IMFO Annual Conference – October 2015
Breakaway Session 3: mSCOA and the Local
Government Accountability Cycle
National Treasury I 6 October 2015
Objectives of the local government financial management
reform programme
• To modernise local government budgeting and financial management processes and practices,
particularly with regards to:
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Budgeting and financial reporting
Accounting
Asset management
Supply chain management
• To improve financial governance by clarifying and separating roles and responsibilities of Mayors,
executive and non-executive councilors vis-à-vis those of municipal officials.
• To maximise municipal capacity to deliver services by attending to issues of efficiency, effectiveness
and sustainability, and dealing with corruption.
• To set-up the accountability cycle by ensuring proper linkages between IDPs, budgets, SDBIPs, inyear reports, annual financial statements, annual reports, oversight reports and audit reports.
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Milestones so far in reforming the budget and budget
processes…
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Efforts to reform local government budgets and budget processes have been ongoing
Key dates and achievements so far have included:
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2000:
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2003:
2005:
2007:
2007:
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2009:
2010:
2008-2011:
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A range of supporting reforms have also been implemented during this timeframe, including the introduction of
the establishment of the current system of local government, along with the system of
intergovernmental finances, particularly the local government equitable share.
the enactment of the MFMA, that sets out the required content of budgets and key process dates.
issuing of MFMA Circular 28 – giving guidance on budget formats.
issuing of MFMA Circular 42 – dealing with funding of a municipal budget
issuing the Funding Compliance Guide – setting out a procedure for assessing whether municipal
budgets are funded in accordance with the MFMA.
the promulgation of the Municipal Budget and Reporting Regulations.
implementation of the Municipal Budget and Reporting Regulations by all municipalities
Significant improvements in in-year financial reporting by municipalities
GRAP (accounting standards), the strengthening of the in-year financial reporting system, issuing of
guidelines for annual financial statements and the DoRA in direct support of municipal funding.
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Aims of the local government budget reforms
• Ensure that municipal budgets and financial management processes are transparent, aligned to the
accountability cycle and facilitate democratic governance accountable to local communities
• Ensure municipal budgets generally support the provision of basic services to communities, facilitate
social and economic development and promote a safe and healthy environment in a manner that is
sustainable
• Ensure that budget and financial information is reliable and timely, and consistent across
municipalities, and that municipalities, provinces and national government use it in management
and policy decision-making
• The medium-term aim is to ensure that each municipality produces a budget document that is
aligned to the IDP, that passes the funding compliance test and that contains accurate financial
information backed-up by useful, informative narratives. The document must be user-friendly and
facilitate engagements with communities and informed decision-making by Council
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Budget reform focus areas
• National Treasury is focusing on seven areas in its efforts to reform local
government budgets and budget processes:
1. Reviewing the structure and allocation of functions of local government to ensure the institutional framework
for local government facilitates sound budgeting and budget processes.
2. Reviewing the intergovernmental fiscal arrangements as they relate to local government, including
conditional grants, to ensure an equitable allocation of resources, and aligning the incentives to reinforce
sound budgeting and financial management.
3. Ensuring that the IDP priorities and budget allocations are properly aligned.
4. Ensuring that the new budget formats inform the structure of all other elements of the accountability cycle,
i.e Alignment.
5. Strengthening financial reporting systems, particularly the forecasting component of the section 71 reports.
6. Building-up the budgeting capacity of municipalities, especially their Budget and Treasury Offices.
7. Building-up the capacity of National Treasury and provincial treasuries to exercise oversight of local
government budgets, adjustments budgets and in-year reports.
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Influencing the LG accountability cycle
5 year Strategy
Greatest
Impact
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)
A multi-faceted approach to reforming the budget and budget
processes
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The National Treasury has adopted a multi-faceted approach to the financial management reform agenda in
addressing these focus areas.
The main elements of the approach are:
– Raising the profile of LG budgeting e.g. publishing the s.71 reports, and writing regular memo’s to brief the
Minister and Cabinet
– Policy reform and regulation e.g. the introduction of the Fuel Levy, the MIG reforms and the Municipal
Budget and Reporting Regulations
– Guidance and advice through the issusance of MFMA Circulars
– Review and feedback e.g. Budget oversight and review process and the funding compliance procedure
– Enforcement e.g. repayment of unspent conditional grants in terms of DORA
– Training and mentoring e.g. budget reform workshops and other training
– Material assistance e.g. and FMG
The aim of this multi-faceted approach is to tackle the process of budget and financial management reforms in
local government at all levels – using all available levers to effect the required changes.
The sequence in which these levers are ‘pressed’ is largely aligned to the budgeting and reporting cycle, but
also as the opportunities present themselves
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Legislative Framework
Sections 215 and 216 of the Constitution provides NG with the authority to legislate uniform norms
and standards to ensure transparency and expenditure control in each sphere of government
This can be interpreted as including norms and standards in relation to financial systems of
municipalities
In terms of Section 5 of the MFMA, National Treasury may investigate any system of financial
management and internal control in municipalities and recommend improvements
In terms of the preamble to the SCOA regulations it also proposes the specification of minimum
business process requirements for municipalities and municipal entities as well as the
implementation of processes within an integrated transaction processing environment
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Legislative Framework – Financial management accountability
cycle as enshrined in legislation
Municipal Systems Act, No. 32 of 2000
“Adoption of integrated development plans
25. (1) Each municipal council must, within a prescribed period after the start of its elected term, adopt a
single, inclusive and strategic plan for the development of the municipality which:
(a)links, integrates and co-ordinates plans and takes into account proposals for the development of the
municipality;
(b)aligns the resources and capacity of the municipality with the implementation of the plan;
(c) forms the policy framework and general basis on which annual budgets must be based;”
Municipal Finance Management Act, No 56 of 2003.
“Budget preparation process
21. (1) The mayor of a municipality must – (a) co-ordinate the processes for preparing the annual budget and
for reviewing the municipality’s integrated development plan and budget-related policies to ensure that the
tabled budget and any revisions of the integrated development plan and budget-related policies are
mutually consistent and credible;”
Municipal Regulations on Standard Chart of Accounts Gazette No 37577
“Object of these Regulations
2. The object of these Regulations is to provide for a national standard for the uniform recording and
classification of municipal budget and financial information at a transaction level by prescribing a
standard chart of accounts for municipalities and municipal entities which
(a) are aligned to the budget formats and accounting standards prescribed for municipalities and municipal
entities and with the standard charts of accounts for national and provincial government;”
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Financial management accountability cycle in it’s current form Notwithstanding all effort and initiatives to date
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Financial management accountability cycle – mSCOA and the
golden thread of alignment
IDP
• 5 Year Strategy
Budget
The integrated development plan (unlimited needs and wants) must directly inform the formulation of the budget
(limited basket of resources). In a mSCOA perspective, this requires budget formulation (as per the MBRR) from a
project level. Consequently the Project Segment is consider the departure point in formulating budgets across all
seven segments.
• 3 Year
Budget
• Annual Plan to
Implement
SDBIP
IYR
 mSCOA provides for alignment of the accountability
cycle;
 Improved transparency and accountability;
 Classification based on leading practice and internal
standards;
 Consistent aggregation of municipal financial info
across the entire accountability cycle
 Whole of government reporting
Standard Chart of Accounts
• Monitoring
AFS
Budget, implementation (transacting) and reporting
• MBRR and reporting to LG Database (all 7 segments)
• Formulation of implementation plan such as regional
perspective, funding, cash flow breakdown etc.
• In-year reporting (focus MBRR), Section 71 & 72
• Budgeting to directly inform implementation and
transactional environment
• Seamless alignment
• One version of the truth
• Evidence based financial management in real time
• Transactional validation and audit trails
Accountability Reporting
• Incorporation of GRAP
• Improved
standardisation
• Improved audit
process across 278
• Consistent
comparability
• Transparency
• Oversight
Annual
Report
Improved Service Delivery
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Thank you!