Standard Chart of Accounts (SCOA) - Abacus...
Transcript of Standard Chart of Accounts (SCOA) - Abacus...
Establishing a
Standard Chart of
Accounts (SCOA)
…facilitating
predictable
outcomes in
a constantly
changing
environment…
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
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
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.
Establishing a Standard Chart of Accounts (SCOA)
1
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 2004. 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.
The aim was to design and develop a
centrally coordinated chart of accounts,
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.
Establishing a Standard Chart of Accounts (SCOA)
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Key Considerations when Introducing a SCOA
National Treasury
successfully facilitated the
design and implementation
of a SCOA across 156
national and
provincial government
departments, impacting
approximately 35,000 financial practitioners.
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.
There were two phases of key considerations prior to the introduction of a SCOA, as
illustrated in Figure 1 below.
Design Phase Implementation Phase
Legislative Review
Classification System
Design Standards &
Principles
Pilot Site Establishment
Design Full Scale Implementation
Commence Rollout
Training & Capability
Building
Communication & Change
Management
Figure 1: Key Phases for the Introduction of a SCOA
Establishing a Standard Chart of Accounts (SCOA)
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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.
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
The key pieces of South
African legislation that
were taken into
consideration were the
Constitution, the Public
Finance Management
Act, and the
Appropriation Act.
Establishing a Standard Chart of Accounts (SCOA)
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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
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
The standardisation of the
nomenclature and
numbering conventions
enabled the creation of a
single, flexible base of
information – a single
‘version of the truth’
Establishing a Standard Chart of Accounts (SCOA)
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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
Establishing a Standard Chart of Accounts (SCOA)
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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.
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
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
Establishing a Standard Chart of Accounts (SCOA)
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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 on-
going 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 life-
cycle.
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 call-
centre 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.
Establishing a Standard Chart of Accounts (SCOA)
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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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November 2015
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