Demystifying Standard Chart of Accounts
(mSCOA)
Chapter 2 – Key definitions and understanding
the accountability reforms
Presented by National Treasury: Chief Directorate Local Government Budget Analysis
Outcomes
• Explain the background and components within the
municipal accountability cycle.
• Categorise revenue in accordance with reporting
formats.
• Categorise expenditure (capital and operational) in
accordance with the reporting formats.
• Have a general understanding of VAT in the
municipal environment.
• Explain the outcome of non cash transactions and
other transactions in “assets, liabilities and net
assets” within the mSCOA classification.
2
Financial Reforms - Municipal Accountability
Cycle
NDP
MTSF
Financial Reforms - Municipal Accountability
Cycle
•
NDP – National Development Plan
•
MTSF – Medium Term Strategic Framework
•
Integrated development plans (IDP)
– This sets out the goals and development plans, which need to be aligned with the
municipality's available resources. Council adopts the IDP and undertakes an annual
review and assessment of performance based on the annual report.
•
Budget
– The three year budget sets out the revenue raising and expenditure plan for the
municipality for approval by council. The allocation of funds needs to be aligned with the
priorities in the IDP.
•
Service delivery and budget implementation plan (SDBIP)
– Sets out monthly and quarterly service delivery and financial targets aligned with the
annual targets set in the IDP and budget. It lays the basis for the performance agreements
of the municipal manager and senior management.
•
In year reports
– The administration reports to council on the implementation of the budget and SDBIP
through monthly, quarterly and mid year reports. Council uses these reports to monitor both
the financial and service delivery performance of the municipality's implementation actions.
Financial Reforms - Municipal Accountability
Cycle
•
Annual financial statements
– Reports on the implementation of the budget, and reflect the financial position of
the municipality. They are submitted to the Auditor General, who issues an audit
report indicating the reliance council can place on the statements in exercising
oversight.
•
Annual Report
– It is the primary instrument of accountability, in which the mayor and municipal
manager report on the implementation performance in relation to the budget and
the SDBIP, and the progress being made in realising the IDP priorities.
•
Oversight report
– Council produces an oversight report based on outcomes highlighted in the
annual report and actual performance.
Budget process timelines – 2015/2016 – Pilot
municipalities
6
Budget process timelines
• Non pilot municipalities/municipal entities
must prepare an mSCOA aligned budget
to be adopted by 30 June 2017.
– What are the implications of the above for you ?
• Refer to implementation of mSCOA in your municipality – last presentation
7
Purpose of reports from the accountability cycle
•
The main purpose of the reports as stated in the accountability cycle is to provide
information about sources of revenue and use of funds.
•
Broadly, the main purpose of whole of government operations is to use public
resources to:
•
• regulate relevant aspects of society and the economy
• provide services to the community in areas where there is market failure
• build, improve and maintain infrastructure
• redistribute wealth according to nationally determined criteria.
To fulfil these functions effectively, whole of government must raise revenue and it
must spend, and the reports (from the accountability cycle) provides the analytical
presentation of local government revenue and expenditure.
Budget tables – Revenue by source
KZN433 Greater Kokstad - Table C4 Monthly Budget Statement - Financial Performance (revenue and expenditure) - M08 February
Budget Year 2013/14
2012/13
Description
Ref
Audited
Original
Adjusted
Monthly
YearTD
YearTD
Outcome
Budget
Budget
actual
actual
budget
YTD
variance variance
Full Year
Forecast
%
R thousands
Revenue By Source
Property rates
Property rates - penalties & collection charges
Serv ice charges - electricity rev enue
Serv ice charges - w ater rev enue
Serv ice charges - sanitation rev enue
Serv ice charges - refuse rev enue
Serv ice charges - other
Rental of facilities and equipment
Interest earned - ex ternal inv estments
Interest earned - outstanding debtors
Div idends receiv ed
Fines
Licences and permits
Agency serv ices
Transfers recognised - operational
Other rev enue
Gains on disposal of PPE
Total Revenue (excluding capital transfers and
YTD
50,390
1,325
–
5,270
271
6,628
–
–
789
133
46
72
0
–
6
256
–
37,425
91
–
72,877
1,566
57,247
–
–
5,836
978
405
740
14
368
223
2,111
–
50,923
534
–
60,549
1,406
44,669
–
–
5,445
620
581
225
–
–
500
1,500
–
26,426
1,068
1,728
277,072
50,988
193,821
144,715
67,242
3,509
79,489
–
–
10,158
2,186
817
432
–
–
1,049
2,957
–
53,729
8,613
1,908
121,098
2,811
89,337
–
–
10,889
1,240
1,162
450
–
–
1,000
3,000
–
52,851
2,135
3,456
118,124
1,971
88,735
232,090
289,429
9,889
1,700
455
650
33
300
3,500
20%
12,328
11%
160
28%
12,579
–
–
7%
392
58%
358
(176) -30%
229%
515
14 #DIV/0!
368 #DIV/0!
(277) -55%
41%
611
–
93%
24,497
(534) -50%
(1,728) -100%
49,106
34%
121,098
2,811
89,337
–
–
10,889
1,240
1,162
450
–
–
1,000
3,000
–
52,851
2,135
3,456
289,429
contributions)
9
SDBIP – Revenue by source
10
Categorise revenue in accordance with
reporting formats – S71 report
KZN433 Greater Kokstad - Table C1 Monthly Budget Statement Summary - M08 February
2012/13
Description
Budget Year 2013/14
Audited
Original
Adjusted
Monthly
YearTD
YearTD
Outcom e
Budget
Budget
actual
actual
budget
R thousands
Financial Perform ance
YTD
YTD
variance variance
%
Full Year
Forecast
Property rates
70,752
123,909
120,095
5,541
74,442
61,955
12,488
20%
123,909
Serv ice charges
91,834
101,466
100,324
7,550
64,061
50,733
13,328
26%
101,466
432
450
650
72
740
225
515
229%
450
53,729
52,851
50,390
37,425
50,923
26,426
24,497
93%
52,851
Inv estment rev enue
Transfers recognised - operational
Other ow n rev enue
Total Revenue (excluding capital transfers
15,344
10,753
5,613
399
3,655
5,377
(1,722)
-32%
10,753
232,090
289,429
277,072
50,988
193,821
144,715
49,106
34%
289,429
87,030
89,181
83,774
8,238
57,046
44,591
12,455
28%
89,181
4,268
4,880
4,845
341
2,864
2,440
424
17%
4,880
49,308
25,000
40,000
1,588
21,822
12,500
9,322
75%
25,000
1,092
2,990
1,407
69
1,095
1,495
-27%
2,990
63,070
70,960
74,778
4,416
49,120
35,480
13,640
38%
64,487
3,158
3,210
5,077
85
4,736
1,605
3,131
82,691
56,341
21,719
599
35,037
28,171
6,867
24%
50,914
Total Expenditure
290,618
252,562
231,601
15,336
171,719
126,281
45,438
36%
240,662
Surplus/(Deficit)
(58,527)
36,867
45,472
35,652
22,102
18,434
3,668
20%
48,767
35,210
94,104
49,369
2,209
9,748
47,052
(37,304)
-79%
94,104
-51%
142,871
-51%
142,871
and contributions)
Employ ee costs
Remuneration of Councillors
Depreciation & asset impairment
Finance charges
Materials and bulk purchases
Transfers and grants
Other ex penditure
Transfers recognised - capital
Contributions & Contributed assets
Surplus/(Deficit) after capital transfers &
–
(23,317)
–
130,971
–
94,841
–
37,861
–
31,849
–
65,486
(400)
3,210
–
(33,636)
–
contributions
Share of surplus/ (deficit) of associate
Surplus/ (Deficit) for the year
–
(23,317)
–
130,971
–
94,841
–
37,861
–
31,849
–
65,486
–
(33,636)
–
11
Annual Financial Statements – Revenue by
source
STATEMENT OF FINANCIAL PERFORMANCE
FOR THE YEAR ENDED 30 JUNE 2013
Note
2013
R
2012
R
CONTINUING OPERATIONS
REVENUE
Revenue from non-exchange transactions
Property rates
Property rates - penalties imposed and collection charges
Fines
Government grants and subsidies
Licences and permits
Public donations - Property, plant and equipment
Revenue from exchange transactions
Service charges
Rental of facilities and equipment
Interest earned investments
Interest earned outstanding debtors
Other income
Fair Value Adjustment of investment properties
Total Revenue
19
21
10
20
28
12
236
10
5
115
8
18
380
744
886
382
571
428
463
404
814
902
183
975
219
7
3
93
7
939
526
830
928
655
596
745
758
230
052
-
510
1
21
2
40
1
312
056
098
729
992
445
319
156
672
431
031
000
441
1
15
2
44
168
063
922
534
188
185
235
541
866
595
-
973 028 348
837 757 802
12
Budget tables – expenditure (Operational)
KZN292 KwaDukuza - Table A4 Budgeted Financial Performance (revenue and expenditure)
Description
R thousand
Expenditure By Type
Employee related costs
Remuneration of councillors
Debt impairment
Depreciation & asset impairment
Finance charges
Bulk purchases
Other materials
Contracted services
Transfers and grants
Other expenditure
Loss on disposal of PPE
Total Expenditure
Ref
1
2
3
2
2
8
4, 5
2013/14 Medium Term Revenue &
2009/10
2010/11
2011/12
Current Year 2012/13
Audited
Audited
Audited
Original
Adjusted
Full Year
Pre-audit
Outcome
Outcome
Outcome
Budget
Budget
Forecast
outcome
Expenditure Framework
Budget Year Budget Year Budget Year
2013/14
+1 2014/15
+2 2015/16
131,332
9,853
–
31,853
11,133
183,539
44,248
26,138
–
128,280
–
150,032
10,531
2,149
38,038
9,855
236,753
46,316
21,943
–
114,894
1,820
178,976
14,021
429
46,997
4,940
310,409
54,347
21,256
–
109,000
2,107
220,344
16,084
15,708
49,193
14,791
362,712
65,278
29,155
20,000
137,580
1,500
219,657
16,084
10,000
57,791
11,091
362,712
75,582
29,523
16,000
136,972
1,500
219,657
16,084
10,000
57,791
11,091
362,712
75,582
29,523
16,000
136,972
1,500
219,657
16,084
10,000
57,791
11,091
362,712
75,582
29,523
16,000
136,972
1,500
237,057
17,995
14,136
61,170
18,026
394,048
41,844
33,229
60,815
153,996
800
253,128
19,074
20,001
64,848
25,204
417,784
56,774
35,375
61,586
167,195
1,000
270,210
19,634
22,296
68,869
24,235
444,775
47,726
37,516
68,324
198,263
1,000
566,376
632,330
742,482
932,346
936,913
936,913
936,913
1,033,117
1,121,970
1,202,847
13
Categorise expenditure in accordance
with reporting formats – S71 report
KZN433 Greater Kokstad - Table C4 Monthly Budget Statement - Financial Performance (revenue and expenditure) - M08 February
2012/13
Description
Ref
Budget Year 2013/14
Audited
Original
Adjusted
Monthly
YearTD
YearTD
YTD
YTD
Full Year
Outcom e
Budget
Budget
actual
actual
budget
variance
variance
Forecast
R thousands
%
Expenditure By Type
Employ ee related costs
87,030
89,181
83,774
8,238
57,046
44,591
12,455
28%
89,181
4,268
4,880
4,845
341
2,864
2,440
424
17%
4,880
Debt impairment
13,228
5,000
15,000
265
11,917
2,500
9,417
377%
5,000
Depreciation & asset impairment
49,308
25,000
40,000
1,588
21,822
12,500
9,322
75%
25,000
Remuneration of councillors
Finance charges
1,092
2,990
1,407
69
1,095
1,495
-27%
2,990
Bulk purchases
61,806
64,487
70,000
4,176
48,355
32,244
16,111
50%
64,487
1,264
6,473
4,778
240
765
3,236
(2,472)
-76%
33,096
14,170
6,719
335
4,019
7,085
(3,066)
-43%
5,077
85
4,736
1,605
3,131
195%
3,210
–
19,101
18,586
516
3%
31,744
36%
240,662
Other materials
Contracted serv ices
Transfers and grants
(400)
–
14,170
3,158
3,210
36,367
37,171
Total Expenditure
290,618
252,562
231,601
15,336
171,719
126,281
Surplus/(Deficit)
(58,527)
36,867
45,472
35,652
22,102
18,434
3,668
0
48,767
35,210
94,104
49,369
2,209
9,748
47,052
(37,304)
(0)
94,104
Other ex penditure
–
Loss on disposal of PPE
Transfers recognised - capital
–
Contributions recognised - capital
–
–
Contributed assets
Surplus/(Deficit) after capital transfers &
–
–
45,438
–
–
–
(23,317)
130,971
94,841
37,861
31,849
65,486
142,871
(23,317)
130,971
94,841
37,861
31,849
65,486
142,871
(23,317)
130,971
94,841
37,861
31,849
65,486
142,871
(23,317)
130,971
94,841
37,861
31,849
65,486
142,871
contributions
Tax ation
Surplus/(Deficit) after taxation
–
Attributable to minorities
Surplus/(Deficit) attributable to m unicipality
Share of surplus/ (deficit) of associate
Surplus/ (Deficit) for the year
14
Annual Financial Statements – Expenditure operational
STATEMENT OF FINANCIAL PERFORMANCE
FOR THE YEAR ENDED 30 JUNE 2013
Note
EXPENDITURE
Employee related costs
Remuneration of councillors
Collection costs
Ammortisation
Depreciation
Repairs and maintenance
Finance costs
Bulk purchases
Retirement and long services benefits
General expenses
Contracted services
Transfer made: MIG funding paid to Ilembe District Municipality
Adjustments to allowance for impairment
Adjustments to non-current provisions
Adjustments to current provision
Bad debts written off
Fair Value Adjustment of investment properties
Loss on disposal of assets
Impairment loss on assets
Less: Recharges
Total Expenditure
22
23
11
10
24
25
4
26
27.1
27.2
16
3
6
16
12
10
2013
R
201
15
4
2
33
63
8
361
5
127
22
20
(
3
310
130
366
515
766
303
134
429
709
817
554
619
499
301
100
2 681
2012
R
424
157
191
404
169
086
555
928
431
788
536
944
019)
593
000
558
4 537 732
5 705 346
( 30 946 709)
171
14
3
1
44
53
4
310
15
111
21
959
021
424
063
436
998
940
409
070
442
255
( 25 690
851 538 114
734 957 330
1 428
1 739
428
3 025
2 003
546
010
576
738
003
683
052
210
959
147
502
405
589
883
690
908
571)
15
Budget tables – expenditure (capital)
Description
R thousands
Current Year 2012/13
2009/10
2010/11
2011/12
2013/14 Medium Term Revenue &
Audited
Audited
Audited
Original
Adjusted
Full Year
Pre-audit
Outcome
Outcome
Outcome
Budget
Budget
Forecast
outcome
Budget Year Budget Year Budget Year
2013/14
+1 2014/15
+2 2015/16
Capital expenditure & funds sources
Capital expenditure
Transfers recognised - capital
Public contributions & donations
Borrow ing
Internally generated funds
Total sources of capital funds
Financial position
Total current assets
Total non current assets
Total current liabilities
Total non current liabilities
Community w ealth/Equity
77,667
94,095
104,961
444,416
314,826
314,826
314,826
479,841
118,920
252,077
29,280
18,390
20,824
91,874
61,130
61,130
61,130
89,345
60,577
49,018
–
–
2,584
–
–
–
–
–
–
–
8,019
–
34,771
193,566
112,219
112,219
112,219
178,534
3,154
150,815
40,367
75,705
46,782
158,976
141,477
141,477
141,477
211,962
55,189
52,244
77,667
94,095
104,961
444,416
314,826
314,826
314,826
479,841
118,920
252,077
331,474
761,565
173,437
108,073
811,529
366,822
774,866
165,999
116,517
859,172
492,271
823,907
219,592
145,387
951,199
318,174
1,169,795
175,748
294,592
1,017,629
292,516
1,031,607
107,748
229,506
986,869
618,708
811,766
210,164
172,967
1,047,344
618,708
811,766
210,164
172,967
1,047,344
433,991
1,229,137
188,164
338,227
1,136,737
431,050
1,281,409
181,164
333,926
1,197,369
436,446
1,462,817
179,164
473,668
1,246,431
16
Annual Financial Statements – Financial
position- Capital
STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2013
Note
2013
2012
R
R
ASSETS
Non-current assets
892 233 509
821 752 280
Property, plant and equipment
10
812 608 558
746 169 565
Intangible assets
11
13 320 315
20 990 454
Investment properties
12
65 285 000
53 630 000
Heritage Assets
13
18 346
18 346
Long-term receivables
14
1 001 290
943 915
621 647 538
492 702 990
Current assets
Inventories
15
2 882 889
2 544 540
Receivables from exchange transactions
16
57 610 161
47 653 314
Receivables from non-exchange transactions
17
27 792 349
26 863 933
Value added taxation receivable
9
4 409 855
12 293 002
Current portion of long-term receivables
14
5 076
5 076
Cash and cash equivalents
18
528 947 208
403 343 124
1 513 881 047
1 314 455 269
Total Assets
17
Current collection method and processes
18
Intended collection method and processes
19
Key points in respect to change to data collection
•
•
•
•
•
•
•
•
The current reporting processes concentrate on people with the financial system
as a side issue which can easily be ignored / used / abused.
The new collection method will place the emphasis where is should be - the
centralised financial system. This will ensure that reporting on budgets / in-year
results / AFS is always aligned.
The current process requires a lot of intervention from NT to ensure integrity and
quality of data.
With the implementation of mSCOA all quality checks and control reports will be
generated in the municipality.
NT is currently researching methods and technologies for the most effective
collection of information being reported by municipalities.
Non-piloting municipalities will continue to report using the current processes to
ensure continued S71 publications.
Piloting municipalities will start to use the new reporting method BUT must be
able to fall back onto the old method if any problems or connectivity issues are
experienced.
NT will cater for both reporting methods until most municipalities have
implemented mSCOA successfully.
20
Revenue
• What is revenue
– The gross inflow of economic benefits or service potential during the
reporting period when those inflows result in an increase in net assets,
other than increases relating to contributions from owners.
• 2 Categories of revenue
• Exchange
• Non-exchange
• 3 broad sources
• Tax revenue
• Transfers
• Municipal activities
21
Revenue
22
Revenue - Key definitions
•
•
•
Exchange transactions
– Are transactions in which one entity receives assets or service, or has liabilities
extinguished, and directly gives approximately equal value (primarily in the form
of cash, goods, services or use of assets) to another entity in exchange
Non exchange transactions
– The municipality either receives value from another entity without directly giving
approximately equal value in exchange or gives value to another entity without
directly receiving approximately equal value in exchange.
Contra Accounts - Revenue
– Covers all rates rebates, exemption and discounts given to households and other
customer groups either in general or specifically. Covers all free services or
service discounts given in relation to services for which the municipality normally
charges. Must not include the cost of debt write offs.
23
Revenue – Rules to remember
Tax receipts
Fines, Forfeits,
Penalties
Sale of goods and
services
Non exchange
Non exchange
Exchange
Outside of the
courts
Imposed by the court
Individual’s choice
Complying with law
Contravention of law
Regulation/
Administration
Fees charged >
cost
Fees not related to
costs
Fees charged = cost
recovery
Rates
Traffic Fine
Registration fee
24
Revenue – An example
• In the City of Cape Town , Mrs. Cole receives R100 from
Mr. Xang in respect to sale of tender documents. Mrs
Cole prepares a receipt to be handed to Mr. Xang.
– How would you classify this revenue transaction?
25
Revenue – An example
26
Revenue – The solution
mSCOA item - Exchange Revenue: Sales of Goods and Rendering of Services –
Sale of Goods: Publications - Tender Documents
27
Expenditure
• What is expenditure
– Expenses are decreases in economic benefits or service potential during
the reporting period in form of outflows or consumption of assets or
incurrence’s of liabilities that result in decreases in net assets, other than
those relating to distributions to owners.
• 2 main categories of expenditure
• Operational
• Capital
28
Expenditure - Operational
29
Key definitions – Expenditure (operational)
•
•
•
•
Contra accounts - expenses
– Revenue forgone is reflected as “income” on the revenue side and “expenditure” on the
expenditure side.
Depreciation and amortisation
– Depreciation is the systematic allocation of the cost of an asset from the Statement of
Financial Position to Depreciation Expense on the Statement of Financial Performance
over the useful life of the asset. Amortisation is the systematic allocation of the discount,
premium or issue cost of a financial instrument over the life of the instrument, or an
intangible asset over a certain period. Amortisation is the systematic allocation of the
depreciable amount of an intangible asset over its useful life.
Operational Costs
– An operating expense is a day-to-day expense such as sales and administration, or
research & development, accounting expenses, license fees, advertising, office expenses,
utilities such as telephone, insurance, property management, travel and vehicle expenses.
Transfers and subsidies
– Unrequited payments made by the municipality. Unrequited has the same meaning as non
exchange transaction, however transfers and subsidies refers to payments being made. It
includes both current and capital transfers.
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Expenditure (Operational) – An example
• Mrs Khumalo is a municipal manager in municipality Y. She
has an invoice from ABS Consulting Services (Pty) Ltd for the
sum of R125,350. The invoice was for a consulting firm
conducting an empowerment exercise relating to the internal
audit function at the municipality.
– How would you classify this expenditure transaction?
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Expenditure - Operational
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Expenditure – Operational - Solution
mSCOA Allocation: Expenditure: Contracted Services - Outsourced Services:
Business and Advisory - Organisational
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Expenditure – Capital
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Expenditure – Capital – net assets
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Key definitions
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•
•
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Assets
– Assets are resources controlled by the municipality as a result of past events and
from which future economic benefits or service potential are expected to flow to
the municipality.
Current Assets
– Refers to assets which would recover in no more than 12 months after the
reporting date or if the normal operating cycle is more than 12 months the longer
period.
Net Assets
– Retained earnings or accumulated deficit being the cumulative effect of
differences between assets and liabilities as per statement of financial position.
Non-current assets
– Refers to assets which would recover after 12 months or after the normal
operating cycle of the municipality
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Key definitions
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•
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Receivables from Non-exchange Transactions
– This account is used for recording amounts receivable due from non-exchange
transactions, such as insurance claims, rates and other taxes, subsidies, road
reinstatements, repayments resulting from unauthorised expenditure.
Trade and Other Receivables from Exchange Transactions
– A current asset resulting from selling goods or services on credit (on account)
such as water, electricity
Property, Plant and Equipment
– A major classification on the statement of financial position. Included are land,
buildings, leasehold improvements, equipment, furniture, fixtures, delivery trucks,
automobiles, etc. A distinction is made between "owned assets" and assets
subjected to financial leases labelled as "leased assets".
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Expenditure (Capital ) – An example
• Mrs Hendriks is a municipal official responsible for capital
spending. She authorises an invoices to be paid for the
purchase of a office furniture for the value of R 228,000.
– How would you classify this expenditure transaction?
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Expenditure – (Capital) - An example
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Expenditure – (Capital) - Solution
mSCOA allocation : Non-current Assets: Property, Plant and Equipment - Owned:
Cost - Furniture and Office Equipment: All or excl NERSA - Acquisitions
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VAT in municipalities
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SARS have issued VAT guide 419 on the 30 March 2011.
mSCOA does not change the way the municipality accounts for VAT.
Within the classification system you budget for VAT as you account for it.
System vendors will need to configure the systems to deal with the
following type of VAT transactions.
Abbreviation
Definition
EOut
Exempted from Output Tax
N/a
Not applicable to VAT transactions
StdOut
Standard Output Tax
ZOut
Zero Rated Output Tax
EIn
Exempted from Input Tax
StdIn
Standard Rated Input Tax
ZeroIn
Zero Rated Input Tax
CapIn
Capital Input Tax
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Non cash transactions
• The municipality has many non cash transactions for
example
• Depreciation
• Free services – contra accounts
• Gains
• Losses
• These will be dealt with during the training of financial
management practitioners, we focus on some of the key
definitions.
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Non cash transactions - Key definitions
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•
Gains
– represent other items that meet the definition of revenue and may, or may not
arise in the course of the operating activities of the municipality. Gains represent
increases in economic benefits or service potential and as such are no different
in nature from revenue.
Losses
– represent other items that meet the definition of expenses and may, or may not,
arise in the course of the operating activities of the entity. Losses represent
decreases in economic benefits or service potential and as such, they are no
different in nature from other expenses.
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Questions
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