facilitating predictable outcomes in a constantly changing environment Establishing a Standard Chart of Accounts (SCOA)

Transcription

1 facilitating predictable outcomes in a constantly changing environment Establishing a Standard Chart of Accounts (SCOA)

2 A standard chart of accounts (SCOA) is a discrete set of items, or general-ledger accounts, which are captured and maintained in the financial systems of any large organisation or sovereign, with the integrity of the charts being maintained through centralised regulation

3 A standard chart of accounts can be used to reduce complexity in the way that financial transactions are recorded and interpreted and to ensure that users in different departments record transactions in a consistent manner In this point of view, we outline the importance and key benefits of establishing a SCOA. We explore the key considerations for this process using the South African National Treasury s experience as a case study

4 Why is a SCOA necessary? A standard chart of accounts can be used to reduce complexity in the way that financial transactions are recorded and interpreted and to ensure that users in different departments record transactions in a consistent manner. A SCOA comprises the coding of items used for classification, budgeting, recording and reporting of revenues and expenditures within an accounting system, to facilitate the recording of all transactions affecting assets and liabilities. The key advantages of implementing a SCOA include: 1. Greater transparency and a basis for reporting, comparative analysis, and other forms of information analysis; 2. A standardised process for transacting across all tiers of an organisation which in turn improves the mobility of finance personnel between various areas; 3. Automated production of financial statements and other reporting information, reducing the administrative burden; 4. Meaningful consolidation at various levels, as all transactions between various levels of the organisation are properly identified; 5. Increased accessibility to meaningful comparative reports across all areas of an organisation 6. Consistency in financial reports disseminated to the public as the same basis for data classification is used across the organisation; 7. Improved public perception of the organisation as it highlights a commitment to heightened transparency and accountability. In South Africa, the implementation of a SCOA resulted in a reduction in the number of line items in government from two million to less than ten thousand line items. Furthermore the project resulted in South Africa being named as one of the countries with the most accessible budgets in the world by the World Bank. In the 2015 International Budget Partnership s (IBP) Open Budget Survey, a regularly produced index of countries transparency and openness to citizen engagement, South Africa was named as one of only four of 103 countries Brazil, Norway, South Africa and the U.S. that achieved acceptable results in transparency, citizen engagement and oversight of the budget process. The implementation of a SCOA resulted in the reduction of government line items from two million to less than ten thousand. 1

5 South Africa s National Treasury: Charting a New Course South Africa s National Treasury (NT) embarked on a budget reform program in 1999, aimed at improving accountability and modernising the accounts of government. Adopting a revised budgeting perspective required direct support from the underlying systems, processes and policy areas to achieve technical success. The classification system within the financial systems had to be standardised in order to render financial data and information more transparent and accessible for analysis. Given the number and diverse perspectives of various stakeholders, the assignment was conducted in a highly consultative manner. Once the chart design was developed to the satisfaction of the project steering committee, focus shifted to communicating and working with external stakeholders. The SCOA was first implemented in April It has subsequently been revised four times and remains a valuable feature of the financial management architecture in government. National Treasury successfully facilitated design and implementation of the SCOA across 156 national and provincial government departments, impacting approximately 35,000 financial practitioners. The NT SCOA project was a collaborative effort between the SA Reserve Bank, Statistics SA, and NT s Budget Office and Office of the Accountant-General. compliant with both economic and accounting reporting requirements, with the first phase making the chart available for use by all departments within the national sphere of Government. Furthermore, National Treasury undertook to be compliant with international guidelines for reporting on revenue, expenditure and financial transactions. The new reporting tables were designed in accordance with the following five key principles: 1. Labels are in line with South African constitutional requirements; 2. Labelling is clear and easily accessible both for the user and the clerk completing forms; 3. Items are displayed such that data are useful for management purposes, i.e. they should be transparent and serve to enhance accountability; 4. Items are grouped together such that they can easily be used to calculate relevant economic aggregates, for example, final consumption by government; 5. Items are displayed such that data required in the GFS tables can be extracted and used for international comparisons. The aim was to design and develop a centrally coordinated chart of accounts, 2

6 In this new chart a standard list of expenditure items was established and a single expenditure line item provided to account for expenditure, on for, example salaries for all national and provincial departments. This greatly reduced the number of duplications in the accounts and systems of government and significantly improved the quality of the data produced by departments. National Treasury successfully facilitated the design and implementation of a SCOA across 156 national and provincial government departments, impacting approximately 35,000 financial practitioners. Key Considerations when Introducing a SCOA There were two phases of key considerations prior to the introduction of a SCOA, as illustrated in Figure 1 below. Figure 1: Key Phases for the Introduction of a SCOA Design Phase Implementation Phase Legislative Review Classification System Design Standards & Principles Commence Rollout Training & Capability Building Communication & Change Management Pilot Site Establishment Design Full Scale Implementation 3

7 Establishing a SCOA: Phase 1 Design Phase Legislative Review The establishment of a SCOA must take all applicable legislation into consideration. In the case of South Africa, the key pieces of legislation that were taken into consideration were the Constitution, the Public Finance Management Act, and the Appropriation Act. A committee should be created to ensure compliance with definitive pieces of existing legislation as well as any new legislation that may be required. The implementation of a standardised nomenclature for purposes of recording financial transactions often unearths policy or other areas for improvement in the budgeting, financial management and accounting systems. Often some changes in legislation are necessary to enable the implementation of a SCOA. Draft regulation must be published and subsequently formal consultations must be undertaken with key stakeholders who would be impacted by the implementation of the SCOA. Any queries arising should then be processed and considered in terms of necessary refinements to the SCOA. The resulting draft SCOA is then piloted. The key pieces of South African legislation that were taken into consideration were the Constitution, the Public Finance Management Act, and the Appropriation Act. Creation of Classification/ Nomenclature System A critical component of the establishment of a SCOA is to create a standard classification or nomenclature system that is implemented and maintained across every area of the business. This is achieved through the collection of all existing charts of accounts from all areas of the organisation and cleaning up these charts that is, removing all duplicates and harmonising the charts. Once the charts have been collected and aligned to the new SCOA, numerous forums must be held with key stakeholders within the organisation to emphasise the need for all areas to use the same chart and not make any further changes in their individual areas and also to allow customisation of the classification or nomenclature by area. An example of this within a sovereign is ensure that departments such as Health and Education are able to customise certain parts of the SCOA for their needs (e.g. medication or learning materials). A significant amount of consultation with stakeholders is required at this stage to ensure that all their needs are considered and catered for to the extent possible. It is also necessary to standardise the account numbering convention for the SCOA the importance of this process should not be underestimated as it paves the way for future database construction in a manner that would see a number convention embedded and thus reduce the potential for errors in data collection and analysis. However, the entire financial 4

8 management system cannot be entirely perfected through one exercise. It is important for governments and organisations to address the most critical areas that could compromise the design of the SCOA product or the accuracy of information which is extracted right up front. This could be achieved through the drafting of position papers to resolve issues affecting the potential integrity of the SCOA, and subsequent internal consultation with relevant stakeholders. The standardisation of the nomenclature and numbering conventions enables the creation of a single, flexible base of information that is, a single version of the truth. Each stakeholder can then access information that is relevant for their needs and be able to produce the reports that they require. Design standards and principles In designing a new SCOA, it is important to ensure that the minimum acceptable standards for compliance with the accounting, economic and statistical principles are catered for. Where possible, existing classification regimes must be harmonised in the chart. Where harmonisation is not possible, the appropriate mappings must be built into the chart to ensure compliance. Some broad design principles include, but are not limited to: The SCOA must be developed in the spirit of good governance and practice required by the relevant legislation, whilst also maintaining local context and incorporating the needs of both users and capturers of The standardisation of the nomenclature and numbering conventions enabled the creation of a single, flexible base of information a single version of the truth information through frequent interaction and consultation; The SCOA must conform to existing, generally recognised accounting standards and any new accounting standards being developed and cater for prevailing accounting principles with flexibility to incorporate future accounting principles (e.g. cash basis of accounting and/or accrual accounting principles); The reporting requirements of all the relevant stakeholders must be catered for in the proposed new SCOA. Pilot Site Establishment In a given sovereign or large multinational organisation, there are likely to be multiple financial applications with different levels of functionality in use in different areas. It is, therefore, necessary to provide 5

9 different areas with an indication of the impending SCOA regulations and stabilise the system environment. Areas which have existing technologies that could house the SCOA classification framework should be identified and these should not procure alternative technologies. Instead, these areas should be engaged and used as pilot sites at the initiation of the project. In the latter part of the pilot phase, the implementing team must be well prepared for a broader roll out of the SCOA, including the interfaces between the various teams involved in the process, their accessibility, extent of familiarity with the SCOA, ability to offer telephonic support, etc. Another important interface is the actual service provision team which plans and conducts road-shows and executes a wide-ranging capacity-building plan. Design Full Scale Rollout The basis for project management, monitoring and control, and communication must be established through the alignment of the requirements of all key stakeholders. The process must clearly outline the details of the methodology, the key deliverables, detailed project timeframe, project governance, detailed organisation of the team and the roles and responsibilities of various parties involved during the course of the process. The magnitude and complexity of implementing a SCOA should not be underestimated, given the number of institutions likely to be affected and the wide-ranging capabilities of financial management units and practitioners. Stakeholders must, therefore, be sensitised as early-on in the process as possible to practically demonstrate the operation of the new SCOA. Establishing a SCOA: Phase 2 Implementation Phase Commence Rollout Changing the classification framework through a SCOA represents a fundamental change to the data model employed in a financial system, necessitating other changes in the collection and storage of financial data to enable a single, central repository of data for purposes of analysis and publication of various financial management reports. Data previously stored in this database will not be directly comparable to data being received post-implementation of the SCOA, therefore, historic data requires mapping, on the basis of an agreed set of mapping criteria and principles. These changes, whilst potentially complicated, are worth the effort, as the commoditised data format produced by a SCOA can greatly reduce the administrative burden. Implementing a SCOA improves data quality and enables a greater level of standardisation and uniform data sets. In order to achieve the desired level of standardisation across areas, the 6

10 definitions and associated descriptions of chart items must be aligned and agreed upon, report formats produced by each financial system must be clearly outlined and the information requirements which will enable information system suppliers to develop software and report writing formats that are automated and compliant to reporting requirements must also be established. Implementing a SCOA improves data quality and enables a greater level of standardisation and uniform data sets. Training & Capability Building The engagement of stakeholders, pilot phase and road show are likely to highlight capacity and capability gaps such as vacancy rates, staff turnover, average staff qualifications and others. These gaps can be identified and managed early in the process through a significant amount of research. Some areas to look into include the financial management performance of different areas in the organisation. This data can then be used to develop a capacitation plan. A primary component of a large-scale reform should be to render stakeholders most impacted by the reform independently able to maintain the new system. The key officials designated with responsibility for the new system must be identified and provided with ongoing mentorship for the duration of the transition and they should ultimately assume full ownership of the SCOA. Key areas of learning should include technical design principles, identification of areas for design improvement, responding to queries from financial practitioners and other stakeholders, assisting in the design and extraction of key reports from the SCOA, assisting in the setup of the new financial database necessitated by the SCOA and other related issues emerging routinely. A capacity-building strategy must be designed upfront followed by the processes and training content for use. The training materials should be certified in accordance with the relevant unit standards, for recognition as a bona-fide course. Since there are likely to be numerous individuals that must be trained as part of this process, full-scale training deployment requires large amounts of funds and these exercises are best achieved on the basis of a user-pay principle where the costs are shared amongst stakeholders. Accordingly, in addition to compiling and shepherding the training content through the accreditation process a train-the trainer programme must be created to reduce the costs as much as possible. A pool of highly skilled and competent trainers 7

11 is required in order to meet training demands. A proper selection process for identifying the trainers and the training thereof is a critical success factor for the effective roll-out of the training. Trainers performance in training sessions must be reviewed on an ongoing basis and refresher courses must be provided regularly with a community of practice for all the trainers to share inputs, questions etc. on SCOA specific training matters. Sovereigns and organisations must explore various options to reduce the costs of rolling out such extensive training programmes. One option is to confine the actual training rollout to the pilot areas, and that further value be captured through the compilation of an accredited training course. This enables the achievement of a large-scale rollout without incurring the massive associated costs. Communications & Change Management Communications and Change Management are paramount to the successful roll-out of the SCOA and there are several areas of direct communication that must be articulated in terms of a clear, unambiguous vision and strategy. Also, there are several stakeholder groups to be considered: Central finance team or Treasury department in the case of a sovereign as the project sponsor and implementer Systems vendors as providers of the underlying systems All tiers of an organisation or sovereign and its relevant entities Professional bodies Regulators Each stakeholder group will experience and exert a specific dynamic on the project and these dynamics must be managed through the development of a communications and change management strategy in the early stages of the project. The change management approach should be a multi-faceted approach, employing several techniques to raise awareness at specific times during the project lifecycle. Furthermore, intensive communication needs to take place during the pilot phase in order to get up the learning curve as fast as possible. Internal forums can be established to share experiences, challenges and small victories from pilot sites on a regular basis. A roadshow is recommended to set up broader communication mechanisms and structures, as well as to set up multi-disciplinary teams to champion formal training in each area. A critical part of the change management process is the establishment of a customised callcentre to make a telephonic help-facility available to address queries from various departments efficiently. In addition, a website can be developed to provide online advice to financial practitioners on the new SCOA, and create a discussion group that will focus on issues of classification. 8

12 Conclusion Dramatic improvement is not achievable immediately after implementation of a SCOA - rather, implementation offers the potential for improvement over time. Immediate value to be gained from implementation is the reduced need to manually draw various financial reports, as the format structures are embedded in the financial systems and, as such, should be simple to extract. A new SCOA should be viewed as a living document that is subject to change when the need arises and that further amendments to the chart may be necessary in the future. The aim should be to provide a sound basis for continued improvement.

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