Accounting in PRIs

Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions in both rural and urban areas is an exclusive State subject. 73 rd Constitutional amendment outlined the scheme, which would be implemented by the states. 73 rd Constitutional amendment outlined the scheme, which would be implemented by the states. 29 functions were to be devolved upon PRIs. 29 functions were to be devolved upon PRIs.

Need for Accounting in PRIs Lack of trained manpower Lack of trained manpower Devolution of substantial funds after 73 rd Constitutional amendment. Devolution of substantial funds after 73 rd Constitutional amendment. Control systems weak. Control systems weak. To help in consolidation of account related information. To help in consolidation of account related information.

The CAG has central role Due to envisaged large scale decentralization of functions, need was felt for strengthening the accounting system of the PRIs. Due to envisaged large scale decentralization of functions, need was felt for strengthening the accounting system of the PRIs. As per Ministry of Finance Guidelines for Utilisation of Eleventh Finance Commission Grants: As per Ministry of Finance Guidelines for Utilisation of Eleventh Finance Commission Grants: –C&AG shall be responsible for exercising proper control and supervision over proper maintenance of accounts and their audit for all three tiers of PRIs and LBs –formats for preparation of budgets, maintenance of accounts of Local Bodies will be as prescribed by C&AG

ACCOUNTS FORMATS IN PRIs C&AG prescribed a receipts and payments accounts format for PRIs in October 2002 C&AG prescribed a receipts and payments accounts format for PRIs in October 2002 –Accounts are to be maintained on cash basis –Accompanying statements on accrual basis cover items like assets, demand, collection etc. –Amenable to consolidation of database and computerization –Covered all activities listed in the Eleventh schedule of the Constitution –Customized to suit state specific requirements

ACCOUNTS FORMATS IN PRIs Positively received by 22 states Positively received by 22 states Formal orders adopting the formats issued in 11 states Formal orders adopting the formats issued in 11 states Extensive training conducted in accounts and budget formats in 13 states Extensive training conducted in accounts and budget formats in 13 states Over 10,000 PRI functionaries and elected representatives trained in PRI accounts in Kerala Over 10,000 PRI functionaries and elected representatives trained in PRI accounts in Kerala NIC developed an accounting software in sync with the accounts formats NIC developed an accounting software in sync with the accounts formats

ACCOUNTS FORMATS IN PRIs The format of accounts prescribed by CAG in 2002 consisted of 6 tier classification of transactions mirroring the pattern of central and state government accounts and comprised: The format of accounts prescribed by CAG in 2002 consisted of 6 tier classification of transactions mirroring the pattern of central and state government accounts and comprised: Sector (group of functions) Sector (group of functions) Major Head (functions) Major Head (functions) Minor Head (programme) Minor Head (programme) Sub Head (Scheme) Sub Head (Scheme) Detailed Head (Sub-scheme) Detailed Head (Sub-scheme) Object Head (Object level of classification) Object Head (Object level of classification)

Difficulty in adoption Many states found actual implementation challenging due to: Many states found actual implementation challenging due to: –Six tier classification system –Lack of accounting knowledge –Paucity of trained accounting staff –Need for less detailed and simple accounting format in the PRI scenario

Simplification of formats (2007) Due to challenges narrated in previous slide, simplified formats were prescribed in Due to challenges narrated in previous slide, simplified formats were prescribed in New system prescribes three tier classification (Major Head, Minor Head and Object Head representing function, scheme and object) New system prescribes three tier classification (Major Head, Minor Head and Object Head representing function, scheme and object) While the Major Heads, correspond by and large to the pattern in government accounts both in terms of number and nomenclature, in selected caseSimplification of formats (2007)s the nomenclature has been simplified in order to reflect the exact nature of functions performed. While the Major Heads, correspond by and large to the pattern in government accounts both in terms of number and nomenclature, in selected caseSimplification of formats (2007)s the nomenclature has been simplified in order to reflect the exact nature of functions performed.

Simplification of formats (2007) Second tier of Minor Head in government accounts represents programme. Second tier of Minor Head in government accounts represents programme. But in the simplified accounts the minor head represents scheme rather than programme. But in the simplified accounts the minor head represents scheme rather than programme. Third tier – needs to be used where there is felt need for greater accounting information. Third tier – needs to be used where there is felt need for greater accounting information. This tier may not in all cases correspond to a separate source of revenue or object of expenditure, may sometimes even depict a scheme. This tier may not in all cases correspond to a separate source of revenue or object of expenditure, may sometimes even depict a scheme.

Part I of Accounts (2007) Panchayat Fund Panchayat Fund –Revenue  Receipt  Expenditure –Capital  Receipt  Expenditure –Borrowing Section –Lending Section

Part II of the Accounts (2007) Part II of the Accounts has been designated as Extraordinary Funds which consists of: Part II of the Accounts has been designated as Extraordinary Funds which consists of: – Saving Funds Section –Deposit and Advance Section –Suspense and Remittance Section

SIMPLIFIED ACCOUNTS FORMATS IN PRIs SIMPLIFIED ACCOUNTS FORMATS IN PRIs All 29 functions to be devolved to PRIs covered All 29 functions to be devolved to PRIs covered Depending on implementation of state specific schemes and other local requirements, heads at all levels can be added or not used Depending on implementation of state specific schemes and other local requirements, heads at all levels can be added or not used To facilitate easy adoption, one to one co-relation with accounts at higher level possible through computerisation - confirmed by NIC To facilitate easy adoption, one to one co-relation with accounts at higher level possible through computerisation - confirmed by NIC Adherence to fundamental principles of accounting like revenue/capital, receipt/expenditure Adherence to fundamental principles of accounting like revenue/capital, receipt/expenditure Simplified formats user friendly for Gram Panchayats Simplified formats user friendly for Gram Panchayats

Technical Committee on Budget and Accounting Standards for PRIs The Technical Committee on Budget and Accounting Standards for PRIs in meeting held on 4 th August 2008 co-chaired by Secretary Ministry of Panchayati Raj and DAI (LB) considered the need for developing simple but robust formats of accounts The Technical Committee on Budget and Accounting Standards for PRIs in meeting held on 4 th August 2008 co-chaired by Secretary Ministry of Panchayati Raj and DAI (LB) considered the need for developing simple but robust formats of accounts A sub committee was constituted co-chaired by DG LB and Pr. Scy. Panchyati Raj Department, Gujarat to prescribe simple but robust accounting system for PRIs A sub committee was constituted co-chaired by DG LB and Pr. Scy. Panchyati Raj Department, Gujarat to prescribe simple but robust accounting system for PRIs The draft Simplified Format of Accounts for PRIs were approved on 15 th January 2009 and 29 th January 2009 by Sub- committee and Technical Committee respectively. The draft Simplified Format of Accounts for PRIs were approved on 15 th January 2009 and 29 th January 2009 by Sub- committee and Technical Committee respectively.

New formats of Accounts (2009) Major Head represents function enumerated in the 11 th Schedule of the Constitution Major Head represents function enumerated in the 11 th Schedule of the Constitution Minor head represents programme/ unit of expenditure. However few minor heads represent function due to clubbing of functions in 11 th Schedule Minor head represents programme/ unit of expenditure. However few minor heads represent function due to clubbing of functions in 11 th Schedule Two digit Object head represents items of expenditure. Two digit Object head represents items of expenditure. For central schemes two digit sub head has been prescribed. For central schemes two digit sub head has been prescribed. For state scheme two digit alpha numeric may be opened. For state scheme two digit alpha numeric may be opened.

Functions as per Eleventh Schedule and Major Head 29 functions are classified under 23 major heads. 29 functions are classified under 23 major heads. In addition to above, three Major Head are prescribed: In addition to above, three Major Head are prescribed: –2049 Interest Payments –2071 Pension and other retirement benefits –2515 Panchayati Raj Programmes Accounts to be kept in two parts Accounts to be kept in two parts –Panchyat Fund –PF, Loans Deposit and advances etc.

Accounting Procedure The accounts are prepared on cash basis The accounts are prepared on cash basis Period of accounts is financial year Period of accounts is financial year Daily transactions should be recorded in Cash Book Daily transactions should be recorded in Cash Book Everyday details of transaction shall be transferred to Register of Receipt/ Register of Payments Everyday details of transaction shall be transferred to Register of Receipt/ Register of Payments Reconciliation to be done monthly. Reconciliation to be done monthly. At the end of the month totals of Receipt and Payment (Upto Object Head Level) are to posted in Monthly Receipt and Payment Account At the end of the month totals of Receipt and Payment (Upto Object Head Level) are to posted in Monthly Receipt and Payment Account Monthly figures are to be added to previous months progressive total to work out Consolidated Abstract and Annual Receipt and Payment Account. Monthly figures are to be added to previous months progressive total to work out Consolidated Abstract and Annual Receipt and Payment Account.

Simplified Procedure for Transfer Entries Transfer entries not required where transactions are less and corrections can be carried out by striking the wrong entry with red ink and inserting the correct entry. Transfer entries not required where transactions are less and corrections can be carried out by striking the wrong entry with red ink and inserting the correct entry. Correction before the closure of annual accounts : procedure cited above is to be adopted Correction before the closure of annual accounts : procedure cited above is to be adopted Corrections after the closure of annual accounts: no need to change the accounts but ‘a note of error’ is to be made. Corrections after the closure of annual accounts: no need to change the accounts but ‘a note of error’ is to be made.

Additional records to be maintained The Consolidated Abstract The Consolidated Abstract Monthly Reconciliation Statement Monthly Reconciliation Statement Statement of Receivable and Payable Statement of Receivable and Payable Register of Immovable Property Register of Immovable Property Register of Movable Property Register of Movable Property Inventory Register Inventory Register Register of Demand and Collection Register of Demand and Collection

Challenges & Issues in PRI Accounts Arrears of Accounts Arrears of Accounts Staffing issues Staffing issues Skill up gradation Skill up gradation Technological challenges – computerisation, networking, data input, transmission and processing Technological challenges – computerisation, networking, data input, transmission and processing Training & capacity building – funds under CSS from MOPR Training & capacity building – funds under CSS from MOPR Continuing support from CAG for training Continuing support from CAG for training TFC grants for accounts and database maintenance TFC grants for accounts and database maintenance

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