1. EXPERIENCE ON PREPARING mSCOA FINANCIAL STATEMENTS

2. BACKGROUND
MFMA requires municipalities to prepare annual financial statements using Generally Recognised Accounting Practice (GRAP), which is the Reporting Framework.
In preparing these annual financial statements, the municipality imports the mSCOA compliant trial balance onto the AFS preparation software.
mSCOA does not change the reporting framework, but instead aligns transactions by nature as per the requirements of GRAP. mSCOA ensures that transactions are correctly classified and disclosed on the annual financial statements.

3. MSCOA COMPLIANCE BENEFITS
Improved data quality and credibility
Deeper analysis of sector comparison
Uniform recording of transactions
Uniform data sets
Standardised key business processes
Standardisation and alignment of government accountability cycle
Standardisation of account classification
Simplified process of uploading the mSCOA Trial Balance onto the AFS preparation software

4. CHALLENGES EXPERIENCED
CHANGE MANAGEMENT
Managing change in business processes. Users don’t understand that mSCOA is not only a change in the chart of accounts but in business processes as well.
Resistance due to concurrent migration from multiple financial reporting systems previously used to one

5. CHALLENGES EXPERIENCED (CONT…)
CHANGE MANAGEMENT (cont…)
A Change management process still continues to address these gaps.
The users had to familiarise themselves with the new account numbers, which resulted in large volume of errors (e.g. lease accounts incorrectly used for short-term hire of marques). Re-allocation entries had to be prepared for these errors.

6. CHALLENGES EXPERIENCED (CONT…)
IMPACT ON BUSINESS PROCESSES
Increase in the volume of accruals as payments module had to close early
Accruals had to be reversed manually due to the change in account numbers

7. CHALLENGES EXPERIENCED (CONT…)
IMPACT OF RECLASSIFICATION OF OPENING BALANCES
Differences in classifications were noted between the balances previously reported, and those migrated in terms of mSCOA (i.e. new categories of property, plant and equipment)
Additional disclosures had to be done in financial statements in line with GRAP 3 for differences as a result of mSCOA.
The following slides provide extracts of the note on reclassifications due to MSCOA implementation on the 30 June 2017 financial statements.

8. CHALLENGES EXPERIENCED (CONT…)
RECLASSIFICATION OF OPENING BALANCES

9. CHALLENGES EXPERIENCED (CONT…)
RECLASSIFICATION OF OPENING BALANCES

10. CHALLENGES EXPERIENCED (CONT…)
RECLASSIFICATION OF OPENING BALANCES

11. CHALLENGES EXPERIENCED (CONT…)
LINKING OF ACCOUNTS
The finalisation of financial statements took long because user departments were submitting journal entries with accounts that were not linked. An example is when a new account was created for short-term hire of equipment and facilities (e.g. sound systems and venues for conferences). The accounts had to be linked for all departments before the entries were captured on the system.

12. CHALLENGES EXPERIENCED (CONT…)
SEPARATELY DISCLOSABLE ITEMS WITH NO MSCOA ACCOUNT
In some cases individual amounts that required to be separately disclosed did not have a separate mSCOA account and a unique account outside of the mSCOA range had to be created and mapped on the financial statements software system. An example of this was the Provision for Bad Debts: Department of Human Settlements.

13. CHALLENGES EXPERIENCED (CONT…)
PRIOR YEAR ADJUSTMENTS
There was a lot of duplication of effort required as all prior year adjustments processed needed to be done against the “old” ledger accounts database and then migrated / rolled forward into the new mSCOA opening balances of the current year.
If there are any revenue or expenditure items that need re-stating they will need to be adjusted and then closing entries processed to the Accumulated Surplus account as only the Balance Sheet items were migrated in our case (i.e. depreciation adjustment relating to the prior year).

14. BEST PRACTICES Allocating sufficient time for review
Preparation of detailed working papers (explanation of movements where restatement occurred due to incorrect application of GRAP)
Training of staff on the chart
Breakdown and reconciliation of opening balances to prior year audited AFS
Sub ledgers and the general ledger (billing, payroll) be reconciled to each other
Audit working paper files supporting AFS prepared
Supporting documents for all movement processed to be in place (i.e. journals, delivery notes, invoices, resolutions)

15. THANK YOU