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)

2

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)

3

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)

4

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)

5

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)

6

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)

7

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)

8

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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