The municipal Standard Chart of Accounts

Pravin Gordhan

Pravin Gordhan, South Africa’s finance minister, listens during a panel discussion at the International Monetary Fund (IMF) and World Bank Group Annual Meetings in Washington, D.C., U.S., on Thursday, Oct. 6, 2016. The IMF warned this week that rising political tensions over globalization are threatening to derail a world recovery already seeking a reliable growth engine. Photographer: Andrew Harrer/Bloomberg

LAST JULY the National Treasury introduced the municipal Standard Chart of Accounts, while the implementation of this programme was also discussed with the Institute for Municipal Financial Officers.

More than 700 municipal officials
attended the two-day workshop. However, last July the National Treasury said that it had thus far trained more than 4000 municipal officials for the implementation of the municipal Standard Chart of Accounts.

But what exactly is the Standard Chart
of Accounts or mSCOA? mSCOA is part of
the National Treasury’s ongoing budget
and reporting reforms geared at aiming financial reporting.

The main objective is to improve governance, accountability, transparency and the management of public funds. In short, the intervention  was made to sharpen the skills and ability of municipalities to meet their Constitutional obligation of service delivery

According to a National Treasury statement at the time: “With effect from 1 July 2017, all municipalities will have to capture all their financial transactions against a predefined classification framework, which will result in uniformity of line items in terms of revenue, expenditure, assets and liabilities.”

The National Treasury was optimistic that the implementation of mSCOA would result in the consistent application of the municipal ‘accountability cycle’ from planning, budgeting, implementation, monitoring and reporting and ultimately improved service delivery.

“The implementation of mSCOA
will not fix historic information but will improve the integrity and credibility of information through its validation principles,” the Treasury predicted in its statement of the time.

Confidently, the National Treasury said that mSCOA would improve the ability of stakeholders such as municipal councillors and management to take decisions and also to have empowered the general public to hold municipalities to account.

At least five months after mSCOA was introduced, Finance Minister Pravin Gordan was in the National Assembly to give his Budget to a joint sitting of the National Assembly and National Council of Provinces. He said the government would continue to invest in improving the financial capabilities of municipalities.

Budget 2017, according to the National Treasury introduced game changers, such as mSCOA, improved supply chain management, enhanced revenue management and improved
asset management.

mSCOA was envisaged to  contribute to greater transparency and consistency of municipal finances. It would also make data from different municipalities easily comparable. From this July municipalities will have to capture all financial transactions in the new classification framework.

This will introduce uniformity because for the first time, every municipality will record the same items in the same way. Thus every transaction will reflect what project or service it is part of, the geographic region in which it was spent and the funding source.

Poor supply chain management has so often has proved to be a weakness in municipalities and even state-owned enterprises. Tight and improved management can reduce irregular expenditure and procurement reforms, which can generate significant savings.

Improving the management of
revenue and also asset management will also have benefits.

According to the National Treasury of the funds available over the next three years after providing for debt service costs and the contingency reserve, 47.5% is allocated to national government, 43.4% to provincial government and 9.1% to local government.

“The funds available after providing for debt service costs and a contingency reserve increase by 6.9% to R1.24 trillion next year, and are projected to rise to R1.43 trillion in 2019/20,” said Gordhan while delivering his Budget.

He said: “The division of revenue involves a substantial redistribution of resources from the wealthiest areas in our country – where most of our taxes are raised – to lower-income communities and households. The allocations to predominantly rural municipalities are
twice as large, per household, than those
to metropolitan councils. This redistribution of resources is an enabling foundation
for a broader transformation of services
and opportunities in our cities, towns and rural areas.”

What’s clear from the first steps taken by the National Treasury in July 2016, and the training of hundreds of municipal officials, is that skills have been sharpened. No more can lack of skills or unprofessionalism be blamed if things go wrong.

The noose is tightening and the scope for wastage and dishonesty is being closed down. Greater transparency in municipal accounts and the way in which they are handled will also discourage those who may be tempted to be dishonest and enrich themselves, family and friends. For those who fall into this category message is that the feeding frenzy is over.

But what about municipalities?
Because of the economic squeeze income derived from say, accounts and services, is likely to come under sever pressure, while the expectation of improved service delivery will also grow. It is a tightrope for most municipalities.

For municipalities Gordhan’s message contained in his 2017 Budget is clear:

“The Budget relies on institutions
of good governance and a public ethic that values honesty and fairness.   If we act together, on these principles, as
public representatives, civil
servants, business people, youth, workers and citizens, we can overcome the challenges of tough economic times and difficult adjustments.”

Municipalities will have to deliver and continue to improve the quality and standard of the services they are Constitutionally instructed to render. Those who depend on their services may not have an infinite reservoir of patience.

They will hold municipalities accountable. The results of the Municipal Elections of August 2016 have shown how effectively the vote can be used against municipalities that have incurred the wrath of voters. Party loyalty will not be enough to keep voters: better and more reliable services are among the deliverables that voters want.