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mSCOA Chart of Accounts: Complete 2026 Guide for SA Municipalities

Dolobha Team 12 metsotso go buisa
mSCOA Chart of Accounts: Complete 2026 Guide for SA Municipalities

In the 2022–23 local government audit cycle, only 16% of South African municipalities achieved clean audits. One of the main drivers of qualified and adverse opinions was incorrect or incomplete application of the Municipal Standard Chart of Accounts (mSCOA). In the same period, 15 municipalities recorded zero ICT expenditure in their annual financial statements — not because they spent nothing on technology, but because they failed to classify and report it correctly. That kind of error triggers Auditor-General findings, undermines credibility, and makes it harder for councils to plan and budget. This mSCOA chart of accounts guide is written for municipal CFOs and finance managers who need a practical, authoritative reference: what mSCOA is, how the seven segments work, where classification goes wrong, and how to implement and maintain compliance.

What is mSCOA?

The Municipal Standard Chart of Accounts (mSCOA) is a uniform classification framework that all South African municipalities must use to record and report financial transactions. It is mandated by the Local Government: Municipal Finance Management Act 56 of 2003 (MFMA) and the Municipal Standard Chart of Accounts Regulations (as amended). National Treasury maintains and publishes the mSCOA structure so that municipal financial data can be compared across municipalities, aggregated at provincial and national level, and audited consistently.

In plain language: every rand that a municipality earns, spends, or owes must be tagged with a set of standard codes. Those codes answer who, what, where, and why — which fund, which function, which item (revenue or expense type), which project or region, and so on. When every municipality uses the same chart of accounts and classification rules, National Treasury and the Auditor-General can verify that financial statements are complete, comparable, and compliant. When classification is wrong or missing, you get the kind of audit findings that have become all too familiar: material misstatements, non-compliance with the MFMA, and zero or nonsensical line items (like zero ICT spend) that do not reflect reality.

Understanding and applying the mSCOA chart of accounts is therefore not optional. It is a legal requirement and the foundation of credible municipal financial reporting. The rest of this guide explains the seven mSCOA segments, how classification works in practice, common errors, and how to implement mSCOA in your municipality — including how modern municipal software can pre-configure the chart of accounts and validate classifications automatically.

The Seven mSCOA Segments Explained

The mSCOA framework is built around seven segments. Each transaction must be classified across these segments so that it can be reported correctly in the annual financial statements and in submissions to National Treasury.

Project Segment

The project segment identifies the specific project (if any) to which a transaction relates. Capital projects, grants tied to specific programmes, and donor-funded initiatives are typical examples. Not every transaction has a project code — only those that are linked to a defined project. Using the project segment correctly ensures that project-based reporting (e.g. for conditional grants or infrastructure programmes) is accurate and auditable. Misclassifying or omitting the project segment for grant-funded expenditure is a frequent source of AG findings.

Fund Segment

The fund segment indicates which fund the transaction belongs to. Municipalities typically operate multiple funds: the operating fund (or general fund), water fund, electricity fund, sanitation fund, and others as defined in the municipality’s fund structure. Revenue and expenditure must be allocated to the correct fund so that each fund’s financial position and performance can be reported separately. Mixing funds — for example, recording electricity revenue in the operating fund — distorts fund statements and can lead to non-compliance with the MFMA and mSCOA regulations.

Function Segment

The function segment describes the municipal function or service area. Examples include administration, community services, public safety, roads and transport, water, electricity, waste management, and planning. National Treasury provides a standard list of function codes. Correct function classification is essential for segment reporting and for answering questions such as “how much did we spend on public safety?” or “what was our revenue from water?” Wrong function codes undermine the usefulness of the AFS and often trigger material misstatement findings.

Item Segment

The item segment is the revenue or expense “type.” It answers what kind of transaction it is: employee costs, bulk purchases, depreciation, grants received, rates and taxes, interest, and so on. The item segment is one of the most detailed parts of the mSCOA chart of accounts; National Treasury’s item classification is extensive so that comparable data can be collected across all municipalities. Errors here — such as recording ICT expenditure under the wrong item (or not at all, leading to zero ICT spend in the AFS) — are among the most common classification failures.

Region Segment

The region segment (or geographic segment) identifies the geographic area to which the transaction relates, where applicable. This is used for municipalities that need to report by ward, district, or other geographic breakdown. Not every transaction requires a region code; it depends on the municipality’s reporting requirements and the nature of the transaction. Where region reporting is required, incorrect or missing region codes can affect the accuracy of geographic reports and, in some cases, grant or allocation reporting.

Costing Segment

The costing segment supports cost allocation and activity-based costing. It is used to attribute costs to specific activities, cost centres, or programmes. This segment helps municipalities understand the true cost of delivering services and supports budgeting and tariff setting. Misuse or omission of the costing segment can make it difficult to demonstrate cost recovery or to justify tariffs and subsidies in line with MFMA and municipal finance policy.

Municipal Standard Classification (MSC)

The Municipal Standard Classification (MSC) segment provides additional standardised categories that complement the other segments. It is used for specific reporting and analysis requirements set by National Treasury. The MSC ensures that certain types of transactions (e.g. by economic character or programme) can be reported consistently. Finance teams must use the current MSC structure as published by National Treasury and ensure that all relevant transactions are classified accordingly.

Together, these seven segments form the mSCOA chart of accounts. Every transaction that affects the financial statements should be coded with the appropriate segment values so that the general ledger and subsequent reports align with the standardised mSCOA structure.

How mSCOA Classification Works in Practice

Classification in practice means that whenever a transaction is captured — a payment, a receipt, a journal — the person or system entering it selects the correct codes for each applicable segment. The combination of segment codes determines how the transaction will appear in reports and in the annual financial statements.

Example: Salaries for water treatment staff.
The transaction might be coded as: Fund = Water Fund; Function = Water; Item = Employee costs (with the correct item code for salaries); Project = blank (if not project-specific); Region = the treatment plant area if region reporting is used; Costing = Water treatment activity. If any of these are wrong — for example, Function = Administration instead of Water — the AFS will misstate water costs and overstate administration costs.

Example: Grant received for a specific infrastructure project.
Fund = Operating (or the designated fund for the grant); Function = the function that delivers the project (e.g. Roads); Item = Grants received; Project = the specific project code for the infrastructure project; Region and Costing as required. Omitting the project code can lead to grant conditions not being traceable and to AG findings on conditional grant reporting.

Example: ICT software subscription.
Fund = Operating (typically); Function = Administration (or Corporate Services, depending on your function list); Item = the correct mSCOA item for ICT/software expenditure. If the item code is wrong or the transaction is not classified under an ICT-related item, the result can be zero or incorrect ICT expenditure in the AFS — exactly the kind of failure that led to 15 municipalities reporting zero ICT spend. Item-level accuracy is critical.

Finance teams should work from a mapping document that links their chart of accounts (or their ERP/municipal software’s account structure) to the mSCOA segments and codes. Training and clear procedures reduce the risk of ad hoc or incorrect classification. For more detail on typical mistakes, see our article on common mSCOA classification errors.

Common Classification Errors That Trigger AG Findings

The Auditor-General’s reports repeatedly highlight classification and disclosure issues linked to mSCOA. The following patterns are among the most common and most damaging.

  • Wrong or missing item codes — Revenue or expenditure recorded under incorrect item codes (e.g. ICT spend not under ICT items) or not classified at all, leading to zero or nonsensical figures in the AFS. This directly undermines the credibility of the financial statements.
  • Incorrect function classification — Transactions allocated to the wrong function (e.g. water expenditure in administration), distorting segment reporting and making it impossible to compare performance across municipalities or to hold the right function accountable.
  • Fund errors — Revenue or expenditure recorded in the wrong fund, or not allocated to a fund, leading to incorrect fund statements and potential non-compliance with ring-fencing or fund-specific requirements.
  • Missing or wrong project codes — Conditional grant or project-related expenditure not linked to the correct project segment, leading to findings on grant compliance and project reporting.
  • Inconsistent or outdated codes — Using old or superseded mSCOA codes after National Treasury has updated the framework, or applying codes inconsistently across similar transactions.
  • Incomplete segment population — Leaving segments blank where they are required, or using “catch-all” codes instead of the correct detailed classification.

These errors are often compounded when municipalities rely on manual coding without validation. Training, clear procedures, and software that enforces mSCOA structure and validates classifications can significantly reduce the risk. For a broader view of what auditors look for, see how to achieve a clean municipal audit and the MFMA compliance requirements for 2026.

Step-by-Step: How to Implement mSCOA in Your Municipality

Implementing or improving mSCOA compliance is a structured process. The following steps provide a practical roadmap.

1. Obtain the current mSCOA structure.
Download the latest mSCOA framework, segment definitions, and code lists from National Treasury. Ensure you are using the version that applies to your financial year. Keep a change log when Treasury issues updates.

2. Map your current chart of accounts to mSCOA.
List every account (or account combination) in your general ledger and assign the correct mSCOA segment values to each. Where one account can be used for more than one classification (e.g. different functions), define rules so that users choose the right codes at transaction level. Document this mapping and keep it under version control.

3. Configure your finance system.
If you use municipal or ERP software, configure the chart of accounts and validation rules to reflect the mSCOA structure. Mandatory segments should be enforced (e.g. Fund and Function always required); invalid code combinations should be blocked. Pre-configured mSCOA charts reduce setup time and classification errors.

4. Train finance and budget staff.
Ensure everyone who captures or approves transactions understands the seven segments, the code lists, and your mapping. Use real examples from your municipality. Emphasise the impact of wrong classification on the AFS and on audit outcomes.

5. Run parallel or reconciliation checks.
Before and after go-live, reconcile a sample of transactions to the mSCOA segments. Check that key totals (e.g. employee costs, grants, ICT) align with expectations and with prior periods where applicable. Investigate and correct misclassifications.

6. Embed validation and review.
Use system validations (e.g. dropdowns restricted to valid codes, mandatory fields) and periodic reviews of high-value or high-risk transactions. Make mSCOA compliance part of month-end and year-end checklists.

7. Plan for updates.
When National Treasury amends the mSCOA framework, assess the impact on your mapping and system configuration, update both, retrain where necessary, and communicate changes to all users.

This discipline, supported by the right systems and culture, puts your municipality in a much stronger position to achieve clean audits and reliable reporting. For the full set of regulatory expectations, refer to the MFMA compliance requirements for 2026.

How Software Automates mSCOA Compliance

Manual coding is error-prone, especially when staff are under pressure and code lists are long. Modern municipal finance software can reduce that risk by building mSCOA into the core of the system.

A system designed for South African municipalities can pre-configure the chart of accounts to align with the current mSCOA segments and code lists. Instead of building the structure from scratch, finance teams start from a compliant template and adapt it only where municipal-specific choices are allowed. That saves time and reduces the chance of structural errors.

Validation at capture is equally important. When a user enters a transaction, the system can enforce mandatory segments (e.g. Fund, Function, Item), restrict choices to valid codes, and warn or block invalid combinations. That prevents many of the classification errors that lead to zero ICT spend, wrong function reporting, or incorrect fund allocation. Some systems also support automatic suggestion of codes based on vendor, account, or historical pattern — without overriding the need for human review where appropriate.

Reporting and reconciliation become straightforward when the general ledger is already mSCOA-compliant: standard reports and AFS schedules can pull directly from the same classification that was used at capture. There is no need to re-code or re-allocate at year-end, which is where many municipalities otherwise introduce errors or delays.

Dolobha is built for South African municipalities and supports mSCOA-aligned chart of accounts and classification controls. If you are evaluating municipal software, consider whether it pre-configures the mSCOA structure and validates classifications automatically; that capability is a significant step toward clean municipal audits and reliable financial statements. You can explore Dolobha and its features on the product page, or contact the team to discuss your mSCOA and MFMA compliance needs.

Key Resources and References

Staying compliant with the mSCOA chart of accounts requires using official sources and staying up to date with changes. The following resources are essential for municipal finance teams.

  • National Treasury — mSCOA:
    National Treasury publishes the Municipal Standard Chart of Accounts framework, segment definitions, code lists, and implementation guides. Check the Treasury website for the current mSCOA version and any circulars or amendments that affect your financial year.

  • MFMA and related legislation:
    The Local Government: Municipal Finance Management Act 56 of 2003 (Act 56 of 2003) and the Municipal Standard Chart of Accounts Regulations (as amended) are the legal basis for mSCOA. Ensure your legal or governance team has access to the latest amendments and that your processes align with the Act and regulations.

  • Auditor-General South Africa:
    The AG’s general reports on local government and individual municipal audit reports highlight recurring findings on financial statements and compliance. Reviewing these helps finance teams anticipate and address common classification and disclosure issues.

  • CIGFARO (Chartered Institute of Government Finance, Audit and Risk Officers):
    CIGFARO provides training, guidance, and networking for government finance professionals in South Africa. Their events and materials often cover mSCOA, MFMA compliance, and audit readiness.

Use these resources to validate your implementation, train staff, and keep your mSCOA mapping and processes aligned with National Treasury and the MFMA. Combined with clear procedures and appropriate software, a solid mSCOA chart of accounts implementation is one of the most effective steps your municipality can take toward reliable financial reporting and better audit outcomes.

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Dolobha Team

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