Accounting in PRIs. Background Local government institutions in both rural and urban areas is an...

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Accounting in Accounting in PRIs PRIs

Transcript of Accounting in PRIs. Background Local government institutions in both rural and urban areas is an...

Page 1: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

Accounting in PRIsAccounting in PRIs

Page 2: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

BackgroundBackground

Local government institutions in both rural and Local government institutions in both rural and urban areas is an exclusive State subject.urban areas is an exclusive State subject.

7373rdrd Constitutional amendment outlined the Constitutional amendment outlined the scheme, which would be implemented by the scheme, which would be implemented by the states.states.

29 functions were to be devolved upon PRIs.29 functions were to be devolved upon PRIs.

Page 3: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

Need for Accounting in PRIsNeed for Accounting in PRIs

Lack of trained manpowerLack of trained manpower Devolution of substantial funds after 73Devolution of substantial funds after 73rdrd

Constitutional amendment.Constitutional amendment. Control systems weak.Control systems weak. To help in consolidation of account related To help in consolidation of account related

information. information.

Page 4: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

The CAG has central roleThe CAG has central role Due to envisaged large scale decentralization of Due to envisaged large scale decentralization of

functions, need was felt for strengthening the functions, need was felt for strengthening the accounting system of the PRIs. accounting system of the PRIs.

As per Ministry of Finance Guidelines for Utilisation As per Ministry of Finance Guidelines for Utilisation of Eleventh Finance Commission Grants:of Eleventh Finance Commission Grants:– C&AG shall be responsible for exercising proper C&AG shall be responsible for exercising proper

control and supervision over proper control and supervision over proper maintenance of accounts and their audit for all maintenance of accounts and their audit for all three tiers of PRIs and LBsthree tiers of PRIs and LBs

– formats for preparation of budgets, formats for preparation of budgets, maintenance of accounts of Local Bodies will be maintenance of accounts of Local Bodies will be as prescribed by C&AGas prescribed by C&AG

Page 5: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

ACCOUNTS FORMATS IN PRIsACCOUNTS FORMATS IN PRIs C&AG prescribed a receipts and payments C&AG prescribed a receipts and payments

accounts format for PRIs in October 2002accounts format for PRIs in October 2002– Accounts are to be maintained on cash basisAccounts are to be maintained on cash basis– Accompanying statements on accrual basis cover Accompanying statements on accrual basis cover

items like assets, demand, collection etc.items like assets, demand, collection etc.– Amenable to consolidation of database and Amenable to consolidation of database and

computerizationcomputerization– Covered all activities listed in the Eleventh Covered all activities listed in the Eleventh

schedule of the Constitutionschedule of the Constitution– Customized to suit state specific requirementsCustomized to suit state specific requirements

Page 6: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

ACCOUNTS FORMATS IN PRIsACCOUNTS FORMATS IN PRIs

Positively received by 22 statesPositively received by 22 states Formal orders adopting the formats issued Formal orders adopting the formats issued

in 11 statesin 11 states Extensive training conducted in accounts Extensive training conducted in accounts

and budget formats in 13 states and budget formats in 13 states Over 10,000 PRI functionaries and elected Over 10,000 PRI functionaries and elected

representatives trained in PRI accounts in representatives trained in PRI accounts in KeralaKerala

NIC developed an accounting software in NIC developed an accounting software in sync with the accounts formatssync with the accounts formats

Page 7: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

ACCOUNTS FORMATS IN ACCOUNTS FORMATS IN PRIsPRIs

The format of accounts prescribed by CAG in The format of accounts prescribed by CAG in 2002 consisted of 6 tier classification of 2002 consisted of 6 tier classification of transactions mirroring the pattern of central and transactions mirroring the pattern of central and state government accounts and comprised: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)

Page 8: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

Difficulty in adoptionDifficulty in adoption

Many states found actual implementation Many states found actual implementation challenging due to:challenging due to:– Six tier classification systemSix tier classification system– Lack of accounting knowledgeLack of accounting knowledge– Paucity of trained accounting staffPaucity of trained accounting staff– Need for less detailed and simple accounting Need for less detailed and simple accounting

format in the PRI scenarioformat in the PRI scenario

Page 9: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

Simplification of formats Simplification of formats (2007)(2007)

Due to challenges narrated in previous slide, Due to challenges narrated in previous slide, simplified formats were prescribed in 2007. simplified formats were prescribed in 2007.

New system prescribes three tier classification New system prescribes three tier classification (Major Head, Minor Head and Object Head (Major Head, Minor Head and Object Head representing function, scheme and object) representing function, scheme and object)

While the Major Heads, correspond by and large While the Major Heads, correspond by and large to the pattern in government accounts both in to the pattern in government accounts both in terms of number and nomenclature, in selected terms of number and nomenclature, in selected casecaseSimplification of formats (2007)Simplification of formats (2007)s the s the nomenclature has been simplified in order to nomenclature has been simplified in order to reflect the exact nature of functions performed. reflect the exact nature of functions performed.

Page 10: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

Simplification of formats Simplification of formats (2007)(2007)

Second tier of Minor Head in government Second tier of Minor Head in government accounts represents programme.accounts represents programme.

But in the simplified accounts the minor head But in the simplified accounts the minor head represents scheme rather than programme. represents scheme rather than programme.

Third tier – needs to be used where there is felt Third tier – needs to be used where there is felt need for greater accounting information. need for greater accounting information.

This tier may not in all cases correspond to a This tier may not in all cases correspond to a separate source of revenue or object of separate source of revenue or object of expenditure, may sometimes even depict a expenditure, may sometimes even depict a scheme. scheme.

Page 11: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

Part I of Accounts (2007)Part I of Accounts (2007)

Panchayat FundPanchayat Fund– RevenueRevenue

Receipt Receipt ExpenditureExpenditure

– CapitalCapital Receipt Receipt ExpenditureExpenditure

– Borrowing SectionBorrowing Section– Lending Section Lending Section

Page 12: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

Part II of the Accounts Part II of the Accounts (2007)(2007)

Part II of the Accounts has been Part II of the Accounts has been designated as Extraordinary Funds designated as Extraordinary Funds which consists of: which consists of: – Saving Funds SectionSaving Funds Section– Deposit and Advance SectionDeposit and Advance Section– Suspense and Remittance SectionSuspense and Remittance Section

Page 13: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

SIMPLIFIED ACCOUNTS FORMATS IN SIMPLIFIED ACCOUNTS FORMATS IN PRIs PRIs

All 29 functions to be devolved to PRIs coveredAll 29 functions to be devolved to PRIs covered Depending on implementation of state specific Depending on implementation of state specific

schemes and other local requirements, heads at schemes and other local requirements, heads at all levels can be added or not usedall levels can be added or not used

To facilitate easy adoption, one to one co-relation To facilitate easy adoption, one to one co-relation with accounts at higher level possible through with accounts at higher level possible through computerisation - confirmed by NICcomputerisation - confirmed by NIC

Adherence to fundamental principles of Adherence to fundamental principles of accounting like revenue/capital, accounting like revenue/capital, receipt/expenditurereceipt/expenditure

Simplified formats user friendly for Gram Simplified formats user friendly for Gram PanchayatsPanchayats

Page 14: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

Technical Committee on Technical Committee on Budget and Accounting Budget and Accounting

Standards for PRIsStandards for PRIs The Technical Committee on Budget and Accounting The Technical Committee on Budget and Accounting

Standards for PRIs in meeting held on 4Standards for PRIs in meeting held on 4thth August 2008 August 2008 co-chaired by Secretary Ministry of Panchayati Raj and co-chaired by Secretary Ministry of Panchayati Raj and DAI (LB) considered the need for developing simple DAI (LB) considered the need for developing simple but robust formats of accountsbut robust formats of accounts

A sub committee was constituted co-chaired by DG LB A sub committee was constituted co-chaired by DG LB and Pr. Scy. Panchyati Raj Department, Gujarat to and Pr. Scy. Panchyati Raj Department, Gujarat to prescribe simple but robust accounting system for prescribe simple but robust accounting system for PRIsPRIs

The draft Simplified Format of Accounts for PRIs were The draft Simplified Format of Accounts for PRIs were approved on 15approved on 15thth January 2009 and 29 January 2009 and 29thth January 2009 January 2009 by Sub- committee and Technical Committee by Sub- committee and Technical Committee respectively. respectively.

Page 15: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

New formats of Accounts New formats of Accounts (2009)(2009)

Major Head represents function enumerated in the Major Head represents function enumerated in the 1111thth Schedule of the Constitution Schedule of the Constitution

Minor head represents programme/ unit of Minor head represents programme/ unit of expenditure. However few minor heads represent expenditure. However few minor heads represent function due to clubbing of functions in 11function due to clubbing of functions in 11 thth ScheduleSchedule

Two digit Object head represents items of Two digit Object head represents items of expenditure.expenditure.

For central schemes two digit sub head has been For central schemes two digit sub head has been prescribed. prescribed.

For state scheme two digit alpha numeric may be For state scheme two digit alpha numeric may be opened. opened.

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Functions as per Eleventh Functions as per Eleventh Schedule and Major HeadSchedule 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 In addition to above, three Major Head are

prescribed:prescribed:– 2049 Interest Payments2049 Interest Payments– 2071 Pension and other retirement benefits2071 Pension and other retirement benefits– 2515 Panchayati Raj Programmes2515 Panchayati Raj Programmes

Accounts to be kept in two partsAccounts to be kept in two parts– Panchyat FundPanchyat Fund– PF, Loans Deposit and advances etc. PF, Loans Deposit and advances etc.

Page 17: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

Accounting ProcedureAccounting Procedure The accounts are prepared on cash basisThe accounts are prepared on cash basis Period of accounts is financial yearPeriod of accounts is financial year Daily transactions should be recorded in Cash BookDaily transactions should be recorded in Cash Book Everyday details of transaction shall be transferred Everyday details of transaction shall be transferred

to Register of Receipt/ Register of Paymentsto 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 At the end of the month totals of Receipt and

Payment (Upto Object Head Level) are to posted in Payment (Upto Object Head Level) are to posted in Monthly Receipt and Payment AccountMonthly Receipt and Payment Account

Monthly figures are to be added to previous Monthly figures are to be added to previous months progressive total to work out Consolidated months progressive total to work out Consolidated Abstract and Annual Receipt and Payment Account. Abstract and Annual Receipt and Payment Account.

Page 18: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

Simplified Procedure for Simplified Procedure for Transfer EntriesTransfer Entries

Transfer entries not required where transactions Transfer entries not required where transactions are less and corrections can be carried out by are less and corrections can be carried out by striking the wrong entry with red ink and inserting striking the wrong entry with red ink and inserting the correct entry. the correct entry.

Correction before the closure of annual accounts : Correction before the closure of annual accounts : procedure cited above is to be adoptedprocedure cited above is to be adopted

Corrections after the closure of annual accounts: Corrections after the closure of annual accounts: no need to change the accounts but ‘a note of no need to change the accounts but ‘a note of error’ is to be made. error’ is to be made.

Page 19: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

Additional records to be Additional records to be maintainedmaintained

The Consolidated AbstractThe Consolidated Abstract Monthly Reconciliation StatementMonthly Reconciliation Statement Statement of Receivable and PayableStatement of Receivable and Payable Register of Immovable PropertyRegister of Immovable Property Register of Movable PropertyRegister of Movable Property Inventory RegisterInventory Register Register of Demand and CollectionRegister of Demand and Collection

Page 20: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

Challenges & Issues in PRI Challenges & Issues in PRI AccountsAccounts

Arrears of AccountsArrears of Accounts Staffing issuesStaffing issues Skill up gradationSkill up gradation Technological challenges – computerisation, Technological challenges – computerisation,

networking, data input, transmission and networking, data input, transmission and processingprocessing

Training & capacity building – funds under Training & capacity building – funds under CSS from MOPRCSS from MOPR

Continuing support from CAG for trainingContinuing support from CAG for training TFC grants for accounts and database TFC grants for accounts and database

maintenancemaintenance

Page 21: Accounting in PRIs. Background Local government institutions in both rural and urban areas is an exclusive State subject. Local government institutions.

Thank YouThank You