mSCOA and GRAP Accounting Update: IMFO July 2016

mSCOA and GRAP Accounting Update: IMFO July 2016 Reporting Pack and mSCOA V5.5 Technical Release 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 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: managements 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 3 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. 4 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. 5 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. 6 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 7 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. 8 WHAT IS CONSIDERED TO BE INCLUDED IN REPORTING? Schedule Description of Report Frequency A Municipal Annual Budget and MTREF 1 July Supporting Tables 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 Municipal Entity Annual Budget and MTREF Supporting Tables 1 July 9

WHAT IS CONSIDERED TO BE INCLUDED IN REPORTING? (Continue) Schedule Description of Report Frequency 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 Municipal Adjustment Budget and Supporting Tables Municipal Entities To Parent Municipality For Consolidated Budget To National 10 working days after approving the adjusted budget 10

WHAT IS CONSIDERED TO BE INCLUDED IN REPORTING? (Continue) Schedule Description of Report Frequency 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 11 WHAT IS CONSIDERED TO BE INCLUDED IN REPORTING? (Continue) Schedule Description of Report Frequency 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 12 WHAT IS CONSIDERED TO BE INCLUDED

IN REPORTING? (Continue) Schedule Description of Report Frequency 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 years AFS (Period 15) 13 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 14 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 3rd 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 15 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. 16 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. 17 Proposed Design Principles Phase 1 (Continue) Period: 1 July 2015 / 2016 pilot site testing 1 July 2017 all municipalities 18 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 19 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. 20 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 21 SUMMARY OF CHANGES MSCOA: Version 5.5 Costing Segment Change If Breakdown is not required principle changed to N/a for consistency throughout mSCOA. Detail is discussed in Design Principles within the PSD Definitions improved mostly within Recoveries. Posting Level and Breakdown Principle/ Application

Definition Yes Account Various 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. Function Segment Change Posting Level and Breakdown 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 Definitions Revised/Updated for: Libraries and Archives Museums and Art Galleries Markets Recreational Facilities (added Swimming Pools) Sub-sub-functions removed for Swimming Pools see above Principle/ Application Definition Yes Account Various

Yes Deleted Function Segment Change Posting Level and Breakdown Principle/ Application Definition Account Removed breakdown required as Breakdown information is not standardised and this optional not relevant for LG DB purposes. Level 5 changed to be the posting level 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 No Yes Yes Added Function Segment Change

Posting Level and Breakdown Principle/ Application Definition Account 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. Regional Segment Change Posting Level and Breakdown

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. 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 Funding Segment (Continue) Change Comment 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] Funding Segment (Continue) Change Comment 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 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/NonInfrastructure 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 Project Segment (Continue) Change Impact 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 Project Segment (Continue) Change Impact 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

Project Segment (Continue) Change Impact 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 Project Segment (Continue) Change Impact 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. 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 Considered except for matters to be addressed in the next version. Consultation in Progress: Expenditure General 8 Inventory 1 Contribution Provision - 8 NERSA: PSD: Changes comments received to be

considered except for Depreciation and Impairment Transfers and Subsidies Movement on Balances Not applicable Not started. Update completed Completed subsequent to technical release of Version 5.5. Item Segment: Liabilities Change Progress 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. Item Segment: Liabilities Change Progress 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 Item Segment: Assets

Change Progress ASB: Comments considered except those impacting on PSD. CIDMS Major Changes to Non-current Assets FAQ DB: In Progress: Changes made/queries closed. Current Assets 9 Property Rates 1 Trade and Other Receivables 3

Non-current Assets 12 Fixed and Intangible Assets - 1 Consultation in Progress: Current Assets 1 Property Rates 1 Trade and Other Receivables 2 Non-current Assets 2 Fixed and Intangible Assets 2 PSD: Changes comments received. Not started. Transfers and Subsidies See note included in Liabilities on Transfers and Subsidies Receivables Item Segment: Assets

Change Progress 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 Item Segment: Net Assets Change Progress ASB: Terminology Change: Non-controlling Interest Definition Change: Revaluation Reserve CIDMS Not applicable FAQ DB: In Progress:

Change made/queries closed. None Consultation in Progress: Reserves and Funds - 1 PSD: Changes comments received. Not started. Transfers and Subsidies Movement on Balances Not applicable Exist in this table OTHER CHANGES: Added Investment in Associate

Item Segment: Revenue Change Progress ASB: Comments received after finalising the table CIDMS Rental of Facilities FAQ DB: In Progress: All queries completed. 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 Consultation in Progress: Revenue 3 Sale off Goods and Rendering of Services 1 Service Charges 1 Agency Services 2 PSD: Changes comments received. Not started. TRANSFERS AND SUBSIDIES Completed

NERSA: Changes to be made - improvement Item Segment: Revenue Change Progress Definitions changed for: Agency Services Receivables Housing Inspection Fees Animal Housing Facilities Health Services Penalties Transfers and Subsidies Item Segment: Expenditure Change Progress 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: Queries completed and updates made where necessary to mSCOA Table. Expenditure 4 Contracted Services 4 Operational - 9 Consultation in Progress:

Expenditure 8 Inventory 1 Contribution to Provisions 8 PSD: Changes comments received. Not started. Transfers and Subsidies Completed NERSA: Not applicable Item Segment: Gains and Losses Change Progress ASB: No comments CIDMS

Impairment Gains and Losses on Disposal FAQ DB: In Progress: Changes made/queries closed. Gains and Losses - 4 Consultation in Progress: PSD: Changes comments received. Not started. Transfers and Subsidies Not applicable NERSA: Not applicable

Anticipated changes to Inform Version 5.5 Regional indicators to be set-up as default based on the Demarcation Act Transfers and Subsidies - Provincial Transfers and District Municipalities. + Transfers and Subsidies latest version of Departmental SCOA Posting levels for Agency Services Address changes from reporting formats envisage for post mSCOA implementation (Discussion Papers) Any matters that may be identified from Position Papers NB: Contra Accounts Problematic + ASB Comments/Concerns/Issues ~ Add Reference Table to GRAP Implementation Guide Any matters identified as relevant from the FAQ DB requests. Alignment of mSCOA to CIDMS VAT indicators additions and changes to be updated Borrowings further classification to be added to define by type/institution Item Segment: Assets/Liabilities & Net Assets movement analysis Update of Reporting Links STATUS OF FAQ DB AT TIME OF FINALISING VERSION 5.5 mSCOA maturing..

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