 1

• Trade and Other Receivables – 3

• Non-current Assets – 12

• Fixed and Intangible Assets - 1

• Current Assets – 1

• Property Rates – 1

• Trade and Other Receivables – 2

• Non-current Assets – 2

• Fixed and Intangible Assets – 2

Changes made/queries closed.

PSD:

Changes – comments received. Not started.

Transfers and Subsidies See note included in Liabilities on Transfers and Subsidies Receivables

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Item Segment: Assets

Financial Assets Grouped together.

Current Portion of Non-current Receivables

Accounts added:

• Employee Benefits

• Associates

• Joint Ventures

• Subsidiaries

• Public Organisations

• Operating Lease

Receivables Non-exchange Transactions

Property Rates categories compared to Revenue and updated.

Heritage Assets and Property, Plant and Equipment

Aligned to CIDMS Framework

Not all inputs received from ASB and Other Inputs outside of FAQ Considered. To be considered for Budget Circular Release o mSCOA Updates

Construction Work-in-progress Borrowing Cost Added

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Item Segment: Net Assets

ASB: Terminology Change: Non-controlling Interest Definition Change: Revaluation Reserve

CIDMS Not applicable

FAQ DB:

In Progress:

• None

• Reserves and Funds - 1

Change made/queries closed.

PSD:

Transfers and Subsidies Movement on Balances

Not applicable Exist in this table

OTHER CHANGES: Added – Investment in Associate

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Item Segment: Revenue

ASB: Comments received after finalising the table

CIDMS Rental of Facilities

FAQ DB:

In Progress:

• Agency Services – 1

• Exchange Revenue – 2

• Contra Accounts – 2

• Revenue – 4

• Interest, Dividend and Rent on Land – 1

• Fire Services – 1

• Fines and Penalties - 1

• Revenue – 3

• Sale off Goods and Rendering of Services – 1

• Service Charges – 1

• Agency Services – 2

All queries completed.

PSD:

TRANSFERS AND SUBSIDIES ^Completed

NERSA: Changes to be made - improvement

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Item Segment: Revenue

Definitions changed for: Agency Services Receivables Housing Inspection Fees

Animal Housing Facilities

Health Services Penalties

Transfers and Subsidies

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Item Segment: Expenditure

ASB: Comments on Expenditure related to PSD and changes already made.

CIDMS Depreciation and Amortisation / Operating

Leases changes to align to CIDMS Classification

FAQ DB:

In Progress:

• Expenditure – 4

• Contracted Services – 4

• Operational - 9

• Expenditure – 8

• Inventory – 1

• Contribution to Provisions – 8

Queries completed and updates made where necessary to mSCOA Table.

PSD:

Transfers and Subsidies ^Completed

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Item Segment: Gains and Losses

ASB: No comments

CIDMS ^Impairment

Gains and Losses on Disposal

FAQ DB:

In Progress:

• Gains and Losses - 4

Changes made/queries closed.

PSD:

Transfers and Subsidies Not applicable

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