Between the 2015/2016 and 2016/2017 financial year, IMQS has played a central role in enabling Overstrand Local Municipality in their efforts to become mSCOA compliant. What is mSCOA and what role is IMQS playing to facilitate this national process?
WHAT IS MSCOA?
Every municipality and municipal entity has a chart of accounts. The chart is a listing of all accounts used in the general ledger which is leveraged by accounting software to aggregate information into an entity's financial statements.
mSCOA stands for Municipal Standard Chart of Accounts. It points to the standardisation of all South African municipal account numbers and descriptions in their charts. This financial reform is a drive by the South African National Treasury to ensure transparent municipal financial governance via improved financial reporting.
The reform has been designed according to principles already implemented at national and provincial levels. These principles aim at improving governance, accountability, transparency and the management of public funds 1. The new drive by National Treasury on the municipal level aims at improving stakeholder (e.g. municipal councillors and managers) decision making and empowering the general public by enabling them to hold municipalities to account 2.
According to National Treasury 3 :
The implementation of mSCOA will result in the consistent application of the municipal ‘accountability cycle’ from planning, budgeting, implementation, monitoring and reporting and ultimately improved service delivery.
AN EXAMPLE OF AN ELECTRICITY UPGRADE
If a municipality plans to, for example, undertake an electricity upgrade to improve electricity supply to a community based in a rural area, the municipality would generally budget according to two levels - Department/Vote level and Item level.
mSCOA requires a more comprehensive budgeting and accounting process with all of the following segments specified:
Project segment, describes how the municipal spending relates to deliverables. In the case of our electricity upgrade example the Project Segment would be Capital -> Infrastructure -> Exiting -> Upgrade -> Electrical Infrastructure.
Function segment, describes the service delivery entity to which the funds will contribute. In the case of our electricity upgrade example the Function Segment would be Energy Sources -> Core Function -> Electricity.
Item segment, the most complex segment and describes the debit and credit entities affected by the project.
Fund segment, describes where the money is sourced from, for example Government loans, bank borrowing, taxes, etc.
Regional Indicator segment, describes the region which will benefit from the project
Costing segment, describes the impact of the project on secondary costing which can be viewed as the asset’s operating costs.
Municipal Standard Classification segment, notes the municipal department responsible for the project and the assets it produces.
IMQS AT OVERSTRAND
Overstrand Local Municipality (OLM) is one of 19 local municipalities where mSCOA is being piloted before it comes into full effect on 1 July 2017. Between the 2015/2016 and 2016/2017 financial year, IMQS has played a central role in enabling OLM in their efforts to become SCOA compliant.
In line with IMQS’s agile business ideology that tries to understand a client’s particular context, the appropriate systems and processes are being put into place to facilitate OLM’s transition towards better asset life-cycle management, financial reporting and service delivery.
According to IMQS’s Asset-Management-Team Product Owner, Danielle Hendricks. IMQS followed a strategic approach in defining standard business processes across Overstrand’s departments to clearly define responsibility and accountability.
To this end, an “As-is analysis” was conducted to identify current business-process shortcomings. According to Hendricks, the exercise highlighted inconsistencies in processes followed between departments and pointed to where responsibility was vague and the method of communication fragile. The next step was to draw up “To-be business process documents” that portray how, via the use of IMQS and systems integration, current manual interventions could be replaced.
A key finding by Hendricks and her team was the observation of an alarming disconnect between Engineering and Finance Departments. The disparity, which is not unique to OLM, between stakeholders active in the field and those responsible for reporting on the value and state of municipal assets needed to be overcome:
“There had been cases where assets disposed five years back were still being reported on within the Financial Asset Register. This problem is not limited to OLM, it is one of the largest problems faced within all municipalities across South Africa”.
IMQS aims at bridging this disconnect by putting software solutions in place that enable effortless communication between Engineering and Finance. Standardising processes as well as defining accountability and transparency of information across all stakeholder groups aligns OLM with the mSCOA compliance goal.
IMQS is excited about exploring further opportunities and pushing the boundaries by expanding our innovative homegrown solutions into the South Africa local government market. For more information on the IMQS Asset Management module download our White Paper here.