CHAPTER 7
Goal 5: Improving delivery of accounting and entitlement functions
7.1 Accounting Functions
The
strategy is about:
5A. Encouraging States to assume ownership
of accounts, where they express willingness and possess adequate capacity
5B. Leading
reforms of the accounting structure and partnering the GoI/ States in ushering 
in institutional
accounting mechanisms for direct transfers of funds
5C. Transforming A&E offices into data
centres for financial information and analysis
Background
The
IAAD undertakesaccounting and entitlement functions in respect of the State
Governments and UTs. Goa, Puducherry and NCT of Delhi are the onlyState/ UT
Governments which prepare their own accounts. Accounting and entitlement
functions in respect of the Central Governmentweretaken over by the Central
Government in 1976,when a departmentalized accounting structurewasadopted.
In respect of accounting arrangements for the
States, concerns have been expressed occasionally from the perspective of
international best practices of a somewhat incongruous situation where the SAI,
in addition to its auditing responsibilities, is responsible for compilation of
accounts and submission of accounts (both monthly and annual financial
statements). In practice, this situation does not result in any
significant conflict of interest or adverse impact in theindependent and
objective discharge of audit functions, since:
· The responsibility for “passing” payments and
preparing initial accounts vests with the Treasury Officers under the State
Governments, and A&E Offices are only responsible for compilation of
accounts.
· A “clean” bifurcation of audit and accounting
functions is in place since 1984, with complete separation of personnel at all
levels (except at the level of IAAS).
Encourage States to assume ownership of accounts
Over a period of time,thepossibilities of
State Governments preparing their own accounts have multiplied,given extensive
efforts at treasury computerization and the ability of the States to network
accounting units. However, so far no State has expressed willingness to take
over the accounting function.
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It is imperative that a departmental view be
formulated on the response to future requests 
from the State Governments to take over
accounting responsibilities. As and when States
express willingness to take
over accounts and demonstrate adequate capacity for such a takeover,
the IAAD would encourage handover of accounting responsibilities to State 
Governments and would ensure a
smooth transition.
An assessment is required to be done by all
AsG(A&E)for atleast the next ten years to anticipatethe possibility of the
State taking overthe function,in which case avenues for utilization of manpower
and resources have to be planned. A year wise alternative manpower and resource
deployment plan from 2015 onwards should beprepared for all offices so that as
and when the possibility arises,a smooth transition is possible.
While doing so, however, we must be careful to
ensure that access to accounting information is ensured to our offices at all times.
This can be ensured if we develop our offices as data centres, networking all
information channels available in the State, so that even if we do not compile
accounts, information is available on a near real time basis for validation,
certification and audit purposes.
Lead reform of accountingstructure
Concerted
efforts towards improving quality of Finance and Appropriation Accounts
As the organisation on whose advice the form
of accounts is finalized (under Article 150 of the Constitution) and who
compiles the accounts of the State Governments and UTs, the responsibility on
the CAG with regard to quality ofaccounts is immense. In the present scenario,
the ownership of accounts is also somewhat diffused. While in the last few
years, significant steps have been taken to improve the quality of accounts,
yet in certain areas, systemic deficiencies are difficultto overcome. For
instance, the amount of physical assets represented in the accounts (through
the figures for capital expenditure) and financial assets represented by loans
need greater verification. Information on loans given by the State Departments
issketchy and they too do not have data that can be easily retrieved and
verified. Similarly, assets registers, though prescribed, are not maintained by
most departments. While the onus of maintaining the details is on the State
Governments, yet the accountsget identified with the organisation of the CAG.
Hence, efforts are needed to identify such areas and partner States in
promoting improvements.
Work towards standardizing chart of accounts
(sub head and below) across Centre and States
Under the current six tier chart of accounts
(introduced from 1987), uniformity across all Governments (Central and State)
is achieved at the level of the first three tiers (major, sub‐major and minor
heads), while at the lower three tiers (sub‐head, detailed head and
objecthead), there is no uniformity and the Centraland individual State
Governments adopt different coding systems. While this approach has worked reasonably
well over the last two decades, the advent of large‐scale computerization has
been a game changer, throwing up opportunities for detailed data analysis with
scope for drilling down to individual items of expenditure across Governments
(e.g. subsidies, grants‐in‐aid). However, the scope
9th September,2010 Strategic Plan‐2020 prepared by Group of Officers Page49
for collecting and analyzing such granular
data is affected by the lackof standardization of account codes (sub‐head and
below). There is thus a growing need to work towards standardizing the chart of
accounts (sub‐head and below) across the Central and State Government for
purposes of better transparency and information sharing, as well as ease of
comparison.
We will need to take the State Governments on
board and dispel any doubts since such standardization may be perceived to be
anomalous to the sense of autonomy of the States. While standard heads of
account for the entirebudgetwould not be feasible, standardization could be
restricted to the following categories:
·
Objects
heads which represent the item of expenditure and which do not really vary
across States, e.g. salaries, wages, office expenses etc. Some standardization
is available but the entire gamut of activities need to be assigned common
codes
· Subheads/Minor heads denoting central/ACA
schemes and other such schemes common to all States and their components which
could be coded at the level of the detailed head and below
Partner
CGA in a new chart of accounts, especially for the Union
The other major issue with the current chart
of accounts is the accounting for the large number of Centrally Sponsored
Schemes and Additional Central Assistance Schemes, being funded by different
Ministries and Departments of GoI. It is difficult to obtain a high‐level
perspective of expenditure on key flagship programmes from the Union Finance
Accounts in their current format; in the case of many Additional Central
Assistance (ACA) schemes (e.g. JNNURM), the exact expenditure on these schemes
is concealed at the sub‐head level or below,and cannot be traced from the
Finance Accounts. There is thus a need to partner with the Controller General
of Accounts (CGA) and the Ministry ofFinance towards developing a new chart of
accounts, especially for the Union Government, which is more in tune with the
diverse and newer functions current performed by the Ministries and
Departments.
The
CGA has constituted a committee for the purpose and our organization is
represented in the committee. It will be our endeavour to sensitise the
committee for the need for standardization as mentioned above and facilitate
adoption across States.
Partner States in
improving institutional mechanisms for monitoring public expenditure and
receipts
Usher in institutional accounting mechanism
for agencies that receive funds through the society mode
Increasingly, the major portion of GoI funding
through CSS/ ACA is released, not through the Consolidated Funds of the States,
but to State‐level implementing agencies, which are typically incorporated as
societies and are outside the Government accounting loop. In turn, releases of
funds by
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the State‐level implementing agencies to lower
level agencies at the district,block, and Gram Panchayat levels is also outside
the Government accounting structure.
The reasons stated by most Ministries/
Departments for switch over to the “society mode” include faster transfer of
funds to the grass root level (with reduced chances of diversion for unrelated
schemes/ activities) and less bureaucratic and more efficient systems for
programme delivery21. However, one major weakness of the “society
mode” of funds transfer is the lack of effective institutional mechanisms for
accounting for releases and utilization of funds at different levels (State,
District, Block and GP). Since fund releases to lower levels of agencies are
usually booked as expenditure under the cash system of accounting, it is
difficult to ascertain how much of the funds released by the GoI actually
translate into grass‐root level expenditure.
Further, the systems for accounting of
releases (both inward and outward), utilization, bank reconciliation etc. are
often inconsistent and less than adequate, despite finance and accounting
manuals/ procedures having been developed for some schemes; auditing
arrangements (usually through Chartered Accountants and/ or Local Fund
Auditors) are also often weak. While web‐based MIS reporting arrangements for
financial and operational data have been put in place for most schemes, data
reported through the MIS does not have the credibility or authenticity of
audited accounts/ financial statements, with errors in the data often being
attributed by the concerned officials/ agencies responsible to data entry/
compilation or other errors. There is no real substitute for the rigour of
properly audited accounts, which is necessary to provide assurance as to the
utilization of funds provided.
Currently, the AG (A&E) offices compileabout70
percent of the expenditure in the State. We would be able to compile accounts
for the remaining30 per cent of expenditure,provided there are institutional
arrangements in place to capture plan funds released by the Union and State
Government to implementing agencies/ societies and resultant expenditure. In
order enable the AG (A&E)offices to account for funds released under the
society mode,the following aspects will need to be taken care of; these would
have to be taken up with the Planning Commission and the Ministry of Finance.
·
Uniform
accounting formats for the implementing agencies would have to be devised which
are amenable for integration/link with the State Accounts. For the PRIs, some
accounting formats have been framed. Their completeness, utility and
practicability should be assessed and applied to other implementing agencies.
·
Electronic
data capture of accounts of the autonomous bodies/societies and NGOs maintained
in uniform accounting formats on an IT system has to be ensured, providing
21This alternative method of fund transfer and
its implementation may have some advantages in terms of cutting through
bureaucratic delays, but the fact remains that these bodies are also headed by
the same bureaucratic structure. Further, lack of accountability of these
bodies is an equally serious concern. These mechanisms were conceived about a
decade and a half back and now with tremendous strides made in core banking,
monitoring timeliness of release of funds should not be an issue. More and more
funds should be routed through treasuries; any other system has to necessarily
be sub optimal. However, despite our views on this issue, we will have to
promote better accounting mechanisms for direct transfers, as long as they
continue.
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access to both AG (A&E) and Pr.AG/AG
(Audit). The vouchers and other documents should be retained by them, for
off‐site verification by the audit/ A&E teams as appropriate.
·
Suitable
mention would have to be made in GFRs of both GOI and the States and in
sanctions issued by GOI/States for rendering accounts in these formats to the
AsG, failing which further grants are to be stopped.
·
Amending
the Societies Registration Acts, or alternating suitable provisions in the
sanctions (or standardized addendum to the sanctions) to incorporate provisions
regarding maintenance of accounts and disclosure requirements, filing of
accounts, appointment of auditors and constitution of audit committees.
·
At present,
a UC issued by a State‐level agency is inadequate, as it treats releases to
lower level agencies as expenditure, without obtaining documentary evidence.
Consequently, in the absence of a “pyramid’ of UCs from the grass root level
implementing agency upwards, the UC issued at State‐level is largely
meaningless. Rule 212 (1), note 1 of the GFR states that the UCs of Central
Autonomous Organisations shall disclose separately the actual expenditure
incurred and the loans and advances given to suppliers of stores and assets, to
staff, to construction agents etc that do not constitute expenditure at that
stage. This should be applied to the DRDAs, Societies etc which, too, do not
incur expenditure at their level but extend loans, grants etc. to down the line
implementing agencies. In essence, the UCs submitted by all levels of agencies
should clearly specify whether it is direct expenditure or a loan/transfer. In
case of actual expenditure, broad categories of expenditure could be specified
(assets creation, construction, maintenance, wages, grants to beneficiaries
etc). Also, a copy of these UCs, along with audited statement of accounts (in
the prescribed formats), should mandatorily be endorsed to the AG(A&E) and
Pr AsG (Audit).
Arrangements
for audit of direct fund transfers
While most central plan schemes involving
releases through societies have a provision for audit (by Chartered
Accountants) of accounts of such societies, the results of such audits are not
wholly satisfactory. Annual audit of such societies are carried out by
chartered accountant appointed by the governing body of the State or district
society or State Government. There is an issue of lack of independence of
auditors as the auditors are usually appointed by the societies themselves.
Also, the CAs are not required to assert or confirm that the funds have been
utilised for intended purposes. In order to improve accountability through
audit the following measures can be thought of:
· An element of independence may be brought in
the process of selection by a process similar to that in PSUs where the
auditors are appointed by the CAG.
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·
Guidelines
may be formulated either by the CAG (similar to the directions issued under S.
619(3) of the Companies Act to PSU statutory auditors) or in consultation with
CAG for the auditors to cover a list of additional issues (general issues such
as internal controls, control over assets, inventory, reconciliation of expenditure,
physical verification and also scheme/ sector‐specific issues).
·
Provision
should be made for preparation of annual reports, reflecting the performance
for the year together with audited financial statements, within a specified
time frame (uniformly for all schemes involving direct GoI transfers)after the
close of financial year
The increasing tendency of routing the
government assistance through intermediaries with the immediate grantee body or
authority assigning a part or whole of the amount of such assistance to sub‐
grantees for actual expenditure and programme delivery has raised the issue of
CAG’s audit jurisdiction and independent oversight in regard to sub‐grantees.
CAG audit jurisdiction over the sub‐grantees in such cases can be made
mandatory and placed beyond doubt by making suitable changes in GFRs/sanctions
as under:
·
Prescribing
in the General Financial Rules that it shall be the duty of the grantee to make
available the relevant books of accounts and records for CAG’s audit including
the related books of accounts and records of the sub‐grantee, if any, to whom a
part or whole of Government assistance may be transferred by the original
grantee; and the grantee shall incorporate a suitable back‐to‐back condition to
this effect in the order of release of any amount that may be so transferred to
the sub‐grantee; and include a suitable condition in the Government sanction on
the above lines.
·
The
Pr.AG/AG (Audit) should have free and complete access to the accounts,
accounting documents and other related documents to the state/central
autonomous bodies, PRIs and Urban Local Bodies.
·
Pr. AG/AG
(Audit) could earmark a portion of his resource for concurrent random
verification of the correctness and completeness of data provided and
maintained by the implementing authorities across the State(s). Such random
verification should be able to detect the errors in reporting without
estimating the full impact of it.
Usher in detailed accounting of receipts and
analysis; aid in pointing out areas of resource generation
Traditionally, accounting of expenditure has
been given far more importance than accounting of receipts, where compilation
of receipt figures is done on the basis of the abstract submitted by the
Treasuries (Cash Account) without the supporting challans. This should be an important
thrust area for accounting at the State level, where detailed accounting of
receipts should be considered. Such detailed accounting would also provide
opportunities for detailed analysis, which could aid in pointing out areas
where scope for additional resource generation exists.
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On the receipt side, we do not collect basic
challan‐wise data, as the data is not even available with the Treasury.
Usually, the Commercial Tax Range or theRTO deposits the daily collection
through a consolidated challan in the Treasury. Unless we capture challan‐wise
data, we would not be in a position to offer much analytical support. On the
other hand, if we manage to build up a few years’ challan‐wise data, predictive
models of tax rate and collection, tax administration and collection etc. can
be developed. We would be in a position to do sensitivity analysis of the
impact of various pronouncements relating to changes in taxation rates. Improvement
in accounting would offer greater value for the decision makers when receipt
accounting is also made comprehensive.
Two States have been currently asked to
undertake pilot studies in thefield. Necessary linkages with the receipt
databases in the States will have to be established to access data and
necessary capacity developed to analyse the same.
Develop treasury
inspection as a robust and regular feedback mechanism on the financial
management system in States
Inspection of treasuries is a key institutional
mechanism, whereby the AG (A&E) can gain assurance about the adequacy and
effectiveness of controls over financial accounting and reporting by the
Treasuries (who prepare the initialaccounts, which are subject to compilation
by the AG (A&E)). However, this activity has generally not been accorded
high priority in most States, and is often conducted in a routine fashion. It
is therefore necessary to accord extremely high priority to treasury inspection
and develop it as a robust and regular feedback on the financial management
system in the State.
Accounts Offices to evolve as data centers for financial information
Complete
Electronic Data Capture
Electronic data capture from the treasuries is
at various stages of implementation across States,and it is expected that in
the next two years,there would be near universal coverage of the same. However,
computerisation ofPublic Works and Forest Divisions is not even closeto the
levels achieved in the treasuries. We therefore, have to stress on computerization
of the divisions and capture detailed data from them,as against the compiled
accounts that we receive today. Moreover, the electronic capture of data should
be facilitated by networking the offices with the respective directorates so
that data is captured on real time basis or with minimum time lag.
The need for data capture from other agencies that receive funds
directly from the GOI and those who receive funds fromthe State but whose
transactions do not pass through the treasuries have also to be brought into a
common accounting framework. Electronic data capture from these agencies has to
be ensured so that integrated accounts for the State as a whole are prepared.
The totality of all expenditure and receipts in the Statewould then becaptured.
A fundamental requirement for this is the need to define these bodies as
meaning the ‘State’ and developing widespread consensus for the same.
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Given that these bodies are substantially
financed by the Governments, there is an urgent need to ensure that they are
brought into a common accounting framework.
Development
of Data Warehouse
Though there is a wealth of data available on
the financial position of a given state beforethe close of the succeeding month
at state level, the position on any available parameter is not amenable for
comparison, on a concurrent basis, among all the states or among a few chosen
ones. Establishment of a central Data Warehouse would serve the purpose well.
The Data Warehouse, with data primarily being
fed bytheVLC systems, should be developed and maintained centrally for the
entire country by one field office. A dedicated data analysis group should be
responsible for the upkeep and enhancementof the central Data Warehouse. While
there are many variants of VLC database across different A&E offices,
suitable extraction of data will ensure uniformity of the formats for reporting
through the Data Warehouse. All reports should be capable of being accessed
over theVPN/ intranet or through offline modes. The Data Warehouse should use
and provide the best possible reporting solution, as is available through the
latest developments in the field of Business Intelligence and Data Mining.
The associated advantages are immense. Audit
would also be able to extract suitable data from the Warehouse, either online
or using offline analysis tools. The reports available through a Data Warehouse
and Business Intelligence (BI) solutions can be different from the reports
generated through VLC. The BI reports are analytical in nature,and empowers the
user to “Slice‐and‐dice” the data, and see only the data that he wants and in
the manner that he wants. Making a BI solution available to audit
willfacilitate real‐time use of accounts data by audit for both audit planning
and execution.
A data warehousing
project has been initiated and is expected to be completed by the last quarter
of 2011. Once accounting information available through the VLC in the States is
made available, the next step would be to integrate receipt databases and
information on receipts and expenditure of bodies that receive funds directly
from the GOI etc.
Combined
Finance and Revenue Accounts as a live analytics product
At present,the Combined Finance and Revenue
Accounts (i.e. combined Finance accounts of the Union Government, all State
Governments and UTs including Goa, Puducherry and the NCT of Delhi)are prepared
almost a year after the accounts for any year are finalized. It takes huge
manual efforts,as there is no IT application at present to facilitate easy data
compilation. With the data warehouse, the CFRA would be prepared as soon as the
accounts of all the Governments are finalised and it is expected that the time
taken would be reduced to one fifth of the time taken now. Further, the
electronic version of the CFRA could be made available on the Internet, with
hyperlinks enabling “drilling down” in a highly granular fashion to both
historical and live data. The CFRA could then become a truly live analytics
product.
Development
of value added products which aid in financial management functions
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Presently, there is a whole set of data that
is available on State finances from any number of sources‐ accounts, budgets,
RBI etc. However,except for the compendium on CFR prepared from 2007‐08
onwards, we have not been able to prepare any niche products, that draw upon
the rich and granular data that is available in the VLC system. The information
on deposits, advances, suspense transactions (payables and receivables of the
State), loans, AC bills etc can be analysed across states and presented to
evaluate the real financial health of States/ country as a whole. Thiscan be of
immense use in enhancing accountability of Government functionaries, as the
information hitherto hidden in accounts is brought to the fore.
Partner States
and Union Government in instituting adequate reporting standards
The Government Accounting Standards Advisory
Board (GASAB), a high level advisory board with representatives from the CAG,
the Ministry of Finance, other accounting organizations of the GoI as well as
representatives from the State Governments (nominated on a rotational basis)
has been actively developing standards on government accounting, aimed at
improving the transparency and readability of Government Financial Statements.
However, continous efforts need to be made to persuade GoI to formally notify
the standards on cash basis accounting already prepared by GASAB.
Further,
GASAB is actively involved in preparatory work (including pilot studies and
research) towards adoption of accrual accounting in both the Union and State
Governments. We need to engage with all relevant stakeholders to build a
concerted opinion in favour of moving towardsaccrual accounting, and then plan
a phased transition to accrual accounting.
7.2 Entitlement functions
This
strategy is about:
5D. Encouraging States in developing
capacity for assuming entitlement functions, and managing a diminishing role
5E. Ensuring
effective use of technology for delivering services of the highest quality, as long as
entitlement functions remain with IAAD
Strategic Approach
With the New Pension Scheme (NPS) in place,
the role of the AsG offices in regards to entitlement functions is a dwindling
one. It is evident that over the next few years, we would be dealing with
diminished activities/ operations in pension and provident fund and within the
next 20 years, the role would be minimal. Our focus should therefore be
twofold:
·
to assist States in taking over such
functions; and
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· to deliver services of the highest quality, as
long as the entitlement functions remain with us.
For the highest quality of service, we need to
lay down enhanced standards for delivery of service (in time and quality terms)
for all offices, and also enforce the same.
Encourage States
to develop capacity for assuming the entitlement functions and ensure smooth
transition
We need to anticipate assumption
ofentitlementfunctions by each State Government, assessthe capacity of State
Governments for the same and lay down step by step processes for transfer in
each office. We also need to lay down the timeframe for the transfer of
functionsand ensure completeness of records to ensure smooth transition.
Simultaneously, plansfor alternate deployment of remaining staff across audit
offices need to be in place. A realistic assessment is required of the manpower
that would be available and of its suitability of redeployment given that most
of this staff would not have any audit experience. Training may also require
effort given the age profile of the staff, average age being about 45‐50 across
offices.
In the
event that the States do not take over the function and for the next 20 years
the function remains with us, the attrition of staff would largely be in tune
with the rate at which the pension and provident fund work will dwindle.
Ensure latest
technological changes are harnessed for efficient service delivery
Various offices are atdifferent levels when it
comes to interface with service recipients. While activities in some States are
automated (IVRS, web‐based enquiry etc.), others are struggling to keep
up‐to‐date with technology. A committee has been constituted to look into the
different systems running across all offices and has been entrusted with the
task of laying down standards of public delivery and technological aids that
could be adopted by all offices. The recommendations are expected by October
2010 and systems should be in place within a year.
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