1. CIGFARO WC
6 June 2017
Maritz van Zyl / Kevin Venter

5. 24 17

6. Balance sheet budgeting The mSCOA approach
6 June 2017
WC CIGFARO Kevin Venter

8. Lets look at the Text Book
What is Balance Sheet Budgeting in the Global Business Environment?
A budgeted balance sheet is a report that management uses to predict the levels of assets, liabilities and equity based on the budget for the current accounting period.
IN OTHER WORDS, THE BUDGETED BALANCE SHEET SHOWS WHERE ALL OF THE ACCOUNTS WOULD BE AT THE END OF THE PERIOD IF THE ACTUAL COMPANY PERFORMANCE MATCHED THE BUDGETED ESTIMATES
At the end of each period, management usually starts planning a master budget for the next period. The master budget is made up of a ton of smaller budgets for sales, cash selling expenses, and general expenses.
All of these budgets are combined to make one big comprehensive financial plan.
Once the master budget is done, management has to see what the company financial statements will look like. If the company can achieve their goals for the period. That’s when the budgeted income statements and balance sheet are made.
These two reports summaries the impact the budget will have on the financial position of the company if the budgeted numbers are met. Think of it like a SANITY CHECK. Management need to check their plans to make sure they are in the best interest of the company in the long run.
Lets look at the Text Book

9. Lets look at the Text Book
Let’s illustrate the concept……
Production managers might want to increase manufacturing facilities in the next period by taking out a loan.
Although the extra production capacity will add additional income to the bottom line, it will also increase the overall debt load on the balance sheet.
Depending on current debt coverage, the company may not be able to take out additional loans even if that means sacrificing potential revenues.
The budgeted balance sheet is utilised to make informed business and management decisions
Lets look at the Text Book

10. Municipal Budgeting is a Legislated process…….
The Constitution
The Municipal Finance Management Act, 2003 (Act No. 56 of 2003)
The Municipal Budget and Reporting Regulations,2009 (Government Gazette No 32141)
The Annual Division of Revenue Act (DoRA)
The Municipal Structures Act,1998 (Act No. 117 of 1998), as amended
The Municipal Systems Act, 2000 (Act No. 32 of 2000), as amended
The Municipal Property Rates Act, 2004 (Act No. 6 of 2004), as amended
The Municipal Fiscal Powers and Functions Act, 2007 (Act No. 12 of 2007)
The Municipal Regulations on Standard Chart of Accounts, 2014 (Government Gazette No 37577)
Municipalities????

11. Why is this relevant to Local Government
Municipal funds are public funds, managed and spend on behalf of the public.
This the municipalities budget is a public policy instrument derived from a process (legislated minimum requirements).
The budget has its origin in the municipalities integrated development plan (IDP) – the Strategic Plan or with reference to the earlier slides the MASTER PLAN
The Budget is the municipalities financial version of the IDP and how it will be implemented over the next 3 years (MEDIUM-TERM REVENUE AND EXPENDITURE FRAMEWORK)
The Municipal Budget is core throughout the accountability cycle.
Level of detail required regarding mSCOA compliance increases by level of competency and maturity in the institution
Inherent to the requirements is to have an integrated financial management system to have readily available fully aligned budget and actual information pertaining to the 7 segments making up mSCOA
Municipalities??????

12. Why did Balance Sheet Budgeting only become topical during mSCOA implementation
Principal was not introduced by the Municipal Regulations on Standard Chart of Accounts, (Government Gazette No 37577) but already required by the Municipal Budget and Reporting Regulations,2009 (Government Gazette No 32141)
Section 6 of the Municipal Budget and Reporting Regulations, 2009 require “Consistency is Bases of Measurement and Accounting Policies” and require the following:
The municipal manager of a municipality must take all reasonable steps to ensure that:
The basis of measurement and accounting policies underpinning the municipality’s annual financial statements are the same as those used in the preparation of the municipality’s annual budget and supporting documentation, its adjustments budgets and supporting documentation, and its in-year reports; and
Any difference or changes between financial years are explicitly noted.
mSCOA?

13. Why did Balance Sheet Budgeting only become topical during mSCOA implementation
mSCOA provides the “golden thread linking” the process of Planning, Budgeting, In-year Monitoring, Reporting and Annual Financial Statement.
Ensconced in mSCOA is what has been planned versus what has been achieved.
The operational performance of the municipalities “business” as a direct impact on the “financial position” of the municipality
Operational Decision = Impact on Financial Position
THIS EQUATION IS FUNDAMENTAL IN THE CONTEXT OF ACCRUAL BASED BUDGETING AND HENCE REFLECTED IN “BALANCE SHEET BUDGETING”
mSCOA?

14. Simply stated what is Balance Sheet Budgeting
Let’s use an illustration:
Setting up the revenue budget for water sales inherently requires decisions, assumptions, predictions, estimation, historical trends / statistics, business knowledge regarding:
History information on usage levels per tariff category. Water use maybe seasonal, other factors such as water restrictions, etc.
Number of registered users per tariff category
Information on potential growth relative to new developments per tariff category as this may impact on existing infrastructure and sales levels
Expected increase to be introduced by the respective water board
Costing Information for considering tariff increases
What?
How?

15. Simply stated what is Balance Sheet Budgeting Continue…….
How do we use the information collected? Step-by-step approach to estimate / predict:
Water Service Revenue predict / estimate by month
Monthly Cash Flow Projections for Water Service Revenue
Estimated monthly customer control account balance with movements
Impairment adjustment
Water Bulk Purchases (Inventory Account movement or Inventory Consumed per Expenditure Table)
Monthly Cash Outflow
Bulk Water Account Payable Monthly Balance
What are we getting out?

16. Simply stated what is Balance Sheet Budgeting Continue…….
Estimating expected revenue billings per month – through applying assumptions history and doing some calculations.
Establishing the billing figure based on historical collection trend, the expected monthly collection can be derived providing monthly cash flow information.
Information used for the latest impairment of debtors balance may remain appropriate to use as the best reflection on expected debtors impairment of prediction purposes as well as actual debt write off.
Depending on the date of preparing the budget estimated the best possible prediction could be done on the roll forward movement accounts to establish an “opening balance”.
The calculated usage also inform the estimate of “Bulk Water Purchases”.
Determination of the expected monthly usage thus informs the Creditors budget.
Applying the accepted norm set by the municipality for paying creditors determines the cash flow in respect of “bulk water purchases”.
Getting to work?

17. Logical Frame embedded in an ERP System Application
Collected all the statistical information through a modular approach
i.e. all assumption master data utilised in your calculation should be stored in the system database – see example
These Modules to integrated into the Long Term Planning Module
Automated report extractions
Providing for Constance tables to drive the underlying principles with easy revision
Making adjustments throughout the accounting cycle leading up to the submission of an adjusted budget
Driving by workflow build into the logic frame
Automatically populate budget information in general ledger view for management reporting purposes
Inform Dashboard reporting on how well / bad the municipality as performing against budget (not only revenue and expenditure but financial health measured through the Statement of Financial Position
Simple to use, easy to understand and straight forward to revise
Assist and prepare municipality for future mSCOA Complaint and true Budget Tables to be released by National Treasury to give justice to mSCOA and the envisage financial management improvement reforms
ERP Solution

18. To summarise Balance Sheet Budgeting
Solution!!
A budget needs to be compiled for operating expenditure, capital expenditure and operating revenue. This needs to be cash backed.
The budget needs to be on a accrual basis meaning the Balance Sheet budget became compulsory
A Municipality financial system needs to carry the balance sheet budget
The NT string needs to be submitted through the financial system
National Treasury will give an output report, this report needs to balance to your A-Schedule
A-chedule needs to tie back to the financial system.

19. LG Portal
A-Schedule
Core System

20. Practical illustration based on water services

26. Sub system utilization Requirements for integration of modules
2017
CIGFARO – m SCOA session Maritz van Zyl

27. Effective sub-systems of Financial Management and Internal Controls for the Municipality
Budget module – effect to MFMA section 21 utilising the project segment aligned to Municipalities IDP Operational /Capital
Budget module – supported and informed from the sub ledgers i.e. HR and Payroll, Revenue, Assets …
General Ledger containing consolidated transactions at posting level of the mandatory 6 prescribed segments. Or even 7 if Municipal Calcification is used.
SCM module that gives effect to chapter 11 of the MFMA
Revenue management module that gives effect to MFMA section 64 and incorporates
Integrated Valuation system MPRA
Integrated Credit control and debt collection system that gives effect to
chapter 9 of the systems act 2000
Assets and liabilities module that gives effect to MFMA section 63
PMS that gives effect to chapter 6 of the MSA 2000
Electronic solution to maintain policies, delegations and Bylaws
Contract management
Performance contracts of senior management and all levels of officials
Reporting on SDBIP and integrated financial indicators
Website as envisaged in MFMA section 75
Business reporting tools that as minimum assist MM to implement, monitor and obey MFMA section 70
(impending shortfalls, overspending and overdrafts)
- mSCOA circular 5 schedule

28. Why did Sebata decide to simplify and consolidate all our sub modules into one centralised database.

29. “Data mapping” is a process used in data warehousing by which different data models are linked to each other using a defined set of methods to characterise the data in a specific definition. This definition can be any atomic unit, such as a unit of metadata or any other semantic. This data linking follows a set of standards, which depends on the domain value of the data model used. Data mapping serves as the initial step in data integration. Data mapping can be applied in several ways using procedural codes, Extensible Style Sheet Language Transformation and other existing graphical interfaces. The technique involves evaluating data values in different data sources, as well as automatically and simultaneously discovering complex mappings between the sets. Data mapping is also used to consolidate multiple databases into a single database. Mapping techniques applied as a methodology to accommodate the mSCOA classification framework is prohibited by the Regulation and will be deemed as non-compliant.
Enterprise Resource Planning (ERP) or Enterprise Management System (EMS)” means the business management software that typically comprises of a suite of integrated applications or modules
“Core financial system” means the financial software in which the general ledger is hosted and could include bespoke systems.
“Sub systems or third party systems” means any system that carries financial or non-financial information in a set of sub ledgers outside of the core financial system or integrated system.

30. There are several organizational levels on which the Data Integration can be performed and let’s discuss them briefly.
1. Manual Data Integration
Technically speaking, this is really not a Data Integration. In this approach, a web based user interface or an application is created for users of the system to show them all the relevant information by accessing all the source systems directly. There is no unification of data in reality
2. Middleware Data Integration
A middleware data integration solution is essentially a layer between two disparate systems allowing them to communicate. Middleware integration can act like a glue that holds together multiple legacy applications, making seamless connectivity possible without requiring the two applications to communicate directly.
3. Data Virtualization Integration Approach
Data Virtualization allows us to leave data in the source systems while allowing to create a new set of unified views. This provides a way for users to access the unified view of disparate source system’s data across whole enterprise.
A lot of organizations today prefer this approach because of the benefits and technologies that exist today to support this approach. The main benefit of the virtual integration approach is near real time view of data from the source systems. It eliminates a need for separate data store for the consolidated unified data.
However, that doesn’t mean it’s the best way to do Data Integration although it certainly has a short term benefit. The drawbacks of this approach include limited possibility of data’s history availability or data version management and extra load on the source systems involved which may have an adverse effect on the performance of the source systems
4. Data Warehouse Approach Of Data Integration
This is the most commonly known approach to Data Integration you may already know if you have read Ralf Kimball and/or Bill Inmon.
This approach requires creation of a new Data Warehouse (of Data Marts) which stores a unified version of data extracted from all the source systems involved and manage it independent of the original source systems.
The benefits of this approach include ability to easily manage history of data (or data versioning), ability to combine data from very disparate sources (mainframes, databases, flat files, etc.) and to store them in a central repository of data

31. Data Integration Challenges
Data Integration is the process of identifying ways to bring data from disparate sources and combining them to have a unified view. Well, that is a challenging task by itself.
From a technical standpoint, the technical aspect of this implementation is the first level of challenge. It is never easy to understand data residing in disparate sources and then design a common structure to fit them all at one place.
Design Challenges
1. Have A Good Understanding Of Data
2. Understanding Of Objectives And Deliverables
3. Analysis Of The Source Systems And Extraction
Implementation Challenges
Sometimes, for organizations that have built their data warehouse and a lot of ETL processes using a tool which is no more able to scale or the tool is no more relevant. For example, organizations that have invested years of work in a toolset and this toolset is discontinued or no longer supported are stranded.

32. Municipalities are required to ensure that each transaction is budgeted against the mSCOA Segments at a posting level from the master data table for both operational and capital projects. There would therefore be perfect alignment between the approved budget at a posting level and the actual posting of transactions within the general ledger and sub-systems or sub-ledgers where transactions are hosted at point of origin.

34. SebataEMS ( Enterprise Management Solution ) utilises none of the mentioned data integration methods

36. Thank You