1. ICF 8 & 9 September Durban Feedback site visits & Minimum Business processes Presented by National Treasury: Chief Directorate Local Government Budget Analysis

2. ICF 8 & 9 September Durban What is the current status of piloting municipalities?

3. Achieved  System vendors have gone through modernisation through investment to achieve the core objectives of the regulation.  They are able to submit the segmental transactional data strings. Next Cycle Deliverables The business process engineering in most systems is at an advance stage to accommodate the accounting cycle with specific reference to:  Integral budget tools accommodating the IDP and Projects,  Seamless 3 Rd party integrations based on the segments.  Removal of suspense accounts.  Non financial reporting. Final Stage Research  We are now at the Rubicon that require the issuing of minimum business process and system specifications.  External review and publish. Where is this work stream going OUTCOMES AS AT 15 AUGUST 2015

4. Summary position on piloting 4 These are municipalities that discontinued the piloting attempt and their clients had to be flagged as risks as clear mitigation plans need to be brought to the table at the end of piloting to ensure that the non-piloting municipalities are not placed on risk The pilots all have implemented to a high degree all segments with costing and region limitations. High instance of projects have been observed but all indicated that piloting were meant to complete their charts and thus virement is used. Position 1. Accounting Cycle 2. Hybrid with definite plans to migrate 3. Delayed pilots 4. Metro’s Pilots = 8 Total Municipalities = 82.5 Pilots = 7 Total Municipalities = 161 Pilots = 4 Total Municipalities = 34.5 SAP(3), Oracle(1) BCX(3) microMEGA(1). Number of Municipalities Initial shock due to change in environment were experienced but they all extremely proud and report great uptake from management due to their ability to show their alignment with service delivery. The metro’s that we have engaged so far all have conceptually engaged with the requirements and are targeting 2017 for full compliance, Close milestone management will need to be followed to ensure that they do comply in time.

5. Piloting Lessons Learned. 5  Pilots indicated that their biggest single risk were institutional change management requirements and that this should be highlighted to non piloting municipalities.  They found disparate systems in their environments that were duplications and even some triplications of work most of those processes needed to be and were centralised into the ERP solution.  That systems should not be defined as the software, but the processes required. “Manual is also a process”.  That where municipalities elected to minimize the change by using short codes it appears that additional effort is required to manage transactions.  Project originating systems had the biggest change management requirement but functionally support the local government accountability cycle.  That All vendors is close to finalizing their configurations and in essence will have ungraded their systems to accommodate for mSCOA: at varying levels.  The mSCOA classification framework is structured in support of the local government accountability cycle IE proof of concept achieved.  That even though transacting on the segments has been achieved at varying levels, further independent evaluation is required.  The numbering and structure change of the long code will create extensive configuration and historical data issues.

6. Segments used 6 Vendor View Project Function Item Fund Region Costing BCX BIQ Fujitsu microMega Rdata microMega Sebata Munsoft Sage Evolution SAMRAS Vesta Full Partial Derived / Not used The above self assessment by vendors as indicated above indicate probable compliance but is not necessary shared by our observations at pilots and as such is an indication of ability versus actual.

7. ICF 8 & 9 September Durban What constitutes compliancy to the Regulation?

8. Hardware ICT Infrastructure Must have access to Hardware that need to be sufficient to run the software. Financial and Business Applications or Systems must: 1) Provide for hosting GL structure. 2) Be able to accommodate and operate 3) Portal / Report Extraction? At a Minimum the municipal chart must: 1) At a transactional level accurately record against segments. 2) Must contain the segments as per schedule. 3) May not map, extrapolate or otherwise do not reflect. Minimum Business Processes (Back to basics) Regulation No 37577) 4

9. Original Blue Print 9

10. 6 5 4 3 2 1 IDP – Project based Budgets Projects Linked to the IDP as defined in the schedule of the regulations. In the piloting we found that where a matrix that start with project and then function allows for easy arrival at the cost Centre or vote. Integration If the system is not a full ERP (Disparate systems not allowed) integration is non negotiable Due to the historical non focus on integration it seems to be an issue for most systems for the Project based integration of IDP, Performance management (SDBIP) Asset management inclusive of PMU with resultant under spending of grants. This will need to be addressed very quickly. Business processes Business process as described in the regulation is understood to include non financial information and as can be seen from the self assessment we are grappling with the processes due to historical system configurations. The main focus for us during the next engagement cycle will be on asset management that is closely augmented by the grant, land and real estate business processes. For this purpose we are distributing in addition to circular 2 required submissions detail business process template assessment tools. ERP The regulation consistently hinted that an enterprise resource management solution would be the basis of measurement when minimum system specification are to be released. Based on the self assessment most vendors are close to achieving this requirement, be it through integration or 3 rd party systems. Minimum Business Processes ( Draft outline) 5

11. Business Process (City of Johannesburg further breakdown) 11 Business Process Corporate GovernanceInternal Audit, External Audit, Audit Committee, Performance Management System, Reporting mechanisms, Financial Risk Management, Oversight Committees Municipal Budgeting, Planning and Financial ModellingPlanning, Forecasting, Budget Management Financial AccountingGeneral Ledger Accounting, Accounts Receivable, Accounts Payable Costing and ReportingCost Planning, Cost Management Project AccountingOperational, Typical Work Streams, Project Approval & Execution, Project Closing Treasury and Cash ManagementCash Management Procurement Cycle: Supply Chain Management, Expenditure Management, Contract Management and Accounts Payable Quotation for Procurement, Procurement Contract, Consumable Purchasing, Procurement, Return to Vendor, Physical Inventory / Inventory Count and Adjustment, Procurement of Third-party Resources, Inventory Valuation for Year-End Closing Grant ManagementAllocation Management of Grant, Subsidies, Payments office Full Asset Life Cycle Management including Maintenance ManagementAsset Acquisitions, Asset Retirement, Asset Postings, Asset Under Construction, Periodic Processing (Asset Closing), Asset Acquisition through Direct Capitalization, Asset Acquisition for Constructed Assets Maintenance ManagementInternal Maintenance Real Estate and Resources ManagementRental, General Processes Human Resource and Payroll ManagementPersonnel Management, Personnel Time Management, Payroll, Training & Events Management Customer Care, Credit Control and Debt CollectionCustomer Interaction, Events, Revenue Accounting, Fines, Debt collection Valuation Roll Management Land Use Building ControlLand Use Management, Building Control, Spatial Revenue Cycle BillingScheduling, Billing Order Management, Bill Customer, Exception Billing, Deeds Registration, Rates Clearance, Refunds, Rebates

12. External consolidation and review 12 The steering committee resolved that after this extensive engagement framework that an external party will review and compile the final business process and requirements. You input and responses to the questionnaire as well as contributions in the follow up engagements will guide the final output.questionnaire

13. Circular 57 13  Circular 57 is problematic and regular attempts are made to bypass it.  Section 5(2)(d) of the MFMA to be institutionalised in addition to the supply chain regulation to ensure the systems market remains stable post mSCOA and circular 57.  Due to vendors not attending to non pilots and their systems at these non piloting municipalities are aged and based on legacy architecture, municipalities are therefore worried not only for the purpose of mSCOA but also due to functional and physical constraints and are therefore looking at the market for modern solutions. (This is exasperated by unfavourable audit comments about systems.)  Small to medium sized municipalities cannot afford an ERP type system in both operational as well as original capital and configuration outlay. (This includes both the monetary as well as the requisite expertise)  Follow up on circular 57 giving minimum business process.  Independent assessments not Treasury.

14. Engagement framework 14

15. THANK YOU 15