2. FINANCIAL MANAGEMENT Budgeting

3. The Department of Posts has been categorized as a commercial department by the Ministry of Finance The Department of Posts has been categorized as a commercial department by the Ministry of Finance The Government of India, too, needs to make profit on its investments in commercial departments. The Government of India, too, needs to make profit on its investments in commercial departments. The DoP at present is given budgetary support in order to fulfill the USO to meet the social commitment of the Government of India to connect and communicate with the remotest corner of the country. The DoP at present is given budgetary support in order to fulfill the USO to meet the social commitment of the Government of India to connect and communicate with the remotest corner of the country. For any commercial organization the financial health is of prime concern. For any commercial organization the financial health is of prime concern. DOP as a Commercial Department

4. CONTD… The Department is, therefore, required to earn returns (profits) on investments made. The Department is, therefore, required to earn returns (profits) on investments made. Any capital invested must, therefore, show a rate of return for the investor. Any capital invested must, therefore, show a rate of return for the investor.

5. System of Accounts of DOP Accounts of DOP form part of general accounts of the Government of India;Accounts of DOP form part of general accounts of the Government of India; Accounts of DOP are built on the same general plan of accounts of the Government of India;Accounts of DOP are built on the same general plan of accounts of the Government of India; DOP Receipts & Expenditure are recorded under various Major Heads-suitably divided & sub divided as per nature of transactions.DOP Receipts & Expenditure are recorded under various Major Heads-suitably divided & sub divided as per nature of transactions.

6. Part I Part II Part III Consolidated fundContingency fundPublic A/Cs Consolidated fund Contingency fund Public A/Cs RevenueCapital Debt Remitt. Revenue Capital Debt Debt Dep. Remitt. [Pub. Debt/Loans & Adv.] Receipts Expenditure Charged PlanNon Plan Plan Non Plan Voted New Activity/ Existing Scheme Establishment General outlines of Accounts

7. Consolidated fund of India Consolidated fund of India-two divisions: Revenue consisting of receipt head & expenditure head receipt head-deals with the proceeds of taxation and other receipts classed as revenue. expenditure head-deals with the expenditure met there from.

8. Consolidated fund of India Capital,public debt and loans. Capital comprises of receipt head and expenditure head. Receipt head deals with the receipts of a capital nature which can not be applied as a set off to Capital expenditure. Expenditure head deals with the expenditure met from borrowed funds to increase assets.

9. What Is Budget? Anticipated receipts and estimated expenditure within a given period of time, usually a year

10. Significance of Budget Instrument of Policy –Allocate scarce resources to competing claims –Sets expenditure priorities of Government and hence reflects values Budget reflects the organizational structure –Establishes accountability and financial control –Management tool –Integration of Budget and Planning Issue of structural rigidities

11. Economic Relevance of Budget Economic impact of government expenditure/ methods of raising resources Major fiscal policy document of the Government- as also industrial, monetary and financial sector policy Announces taxation measures or reforms which have far reaching economic impact

12. Constitutional Provisions- 1 Taxation only by legislation (Art 265) Expenditure only by specific appropriation (Arts 114 and 204) Annual Financial Statement (Art 112/202) –Estimates of receipts and expenditure out of the Consolidated fund –Presented to the legislature for voting –By the President/Governor

13. Constitutional Provisions- 2 Article 266 defines “Consolidated Fund” –All revenues –All loans (including treasury bills, W&M Advances) –All repayments of loans Any expenditure out of Consolidated fund only by specific appropriation Charged and Voted Items of Expenditure

14. Constitutional Provisions- 3 Contingency Fund (Art 267): –Imprest amount with President/Governor –To make advances for unforeseen or new service items of expenditure –Amount determined by law –Recouped by subsequent authorisation Public Account (Art 266(2)) –All other public moneys not part of Consolidated Fund –No authorisation by legislature needed

15. Divisions of Consolidated Fund REVENUE ACCOUNT –RECEIPTS- Current Income including Taxes, Fees, Fines, Interest and Dividends –EXPENDITURE- which does not create assets CAPITAL ACCOUNT –RECEIPTS- Sale of Assets, Borrowed Funds and Accumulated Cash Balances –EXPENDITURE- Creation of new assets –PUBLIC DEBT- Market Loans, Inter-Governmental Loans etc.

16. Structure of Accounts Classification Six tier classification –Sectors/ sub-sectors –Functions- Major heads –Programmes- Minor Heads –Schemes/ Organizations- Subheads –Sub-schemes- Detailed heads –Objects Sub-classification of objects

17. Why a six-tier classification? Enables budget to function as a management tool: –Enables a review of Government operations –Review of sectoral allocations –Linkage between outlays and functions, programmes and schemes –Item-wise control of expenditure

18. Issue of Budget Circular Preparation of revenue and expenditure estimates by agencies Review and consolidation of agency requests by competent ministries Transmission of ministry requests to central agency Negotiations between competent ministries and central agency PREPARATION OF DRAFT BUDGET Cabinet approval of draft budget Final budget submitted to Legislature for approval Budget Formulation: Organizational Steps

19. Preparation of Budget Responsibility of the executive wing of the Government Issue of the Budget Circular- by the Finance Ministry –Contains instructions on how to prepare estimates for different items –Outlines Expenditure policy –Formats are circulated Strict adherence to time limits laid down

20. Preparation of Budget - 2 Government Accounts are in simple cash book format - merely record the transactions in the year in which they occur Receipts Estimates –Based on trends –State of the economy –Inflation

21. Preparation of Budget - 3 Expenditure Budgeting –Estimates to be prepared by respective Government Departments –Incremental Budgeting –First Charge to on-going schemes and committed items –Justifications for increased outlays Back

22. Preparation of Budget - Role of Finance Ministry Aggregation of the Receipts & Expenditure Inclusion of New Schemes New taxation measures Final iterative exercise –Ensure prioritization amongst sectors –Accommodate “sensitive” items –Keep overall deficit under check –Window dressing- deliberate under-funding or over- estimation

23. Presentation of Budget By the Minister in charge of Finance to the lower house of the legislature –Annual Financial Statement –Demands for Grants –Other explanatory memoranda –Finance Bill –Appropriation Bill –Vote on Account- when needed

24. Execution of Budget Expenditure can be incurred only with: –Valid sanction by the competent authority –Adequate appropriation Appropriations are communicated to concerned after Appropriation Act is passed Competent officers issue sanctions within appropriation Expenditure on items not included in the budget - New Service Procedure or Supplementary Appropriation

25. Shortcomings of Existing Budgetary Practices Inefficiencies and wastes of earlier years carried over into subsequent years –Alternative methods or the option of not continuing the activity is not evaluated –Funds available for new initiatives- very limited Paucity of resources forces arbitrary cuts leading to inflated budget requests Lack of sense of ownership in concerned departments

26. Shortcomings (contd) More focus on current RE than BE Classification quirks deprive crucial sectors/ activities of funds Cash based accounting gives misleading picture of financial status Budget is input driven and does not measure outcomes –Obsession with financial accounting at the cost of proper utilisation

27. Establishment of goals, objectives and policies Development of programmes Allocation of resources Execution of the budget Appraisal and evaluation BUDGETARY PROCESS

28. COMPONENTS OF ACCOUNTS IN DOP BUDGET Revenue Receipts & Recoveries 1 Postal Operations 2 SB & CC 3 Recoveries Total (A) Revenue Expenditure 1 Salaries & Wages 2 Pension 3 Others Total (B) Revenue Deficit (B-A) Capital Expenditure (C) Total (Budgetary Support ) Deficit = (B-A+C)

29. Financial Performance of the Department of Posts over last few Years over last few Years

30. INDIAPOST’s deficit YEAR DEFICIT (in crore) 02-03 1364 03-041375 04-051382 05-061210 06-071250 07-081511 08-093593 09-106641 10-116346 The reality!

32. REVENUE IN MILLION % EXPENDITURE IN MILLION % Sale of stamps6143.0708.82Gen Admin7337.2905.51 PRC23149.533.25Operations88789.8166.72 Commission on MO & IPO 4005.4505.75Agency services 4005.5703.01 Remuneration on SB/SC Work 35627.6751.17Others37804.0228.41 Other receipts697.6301.03Recoveries(-)4857.21(-) 3.65 69623.32133079.48 NET DEFECIT 63456.16 Other receipts includes charges on sale of PP form, pp fee stamps, CRF etc. Other expenditure includes Audit & Accounts, Pension charges, Stationery & printing Revenue & Expenditure 2010-11

33. 5/16/2015 Material Required ProcessInstructions to cut the cake Two round cakes one small on big ( double the size of small cake) Knife to cut the cake Paper plates to eat the cake after the exercise. Book eight trainees whose birthdays are closest to the training day/ month to come forward. Ask four of them to select one of the cake & other four the another cake which they will cut when you instruct them to do so. Small cake shows how much we earn – Revenue. Big cake shows how much we spend – Expenditure. Ask the first group of participants who selected the big cake to cut it as instructed in Step I and the second group of participants to cut the small cake as per step II explaining each part they are going to cut Discuss points given below. Close session by cutting the cake into small slices and sharing with all participants Step I – Big Cake Explain 67% of expenditure of the department goes towards salary and pension. Cut 5% of the cake first. Step II. Small Cake Explain that- 51% of the revenue comes from Financial Services – SB, Insurance, Money Remittance. Rest of the revenue from Mails 32 EXERCISE- CAKE CUTTING

34.  discussion led by trainer : expenditure is larger than revenue – Ask them what do they make out of this? Action what do we need to do to increase our revenue, what are the options to make the small cake bigger?, making the big cake smaller? Ask them what are the implications of both options What are the biggest source of expenditure – point out to the large portion of the bigger cake. Ask what can we do about that? How about doubling our productivity? ? How will computerisation help ( reduce back office work more persons can serve customers) What are the biggest sources of revenue? How can we increase our income? Out of 1,55,000 post offices more than 80% of our post offices are in rural areas and more than 1,25,000 are BOs. How can we make a contribution to increase revenue. Note : Recommended for trainers who have participated in this exercise earlier.

35. REVENUE Unit 1.334 Revenue & Expenditure 2010-11

36. EXPENDITURE 35

37. NON-PLAN REVENUE EXPENDITURE Salary, Wages & PensionSalary, Wages & Pension Largest component

41. Objectives of Financial Management ?

42. Financial Management - Objectives To achieve the ideal operating ratio/ Expense Coverage Ratio:-To achieve the ideal operating ratio/ Expense Coverage Ratio:- –By controlling/minimizing the revenue expenditure, –By achieving revenue targets and preventing the Revenue pilferages, –By maximizing the revenue collections/ recoveries from other organizations for the services rendered to them, –By properly implementing the opportunities of new schemes/services introduced from time to time.

43. Expense Coverage Ratio Expense Coverage Ratio helps to arrive at a conclusion as to whether there is a commercial gain or loss; Expense Coverage Ratio is worked out with ‘Net Working Expenditure’ and ‘Net Revenue’.

44. Sale of postage stamps/stationery100% Postage in cash, unpaid article amount, franking machine amount 100% Money order commission100% IPO commission100% Telephone billTotal no of bills collected x Rs 10/- SB account( including WFA/NREGS account), RD account, TD account etc. Rs.151.76 per live account yearly Silent AccountRs. 20.93 KVP/NSC certificate I/DTotal No of certificate(issue/Discharge) x 51.64 IVP certificate DischargeTotal No of certificate (Discharge) x 13.67 PLI7% of premium collected RPLI10% of premium collected Railway/telecom pensionersRs. 80/- per payment EPF pensionersRs. 58.55 per payment How to calculate ECR?

45. IMTSRs. 364 per transaction Post box/post bag rent100 % Advertisement income100% Exam fee income100% MO/VPMO form100% Issue of identity card100% Sale of old records100% Speed post revenue100% Sale of gold coin4.6 % of Total amount Sold Retail PostAs per MOU Cont…. 44Unit 1.3

46. Expense Coverage Ratio ECRNet Revenue receipt x 100ECR = Net Revenue receipt x 100 Net Working Expenses Where : Net Revenue receipts = Gross Revenue receipts (-) Refunds; and Net working expenditure = Gross working expenditure less depreciation and recoveries. ECRFigure of more than 100(ECR )means a profitable state of business

47. Operating Ratio Operating RatioNet ExpenditureOperating Ratio = Net Expenditure Net Revenue Where : Net Revenue receipts = Gross Revenue receipts (-) Refunds; and Net working expenditure = Gross working expenditure less depreciation and recoveries. Operating Ratio Operating Ratio of less than 1 indicates profitable state of business.

48. Exercise 2.4B.1 Trainees to do the questions given in the exercise

49. BUDGETTING HEAD OF ACCOUNTS - Postal Receipts, & - Expenditure

50. Primary Units of Appropriation  Six tier classifications have been introduced in the Detailed Demands for Grants: Major Head - 4 digits (Function) Sub Major Head - 2 digits (Sub Function) Minor Head - 3 digits (Programme) Sub Head - 2 digits (Scheme) Detailed Head - 2 digits (Sub Scheme) Object Head -2 digits (Primary unit of Appropriation)

51. Major Head – 3201 – Postal Services Sub Major Head – 02 – Operation Minor Head– 003 – Training Sub Head – 01 – Operational Training Detailed/Object heads (01) Salaries (02) Wages (03) Overtime Allowances (04) Pensionery Charges (06) Medical Treatment (11) Travelling Expenses (13) Office Expenses (14) Rent, Rates & Taxes (21) Supplies & Materials (26) Adv. Sales & Publicity. (28) Payments for prof. Service (50) Other Charges (64) Write off / losses EXAMPLE

52. Budget Information regarding anticipated expenditure. - Information regarding anticipated expenditure. Current Year - Current Year - Next Year (Ensuing year) - Next Year (Ensuing year) - Standing expenditure - New items of expenditure (1)Budget Estimates BE (2)Revised Estimates RE (3)Anticipated Final Grant AFG (4)Variation Statement.

53. Non Plan Expenditure Estimates The framing of the Revised Estimates (RE) for current year should always precede Budget Estimation for the ensuing year (BE).The framing of the Revised Estimates (RE) for current year should always precede Budget Estimation for the ensuing year (BE). The RE should include:The RE should include: Only those items which are likely to materialize for payment during current yearOnly those items which are likely to materialize for payment during current year Actual so far recorded during current yearActual so far recorded during current year Sanctions for expenditure already issued or contemplated, andSanctions for expenditure already issued or contemplated, and Other expenditure of seasonal character or otherwiseOther expenditure of seasonal character or otherwise

60. Exercise 2.4B.2 Trainees to answer the questions given in the exerciseTrainees to answer the questions given in the exercise

61. Expenditure should not be incurred under any head in excess of the sanctioned allotments.Expenditure should not be incurred under any head in excess of the sanctioned allotments. If the existing allotment is inadequate, the next higher authority must be approached well in advance for placing additional funds.If the existing allotment is inadequate, the next higher authority must be approached well in advance for placing additional funds. Until additional funds are received or at least a clear and written commitment to this extent is received, expenditure should not be incurred in excess of the allotment.Until additional funds are received or at least a clear and written commitment to this extent is received, expenditure should not be incurred in excess of the allotment. If at any stage, funds are surplus to the requirements under any head, the amount of the probable excess should be promptly surrendered.If at any stage, funds are surplus to the requirements under any head, the amount of the probable excess should be promptly surrendered. Expenditure Control tips

62. Such an action will ensure that there is no lapse at the end of the year.Such an action will ensure that there is no lapse at the end of the year. A systematic watch be kept over the expenditure, andA systematic watch be kept over the expenditure, and Progressive expenditure be compared every month with the proportionate allotments under each head.Progressive expenditure be compared every month with the proportionate allotments under each head.

63. Proper monitoring absolutely necessary : (1) Expenditure does not exceed fund allotted under any head. (2) Excess funds is surrendered timely. To keep watch over progress of expenditure and compare with proportionate grant every month. - To keep watch over progress of expenditure and compare with proportionate grant every month. - Obtain Monthly statement from subordinate offices for whom the allotment is sub divided. eg. Gazetted HOs. for whom the allotment is sub divided. eg. Gazetted HOs. - To ensure to incur proportionate expenditure every month. -Avoid incurring or committing expenditure in a particular year and postponing payment of bills to the subsequent final year. and postponing payment of bills to the subsequent final year. - Ensure that the expenditure is charged under correct head of A/Cs. eg. SB, SBCO, Speed Post expenses should not be under PO. eg. SB, SBCO, Speed Post expenses should not be under PO. OC – OEand M&E – OE etc. FINANCIAL MANAGEMENT TIPS

64. (1) Salary - Periodical establishment review - Computer norms - Computer norms - Verification of figures - Verification of figures - Redeployment of posts / staff - Redeployment of posts / staff (2) Review/streamlining of work procedure. - simplifying operations. - simplifying operations. (3) Full utilisation of manpower - desired output - desired output - even distribution of work. - even distribution of work. - adjustment of duty hours w.r.t. workload. - adjustment of duty hours w.r.t. workload. - management of peak hour traffic. - management of peak hour traffic. - manage counter rush during lunch hours of other offices. - manage counter rush during lunch hours of other offices. (4) Productivity and Efficiency

65. (5) Office Expenses (i) Purchases excess, unwanted, costly items. - excess, unwanted, costly items. - indents to PSDs - excess indents. - indents to PSDs - excess indents. - misuse of forms, stationary, bags, etc. - misuse of forms, stationary, bags, etc. - Quotations, Limited tenders, Open tenders - Quotations, Limited tenders, Open tenders - DGS&D Rate Contracts - Schedule of Financial Powers (ii) Telephone bills, electricity bills (iii) Inspection vehicle, MMS vehicles fuel consumption – litre / km. (6) Wages -Coolie charges for extra dispatch of mails -Delivery of heavy mails – Postmen coolie charges -Conveyance of cash w.r.t. traffic, revenue of PO. - engagement of mazdoors / outsiders.

66. (7) PPSS - Legal charges (8) Travelling Expenses - Disciplinary cases, - Disciplinary cases, - Transfers and postings, - Transfers and postings, - Temporary deputation. - Temporary deputation. (9) OTA: - Only barest minimum absolutely necessary - Only barest minimum absolutely necessary to be allowed to be allowed (10) Medical Reimbursement bills (11) Building maintenance - Optimum utilization of space. - Optimum utilization of space. - Civil / Electrical works - Civil / Electrical works

67. TRAINER TO GIVE 20 MINUTES TO TRAINEES TO LIST ATLEAST 20 TIPS FOR INCREASING REVENUE & EXPENDITURE CONTROL IN A DIVISION. THEREAFTER ONE OF THE GROUP TO PRESENT IN 15 MINUTES BEFORE THE CLASS. EXERCISE 2.4B.3

68. Thank you