Munsoft Perspective: mSCOA Circular No. 10 (Cash Flow and Fund Segment Guidance)

MUNSOFT PERSPECTIVE ON CIRCULAR NO. 10 (NOVEMBER 2020)

Dear Client, 

The Municipal SCOA Circular No. 10 Cash Flow guidance has reference and in particular page 3 “Non-funding Transactions: This is items that do not relate to a cash transaction. Examples of non-funding transactions are Billing for services, Recording of invoices, Depreciation, and Debt provision”
Munsoft performed an investigation of the Fund segment and the alignment of the fund segment to the Cash Flow Statement in the A1 Schedules.
 
The challenges Munsoft would like to resolve with this investigation are to assist National Treasury and Municipalities with a Cash Flow reconciliation, Alignment of the Cash Flow Statement(Schedule A7) and Internal Fund Analysis performed by municipalities.
 
There are a set of business rules, assumptions, and definitions to take into account to better understand the examples presented:

• A data string consists of 6 segments (project, function, item, fund, region, costing)
• A data string can be categorised into 2 categories and it is determined by the Item segment:
  • Transacting(Movement) Data Strings – Revenue, Expenditure, Asset Collections/Acquisitions/Disposal/Interest Earned, Liability Withdrawal/Repayments/Advances/Receipts
  • Control(Balance Sheet) Data Strings – Asset Monthly Billing/Cash and Cash Equivalents, Liability Deposits/Transferred to Revenue/Capital
• The Control Data string adopts all the segments of the Transacting Data String with only the Item segment that change to the Balance Sheet item
• Data strings used for In-Year Reporting are exactly the same as the data strings used for Budgeting – Budget to directly inform transactions
• Accrual Basis to inform the Cash basis and both to be seen as one transaction cycle – PSD “Business processes is the set of activities taking place from the initiation of a process to the completion thereof. – Principle 4“
• PSD Purpose of the Funding Segment: “against which source of funding is the payment allocated and against which source is revenue received”
• PSD Non-funding transactions Description: “This account is to be used for the recording of transactions for which specific provision has not been made in terms of the classification structure for the Funding segment, for example, transfer of funds from the municipality’s primary bank account to a “dedicated bank account” for the replacement of capital assets.”
• PSD Preparation for mSCOA Implementation: “The system developers responsible for applications used by municipalities are responsible for developing software-driven by business processes and subject to customisation based on the unique requirements of client municipalities with one of the primary objectives of assisting municipalities in achieving compliance with the mSCOA classification framework”
• Cash flow Reconciliation: Reconciliation occurs when it is showed how the Surplus/Deficit from the Statement of Financial Performance translates into the net cash it generated during the same accounting period, after making all the required adjustments, the Surplus/Deficit reconciliation must equal the net cash from operating activities shown on the cash flow statement

1. Annexure A: Data strings contain the specific Fund segment for all types of transactions including Revenue, Expenditure, Asset Monthly Billing and Collections, Liability Deposits and Withdrawals, Bank Deposits, and Withdrawals. The following are included in the Annexure:
   1. List of Data Strings with amounts and which Schedule it affects
   2. A1 Schedule view for sheets: A4, A6, and A7
   3. Fund Assessment and Analysis
   4. Cash Flow Reconciliation
2. Annexure B: Data strings contain the specific Fund segment for only Cash Receipt and Payment transactions limited to Asset Collections, Liability Withdrawals, Bank Deposits, and Withdrawals. The following are included in the Annexure:
   1. List of Data Strings with amounts and which Schedule it affects
   2. A1 Schedule view for sheets: A4, A6, and A7
   3. Fund Assessment and Analysis
   4. Cash Flow Reconciliation

 
It is evident from the annexures that the Cash Flow Statement(A7) and Cash Flow Reconciliation will not be affected by the 2 different Fund allocation approaches, but that the Fund assessment and analysis possibilities will be taken away as well as the fund application for the full business cycle of any transaction.
 
In conclusion, this set of examples are shared to explain Munsoft’s view of the fund segment and how it can be utilised for the complete business cycle of any transaction from budgeting to in-year reporting.
 

Sincerely,
Munsoft Team