Report No. 41205-IN India Note on Public Financial Management and Accountability in Centrally Sponsored Schemes (CSS) May 16, 2006 Financial Management Unit South Asia Region Document of the World Bank TABLE OF CONTENTS PageNos. Executive Summary 1 I Background and Approach 10 I1 InstitutionalFramework 14 I11 Design o f Schemes 16 IV Implementation Arrangements 22 V Budgets andAnnual Work Plans 26 VI FundsFlow and FundsManagement 28 VI1 Accounting framework 34 VI11 Internal control and audit, Reporting & Monitoring 39 IX External Audit and Legislative Oversight 44 X Impact o f the Involvement of PRIs inCSS 49 XI Financial Management capacity 52 Annexures Annexure I:Compiled list of CSS as o fFinancial Year 2004-05 55 Annexure 11: List of Major CSS 61 Annexure 111: Extract from the clarifications issued by the ICAIon 62 applicability of Accounting Standards Annexure IV: Conclusions of Planning Commission study Funds 63 Flow arrangementsinselectedCentrally and earmarked state plan schemes. Annexure V: Instances of variations inaccounting policies applied 64 by different state and district societies Annexure VI: Instances of lack of internal control 65 Annexure VII: Recommendationsof the steering committee on 66 monitoring and evaluation arrangementsinthe Social sector. Annexure VIII: Bibliography and Documents reviewed: 69 Annexure IX: List of persons met or spoken to 73 LIST OF ACRONYMS alphabetically listed A A S Auditing & Assurance Standard ACA Additional CentralAssistance AG (A & E) Accountant General(Accounts and Entitlement) AS Accounting Standard C-DAC Center for Development of Telematics CAG Comptroller and Auditor General of India CBOs Community BasedOrganizations CCA Chief Controller ofAccounts CFMS ComputerizedFinancial ManagementSystems CGA Controller General of Accounts CPMU Central ProjectManagementUnits css Centrally Sponsored Schemes DPC DutiesandPowersof CAGAct DPR DetailedProjectReport DRDA District Rural DevelopmentAgency EFC ExpenditureFinanceCommittee EU EuropeanUnion FA Financial Advisors FC FinanceCommission GASAB GovernmentAccounting Standards Board GFRs GeneralFinancial Rules GO GovernmentOrder GO1 Governmentof India GP Gram Panchayat ICAI Institute of CharteredAccountant of India IFD IntegratedFinanceDivision INTOSAI International Organizationof the Supreme Audit Institutions PA1 Institute of Public Auditors of India IRR Internal Rate of Return JS Joint Secretary MIS ManagementInformation Systems MoF Ministry of Finance MOHFW Ministry of Health and Family Welfare M o m Ministry ofRuralDevelopment MOU MemorandumofUnderstanding MoPR Ministry of PanchayatiRaj NACO National AIDS Control Organization NACP National AIDS Control Program N F F W National Food for Work Program NHRM National RuralHealthMission PA0 Pay & Accounts Officer PC Planning Commission PER Public ExpenditureReview PFMA Public Financial Management& Accountability PMGSY PradhanMantri's GrameenSadak Yojana PMU Project ManagementUnits PRI PanchayatiRaj Institutions PSU Public SectorUnits RCH Reproductiveand Child Health ROSC Report on Observations of Standards and Codes SOE Statement of Expenditure SSA Sarva Shiksha Abhiyan TB Tuberculosis Project uc UtilizationCertificate us Under Secretary USAID United States Agency for InternationalDevelopment UT Union Territory WCD World Bank assistedWomen & Child Development Project (ICDS-111) WHO World Health Organization ACKNOWLEDGEMENTS The World Bank (WB) with the approval of the Department of Economic Affairs* has conducted a study on Financial Accountability Systems inCentrally Sponsored Schemes. This report was preparedby Mohan Gopalakrishnan (SARFM) with the help of Subhash Mittal (SMA Management Services (P) Ltd) and under the overall guidance o f Ivor Beazley (SARFM). Timely and valuable advice on a regular basis from Vinod Sahgal (SARFM) is also acknowledged. Peer reviewers were: Dr N.C. Saxena (Former Secretary Planning Commission), Parminder Brar (OPCFM), Stephen Howes (SASPR). Other reviewers were G.N.V Ramana (SASHD), RajatNarula(LOAG2), and Suraiya Zannat (SARFM). The study was carried out through a process of review and analysis of publicly available material, reports and field visits covering certain Bank funded projects inthree states and discussions with various stakeholders both at the state and ministries involved in the implementation of the CSS. In addition, discussions were also held with officials in the state finance department and Accountant General's office, officials in the Ministry of Finance, Financial Advisors in the Ministries, Controller General of Accounts and the Comptroller and Auditor General. We gratefully acknowledge the valuable and extensive contributions o f various officials inthe ministriesand States for their valuable assistanceinfacilitatingthis study. *This report has been discussedextensivelywith Government of India; clearancehas beenobtainedfor publication, but does not necessarilybear their approvalfor the entire content including opinions, conclusions, andpolicy recommendations. Note on Public FinancialManagementand Accountability in Centrally Sponsored Schemes (CSS) EXECUTIVESUMMARY Centrally Sponsored Schemes (CSS) are specific purpose transfers from the Government o f India (GoI) to the states for influencing expenditure in areas which are the states' constitutional responsibility. Such schemes are formulated and, to a large extent, financed by Go1 while the responsibility for implementation primarily rests with the states. The objective is to address issues o f national priority with special focus on human development, poverty alleviation and rural backwardness. The GoI's budget outlay in the year 2005-06 towards such schemes i s close to Rs. 500,000 million. This represents approximately 24 percent o f the total transfers from Go1to the states from various sources including devolution o f taxes based on recommendations o f the Finance Commission and allocation o f central assistance for state plans by the Planning Commission. The budget outlay for CSS in 2005-06 is also significantly higher as compared to the previous year's level of Rs. 395,000 million. This includes increased allocations for rural roads, rural employment, and education and nutritional support for pre-school children. At presentthere are over 200 such schemes inoperation, of which a dozen accounts for more than two-thirds o f the outlay. Given the states' limited scope to significantly raise internal resources within the existing fiscal framework, coupled with a high wage bill that crowds out development expenditure, the CSS are likely to remain an important source for development funds for the states. Given its nature and design many o f the large CSS are characterized by a large number o f implementation units, including Panchayati Raj Institutions (PRIs) and Community based organizations (CBOs) which have relatively low capacity and awareness o f the schemes. CSS are also characterized by funds flow constraints as funds have to pass through many intermediate level institutions. Besides, while Go1provides the funds it does not have direct control over implementation as this rests with the states and lower-level implementing units, thereby leading to diffused accountability. These factors considerably increase the inherent financial management risk. The Comptroller and Auditor General of India (CAG), in a performance review o f a rural self-employment CSS, identified that out o f the amount test-checked, the expenditure on the program was only 47 percent, while 53 percent was either reported in excess, diverted, misused or irregularly spent. Various studies and audits by the CAG have identifiednumerous shortcomings in formulation, design and implementation of CSS. The CAG's Union Audit Report (1999) summarized the major constraints in CSS as: design defects; no co-relation between inputs, outputs and outcomes; absence o f criteria for evaluation; benefits either not reaching the target population or unsubstantiated claims o f benefits; excess reporting o f financial and physical performance by the states; and failure o f the ministries in verification o f their correctness and almost total absence o f accountability procedures. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 1 Objectives,Scope andApproachof the Study The objectives of the study are to: (i) provide a better overall understanding of financial management issues and identify areas for improvement in the existing Public Financial Management and Accountability (PFMA) framework and systems governing CSS; (ii) identify good practices across projects; and (iii) summarize issues relevant inthe context of increasingly greater reliance sought to be placed by the Bank on the government's own financial management arrangements anduse of sector-wide approaches and pooling of funds by various development partners intheir support of different CSS. It i s also hoped that the study would contribute to the initiatives of the Go1 to improve the accountability arrangements in CSS. As the design and implementation arrangements of CSS have an important bearing on the PFMA, the study also attempts to identify issues and suggest recommendations on these aspects which can contribute to improving the PFMA framework. While the study focuses on identifying areas for improving and strengthening PFMA, it does not seek to address the issue of whether CSS should continue. Nor does it seek to suggest the preferred mode of transfer of funds that is, the treasury or society, though the financial accountability issues relating to both modes of implementation have been discussed. The study has beencarried out through a combination of desk review of reports and studies undertakenon CSS, and field visits covering a sample of three Bank-fundedprojects across three states. These include the Tuberculosis Control Project (TB), Women and Child Development Project (WCD) and the Reproductive and Child Health Project (RCH). An understanding of the issues has been developed, keeping implementation in view, through discussions with officials responsible for executing CSS,both in the central ministries and inthe states. This has been supplementedby discussions with officials inthe Ministryof Finance (MoF), Planning Commission, Controller General of Accounts (CGA), CAG and the Instituteof CharteredAccountants of India(ICAI). Current PFMA Arrangements:Challengesand Some EvolvingGoodPractices Designof Schemes - (i)Top-downapproachwith limitedflexibility:Designplays a critical role indetermining ownership, accountability andperformance o f any program. In the context of CSS, the traditional designs suffer from the following limitations: (a) a top- down approach with development of uniform cost norms applicable across the country; (b) limitedflexibility to amendthe norms in light of actual implementation experience; and (c) focus on adherence to norms rather than outputs. This has tended to reduce the ownership andaccountability of the states and has createda "principle" and "agent" relationship rather thanone of partnershipbetweenGo1andthe states. Inaddition, small schemes tend to lose sight o f the overall program objectives. As a result, downstream issues of implementation, financial management, monitoring, and evaluation arrangements fail to get adequate attention. Note on Public Financial ManagementandAccountability in Centrally SponsoredSchemes(CSS) 2 (ii)Inadequatefocusonriskassessment&financialaccountabilityissuesduring formulationand appraisalof schemes: The guidelines issued by MoF for the formulation and appraisal o f schemes do not provide risks to be assessed and for PFMA issues to be explicitly assessed and appropriately addressed during the project formulation, appraisal and approval process. There are, however some positive developments with certain ministries consolidating and merging smaller CSS into larger and integrated programs, (SSA and RCH-I1 being good examples), thereby giving the states the flexibility to design programs that reflect state-specific needs. The ministries, inturn, are focusing efforts on the appraisal o f state plans, agreeing on outputs and strengthening the program and financial management framework. Implementation Arrangements - Inadequate attention to Management Capacity: Two basic models o f flow o f funds and implementation, which also impact PFMA arrangements have evolved inCSS: (a) treasury model: where flow o ffunds through the state treasury and the project i s implemented through the state departments; and (b) society model: funds flow directly from Go1to designated societies at the state- or district- level bypassing the state treasury. The society model has evolved due to fiscal stress faced by many states resulting in delays in the release o f funds and now appears to be the preferred mode for many large CSS. In some projects societies have been used essentially as flow o f funds mechanisms and not necessarily as implementing units. Such societies are staffed with a limited number o f consultants resulting in inadequate controls and oversight. While creation o f a society as a `funds flow' mechanism may be a necessity, it i s not a sufficient condition for effective program implementation or utilization o f funds. BudgetandAnnual Work Plans:The states and districts are largely unaware o fthe annual allocation and quantum o f funds likely to be received from GoI. This makes planning and budgeting at the state, district and PRI levels basically an academic exercise with disconnect between the budgets and actual allocation from GoI. Under the treasury model, inadequate provision inthe state budget also results in funds flow bottlenecks to the implementing units even when funds are transferred by Go1 to the states. However, with certain projects moving to state annual work plan based financing, which are approved by Go1 at the beginning o f the financial year, there is some certainty on the likely resource transfer to the projects. Funds Flow Constraints:The primaryfocus o f Go1has been to streamline the flow o f funds to implementing units, almost in detriment to the other financial management issues. The factors that impact the flow o f funds in CSS are: the approval process in GoI; a large number of implementing units including PNs; various intermediate levels that the funds have to flow through; and the physical mode o f transfer. While the creation o f state and district societies in many projects has addressed the issue o f fiscal stress and the consequent delay inrelease o f funds by the states, it is still constrained by: approval process in Go1 with lack o f clear guidelines for release of funds; lack o f adequate financial delegation, especially to state societies to process transfers to districts; and the failure to take advantage o f rapid advances inbanking, information and communication technology to speed up the transfer of funds. The issue o f funds release to bank accounts o f societies in two installments has also led to concerns over idle funds and the lack o f systems to track Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 3 and monitor the level o f such funds. Certain projects in the rural development sector, for example National Food for Work Program (NFFWP), have developed a clear set of conditions to be complied with for release of funds which links releases to financial and physical progress. The Ministry o f Rural Development (MoRD) has also developed IT- based systems that enable tracking the funds position. Inthe RCH-Phase I1program there i s an ongoing initiative to develop an e-banking model that will not only facilitate faster transfer o f funds, but also provide information, inreal time, on the funds position at various levels. CriticalGaps in AccountingFramework: Releases o f funds by Go1to the states for CSS are recognized as `Grant-in-Aid' in GoI's accounts and are reported to the Parliament as expenditure. Downstream financial management aspects, such as funds utilization, financial reporting and audit assurance essentially come under financial monitoring, which has received insufficient attention. This accounting policy, coupled with the risk o f lapse o f budgetary outlay, has created an in-built incentive for ministries to `spend' the budget. Under the treasury model at the state level, a similar policy o f accounting for fund releases as expenditure and reporting it as project expenditures to the Go1is adopted. Such projects are also not requiredto prepare financial statements. Instead, only statements o f expenditure are provided to the Go1that are often not reconciled with the accounting records o f the state's Accountant General raising concerns about the accuracy o f the reported expenditure. Under the society model, there i s no clear institutional framework either in the General Financial Rules (GFRs), 1963 or in the Societies Registration Act, which governs the accounting policies, format o f financial statements and disclosure requirements for projects. These appear to have evolved more by practice and experience and vary across projects and states or districts in terms o f accounting policies and disclosures. The use o f the society model has also meant that the state budgets and financial statements do not reflect these `off-budget' transfers from GoI. Internal Control, Internal Audit and Progress Reporting: Compliance with internalcontrolprocedures is not robust. While the state financial rules and accounting manuals o f societies provide a framework for internal controls, the actual compliance remains weak. The internal audit function, both indepartmentally implementedprojects and by state societies is either inadequate or non-existent. The quality and timeliness o fperiodic financial reports also varies with the inherent risk o f over-reporting. Among the factors responsible for this are : (a) cash basis o f accounting followed by the states under the treasury model; and (b) lack o f clear accounting policies that make a distinction between expenditure and advance under the society model; and (c) the pressure to attain minimum expenditure levels for enabling subsequent release o f funds. The development and use o f IT-based accounting packages has been mixed, with successful implementation linked to greater ownership with the line ministries and staff capacities inthe states and districts. The utilization certificate, required by the GFR, 1963, only serves as a control or fiduciary document and not one which could be a basis for financial monitoring. There are however various initiatives in newer generation CSS that have developed a framework for independent management reviews, such as: (a) independent management audit with elements o f public expenditure tracking as in Sarva Siksha Abhiyan (SSA);(b) risk-based approach to audit or internal reviews based on a set o f financial management indicators as in Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 4 RCH-II;(c) independent monitoring by district-level monitors o f physical progress, that includes physical verification o f projects or beneficiaries inrural development projects; and (c) a good mechanism for monitoring quality o f road works in the Prime Minister's Grameen Sadak Yojana project (PMGSY). These initiatives reflect some o f the recommendations o f the steering committee on monitoring and evaluation o f social sector projects. External Audit, External Reporting and Transparency - Absence of Performance Reporting Mechanism: The framework for external financial audit, performance reporting andtransparency in CSS i s weak. Under the treasury model, C A G i s required to provide an audit certificate on statements o f expenditure submittedby the states to the GoI. However, C A G reports indicate a large backlog (52 percent) inthe issue o f such audit certificates due to the failure o f the implementing departments to provide statements o f expenditure. Under the society model the weakness arises from: (a) lack o f independence in the appointment o f chartered accountants as auditors; (b) preparation o f financial statements by the auditors due to lack o f staff capacity, thereby undermining their audit function; and (c) absence o f terms o f reference for audit. The follow-up mechanism on audit observations i s almost non-existent, both at the Go1 and the state level. There is no systematic performance reporting framework for CSS. The ministries do prepare performance budgets, but these are tabled inthe Parliament along with the demand for grants. Given the inherent time-lag between transfer o f funds, utilization andreporting, this time frame does not permit the actual results (financial and physical outputs) to be reported against the planned targets. Similarly there i s no performance reporting to the state legislature, andthe state and district societies are also not required to place their annual reports and financial statements in the public domain. The performance audit by C A G i s often the only independent report available to the Parliament and state legislature on the performance o f CSS. One good initiative is the effort by MORD to put information o f various programs on the website, including release o f funds and sanctions, staffing vacancies, financial and physical status, backlogs in reporting with details o f defaulting districts, etc. Some other projects such as NFFWP and SSA have also instituted a mechanism to track and report compliance on audit observations. PRIs in the Context of CSS: From the perspective o f CSS, the PFMA study on PRIs concludes that the level o f awareness among the communities regarding various development schemes including CCS and release o f funds is very low. Inaddition there are a large number o f schemes for which the PRIs often need to maintain separate bank accounts at the Gram Panchayat (GP) level and submit separate audited UCs. However these UCs are issued and audited independently o f entity accounts, often on a provisional basis, particularly at year-end to comply with requirements for drawing the second installment under the CSS even though expenditures may not have been incurred. There i s also inadequate capacity for financial management (skills and numbers) and internal control weaknesses. These adversely affect the level o f fiduciary assurance. To strengthen financial management and accountability in PRIs, a series o f initiatives have been taken at the central and state level which have the potential to alter the accountability framework. Besides, there are several success stories, notably in Rajasthan and Karnataka, enabling community access to information and introducing social audit at the gram sabha level, Note on Public Financial Management andAccountability in Centrally SponsoredSchemes(CSS) 5 which help ensure transparency. Two fundamental tools - the Right to Information Act, now passed in many states, and social audit at the GP level provide the framework for increasing community awareness. Lack of Financial Management Capacity: The role of financial management in CSS has traditionally been one of accounting and control hnction rather than one that can support effective program implementation. This is best amplified by the wordings in rule 151 (2) in GFR, 1963 which reads "the ministries will `watch' for utilization certificates." At the state and district level also, this role has been limited to accounting. There is a distinct lack of capacity to effectively manage financial management aspects of a project in the districts and more so at the PRI level which has a bearing on the fiduciary assurance. The Twelfth Finance Commission has also commented on the need to professionalize the accounting function within the government system. This however appears to be changing: in some ministries and programs for example RCH-11, a role for financial management at the design stage and the need for adequate financial management capacities at all levels to support program implementation and ensure effective control i s being recognized. Initiatives are also being taken to build capacity in PRIs through extensive training and hiring of accountants. Some RecentDevelopmentsand Initiativesof the Government Inaddition to individualdepartmental initiatives, there are some on-going initiatives to improve the monitoring of CSS. These include: (a) a review of CSS by the Planning Commission to merge schemes with common focus or small outlays and transfer of schemes to the states; (b) creation of a separate division in the Planning Commission known as the Programme Outcome and Response Monitoring Division with the objective of monitoring performance o f government programs including CSS; and (c) recommendation by the task force for review of GFRs that the design of CSS focus on outputs rather than expenditure, giving states adequatepowers to change the details of CSS. The Way Forward The way forward identifies certain initiatives which the MoF, Go1 in consultation with other ministries and CAGYcan build on to strengthen the financial management and accountability in CSS. These are based on "good practices," already being followed in individual schemes, which need to be institutionalized within the overall framework. Suggestions to address the gaps in financial reporting, audit assurance and performance reporting have also been highlighted. Design of Schemes: (i)reduce the number of schemes by expediting the process of review by the Planning Commission for the merger and closure of small and unviable schemes; and (ii)decentralization in planning to ensure that the design principles recommended in the revised GFR for CSS are adhered to: in other words, CSS should be based on state and eventually district plans, reflecting their priorities. On the other hand, Go1should focus on broad policy formulation, resource allocation, appraisal of state plans with agreements on output and outcomes, and setting up mechanisms for monitoring Note on Public Financial Management and Accountability in Centrally Sponsored Schemes (CSS) 6 financial and physical progress. To facilitate this transition, Go1 should consider setting up a facility and funding mechanism for technical and capacity building support to states and districts; and (iii)provide a framework for a systematic assessment of risks and addressingPFMA issues at the appraisalstage by incorporating inthe MoF `Guidelines for Formulation and Appraisal o f Projects', a requirement that PFMA arrangements be explicitly addressed duringthe design and appraisal o f CSS. ImplementingArrangements Address Management Capacity: Program design - should not encourage the creation o f a society merely as a funds flow mechanism. It i s more important to ensure that management capacity and the financial framework, including financial delegation, are appropriate and commensurate with the size o f the program to ensure effective implementation. Budgeting and Annual Work Plans - Communicate Likely Allocation and Decentralize: The resource allocation, based on budget estimates, must be communicated to the states. This will enable the states to plan and prioritize their activities and dovetail them with the quantum o f funds likely to be received from Go1- also preventing the plans becoming wish lists. Over time such an approach should be devolved to the districts and eventually to the PRI inline with their increasing capacity to plan and manage projects. Flow of funds: StreamlineApprovalProcessand Adopt New Technologies: The Go1should : (a) review the sanction and fund release process withinthe ministriesto reduce the time taken for actual release; (b) require developing o f clear guidelines in all CSS for release o f funds to the states, aimed at transparency and objectivity in the review and approval process; (c) encourage the states to adopt similar guidelines for CSS projects where funds flow through the treasury; (d) ensure adequate financial delegation for state- and district-level project implementing units; (e) develop a road map for e-banking facilities, which are becoming increasingly available for transfer o f funds to states and districts and eventually to the PRIs; and (0 develop cost-effective management information systems (MIS) through which funds can be monitored. Accounting Framework: Address Gaps in Institutional Framework: The elements here include steps to: (a) develop, in consultation with CGA and ICAI, a framework for standard financial reporting, with uniform and consistent accounting policies and disclosure requirements for the state and district societies; (b) require projects implemented through the state treasury prepare financial statements (a sources and uses of funds) with appropriate disclosures of the accounting policies used in preparation o f financial statements; (c) consider amendments in the Societies Registration Act, 1860 to incorporate provisions regarding maintenance o f accounts and disclosure requirements, compliance with IndianAccounting Standards, filing o f accounts, appointment o f auditors, and constitution of audit committees; (d) consider creation o f a non-lapsable fund or kosh for major CSS which could reduce the pressure to spend the budget at year end ; and (e) request C A G to examine off-budget financing and commodity grants from Go1 while developing government accounting standards, which would enable appropriate disclosures both inthe budget and inthe annual financial statements o f the states. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 7 StrengthenInternalControl, InternalAudit and Reporting: Inorder to buildon the initiatives of various ministries, the following measures can be considered: (a) de- linking the release of funds from the achievement of minimum expenditure levels; thus releases should be based on projected requirement of funds and review of the progress against the approved work plan; (b) organizing a system o f management audit or a risk- based audit mechanism as an integral part of the design of the scheme; (c) encouraging the use of low-cost off-the-shelf accounting packages that can also be web-enabled for use in societies; this would enable uniform and consistent reporting and also facilitate monitoring of cash balances; and (d) that the proposed GFR for preparation of UCs by central autonomous bodies (which distinguishes physical funds available from advances which do not constitute expenditure at that stage) is also made applicable for CSS - bothtreasuryand society models; and ( e) building greater transparency in the monitoring and "action taken mechanism" on lines similar to the arrangementsinthe PMGSY project. Strengthen the Audit Assurance, Transparency and External Reporting Framework:by addressingthe following issues :(a) reduce backlog insubmission of audit certificates by setting up mechanisms for monitoring their timely submission by the states and consider linking fund release to submission of audit reports; (b) in consultation with CAGYstrengthen the process of appointment o f auditors for state and district societies to enable independenceand develop standard `terms o f reference' for the auditors; and (c) de- link the performance reports on CSS from performance budgets so as to facilitate reflection of actual outputs and fund utilization. Apart from serving as a mechanism to report to the parliament, this will shift focus from the release of funds to actual financial and physical outputs, thereby also facilitating improvement in the quality o f monitoring; similar reports can be submitted to the state legislature on the performance of state-level CSS ;and (d) the requirement for state and district societies to prepare an annual report reflecting yearly performance, which should be made public andposted on their websites. PanchayatiRaj Institutionsand CentrallySponsoredSchemes: It is important to build on the successful initiatives taken by states such as Rajasthan, Karnataka, etc to increase rural awareness of the use of public funds. Rural communities need to become familiar with the importance and procedures for social audits and their right to information andtransparency. StrengtheningCapacityfor FinancialManagement:The perception about the role of financial management needs to change - from one of accounting to a function essential for effective program delivery. This is increasingly relevant in the context of decentralized planning and budgeting. In addition, capacity building and training of the finance staff should be seen as an integral part of any program, particularly at the PRI level where increasingly larger resources are expectedto flow. Conclusions By their very nature, CSS carry ahighlevel of inherentfiduciary risk as they consist of: (a) a large number of implementing units at the central, state and PRI level, each with its own constitutional and financial management framework; (b) varying quality of governance Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 8 across states with limited control of the GoI; (c) low capacity of financial management, especially at the district and PRI level; and (d) diffused accountability. Top-down planning, with standard norms across the country that are inflexible with regard to diverse local conditions, tend to reduce the level of ownership and accountability of the implementing entities. As implementation responsibility largely rests with the states, the down-stream PFMA issues have also not received adequate attention. However, there are some positive changes where new programs have consolidated small schemes into larger programs, especially in the education and health sectors. Decentralization of these programs is also taking place with emphasis on outputs and outcomes, where Go1 provides technical and management support to states with lower capacities. For such an approach to be successful, Go1 needs to provide active support to capacity building intechnical, managerial and financial management. There is a need to address critical gaps in the institutional framework of financial reporting, external audit assurance and enhancing transparency through improved performance reporting. PRIs play a significant role in many CSS. Hence, scaling up their capacity for greater awareness o f development programs, their right to information and social audit, and capacity building in financial management, as part of the decentralization agenda of the Go1 will also be critical instrengthening the overall PFMA inCSS. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 9 I.BACKGROUNDANDAPPROACH Centrally Sponsored Schemes (CSS) are specific purpose transfers from Go1to the states to influence expenditure inareas that are their constitutional responsibility. These are formulated and largely financed by GoI, whereas implementation responsibility rests with the states'. The objective of CSS is to address issues of national priority with focus on human development, poverty alleviation and rural backwardness. GoI's budget outlay on such schemes during the year 2005-06 is close to Rs. 500,000 million.2 Go1 transfers resources to the states via three routes: (a) devolution o f the state's share in central taxes based on recommendations of the Finance Commission (FC); (b) central assistance for state plans by the Planning Commission (PC); and (c) Centrally Sponsored Schemes of Go1 ministries. Table 1 gives the approximate share of these three sources during the period 2004-05 and 2005-06. Table I Resources Transferredto States andUnionTerritories Source of Funds3 2004-05 2005-06 (RevisedBudget) (Budget Estimates) Finance Commission 934,450 (50 percent) 1,289,120 (61percent) (including grants for non-plan expenditures). Central Assistance to State Plans 548,580 (29 percent) 331,120 (16 percent) Centrally Sponsored Schemes 395,000 (21 percent) 500,000 (24 percent) Total 1,878,100 (100 percent) 2,120,240 (100 percent) Centrally Sponsored Schemes constitute a sizeable part o f the resources transferred to the states inthe form o f tied funds (Tablel). At present there are more than 200 CSS in operation, of which about a dozen account for more than two-thirds of the budget outlay. (Annexure Iprovide a list of CSS with budget outlays for 2004-05; and Annexure I1gives a list of large CSS). In addition to CSS, part of the funds transferred by the PC i s inthe form of Additional Central Assistance (ACA) to various other schemes which share many common features with CSS including control over flow o f funds by the central ministries. 1As per the Baijal CommitteeReport, April, 1987,CSS have been definedas those schemes which are funded directlyby the centralministriesor departmentsand implementedby states or their agencies, irrespectiveof their pattern of funding. In most CSS, states are also requiredto make varyingcontributionsto individual CSS. Basedon budget estimates for the financialyear 2005-06. GoI's budgetdocument on resourcetransfers to states (p. 15 of the budgetat aglance) only reflectsCSS transfersto state consolidated fund (account code 3601 and3602) andnot CSS where the funds are transferreddirectly to state or district societies.Quantumoftransfers to state or district societieshas been basedon budgetprovision in individual demand for grants for large CSS and has an element of approximation. The datahas beenextractedfrom the budget documentfor the year 2005-06. Central assistance for state planshas decreasedin the year 2005-06pursuant to Go1acceptingthe FC recommendationsthat states be giventhe flexibility to raisethe loan componentof central assistance for stateplans. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 10 CSS are likely to remain an important source for development funds, especially inthe poor and revenue-strapped states. This is particularly so considering: (a) the limited scope for the states to raise their own resources and generate funds o f a large magnitude within the existing fiscal framework; and (b) a high wage bill in many states that crowds out development expenditure. The World Bank i s currently supporting ten CSS, primarily in the health, family welfare and education sectors, aggregating to a total credit o f USD 2.3 billion. The Bank funded CSS have ingeneral been affected by low utilization o f funds resulting in extension o f the implementation period. Other financial management issues include: (i) delays in submission o f audit reports leading to periodic suspension o f disbursements by the Bank; (ii) qualityandinconsistencyinfinancialreporting;and(iii) qualityofaudit varying varying assurance. The objective o f the study is to: (i)provide a better overall understanding o f financial management issues and identify areas for improvement in the existing Public Financial Management and Accountability (PFMA) framework and systems governing CSS; (ii) identifygood practices across projects; and(iii) summarize issues relevant inthe context o f increasingly greater reliance sought to be placed by the Bank on the government's own financial management arrangements and the use o f sector-wide approaches and pooling o f funds by various development partners in their support o f different CSS schemes. It is hoped that the study would also contribute to the initiatives o f Go1 to improve the accountability arrangements inCSS. Go1 has indicated its commitment to CSS through notable increases in the budget outlays for the year 2005-06. Through various pronouncements Go1 has also prioritized improvement in the implementation o f CSS. In his budget speech, the Finance Minister stated, "outlays do not necessarily meanoutcomes. The people o f the country are concerned with outcomes." He further added, "the Prime Minister has repeatedly emphasized the need to improve the quality o f implementation and enhance the efficiency and accountability o f the delivery mechanism." Some recent initiatives also convey GoI's commitment in this regard. For example, the Planning Commission i s currently reviewing the rationalization o f CSS through merger o f those with common focus or small outlays, and transfer o f schemes to states4. A Program Outcome and Response MonitoringDivision are also being created in the Planning Commission with the objective o f monitoring the performance o f CSS.5 These initiatives o f Go1 also recognize the concerns raised by the CAG on the performance o f CSS. The C A G regularly reviews different government programs, and has been highlighting the weaknesses in CSS. In one report, it summarized the major constraints as: (i) design defects; (ii) co-relation between inputs, outputs and outcomes; no (iii) absence o f criteria for evaluation; (iv) benefits either not reaching the target population or unsubstantiated claims o f benefits; (v) complex execution structure; (vi) excess reporting o f financial and physical performance by the states; and (vii) failure o f the ministries to 'EconomicsTimes,27 Times,27Jan'05, Delhi.. Economics Apr'O5, Delhi. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes(CSS) 11 verify their correctness; and (viii) an almost total absence of accountability procedures.6A summary o f the findings from two performance audit reports issued by the CAG indicate a highincidence of irregular expenditure, large unutilized funds, inflated reporting and funds retained as deposits. TableI1 Detailsof IrregularitiesIdentifiedin CAG Audits The study brings out the areas for improvement in the existing PFMA framework governing CSS. As the design and implementation arrangements o f CSS have a significant bearing on the PFMA, the study also attempts to identify issues and suggest recommendations on the above two aspects, which can contribute to improving the PFMA framework. ApproachandMethodology The study has been carried out through a combination of: (i) review o f reports desk and studies undertakenon CSS; and (ii) visits covering a sample of three Bank funded field projects inRajasthan, Tamil Nadu and Uttar Pradesh. While most o f the existing studies do not focus on financial management aspects per se, various conclusions reached in these studies are quite relevant and have been considered. In addition, audit reports o f different CSS, General Financial Rules, 1963 (GFRs) o f Go1and other publicly available material on a number o f other projects have also been referred to. A complete list o f studies and reports referredto i s given inAnnexure VIII. The basic principle inthe selection o f projects for field visits' was to cover different implementation arrangements that is, flow o f funds arrangements, through state treasuries and societies, which impact the financial management arrangements and accountability framework. Another key determinant o f financial accountability in CSS are the Panchayati Raj Institutions (PRIs) which are involved in the implementation of many CSS in the rural development sector. Currently, in Bank supported CSS, project funds do not flow to the PRIs, except in the Sarva Siksha Abhiyan (SSA) program where funds flow to community based organizations (CBOs) like village education committees. Since the field visit was Overview inCAG's UnionAudit Report 1999 (http://cagofindia.delhi.nic.in/cag/reports/unio~rep2OOO/civil~e~o~~ce/overview.pd~ 'Fieldvisitswere limited to Bank funded projects. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 12 limited to Bank funded projects, the financial management and accountability arrangements inPRIs have been based on secondary data, and a parallel synthesis study by the Bank on PFMA inPRIs. The three Bankprojects covered inthe field visits are given inTable 111: Table I11 ListofProjectsCoveredinStateVisits S.No Project Flow of Funds 1 Women and Child Development Through state treasury 2 Tuberculosis Control Project State and district societies 3 Reproductive and Child Health Project I/ State treasuries and state/ district I1 societies The understanding o f issues so identified was developed from the practical perspective o f implementation, discussions with officials implementing the CSS, both in Go1 and the states, officials in the Ministry o f Finance (MoF), Planning Commission, Controller General o f Accounts (CGA), CAG and the Financial Advisors (FAs) and the Chief Controllers o f Accounts (CCA) inthe ministries. Scope Limitations The study focuses primarily on the financial management framework to identify areas for improvement and strengthening the existing implementing arrangements o f CSS. It does not attempt to address the issue of: whether CSS should continue, rather than being transferred to the states, or devolved to PRI entities by dissolution o f the existing mechanism, such as District Rural Development Agencies (DRDAs) and other societies created at the state and district levels. the preferred mode o f transfer o f funds that is, whether funds to the states should necessarily be routed through the state treasury or societies, even though the financial accountability issues relating to both modes o f implementation have been discussed. The findings and the suggestions to improve financial accountability systems in CSS needs to be viewed in the light o f varying quality o f governance across the states and the fiscal stress faced by certain states. Both these factors have an overarching influence on the perfonnance o f any government program, including CSS. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 13 11.INSTITUTIONAL FRAMEWORK The institutional framework for CSS i s complex as funds flow through various tiers o f the government that is, GoI, state governments, state-level implementing entities and rural local bodies, each o f which are governed by a separate institutional framework. These consist of: General Financial Rules 1963 (GFR): A large number o f rules have been formulated by Go1 under the powers vested in it by the Constitution. The GFR, and the Fundamental Rules and Supplementary Rules form the basis o f all main activities undertaken by the central ministries. The Delegation o f Powers Rule 1978 provides financial powers to various government officials. The main rules which formulate how government accounting should take place are included inthe Government Accounting Rules 1990, the Accounting Rules for Treasuries and Account Codes. Each state government has made similar rules which also govern CSS. Guidelines for Formulation, Appraisal and Approval8: The Plan Finance I1 Division in the Department o f Expenditure, MoF has prepared guidelines for the formulation, appraisal and approval o f planned schemes by the Expenditure Finance Committee (EFC) and the Union Cabinet. All CSS are subject to these guidelines. The approval o f CSS by the EFC forms the basis o f norms for expenditure, creation o f newposts and positions under the project and financial delegation; it also guides the Integrated Finance Division(IFD) withineach ministry inits sanction o f release o f funds. Societies RegistrationAct, 1860:Inmany CSS, the funds are routed through state societies, which are legal entities created under the Societies Registration Act, 1860 which i s an all India act. A few states such as Karnataka, Andhra Pradesh, Tamil Nadu and West Bengal have enacted their own legislation, on lines o f the Central Act, to register societies being constituted under their jurisdiction. The Societies Registration Act, 1860 and the related state acts have minimal financial management obligations. However each society i s registered under its own bye-laws, which specify certain financial management obligations. Normally these include preparation o f financial statements, audits and approval o f the audited accounts in the general body meeting. The societies also need to comply with certain financial management obligations to obtain tax exemptions. Accounting Standards: As earlier mentioned, the accounting and financial reporting in Go1 and the states is based on various rules; however, C A G has constituted the Government Accounting Standards Board (GASAB) to move from a rule-based to a standards based financial reporting. GASAB has released a few exposure drafts and i s now finalizing its first accounting standard. The Institute of Chartered Accountants o f India (ICAI) is the other body which sets accounting standardsfor the private sector and a number o f accounting standards have been issued that are mandatory. It has also issued a Technical Guide on Accounting and Auditing for not-for-profit organizations. There is however ambiguity on the applicability o f accounting standards to not-for-profit organizations, more 8 MoF (2004): Formulation, Appraisal and Approval ofPlanSchemesandProjects- Guidelinesand Compendiumof ImportantCirculars,Deptof Expenditure,Go1 Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 14 specifically the state and district societies implementing CSS9. Annex IV shows the full text o fthe clarificationprovidedby ICAI. Audit Framework and Standards: Under section 13 o f the Duties and Powers of the CAG Act, Section 13, it is the duty of the CAG to audit the expenditure from the Consolidated Fund of India and of each State and of each Union territory having a Legislative Assembly. Inaddition under Section 14 (1) of the DPC Act the CAG shall audit any body or authority which is substantially" financed by grants or loans from the Consolidated Fund of India or o f any State or Union territory having a Legislative Assembly. The CAG carries out audit as per standardswhich are inline with the standards by the International Organization of the Supreme Audit Institutions (INTOSAI). Chartered Accountants are requiredto adhere to the Auditing and Assurance Standards (AAS) issued by the ICAI. Legislation Relating to Panchayati Raj Institutions (PRIs) or Rural Local Bodies: In many CSS, especially those relating to rural development and poverty alleviation, actual implementation responsibility rests with PRIs. The three tiers of PRIs obtained legal status after the states enactedtheir PanchayatiRaj Acts [and related Rules] in conformity with the 73rd Constitutional Amendment in 1992. These Acts provide for institutional mechanisms such as holding of gram sabhas, state and central finance commissions, district planning committees andjurisdiction over 29 subjects specified inthe Constitution. The states have also set up Panchayati Raj departmentsas their administrative nodes for PRIs. The legal and institutional framework has so far made PRIs function as extensions of the state and not as independent self-governing bodies in the true sense. In 2004, a new Ministry of Panchayati Raj (MoPR) was set up as the nodal agency to exclusively deal with policy matters relating to PRIs. A parallel study has been carried out by the Bank on the Public Financial Management and Accountability in PRIs". The key conclusions ofthe synthesis study are documented inSection XI o fthis report. The implications arising from the multiplicity of institutional frameworks which impactthe PFMA inCSS is discussed inthe relevant sections ofthis study. Para3.29 on page 31of the Technical GuideonAccountingand Auditing for not-for-profit organizationsclarifies that ICAI accountingstandards do not applyto anot-for-profit entity ifno part of the activity of suchentity is commercial, industrialor business in nature. loSubstantiallyis definedas grantor loannot less than Rs2.5 million or not less than 75% ofthe total expenditure ofthe body or authority. I'ParallelWorld Bank study on Public FinancialManagementand Accountability inPRIs completedin June 2005 Note on Public Financial Management and Accountability in Centrally SponsoredSchemes (CSS) 15 111. DESIGNOF SCHEMESAND IMPLEMENTATIONARRANGEMENTS The design o f CSS has a significant bearing on the financial management arrangementsofthe scheme. AppraisalFrameworkof CSS The Department of Expenditure, MoF has prepared guidelines for the formulation and appraisal12of government schemes and projects including a generic structure of the Detailed Project Report (DPR). The guidelines are detailed with emphasis on estimating the project cost, internal rate of return, sensitivity analysis on IRR as well as financing arrangements, etc. The guidelines, per se, do not Box 1 require an assessment o f (i)the risks and Needfor FiduciaryRiskAssessment developing appropriate risk mitigating A RecentExampleFromthe National measures and (ii) the adequacy of financial Foodfor Work Program-NFFWP management arrangements (which are more The recently launched NFFWP has a relevant inthe context o f CSS as opposedto condition which requires the submission o f financing), during the formulation and inthe non-diversion and non-embezzlement appraisal note to the Expenditure Finance certificate for subsequent release of funds. Committee (EFC) and the Cabinet for This probably reflects the inherent fiduciary approval. While in Bank funded projects risk in the program, but is not necessarily a financial managements risks are assessed, riskmitigatingmeasure. the lack of an "in- built" mechanism to Incorporation o f a fiduciary risk assessment, identify and address risks and address the as part of the MOF Guidelines for financial management issues during the formulation and appraisal, will provide a formulation and approval process means framework for identifying risks during that inadequate attention i s paid to these formulation o f CSS and building mitigating aspects. measures such as enhancing transparency at local level. Appraisal procedures lay down an exhaustive framew~rk'~including those who need to be consulted in preparing a DPR. This includes a review of the scheme by the financial advisor (FA) in each ministry. The expectation is that the financial management arrangements would have been reviewed by the FAs. However, discussions with FAs inthe ministries indicate that their focus during review, prior to concurrence in the proposal, is concerned primarily with the broader aspects such as the financial envelope, plan provisions, etc and not necessarily the assessment of risks and adequacy of financial management arrangements, such as the existence of standard accounting policies, financial reporting standards, adequacy of finance staff and audit assurance mechanisms. InCSS it is the management & governance structure, implementation, financial management and procurement arrangements that have an important bearing on the effective implementation of the CSS. l2PlanFinanceI1Division, MoF(7 May2003):Guidelinesfor Formulation,AppraisalandApprovalofgovernment fundedplan schemesand projects. l3Time frame for appraisal and approvalof projectsand schemes -Annexure I1to the above Formulation, Appraisal Guidelines. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 16 Large Numberof Centrally SponsoredSchemes Currently there are more than 200 CSS of which a dozen account for over two- thirds of the budget outlay. (Annexures Iand I1provide a list of CSS.) There are a large number o f schemes with small budget outlays. Small schemes have the following limitations: The amount allocated to each state is negligible. This, combined with uniform and rigid cost norms for implementation, prevents the states from taking adequate ownership of such schemes or committing resources and manpower for their implementationl4 Small schemes tend to get crowded out and may receive inadequate attention of the state and district administrators, as comparedto larger schemes. 0 Since independent implementation and financial management arrangements are not cost effective, small schemes have to depend on the implementing entities of other programs or projects. For example, the Food and Drugs Capacity Building project depends on the State AIDS Control Society for flow of funds and financial management arrangements. Benefits of synergies and consequently cost savings inactivities such as Information, Education and Communications across similar schemes may not be achieved. Certain ministries have Box 2: redesigned the projects in an effort to TwelfthFinanceCommitteeCommentson decrease the number of schemes and css reduce fragmentation or duplication. The (extract from Para4.70 ofthe report) SSA and RCH-II15 programs are two CSS are characterizedby large numbers, examples where the ministries have duplication and lack o fmonitoring. The CSS adopted a programmatic approach and have beenthe subject of study by many various schemes have been clubbed committees. The general consensushas been together with greater flexibility for the towards reducing their number, but the follow- states. The Planning Commission is up actionhas been weak. A state should be currently engaged in a review of the given its entitlement and allowed to select its schemes with a view to rationalize the own mix of CSS floated by different numberof CSS. ministries, withinthe limit ofthe total grant. The CSS would thenstart competing among The Ministry of HealthandFamily themselves and pressure would come on the Welfare (MOHFW) is also proposing to ministries to design schemes that are in merge all societies at the state and district demand. l4Inmost Bank supported disease control projects, the state- level officer in charge of the project normally holds the position as additional charge. InRCH-I1the number ofschemes has beenreduced to less than20 from a levelo f54 under RCH-I. budget ofthe The department hasalso been reorganized to reflect this in 2005-06. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 17 level into one integrated implementing unit to derive the benefit o f synergies from various programs under the National Rural Health Mission (NHRM). The comments o f the Twelfth Finance Commission on CSS were: Lack of Flexibility in Design: Most schemes identify cost norms for various activities based on which the program cost i s arrived at. These norms cover many areas including cost o f each activity, number o f additional persons or employees that a scheme can engage and the cost for each o f the identified positions, program management costs, etc. After EFC approval, these are also drafted into the guidelines or administrative orders issued to the state-level implementing units. While the purpose o f the norms is presumably to facilitate preparation o f overall project cost, but in actual fact the norms become inflexible and the programs are constrained to work with the same norms during the entire period o f implementation. This often makes the program very rigid and reduces the level o f ownership, and consequently the accountability o f the states. It also tends to create a principal and agent relationship rather thanone o f partnershipbetween Go1and the states. More importantly, there i s a need to move away from the central norm-based programs to a state and, eventually, district plan based programs. These will address the specific needs and issues inthe states and districts rather than a "one size fits all" program driven by GoI. The center's thinking on norm-based schemes already appears to have changed with many newer programs such as the Sarva Siksha Abhiyan (SSA) and the National Aids Control Program -11(NACP-11) moving to a State Annual Work Plan (AWP) based financing. This contrasts with the Reproductive and Child Health (RCH), Phase I project which commenced in 1997, wherein norms were laid down for each activity and funds were released by Go1 for each activity separately with limited flexibility to use idle funds o f one activity for another. This resulted in staff at the field level also concentrating on their specific activities with no real ownership o fthe project as a whole at the state level. However within the R C H Phase I Project, a Box 3: concept o f a financial envelope was evolved wherein Impact of Flexibility: selected states were allowed a flexible grad6. Tamil Nadu Experience in RCH Tamil Nadu used this flexibility to decide program Deliveries at PHCs covered strategy and financial norms for four different activities under the scheme went up to under the R C H Project. Implementation o f "24-hour 15.53 per PHC per month as delivery care services in PHCs" under this strategy compared to 4.22 deliveries achieved impressive results. Such successful examples per PHC per month for those indicate the importance o f flexibility to accommodate local not covered under the needs and initiatives. Decentralized planningo f this nature scheme (2003-04). enhances ownership o f the project, as the team can identify better with its own plan and is likely to take that extra initiative to make the plansuccessful. l6InTamil Naduthis consistedofRs. 27 million (FY 2000-OI), Rs. 18.7 million (FY 2003-04) andRs. 10.2 million as first installment(FY 2004-05). Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 18 RCH-I1 Buildingon the Experience - Box 4: Increased Flexibility to States The RCHPhase I1Program, has built onthis approachandhas also moved to annualwork planbasedfinancing for the entire program. The role ofthe ministry isto work out the resourceenvelope for each state, followed by review, appraisal and approval ofthe annual work plans of the states and regular monitoringoftheir performance. The programhas soughtto move away from a "norm based" approachwith the ministry only identifyinga negative list o f activities. The ministry is entering into a Memorandum of Understanding (MoU) with the states, agreeing on state-specific output and outcome indicators. Go1i s also providingprogram and financial managementcapacity building support inselected states to assist them inthis new approach. For this approach to take shape and for the states to accept the new way of doing business, many of them, and more so the districts, will need hand holding and capacity building support, to help in formulation of the plans. The ministries will need to reorient their approachto one of monitoring and evaluation rather than one of releasing funds. This will also necessitate training and development of program management skills for effective implementation. In the RCH-I1 Program, recognizing this constraint, technical and management support has been provided by Go1 to states with lower capacity to: (a) help prepare the state plans; and (b) provide support during implementation. The review and support from Go1 during implementation is also geared towards the states with lower capacity. The revised GFRs issued in July 2005 has made recommendations on similar lines and the new rule" suggests the principles to be used while designing CSS. Some salient features of the proposed rule are: each CSS to be treated as a project with time-bound targets for monitoring, mid- term evaluation and detailed impact studies. each CSS to be designedwith in-builtflexibility for states to make changes. monitoring and effective control. mechanisms to ensure that funds earlier released have been effectively utilized and the datareported is correct. focus on attainment o f objectives and notjust expenditure, mechanism to avoid release of large part of funds towards the end of the year. 0 mechanism to be built into the project for concurrent reviews and applying mid- course corrections. Considering that there are no specific provisions in the existing GFRs, this is a laudable step that will help in the design framework and have a positive impact on the financial managementand accountability framework on CSS. However, while the proposed rule addresses design and formulation issues, it falls short of addressing the critical down- ''Rule215(2) of General Principlesfor award of grants-in-aidfor CSS. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 19 stream financial management issues such as standards for accounting, financial reporting and audit assurance mechanism. These are discussed insections VI11to XI. in most schemes, these are provided by Box 5: specific posts with fixed salary structure ProgramSUPPOfi Cost: Approach inSSA approved by the EFC. This restricts the Program ability o f program managers at both Go1 The SSA Program is a good example in and state level to engage program support flexibility andadequacy of for Program staff including finance staff with the Suppod costs where the states have been requisite skill sets in line with the needs of a h m d to spend UP to Six Percent ofthe the program. Some projects, such as RCH- approvedAnnual w o r k planas Program I1and Tuberculosis, which receive support management costs. The increasing devolution o f identified functions, functionaries and funds to PRIs in line with the 73rd Constitutional Amendment in many states will also have a significant impact on the overall financial management and accountability framework o f CSS. These should be considered and addressed duringthe design stage. ExternallyAided Projects-MultipleAgencies Financingthe Same Sector Program In many projects, especially in the health sector, there are multiple development partners financing a part o f the same program. These take the form of financing certain identified activities across the country or financing the activities in specific states. For example, in the NACP-I1 there are six development partners financing specific activities o f the program. Similarly in the family welfare sector, in Uttar Pradesh, there are three large development partners supporting separate CSS projects. This necessitates that the CPMU, states and districts maintain different sets of accounting records, separate bank accounts, staff dedicated to and identified with one development partner, different reporting and audit requirements18. '*InUttar Pradesh, the USAIDprojecthas independentimplementationarrangements with separate state and district societies and independent reportingstructures. Note on Public Financial ManagementandAccountability in Centrally SponsoredSchemes (CSS) 20 Way Forward: Adherence to key design principles plays a critical role in determining ownership, accountability and performance of any program. Going forward, Go1should consider taking the following actions: Complete the process o f review by the Planning Commission for merger and closure of small andunviable schemes. Ensure that the design principles recommended in the proposed GFRs for CSS are adhered to during formulation of new schemes i.e., CSS are based on state and, eventually, district based plans with Go1 responsible for: policy formulation; resource allocation; review and appraisal of state annual work plans with agreements on output and outcomes; setting up robust mechanisms for monitoring financial and physical progress of schemes inthe states; and periodic impact evaluation. Such an approach should allow appropriate flexibility, within overall budget ceilings, to the ministries, project directors in GoI, states and districts to make changes inthe plan and cost norms to address actual implementation experience and constraints. For enabling this approach to take shape, Go1could set up a facility/ funding mechanism to provide technical and capacity building support to states and districts and assist the ministries inreorienting their approach to financial andphysicalmonitoring and evaluation rather than one of fund releases. This would enable the states to take greater ownership and accountability, for the outputs and outcomes. Incorporate, in the MoF guidelines for formulation and appraisal of projects, a requirement that (i) fiduciary risks are assessed and (ii) arrangements are PFMA assessed, documented and reflected in the internal appraisal note of GoI. This will provide a framework for developing suitable risk mitigatingmeasuresand for PFMA issues to be addressedduringthe design stage. Review the implementing arrangements, especially at the state and district level, with a view to merge smaller implementing entities that is, societies in the same sector, into one integrated society. This will facilitate development of robust management structures and effective financial management arrangements within which different schemes can implement their programs. Such a merger should however have a change management strategy to reflect and appropriately address the needs of various programs. With the merger of small schemes into larger programs, CSS become very amenable to a programmatic approach and pooling of finances by different development partners to support one integrated program. Go1 should consider taking a policy decision that all development partners should finance a GoI-led program. Strengthening of the financial management framework will facilitate this to a large extent andreduce the burdenof developing and maintainingparallel systems. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 21 IV. IMPLEMENTATIONARRANGEMENTS Implementation arrangements have an important bearing, just as much as design, on financial management for any CSS. Their impact covers the planning and budgeting process, flow o f funds, reporting, staffing, accounting policies and procedures, internal control and audit assurance mechanisms. The implementation arrangements in CSS vary from relatively simple vertical structures in the Tuberculosis Control Project to complex arrangements in the R C H and, SSA programs where funds flow to a significantly large number o f implementing agencies including various CBOs. In most rural development programs, a notable involvement o f the PRIs lies either directly inmanaging the program or inbeneficiary selectionand community mobilization. Implementation Arrangements at the Go1 Level: At this level, CSS are normally coordinated through a CPMU withinthe ministry and generally headed by a project director. Unlike states which have created societies, all CSS are managedwithinthe line ministriesin GoI.19While project directors are responsible for implementation, all fund releases from Go1 have to be approved by the FA ineach ministry. The program managers at the CPMU have little or no financial delegation. The lack o f financial delegation to the project directors creates bottlenecks in the day- to- day management o f the program, especially for small activities such as training, consultation workshops, etc. Implementation Mechanisms at the State and District Level: Implementation responsibilities in CSS largely rest with the states2'. There are two models, the Treasury Model and the Society Model, for implementation and the flow o f funds, which inturn bear uponthe financial management arrangements. Treasury Model: Here, the funds are routed through the state treasury and made available to the implementing units at the state and district level through the budget o f the state. There is no separate legal entity and CSS is implemented by the respective departments, though most CSS have separate project management units (PMUs) headed by a project director or co-coordinator at the state level. Society Model: This entails formation o f a society (a special purpose vehicle) at the level o f the state, district or both. The society is registered either under the Societies Registration Act, 1860 or the state's Societies Act. The funds flow directly to the state or district society, by-passing the Consolidated Fund o f the state. This practice was started by the Ministry o f Rural Development, when District Rural Development Agencies (DRDAs) were created in consultation with state governments. Other ministries have since applied this approach to many CSS administered bythem. The members o fthe society are normally senior state government officials, in their ex-officio capacity. Many projects in the health sector initially followed the DRDA model of district societies with funds being transferred directly to the districts, but as the span o f control was too wide and unmanageable, Go1 l 9 For implementingthe NACP-I1Programa separate entity, NationalAids Control Organization(NACO), has been *'createdbutCSS it is not a legalentity and does not enjoy financialpowers. Inmost inthe healthsector, major procurementofdrugsand equipmentis managedby Go1anddistributedas commoditygrant to the states. Procurement is handledthroughcentral-levelprocurementagents. Note on Public Financial Management and Accountability in Centrally SponsoredSchemes (CSS) 22 requested the states to create state societies which now control and supervise the district societies. Reasons for Creation o f Society: The principal reasons that led to the adoption o f such a model were: to insulate the program from fiscal stress faced by many states, often resulting in "restrictions" being imposed on release o f funds. attendant risk o f funds meant for programs being used elsewhere for example, payment o f salaries" delay inaccording sanctions for expenditures and approval for release o f funds from the state treasuries. Concerns on such off-budget transfers and consequent weakening o f the financial management control framework have been raised by the state governments. The finance departments in the states do not track the amounts transferred by the Go1 directly to the societies and nor are these reflected in the state budget or accounts. The MoF, Go1issued instructions inJanuary 2003 for all funds to states to flow through the state treasuries who in turn would make funds available to the implementing units within three weeks. However, thiswas reversed after six months inJune 2003. Implementation Mode Rural Housing: mainlyIndiraAwas Yojana(MY) District Rural Development A,gency National Food for Work PrnPram fNWFFP) (district societies) Swarnajayanti Gram Swaruzgur 1UJUM.4 (DUD I Prime Minister's Grameen Sadak Yojana(PMGSY) State Societies SarvaShikha Abhiyan (SSA) incl. DPEP State and District Societies Integrated Child Development Scheme including the Treasury ** Bank funded Women and Child Development Project (WCD) Reproductiveand Child Health (RCH) State and District Societies *** National AIDS Control Organization (NACO) State AIDS Control Society Various disease control programs such as National Independent State and District Tuberculosis Control Project, Vector Borne Disease Societies Control Program etc 21 The CAG, in various state audit reports for the financial years 200001 to 200243, has indicated diversion of CSS funds by states for other uses. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 23 number o f factors such as: (i)existence o f an adequate organization and management Box6 structures; (ii) appropriate financial delegation Instanceof InadequateManagement to approve AWPs and activities; (iii) adequate Structure at StateLevel manpower with appropriate skill levels; and InRajasthan, the ReproductiveandChild (iv) clear guidelines especially on procurement Health project (RCH-I) was under the process to be followed. In the RCH Phase I charge o f a commissioner, who also held Project, the society was more a flow o f funds other charges. Financial management mechanism rather than an implementing entity responsibilities o f the entire state project and this was reflected in the slow pace of unit were being managed by one implementation. What i s equally, if not more financial consultant. Similarly in the important, is to recognize the needs o f the Sikar District only one person, the R C H program, equip the societies with adequate officer, was managing the entire project. management capacitiesz3 and well laid down Financial responsibilities were managed governance, administrative and financial by a statistical assistant. S.No Project Funds Credit Planned Actual Flow Amount Implementation Implementation Through (USDMill) Period Period ** 1 Women and State 240 5 yrs 6 % yrs *** Child Treasury Development * 2 Reproductive State 240 5 yrs 7 yrs andChild Society Health- I * Project scope expanded to include additional states and funds also allocated to other projects. Credit amount is net o f reallocationto other projects. ** both projects have also faced issues such as over-estimation o f costs and other implementationdelays. *** considering the proposed extension till March 31,2006. *'Districtlevelin case ofDRDAs. 23The GO1has launchedanew programNFFWPtargeting 150backwarddistricts ofthe country.The budget outlay for the programin2005-06is Rs. 54,000 million and is to be implementedby the DRDAs.The programguidelines do not appear to addressthe needfor augmentingthe program managementcapacity ofthe DRDAto handle anew project and increased allocationoffunds Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 24 Way Forward: Program management capacity at all levels is critical for the successful implementation o f the project. The creation o f a society as a "flow o f funds" mechanism may be a necessary though not sufficient condition for effective utilization o f funds and for program implementation. Duringthe appraisal o f new CSS, Go1should ensure that: implementation arrangements are assessedat all levels for adequacy o f management capacity, andthat the administrative and financial and the governance frameworks, including financial delegation are appropriate and commensurate with the size o fthe program to ensure effective implementation. This should also be reviewed periodically duringimplementation. Newprograms implementedthrough existing implementation structures or increased allocation to an ongoing program should provide for enhancement o f management and implementation capacity. the society mechanism should create an enabling environment with adequate governance framework and should not be adopted merely as a flow o f funds mechanism. project directors inthe ministries are givensome level o f structured financial delegation and this should be built into the designo fthe scheme. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 25 V. BUDGETS& ANNUAL WORK PLANS Budget Estimates:The annual budget exercise in Go1 for CSS is not based on a bottom-up approach. Estimates of budget at GO1 level do not necessarily reflect the actual requirement of funds by the States and/ or recognizing their absorptive capacity. Projects like NACP-I1 have also not benefited from additional funds committed by various development partners due to overall budget ceilings. This has led to reductions inthe share of each development partner within the overall annual budget for the program and extensions inthe implementation period of the project. The states are also not informed of the indicative budget allocation for the year inatimely manner. This is particularly relevant inprojects which adopt the treasury model, as similar budget provisions are requiredto be made inthe state budget and approved by the state legislature before funds can be released. The lack o f adequate budget provision at the state level can affect the flow of finds to the implementing agencies. On the other hand, excess provisions in the state budget could result in under-utilization of budgets and invite audit references in the report of the CAG. Tables VI (a) and VI (b) illustrate this variation intwo projects: TableV I (a) MismatchinFundsTransfer from Go1andBudgetProvisioninthe StateWomenand ChildDevelopmentProject - Rajasthan Financial Funds Transfer by BudgetProvisioninthe State Year Go1 BudgetEstimate RevisedEstimate 1999-2000 90 49 3 2000-2001 150 666 342 2001-2002 350 580 625 2002-2003 335 403 527 2003-2004 320 383 328 2004-2005 401 250 314 TableVI (b) RCH- I:Compensationfor Sterilizationfor One State** Financial Funds Transfer by BudgetProvisioninthe State Year Go1 BudgetEstimate StateRelease 2001-2002 93 26 9 2002-2003 126 30 7 2003-2004 175 36 11 2004-2005 @, 41 36 nil Note on Public Financial ManagementandAccountability in Centrally SponsoredSchemes (CSS) 26 Annual Work Plans: Certain projects such as the AIDS Control Program, SSA and more recently the RCH-Phase I1Program have moved to a concept of state-basedplans, wherein the states are requiredto submit Annual Work Plans (AWPs). Similar AWPs are also being prepared by the states and districts in the Tuberculosis Project. The districts identify the level of performance that they wish to achieve and identify activities that are to be performed and the budgets required, against which funds are provided. The concept of mid-year review of progress against AWP by Go1is however yet to develop. Also, the time frame for preparation and submission of AWPs by the states i s such that it does not form an input to the annual budget process inGoI. Given that these are recent initiatives, it would take time to build capacities and advance the time frame for submission of such AWPs. Besides, in the absence of communication of the indicative resource envelope from Go1to the states, the AWP at times tend to be a "wish list."24 However, as social sector projects have a lower absorptive capacity andtend to under-utilize their approved allocation, this has not beena serious constraint. Inprojects involving PRIs also, budgeting i s done at the local level without any reference to the overall resource envelope, resulting invariations between the budget, sanctionedexpenditure andreleaseof funds. Way Forward: The change from top-down to bottom-up approach to budgeting in certain projects is in line with state-based planning discussed in Section 111. However, a shift to decentralized planning based on state AWP and its appraisal and approval by Go1 will bring some certainty in the .likely resource transfer from GoI. Going forward, Go1 should: a) communicate to the states and state societies the likely annual allocation for the next year basedon provisional budget estimateso f the central line ministries. This would enable prioritization of activities and dovetailing the state plan with the quantum of funds likely to be received from GoI. Suchan approach will also prevent the AWP from becoming a wish list. b) review the state-wise allocation within a project at mid-year, based on actual progress by the states vis-a-vis the plan, and decide on re-allocation of funds within a program across the states. Suchan approachwill facilitate linkage of funds release to botha standardallocation critieria,(agreed upfront) as well as actual performance. c) enable such an approach to be further devolved to the districts and eventually the PRIs inline with their increasing capacity to planand manage projects. 24 AWPs of AndhraPradeshin the NACP-I1Projectwere highly ambitiousand faced cuts during appraisal by GoI. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 27 VI. FUNDS FLOW & FUNDS MANAGEMENT Given the multiple layers through which funds flow in CSS, and the consequent delays before they become available to the implementing units, ensuring their timely availability has beenone of the primary focus of GoI. The flow of funds is affectedby: (i) the approvalprocessfor transfer; and(ii) the physicalmodeoftransfer. Transfer of Funds by Go1to States Approval for Transfer and Release of Funds at Go1Level: The approvalprocess for transfer of funds from Go1 to the states is time consuming especially when files are referredbackby IFDto the CPMU. The typicalprocessfollowedis depictedinChart 1.S Chart 1: Approval Process for FundsRelease in GO1 Issues raisedby IF_" , IFD File ' returned via JS +N Sendtile for issue of budget Certificate certificate issued Preparesanction letter and send DDlinstmction issued to US (Cash) 4 ' for transfer offundstoRESI Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 28 Normally, funds are transferred intwo instalments to the states. The first transfer i s usually effected in May or June o f each financial year and the second, based on actual utilization, i s planned for November or December. Inthe normal course, the approval and release process takes 20 days to a month. The release of the first instalment is not affected by the need for UCs confirming the utilization o f earlier instalments. However, prior to the release o f the second instalment, a UC25(in case o f transfers to autonomous societies) and statements o f expenditure (in case o f transfers to state treasuries)26 i s required. In some cases details on physical progress have also been sought by IFD. Besides, numerous instances have been observed where approvals took longer than a month. For example in the WCD Project, as Chart 2 illustrates, approval o f sanctions for release o f funds at the Go1 level has at times taken more thantwo months. Chart 2: Percentage-wise Time Taken inProcessing Releases of Funds During 1999-2004 at GoI,WCD Project for Three Sample States 35% 30% 5 25% EE 20% zI: 15Oh % j 10% 5% 0% !weeks or less1 monthsof less 2 months or less above 2 months lime Taken Based on discussions with various project management units, the perception is that IFD is not consistent with the information that they seek or require prior to approval. However as IFD perform a critical task that is, checking if funds are being utilized in an adequate manner and not lying unused, this perception is perhaps unjustified. The guidelines for various programs in MoRD clearly lay down the process and documents required for release o f the first and second installment and a recent NWFFP links release o f funds to financial andphysical progress. Similarly, inthe RCHPhase I1Project, the release Rule 151(1) of GFRs, 1963requiresthat UCs be submitted within one year of the close ofthe financial year by the institution concerned. The Task Forcefor reviewof GFRs, 1963 has recommendedthat the periodbe reducedto nine months. 26There is no specific provision inthe GFRs which requires state governmentsto submit aUC or an SOE to GoI, but in case of externallyaided projects, where reimbursementhas to be claimed, SOEs are insisteduponfrom the states. Audit certificatesare expectedto be submitted by the states. (See section,onexternalaudit for backlogin furnishing of audit certificates.) Note on Public Financial Management andAccountability in Centrally Sponsored Schemes (CSS) 29 o f funds function within the program unit has been vested with the FMG, which has developed a checklist on issues that need to be available in the sanction file, prior to submission to IFD. This mechanism has helped in reducing the delay in approval o f sanctions by IFD. Box7: GuidelinesFromNFFWP- Conditionsfor Release of Second Installment (Para 4.4, chapterIV) sixty percent o f the total available funds should have beenutilized. opening balance o fthe district and all implementing agencies should not exceed 15 percent o f the funds available duringthe previous year. submissiono f audit reports, action taken reports on the comments made inthe audit report o f the previous year andcertificate from the auditor that advances have not been treated as expenditure. submissiono f UC. submissiono f non-diversion andnon-embezzlement certificates. submissiono f all pending progress andmonitoring reports. submission o f statement about number o f inspections conducted by officers at block, sub-divisional, district and state levels. Mode of Transfer: While all transfers o f funds to the state treasury are effected throu fhthe Reserve Bank o f India, N a g ~ u rfunds ~ ~ , to the state societies are sent by demand draft2 which also contributes to the delay intransfer. Transfer of Fundsfrom States to DistrictBlocks ApprovalProcess: Once funds are transferred to the states, these need to be transmitted to the districts and Since CSS are implemented by the states, the approval process in the state plays an important role in funds flowing to the lower level implementing units. These processes vary from state to state. One reason for the lower pace o f utilization o f funds is the rather cumbersome system o f providing approvals. Inthe states and projects visited, almost every proposal required approval not only by the secretary o f the concerned department, but often also by the concerned minister. This is one o f the main reasons for delay in the implementation o f projects, even where the States are not under fiscal stress. While Go1has no control over this aspect under the treasury model where the project has to operate within the state budgetary and legislative process, it i s marginally better under the society model where some level o f financial delegation has been provided to the project directors in some states. For e.g. under the WCD Project in Tamil Nadu, an empowered committee was set up which consists o f a number o f secretaries o f different departments. ''A recentstudy on flow offunds monitoring, submittedby the NationalInstituteofAdministrativeResearchto the PlanningCommission, has indicatedthatthere are many instances of delays inRBIaffectingcreditsto stateconsolidated funds. Fundsto DRDAs, except for JammuandKashmirandthe NorthEaststates, are transmittedthroughtelegraphic transfers. *'The exceptions are the DRDAswhichreceivefunds directly from Go1and there is no state-levelentity and the State Aids Control Societies which inmost statesdo not havedistrict societies. Note on Public Financial Management and Accountability in Centrally SponsoredSchemes (CSS) 30 Such a step, instead of reducing delays in the approval process has resulted in delays in approval, as demonstrated by the following instances:. A proposal for Rs. 44,200 to organize a pavilion at a trade fair was initiated on September 4, 2002 and approved on October 7, 2002, but the Government Order (GO) was issued only on October 30,2003. As aresult, the project could participate inthe fair, not inthe year initially proposed, butinthe following year. 0 A Rs. 1.4 million proposal for initiating a monitoring study was submitted on May 30,2001 for which the GO was issuedinMay 2002. In Bihar all proposals exceeding Rs. 2.50 million need to be approved by the cabinet. This is another example of how excessive centralization of the authorization process can stall all activities. The long and circuitous route, involves the file having to travel to the chief minister at least thrice before any activity can be approved3'. Suchdelays in approval at the state government level ultimately delay project implementation. Inthe Andaman & Nicobar Islands, for example, the finance department had to give around 1900 concurrences during 2003-04 on various proposal^.^^ Ifthe finance department of a small union territory (UT) has to provide more than 1900 approvals, the number of approvals that the larger states may require can well be imagined. The society model, on the other hand, allows more flexibility as the funds are available in the bank account of the state society and can be transferred to the district by the state societies. However, delays are experienceddue to lack of delegation to the project directors and the need for approval by the chairman of the society that is, the secretary of the concerneddepartment inmost cases, andthis cantake up to a month.32 Mode of Transfer: Under the treasury model the normal practice of allocations to the block i s decided upon by the state unit and intimated to both the district and block units as well as the state treasury, which allocates funds accordingly. The project units at the blocks Box 8: accordingly obtain releases of funds from the Exemption From Expenditure treasury based on submission of bills and subject Control Restrictions on CSS to budgetary discipline inherent in the treasury Tamil Nadu has recently issued a GO system. Releases of funds could also be subject to which exempts certain schemes, delays in states facing a tight fiscal position and including CSS, from the operation of running overdrafts with the RBI. quarterly restriction^.^^ expenditure control 30 Basedon a report inthe Indian Expressof March 16,2005 by Varghese K.George. Similar conclusionshave been given ina study by Dr.N.C. Saxenaon Central Financial Transfers to Bihar. 3 1Circular dated August 24, 2004 issued by Chief Secretary, Andaman andNicobar Administration 32 IntheMalaria Control ProjectinOrissa, all approvals for transfer offunds have to be given by the Secretary (Health) andthe project director had no financial delegation, which often delays the transfer from the integrated state society to the project bank account by one month. 33 GO 167dated March 31,2004 exempts CSS, projects shared between Go1and GoTN, externally aided projects (EAPs), and schemes funded through loan assistance by financial institutions from the operation of quarterly control of appropriations. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 31 Under the society model the delay is primarily attributable to the physical mode of transfer that is, by demanddraft and delays inclearanceof cheques. The delay intransfer of funds is more acute inthe case of rural development schemes where funds flow to the three tiers of PRIs and the use of localized rural banks and delays ininter-bank clearance. A recent study conducted by the Planning Commission on monitoring of flow of funds inCSS has also concluded that: (a) there are significant delays intransfer of funds to andfrom statetreasuries to the implementing units andthe delay has a close co-relation with the fiscal stress andquality of accounting inthe states; (b) at the central level, schemes with an ability to enforce greater adherence to conditions of prior expenditure by the states, before making subsequent releases, clearly showed smaller time lags in releases at the intermediate level. (AnnexureV shows detailed conclusions ofthe study.) Issue of Idle Funds One downside of the society model, where funds are normally transferred twice a year, is the issue of idle funds. An analysis for 2003-04 of the TB Project, a relatively small project, indicates that the level of idle funds across various states and district societies could be approximately Rs. 250 million. This works out to approximately 40 percent of the total utilization o f Rs. 626 million by the states during the year. A similar situation is likely in schemes with significantly larger outlays. The audit reports of CAG have also regularly highlighted the issue of large funds lying idle in bank accounts or as deposits in PL accounts34. Given the nature of CSS and the large number of implementing units (at a minimum of 600 districts), while a minimum cash float may be necessary to maintain smooth operations, the large amount of idle funds i s perhaps the main cause for concern and possibly the reason for state governments, which face a tight fiscal position and run overdrafts, to insist that funds be routed through the consolidated fund of the state. Under the RCH Phase I Project, the Government of Rajasthan temporarily utilized the idle funds aggregating to Rs. 240 million, lying in the state society in 2000-01, by transferring the surplus from the RCH society into the Public Account of the state35. Use of E- bankingFacilities Most CSS have not been able to develop an effective MIS which would enable the CPMU and the FA to know, on a periodic basis, the actual level of physical funds and the advancesand depositswith state anddistrict societies. MoRD has developed an online data entry system for updating the financial status based on which the funds available with each DRDA couldbetracked, butthis is underminedto some extent bythe backlogs indata entry by many districts36. Some other recent initiatives in this direction are the RCH, Phase I1 Program where an e-banking solution is being piloted which could address the issue of funds flow, as well as availability online, of the status of utilization of funds at each level. Similarly the Prime Minister's Grameen Sadak Yojana (PMGSY) has also developed an online accounting and monitoring systemwith the assistance o f the Center for Development 34Para3.5.2 and Para3.5.4 -CAG Report 3 of 2003. 35RCH-IProject Audit Report for Rajasthanfor 2000-01. 36 The website of MoRD indicates that 187 districts have not updated the data in the system. Note on Public Financial Management and Accountability in Centrally Sponsored Schemes (CSS) 32 o f Telematics (C-DAC). There have also been some simple but effective initiatives to reduce delays intransfer o f funds at the state and PRIlevel. For example, inBihar under the ICDS program, all the blocks level bank accounts ina district are with a single bank, which facilitates cheque clearance; inKarnataka funds are remitted electronically to all GPs. Way Forward: There is a need to address the constraints inthe approval process, both at the state and central levels and adopt the opportunities provided by improvements in banking, IT and communication to further streamline the flow of funds process. Going forwards Go1should: Review the sanction and funds release process within the ministries in order to reduce the time taken for releases. Line ministries should have clear guidelines for release o f funds for all CSS. This would bring about transparency and objectiveness in the review and approval process and would also reduce the time taken for approval. States could also be encouraged to adopt similar guidelines for CSS where funds flow though the treasury; Require states to incorporate appropriate financial delegation for state and district level project directors managing CSS as part o fthe design; Develop a road-map for use of e-banking, which is increasingly becoming available for transfer o f funds to states and districts and eventually to PRIs. Also, with the improvements in information technology and lowering of communication costs, effective M I S must be developedthrough which funds can be tracked; With the combination o f improvement in the approval process, lesser number o f schemes, appropriately skilled finance personnel at all levels, use o f IT-based systems, a planto move to a system o f quarterly releases o f funds from Go1could be envisaged inthe medium term. This will address the incidence o f idle funds. Given the opportunity cost o f such idle funds, the payback on investment in IT systems could be even less than one year. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 33 VII. ACCOUNTING FRAMEWORK AccountingFramework The government accounting system in India is rule based37.The basic principles of government accounts are enunciated in the Government Accounting Rules. The Accounts Code, the Financial Code andthe Treasury Code all form part of the government accounting structure. Basisof Accounting All fund releases by Go1 for CSS, both to the state treasuries and to the state societies, are recognized as "Grant-in-Aid" in the accounts of Go1 and reported to the parliament as expenditure. The downstream financial management aspects such as utilization, financial reporting and audit assurance essentially come under the realm of financial monitoring. The risk of unutilized budgets lapsing at the end of the financial year creates the pressure to "spend" the budget at Go1 level. This often results in the ministries pushing funds out, particularly in the last quarter of the year, despite instructions from MoF to restrict fund transfers inthe last quarter to not more than one- third of the budget allocation. Similarpressure is also faced inthe states where CSS funds flow through the treasury. CAG reports regularly identify this practice, both inGo1and the audit reports of the states. Table VI1 in one CAG report, highlights this practice of transferring funds not only in the last quarter but sometimes even duringthe last month. Table VI1 Instancesof Large FundsReleases inthe LastQuarterof the FinancialYear (Rs inmillion) Source: CAG's Audit Report 3 of 2003 for National Scheme of Liberationand Rehabilitation of Scavengers. An analysis of funds transfers for the three sample states over five years in the WCD Project indicated that on an average 47 percent of transfers took place during the last quarter, of which 53 percent were done inthe monthof March. 37 With aview to move from a rule-basedto a standards-basedaccounting and financial reportingsystem, CAG has constitutedthe GASAB,which is developingaccountingstandards for the government sector. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes(CSS) 34 Accounting Practices and Policies at State Level The accounting practices and policies are determined on the basis o f whether the project at the state level i s departmentally implemented or by the state or district societies. Treasury model: Accounting in the state government is done on the basis o f the existing treasury system and the compilation o f the accounts is the responsibility o f the state's Accountant General (Accounts & Entitlement) [AG (A & E)]. State financial rules and procedures are also applicable to CSS and Go1 has no control over the varying administrative processes or the effectiveness o f internal control in individual states. A uniform account code structure is followed across the country, both in Go1 and the states. This ensures that the broad budget heads used by states implementing CSS are common across the country and normally for externally aided projects (EAP) a separate budget line i s used. However, the limitations o f the treasury model are: As states also follow a cash basis o f accounting, releases from the state treasury to various implementing units are accounted as expenditure and reportedby the state project units to GO1as e~penditure~~. CSS projects, including EAP, are normally budgeted and consequently accounted under a single line item39in the accounts with the exception being a distinction between revenue and capital. It is, therefore, not possible to obtain financial reports activity-wise from the regular accounting system o f the treasury and AG (A&E) that could facilitate monitoring on a periodic basis. Departmental accounts are often not reconciled (sometimes for years) with the accounting records o f the AG (A&E), leading to concerns on the correctness o f the reported expenditures. No financial statements are prepared by the states and consequently no opinion on the financial statements is provided by CAG.40 InUttar Pradesh it was observed that the finance department does not track funds receipt for CSS andthis i s left to the department implementing the project. 38 For e.g. inthe WCD project funds released to various agencies for construction o f Anganwadi centres and installation o fhand pumps are accounted for an expenditure inthe State Accounts and reported to GO1as expenditure at the time of fund release and not on the basis o futilization o f funds by the implementing ''agencies. An ExpertGroup hasrecentlypublishedareportonthe presentgovernmentstructure of account codes andtheir suitability to displaythe nature and objectiveof government expenditure.The Group has recommendedadoption of a computerizedmulti-dimensionalclassificationcode. A majorbenefitofthe proposedscheme is expectedto be improved dataextraction, in the form required,andwould allow transfers to functionsandprograms.It will also facilitatetransition to accrualaccounting. 40 CAG providesan audit certificateconfirming the eligibility of expendituresincurred. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 35 Some states have initiated efforts to improve the financial management and internal control aspects by linking the release of funds to settlement of advances, reconciliation and submission of UCs. Box 9: Example of LinkingRelease of Fundswith Adherenceto FinancialDiscipline The Andhra Pradeshgovernment has issued a GO (GO 507) which is an important step in setting the framework for financial accountability. The GO targets key accounting controls, which affect the timeliness and reliability o f the accounts. These controls cover replies to audit observations, settlement of abstract contingency bills, submission of expenditure statements and UCs and links the release o f further funds or payments of bills to compliance withenforcement via the treasury department. Society Model: The accounting framework, which governs the accounting policies, format of financial statement and disclosure requirement for projects implementedthrough the society model is weak. These appear to have evolved by practice and experience. The accounting framework o f the state and district societies is impacted by the following: The Societies RegistrationAct, 1860 or Equivalent State Act: These acts41only require that accounts be prepared by the society and audited by a chartered accountant; there is no reference to the accounting standards that are applicable. Go1GFR, 1963: The GFRs on Grants-in-Aidand loans only indicate that UCs and audited accounts are to be furnished by the autonomous agencies receiving the grant from GoI, within one year of the close of the financial year. The accounting standards to be used for preparing the financial statements are not clarified in the GFRs. The task force for review of the GFRs have incorporated a clause under rule 209 (6) (xiii) which states that the standard formats for presentation of financial statements formulated by MoF shall apply to all central autonomous organizations. This however does not cover the state and district societies, as these are state bodies and the GFRs of GO1do not apply to them. Accounting Standards Issued by ICAI: ICAI's Technical Guide on Accounting and Auditing inNot-for-Profit Organizations clarifies the applicability of accounting and audit assurance standardsto such entities. ICAI has clarified that its accounting standards do not apply to not-$or-profit entities, if no part of the activity is commercial, industrial or business in nature42. (Annexure 3). Thus there is ambiguity about the applicability of ICAI's accounting standards to the state and district societies. 41 The SocietiesRegistrationAct,1860 does not spellout any requirementsbut subsequentacts enactedby the states requireareceiptand payment statement and balancesheet to beprepared. 42ICAIhashowever recommendedthat even ifno activity of commercial, industrialor businessnature is carriedout, the accounting standardsbe usedsuch in entities. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 36 Inpractice, most state and district societiesfollow a cashaccounting system43.Ina majority of cases, the financial statements are prepared and audited by the chartered accountants, not only undermining the audit but also creating significant variations in the accounting policies adopted, as seen in the format of financial statements and the disclosures. During transaction audit by CAG and MoRD, the DRDA accounts were found lacking in depth and scope.44Annexure VI shows the inconsistencies in application of accounting policies from various audited financial statements received in Bank funded projects. Many projects have prepared accounting manuals, which seek to address this issue, but there i s clearly a need for uniform accounting policies distinguishing between expenditure and advance, standard format for financial reporting and disclosures. For example, CAG Audit Report No. 3 of 2003 on the SGSY indicates that out of the expenditure of Rs. 9884 million test checked there is over-reporting o f expenditure to the extent of Rs. 2440 million (approximately 25 percent). This arises because of outstanding advances, deposits inpersonal ledger accounts, term deposits inbanks etc being reported as expenditure. A clear set of accounting policy and disclosure requirements could help in addressingthis issue either inthe accounting process itselfor duringthe course of audit. MoF had appointed a Committee of Experts inMay 1999which finalized a Uniform Format of Accounts for Central Autonomous Bodies and suggested the use of accrual accounting. The format is a vast improvement on non-standard accounts being prepared by most such organizations. However the format is more in line with financial reporting for a commercial entity. There is no requirement for functional reporting or disclosure by activities, which i s more relevant inthe social sector. Also there is lack of awareness about this format withinthe ministriesimplementing CSS and none ofthe ministrieshave adopted the UniformFormat for CSS. A review of some international accounting standards andpractices for not-for-profit entities indicates: e Inthe UnitedKingdomthe Accounting StandardsBoard (ASB)has issueda Statement of RecommendedPractices(SORP) for "Accounting andReporting by Charities" in2005. It is anexhaustive document and provides guidance on the format of financial statements, policies on recognition of resourcesexpended, additional disclosures requirementandthe contents of the annual report which focuses on achievement and performance. Inaddition, the ASB has issued a discussionpaper on Statement of Principles for Financial Reporting for "Public BenefitEntities". e Inthe United States of America, the Financial Accounting Standard Board (FASB) has issued FASB- 117 which provides for the format of financial statements for Not- for-Profit organizations which also provides for financial reporting by functions that i s activities. 43The DRDA accountingmanualrequiresaccountsto be maintainedon an accrual basis. 44World Bank SynthesisReporton Public FinancialManagementand Accountability inPMs- para4 inexternalauditing section. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 37 International practices are not directly applicable to this unique model o f state and district societies. However, the need for standard financial reporting requires urgent attention. This i s illustrated by an extract from the financial regulations clause 7.10 (i) o f the Maharastra Prathmic ShihhanParishad (implementing the SSA program) which reads: "the Parishad shall maintain an annual statement o f accounts including the Balance Sheet in such form as the Central Government prescribes." The state societies thus look to Go1 to specify the financial reporting and disclosure requirements. Way Forward: The institutional framework for accounting and financial reporting i s unclear, with no clear mandate either in the GFRs or the Societies Registration Act. This has led to application o f varying accounting policies by each project. The use o f the society model has also meant that the state budgets and financial statements do not reflect "off budget" transfers. With the states also following a policy o f treating accounting releases as expenditure, this leads to expenditures getting reported to Go1 even if no activity has happened on the ground. There i s clearly a need for developing uniform formats o f financial reporting and disclosure for both the societies and state departments. Going forward, Go1needs to: Inthe near term, buildon the initial initiatives o fthe expert committee and develop, in consultation with CGA and ICAI, a framework for standard financial reporting, with uniform and consistent accountingpolicies and disclosure requirements for the state and district societies. This should reflect the specific needs o f the social sector where the traditional account classification may be less useful and relevant. These would also be valid in the broader context o f many societies receiving funding exclusively from the states. These also have to be elucidated in the GFRs o f both Go1and the states. In the medium to longer term, consider amending the Societies Registration Act, 1860 to incorporate provisions regarding: maintenance o f accounts and disclosure requirements, compliance with Indian Accounting Standards, filing o f accounts, appointment o f auditors and constitution o f audit committee. Require projects, implemented with funds flowing through the state treasury, to prepare financial statements (statement o f sources and uses o f funds) which are reconciled with the figures maintained by the AG (A & E) and disclose the accounting policies used to prepare the financial statements to ensure consistency and uniformity across the States. This could be started on a pilot basis for selected large schemes. GASAB, the Accounting Standard settingbody be requested to address the issue of off-budget financing and commodity grants from Go1 while developing accounting standards, which would provide for appropriate disclosures both inthe budget and in the annual financial statements o f the states. Note on Public Financial Management andAccountability in Centrally Sponsored Schemes (CSS) 38 VIII. INTERNAL CONTROL& AUDIT, REPORTING& MONITORING InternalControl While the funds flowing through the state treasuries are subject to the normal budgetary and internal control framework and rules o f the state, the internal control framework in societies i s driven by the program guidelines and administrative guidelines, scheme formulations and the accounting manualo f each project prepared by the CPMU. In some o f the societies45, in which the states are also required to contribute, the financial regulations o f the society have been approved by the finance department o f the state. This creates a sense o f ownership and responsibility for the state. The actual compliance with such internal controls i s however weak as indicated in selected management letters o f the auditors. (Annexure VII.) InternalManagementAudit The need for regular review and monitoring o f the program cannot be overstated. Such a review can include financial and physical progress, accuracy o f the reports being submitted, adequacy and effectiveness o f internal controls in the implementing units, identifying operational bottlenecks and constraints inflow o f funds or implementation, staff vacancies, shortages or delays in delivery o f books or drugs etc. This can be achieved through a mechanism o f management or internal audit. However, the internal audit system for periodically reviewing the adherence to such internal controls and procedures does not exist or the internal auditors themselves may come from within the society or agency, thereby compromising their independence. The SSA program has state-level internal auditors, while in the MoRD, the CCA carries out audit reviews that cover approximately 40-50 districts in a year. Box 10 shows some new initiatives for management audit and review inthe states based on financial management indicators. Box 10 RCH-11:Use ofFinancialManagementIndicatorsas a Basisfor Review ofStates andDistricts A set o f financial management indicators, classified into staffing and empowerment related and financial performance related46, have been developed by MoHFW in the RCH, Phase I1Program. This, along with output and outcome indicators, will be used to determine the frequency o f state reviews by GoI, additional performance allocation to the states andinidentifying additional capacity support for the states and districts. 45MaharastraPrathmic ShikshanParishad(implementingthe SSA program). 46This looks at the quality and adequacy of finance stafc adequacy of financial delegation, the planversus actual expenditure, quality andtimeliness offinancialreports, financialstatementsand audit reports, audit observationsand settlementofaudit observationsetc. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 39 Box 11 SSA IndependentAgency for ManagementAudit - The SSA program has appointed an independent agency, the Institute o f Public Auditors o f India (IPAI), to carry out a management review, which is a combination o f management audit and PER o f selected states and districts. This review focuses on the physical and financial progress, quality and accuracy o f the data submitted by the field to the district units, physical verification o f assets, and identifying operational delays etc. Under the treasury model the states also have their own internal audit departments but the focus is more on checking compliance with procedures. In the WCD Project in Rajasthan, it was observed that the project gets its internal auditors to undertake reconciliation with the AG (Accounts) and inUttarPradesh, internal audit normally follows up on resolving annual audit objections. The CAG's recent review of the performance of the internal audit function across the states concluded that there are significant delays in internal audit, shortage of staff in the internal audit departments and lack o f compliance or response to internal audit observation^.^' MonitoringReports-FinancialandPhysical In most programs, the financial reports or statements of expenditure (SOE) are submitted on a quarterly basis. The timeliness o f submission o f financial reports i s linked to the quantum o f funds released. For instance, inthe W C D Project the states receiving larger financial assistance ("project states") are reasonably regular in submission o f SOEs, while there is a backlog in submission o f SOEs by the states receiving funds only for the training component under which a relatively lesser quantum o f funds are transferred4'. Similarly under RCH-I, where funds were released activity-wise, there were delays in submission o f UCs and SOEs. In 2001 the DoFW had to engage a firm o f chartered accountants to visit the states to collect their UCs and SOEs. Also, given the lack o f clear accounting policies which distinguish expenditures and advances or deposits and the cash basis o f accounting followed under the treasury model, expenditures tend to be overstated. For example, inthe W C D Project, releases from the departments to DRDAs and zila parishads for construction o f anganwadi centers (day-care centers) are recordedas expenditure at the time o f release o f funds and reported to Go1as expenditure. However the system o f monitoring the receipt o f UCs for such transfers is not very effective49. Similar observations abound in the audit reports o f the C A G on various programs o f MoRD (Table I). To some extent the issue o f excess reporting i s driven by the fact that subsequent fund releases by Go1 in rural development programs are linked to achieving a minimum level o f spending. District units have to spend at least 60 percent o f the available funds to obtain the second instalment, thereby putting pressure on them to transfer funds to lower 47Various state audit reports ofthe CAG for the year ended March31,2003. 48As per the WCD Projectquarterlyprogressreport (September30,2004), eight states hadnot submittedSOEsfor the quarter endedJune 30,2004 and 16 states for the quarter ended September 30,2004. 49Various CAG audit reportsofproject states of the WCD Projectindicatethat UCs are pending. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes(CSS) 40 level implementing units and report it as expenditure5'. Some recent initiatives which require the auditors to verify a reconciliation statement betweenthe expenditures as per the quarterly financial reports, SOEs and the expenditure as per the audited financial statements have been useful inthe NACP-I1Project to identify any excess or short reporting. The projects covered in the field visits also submit data on key physical outputs achieved, based on information received from the field level workers or implementing units who maintain registers to record such information. This does not come with the financial reports and co-relation betweenfinancial and physical progress is often not possible. While financial information in the reports is normally subjected to some check by way of audits, the physical aspect i s normally not subjectedto any regular checks and physical verification of assets is not covered in the audit process. In this regard, the TB Project has provided guidance notes to its state units on undertaking regular monitoring o f quarterly reports. Some evidence of district-wise monitoring of quarterly reports was generally seen. WHO consultants, basedinthe states, inthe TB Project provided good support inthis regard. monitoring and evaluation - - systems for the social sector __Box-12- schemes* The PMGSY: QualityAssuranceMechanisms1 Under the PMGSY a three-tier quality monitoring Of recommendations is in Annexure About a arrangement has been set up wherein National Quality Monitors (NQM) have been appointed to monitor the year district and nationalappointed level quality o f work. The guidelines provide for minimum qualifications for appointment of monitors, clear terms of monitors to periodical'y review reference and action to be taken on the reports of the the progress Of N Q M at the district, state and national levels. More programs* The importantly, the guidelines provide that writing a letter to reportsare submitted to the contractor or a subordinate does not constitute action Synopses Of these reportsy taken and should not be treated as action taken. The with reports online accounting and physical progress tracking system and impact assessment are and enables comparison o f financial and physical progress. published by the monitoring This information is also available on the website of the and evaluation department of ro.ect, 50A recent Bank study on PublicFinancialManagementinBihar indicatesthat inorder to demonstrate utilizationof at least60 percent, funds are transferredfrom DRDAto bank accountsheldbyjunior engineersor grampanchayat secretaries and others. This gives a misleadingpictureofactual achievementand also resultsin loss of controland increasesthe risk ofmisuseof funds, since there is no systematic processfor monitoringand controllingthe creation and useof such accounts. PMGSY.nic.in Note on Public Financial Management andAccountability in Centrally SponsoredSchemes(CSS) 41 InformationTechnology The experience with developing computerized financial management systems (CFMS) in Bank funded CSS projects, which would have enabled monitoring o f the funds position as well as generation o f financial reports for monitoring purposes, has been mixed with more failures than successes. The CFMS developed for the NACP-I1 has been implemented with reasonable success. The reasons for successful implementation were a strong level o f ownership within the project, adequate and appropriate finance staffing structure both in the CPMU and in the states and periodic training and upgrading o f the software to address the new needs o f the project. Similar initiatives for developing a CFMS inthe Leprosy Control Projectandthe WCD projects, which started in 1999didnot succeed as these were seen as initiatives to meet the Bank's reporting requirement and there was a lack o f ownership of the initiative. However, where the initiatives have come from the line ministries themselves, such as MoRD (PMGSY and DRDA), the success rate has been better. Utilization Certificate The current requirement of the UC, which only Confirms the quantum O funds utilized and that Box 13 f ucReconciledto Audited Financial it has been spent for intended purpose, only serves as a control or fiduciary document rather Statements: TB Project In the TB Project a consolidated uc than a document which could enable reconciled with the expenditure as per the monitoring of the financial and Physical consolidated audited financial statements progress of the project. for the state is sent. The task team for the review o f GFRs, 1963 recommended that for central autonomous bodies, the U C clearly distinguishbetween the physical funds available and the advances or deposits pending with suppliers, construction agencies, staff etc., which do not constitute expenditure at that stage52. Way Forward a) Though the framework for internal control by state financial rules and accounting manuals is adequate, the compliance with such internal control procedures especially in projects implemented through state and district societies is not robust. The accounting policy followed by the state, and the pressure to spend money to obtain future releases, leads to over-reporting o f expenditures. The internal audit function, both in departmentally implemented projects and in state societies, i s either weak or non-existent. Go1 needs to build on various initiatives of individual ministries to improve monitoring and supervision; and, b) consider de-linking the subsequent release of funds to achievement o f certain minimumexpenditure levels, as inmany Rural Development schemes, as this has an 52 Proposed rule no 212 (1) note 2 on UCs. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 42 incentive to over report expenditures in order to meet the set targets and be eligible to receive the next tranche. With a shift to state and eventually district based plans, fund releases should be based on the actual expenditure incurred and the projected requirement o f funds and review o fthe progress against the approved work plan. c) require the ministries, states and district units to set inplace mechanisms to monitor progress in line with the recommendations o f the steering committee on monitoring and evaluation o f social sector projects, with a transparent mechanism for taking action on the reports on lines similar to the arrangements inthe PMGSY. d) require line ministries to develop a system of management audit or a risk based audit mechanism as an integral part o fthe design o fthe scheme. e) encourage the use o f low-cost off-the-shelf accounting packages, which can also be web-enabled, for use inthe societies. Most o f such packages permit maintenance o f accounts o f multiple programs and their consolidation. The use o f such web-enabled accounting packages would not only enable timely accounting and reporting, but also facilitate monitoring o f cash balances on a real time basis. f ) consider making the proposed amendment in GFRs for preparation o f UCs for central autonomous bodies, also applicable to CSS (for both treasury and society models) in order to address the issue o f excess reporting that is, clearly distinguish between physical funds available and advances or deposits with suppliers, construction agencies, staff etc which do not constitute expenditure at that stage. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 43 IX:EXTERNAL AUDIT & LEGISLATIVE OVERSIGHT The independence o f the auditor from the executive and the legislature and the auditors' powers are well established in the Constitution, well recognized and adequate. Under the CAG's Duties and Powers as defined in section 13 o f the C A G Act, it i s the CAG's duty to audit the expenditure from the Consolidated Fund o f India and of each state and unionterritory having a legislative assembly. The C A G carries out certification audit o f expenditures for CSS projects and also performance audit o f selected CSS on an annual basis. Treasury Model - Audit Certification: Under the treasury model all CSS, including those externally aided, are audited by the CAG. This i s in the form o f an audit certificate to confirm the eligibility o f the expenditures incurredby the projects. The reports o f the CAG53indicate a large backlog inthe issue o f such certificates. TableVI11 Backlogin Submissionof Audit Certificatesby Statesfor CSS S.No Schemes No. of Schemes for WhichAudit CertificatesWere: Dueto be Actually Outstanding as Percentage Issued Issued on March 31, Outstanding 2003 1 Central Plan 1339 860 479 36 Schemes 2 Centrally Sponsored 4654 2257 2397 52 Schemes Total 5993 3117 2876 48 The delay in audit o f the accounts o f CSS i s attributable to the delay in submission o f SOEs by the project implementing units. This is also due to a lack o f follow up by Go1 for the audit reports and funds flowing to defaulting states and implementing entities. As the projects do not prepare financial statements, the audit opinion also takes the form of a certification of the eligibility o f the expenditures incurred under CSS rather than an opinion on the financial statements. In Bank funded projects, where reimbursements are made on the basis of actual expenditures incurred and not hnd releases, the C A G has disallowed expenditures for which proof o f utilization is not available54. Such disallowances are considered for re- certification only during the subsequent year's audit. The fact that states continue to receive funds from GoI, despite issues identified in the audit reports o f the CAGYmeans there i s little incentive for the states to take action on the observations inthe CAG audit reports. 53Activity Reportofthe IndianAudit & Accounts Dept for the year 2002-03. 54The WCD Projecthas faced the problemof large disallowance which has beenpartly recoveredby the Bank. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 44 Society Model: A society being a legal entity needs to prepare financial statements. The GFRs, 1963 require that these are submitted within one year from the close of the financial year of the society55. According to section 14 (1) of the DPC Act, the CAG shall audit any body or authority which is substantially financed by grants or loans from the Consolidated Fundo f India or of any state or union territory having a legislative assembly. However due to lack of adequateresources inthe CAGYsuch societies are not audited by the CAG on an annual basis. The annual audit of such societies are carried out by chartered accountants appointed by the governing body of the state or district society. The chartered accountants are requiredto adhere to the Audit Assurance Standardsof ICAIand provide an audit opinion on the financial statements. Quality and Independence of Private Auditors: While an opinion on the financial statements is provided by the chartered accountants, the quality of the audit suffers on the following counts: lack o f inde endence of the auditors as they are appointed by the entities them~elves.~~Also,most auditors preparethe financial statements due to lack of capacity of the staff, thereby undermining their role as auditors. given the large number of firms of chartered accountants, adherence to the Audit Assurance Standards o f ICAI is not always certain, though the ICAI has started initiatives on peer review mechanisms5'. there i s no assertion or confirmation required that the funds have been used for intendedpurposes5*. The follow-up mechanism within the ministries in Go1 on the qualifications, observations and internal control weaknesses of the state and district societies identified in the audit report is also weak. MoRD guidelines for recent schemes have incorporated the requirementof action takenreport on audit observations. In the United States, the Office of the Management and Budget has issued a circular59 requiring auditors of not-for-profit entities, which receive federal grants, to make certain assertions inaddition to providing an opinion on the financial statements including: a report on internal control related to the financial statements and major programs; and a report on the compliance with laws, regulations and provisions of the grant etc. Similarly certain additional assurances are required to be provided by the auditors of private sector companies inIndia under the Statement on Companies (Auditors) Report Order, 2003 under 55The task force for review ofthe GFRs hasrecommendedreductionof the periodto nine months. Most projectsrequire audit reportsto be submittedwithin 6-9 months. 56Inthe RCHProject,Go1obtains alist from the CAG andcirculatesit to the state societies. This bringsinsome element of independence. "InrecentBankfundedprojects,oneleveloffilterhasbeenintroducedthatrequiresthatonlycharteredaccountants empanelledwith the CAG be appointed as auditors. The appointment of one auditor per state has shownimprovementin the quality andconsistency of financial statements.The World BankReporton Observanceof Standards andCodes (ROSC) has also recommendedthe settingup of an independentoversight body. InBank funded projectsan additionalopinion onthe eligibility ofthe expenditures incurredand claimedinthe SOEs is providedby the auditors. 59CircularA-133 ofthe Office ofthe Managementand Budget ,USGovernment. Note on Public Financial Management and Accountability in Centrally SponsoredSchemes (CSSJ 45 section 227 (4A) o f the Companies Act, 1956. Auditors o f public sector banks in India are also requiredto provide a Long Form Audit Report (LFAR). LegislativeOversight PerformanceAudit: Inaddition to regular audit certification, the CAG carries out performance audits o f CSS. About three schemes are identified for performance audit each year. These highlight different aspects o f the scheme, including design defects, program performance, both financial and physical, fund outlays, release and utilization, efficiency and effectiveness o f the use o f funds, institutional mechanisms and adequacy o f monitoring arrangements, etc. The performance audit report o f the C A G is also incorporated inthe audit report o f the states even if no contribution is required to be made by the states.601nthe absence o f any other formal reporting on the performance of the CSS to the parliament or legislature, this is often the only independent information available to the parliament and the Public Accounts Committee on the performance o fthe CSS. ExternalReportingand Transparency Each ministry i s required to prepare an annual report covering all its activities, including all CSS, during each financial year. This i s qualitative in nature and has to be submitted to the parliament along with the demand for grants. Each ministry also submits along with the demand for grants a performance budget to be placed in the parliament. The performance budget report i s a collective summary o f activities proposed to be implemented by the ministry. A review o f the performance budget o f a few departments shows that it mainly contains the budget details by various schemes and write-up about the scheme activities. It does not contain any physical targets or outputs expected to be achieved during the financial year. The performance budget also contains details o f the expenditure that is, funds released by Go1to the states Box 14 towards CSS. Given the inherent FromExpendituresto Outcomes: time-lag in CSS, between transfer Commentsof the 12fhFinanceCommissionon o f funds to states and the actual PerformanceBudgets expenditure, this timeline does not (Para 4.61) permit the actual results (financial A critical part o f budgetary reforms must include and physical outputs) to be information on the relationship between expenditures reported against the planned and the corresponding performance in producing real targets. Thus there is no results as indetermining the size o f the budget and its systematic and annual feedback allocation among different heads. Although inthe past mechanism on actual performance there have been attempts at introducing performance o f CSS to the parliament in Go1 budgets, such endeavours have receded inimportance. or to the legislative assembly in There is a need to bring back performance budgeting the state. The absence o f such a as an integral part of preparation and evaluation o f mechanism also reduces the budgets, both for the centre andthe states. 6oThe PMGSY which is 100percentfinancedby Go1anduses the society model has audit findings included inthe state report as well as the reportof Go1(2003-04). Note on Public Financial ManagementandAccountability in Centrally SponsoredSchemes(CSS) 46 incentive to set up efficient systems and standards for reporting. The state and district societies are also not required by the Societies Registration Act to publish their accounts. In practice a few projects are publishing the annual report together with the audited financial statements for example, the state society in Gujarat implementingthe SSA Program and the state society in Uttar Pradesh implementing the WCD Project publishan annual report together with audited financial statements. Way Forward The framework for external financial audit, performance reporting and transparency inCSS needs considerable strengthening. While the quantum of funds inCSS has grown, the audit assurancemechanismhasnot beenreceivedadequate attention. Go1should: Address the backlog in submission of audit certificates from the states and set up mechanisms for monitoring their timely submission in view of risk of diversion of CSS funds by states as highlightedinthe CAG audit reports,. Ensure that the process of selection and appointment of chartered accounts as external auditors for state and district societies be strengthened to bring in an element o f independence. This is required, given the large amount of public funds moving through the society route (approximately Rs. 300,000 million per annum, based on budget estimates of financial year 2005-06). The alternatives could be: (i) a process similar to that inPSUs where the auditors are appointed by CAG; or (ii) a selection of auditors by a panel, as inpubic sector banks. Develop a standard "Terms of Reference" in consultation with the CAG for chartered accountants auditing societies, to cover a list o f additional issues such as internal control, control over assets, inventory, reconciliationo f reported expenditure with actual expenditures, physical verification of a sample of projects and beneficiaries and on which specific assurances may be sought. Consider de-linkingthe performance report for CSS from the performance budget to reflect the inherent lag between the funds released and actual expenditure. The performance report could be submittedto the parliamentafter a period of 6-9 months after the close of the financial year when information on actual outputs and funds utilization, as compared to the plannedtargets, is available. Similar reports could be submitted to the state legislatures on the performance of CSS relating to the states. The performance report should also include the action taken on observations of the CAG performance audit reports. This would not only provide a mechanism to report to the parliament but also to the media and other stakeholders and will support a shift in focus from funds release to actual financial and physical outputs and encourage improvement in the quality of monitoring. Also, additional disclosures can be made inthe annual accounts of Go1on the status of financial performance of css. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 47 e) Require that the state and district societies prepare annual reports reflecting the performance for the year together with audited financial statements within a specified limit frame after the close o f the financial year. Such reports should be made public and could be hosted on the websites. f) Consider that MoRD put the findings and action taken on reports of the district and national level monitors on the website. Other ministries may also be encouraged to follow the transparent mechanism set up to monitor quality inthe PMGSY project. Note on Public Financial Management and Accountability in Centrally Sponsored Schemes (CSS) 48 X. IMPACT OF INVOLVEMENT OF PANCHAYATI RAJINSTITUTIONS IN CENTRALLY SPONSORED SCHEMES The MoRD has the largest budget among all the line ministries in Go1 for CSS. It finances various programs inthe area o f poverty alleviation, rural employment, housing and roads. A large number o f these programs are implemented by the three tiers o f PRIs. Currently PRIs are not playing a significant role in most CSS which the Bank presently supports in the health and education sectors. However with the decentralization agenda o f Go1 in conformity with the 73rd Constitutional Amendment, the likely trend is one o f increasing involvement o f PRIs inall sectors. Karnataka has taken the initiative to devolve functions, functionaries and funds to the PRIs and other states like Madhya Pradesh, Rajasthan and Uttar Pradesh have also made significant progress in achieving devolution o f powers. This will increasingly need to be reflected in the design o f CSS. The public financial management and accountability framework in PRIs will also critically impact the overall financial accountability fiamework for CSS. The C A G has consistently reported the issue o f diversion and over-reporting o f expenditures in rural development projects. (Table 11). This report draws on the conclusions o f a parallel synthesis study on Public Financial Management and Accountability in PRIs61which indicates: that the accounting and accountability framework inPRIs is still evolving andthere are several weaknesses; the need to strengthen the framework for accountability, especially mechanisms to ensure adherence to basic financial controls, and put more trained accountants on the ground to match the increased levels of financial responsibility. However, a series o f initiatives taken at the central and state levels have the potential for altering the accountability landscape in PRIs. There also several success stories. All stakeholders, especially other states, need to consider emulating these initiatives. The conclusions o f this report on the specific aspects o f financial management are: Planning and Budgeting: While the state acts and rules contain elaborate provisions for the preparation and approval o f PRI budgets, there is a lack o f information about the progress o f projects at the village level. As the flow o f funds is unpredictable from the higher tiers, budgeting in all three panchayat tiers becomes top-down rather than bottom-up and demand driven. In addition, since budgeting is done in an unrealistic manner, there is no serious attempt to forecast revenues and expenditures. Budgets are proforma, and are prepared only to comply with statutory requirements; they are not used as tools for financial control or long-term planning. Flow of Funds: The flow o f funds to the three-tier panchayat structure mainly consists o f planassistance from the central and state governments. However, the timing and amount o f these funds varies considerably from state to state and i s generally unpredictable. What further complicates the situation is that these funds come through many different paths and banking arrangements and clearance o f cheques takes a long time. Also, CSS funds typically move from MoRD to DRDA accounts, then to the three respective tiers o f PRIs. World Bank Reporton Public FinancialManagementandAccountability in PRIs. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 49 InRajasthan, the zillaparishad directly receives these funds which thenmove sequentially to thepanchayat samiti andthenthe grampanchayat. Internal Control and Internal Audit: In general, the Panchayati Raj Act and Rules of States provide for a tight set of internal controls on the use of PRI resources. However, these controls have not curbed the thousands of reported frauds and embezzlements at the PRI level. The various State Financial Accountability Assessments (SFAAs) of the Bank have documented that internal audit is either non-existent or inadequateat the PRI level. Accounting: The accounting practices adopted by thepanchayats, eachof which is an accounting unit, do not reflect the financial resources entrusted to them. Their registers and books of accounts have not been upgradedto enable them to account for the increased and diversified flow of resources in the present decentralized system. There are also no accounting standards or uniform accounting codes for panchayats. Variation exists even withinthe same state. Inaddition, the accounts are often late and unreliable. However, the lack of reliability is changing as a result o f a recommendation put forth by the Eleventh Finance Commission, whereby it entrusted the Technical Guidance and Supervision (TGS) of PRI accountsto the CAG. To fulfil the TGS mandate, the CAG has prescribed accounting formats for PRIs, as well as auditing standards and guidelines for certification audit. Eighteen states are in an advanced stage o f implementing these formats; several others are modifyingthe formats inkeeping with local requirements.PRIs are also constrained by lack of capacity, particularly Gram Panchayats(GPs). InUttaranchal, one secretary is allotted 5-6 GPs and it is the responsibility ofthis official to maintain the account books. ExternalReportingand Transparency: Organized financial reporting is scant in all three PRI tiers. Each PRI tier submits financial and physical performance reports to the next higher tier. The frequency of reporting, the level o f detail and quality of information contained in them vary significantly across the states and also within the same state. To improve accountability, the central and state govenunents have issued many directives that focus on enhancing transparency in the use of funds. One outcome has been to create a "fourth tier" of institutions or community-based organizations (CBO) below the GP. The goal is to ensure more participation by the people closest to project execution and to expect greater accountability from them. Giving the electorate access to information and introducing social audits at the gram sabha level helps ensure transparency. The good practicesworth mentioning are: i)RighttoInformationAct(pioneeredinRajasthan;nowintroducedinsevenotherStates); ii)PostingofGPaccountsforpublicdisplay(Karnataka,UttarPradeshandKerala, amongst others); iii)Televisinggramsabhaproceedings(Karnataka); iv) vaarta boards at ward headquarters display daily informationregarding the names of workers, material costs, etc (Kerala); v) Citizen's charter specifying responsibilities of each PRItier (Andaman & Nicobar Islands); vi) Jan Sunvai or public hearing (Rajasthan). Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 50 External Audit: The statutory auditor ofpanchayats in all three tiers is either the Local Fund Audit (LFA) or the CAG. Chartered accountants are engaged by the DRDA to audit CSS funds. Although there are many audits, they tend to be late. Moreover, audit procedures are lacking or deficient. For example, PRI auditors are not required to verify assets nor does the audit encompassthe existence, completeness, valuation, presentationand disclosure of the financial statements. In addition, there i s no mandate for PRIs to publish their annual performance reports or their certified financial statements. However, the TGS of the EFC has made recommendations to improve the accountability o f PRIs and the CAG has prescribed an audit methodology andproceduresfor LFA. The monitoring and evaluation reports of also indicate a low level of awareness in the community regarding the schemes, eligibility criteria, eligible benefits, details of works and the types of works that could be undertaken under the schemes. The reports of the District Level Monitors (DLM) also indicate instances o f wrong selection of beneficiaries especially inthe ruralhousing scheme. Way Forward: More than a decade after the 73rd Constitutional Amendment, PRIs are still evolving. There i s a need to strengthenthe framework for accountability at the PRI level, especially mechanisms to ensure adherence to basic financial controls, putting more trained accountants on the ground to match the increased levels of financial responsibility, enhancing awareness, transparency and public involvement. From a CSS perspective the conclusion can be drawn that the state of affairs adversely affects the level of fiduciary assurance inprojects where funds flow to PRIs. There are a large number of schemes which require the PRIs to maintain separate bank accounts at the GP level and submit separate audited UCs. In a sense, these UCs are issued and audited in isolation of entity accounts; they are often submitted on a provisional basis, particularly at year-end, to comply with requirements for drawing the second instalment under CSS even though expenditures may not have beenincurred. To strengthen accountability, the central and state governments have issued many directives to enhance transparency inthe use o f funds. Two fundamental tools which will help to improve this situation are: (i) giving the electorate a right to information; and (ii)introducing social audits at the gram sabha level. Various initiatives have been taken to improve the financial management capacity and scope, coverage and independence of external auditors.Going forward: a) it is important to build on the successful initiatives in states like Rajasthan, Karnataka etc. to increase the awareness of rural populations regarding: (i) of public funds; usage (ii) importance and procedure of social audits: and (iii) right to information and their transparency. b) Strengthenand modernise the Local FundAudit Organization of various States by way of providing more resources in terms of manpower, capacity building and training; adopting and implementation of improved budget and accounting formats suggested by the C&AG for PRI's by the remaining states; and accounting and record keeping of assets beingcreatedby the PRI's along with valuation. 62Reporton Monitoring and Evaluationo fRuralDevelopmentPrograms, MoRD, GO12004. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes(CSS) 5 1 XI. FINANCIAL MANAGEMENT CAPACITY The role of financial management in the ministries inthe context of CSS has been largely confined to one of funds release and follow up for UCs and audit reports and not on the broader aspects of financial management such as: planning and budgeting; internal control; monitoringo f state program units; training; financial reporting; and audit assurance. This is primarily due to the perception of financial management as being a control and accounting function rather than one which can support and facilitate effective program implementation. This is best amplified by the wording in rule 151(2) of the GFRs which reads: ` ...the ministries will "watch" for receipt of utilization certificates'. Similarly, in state or district societies, the role o f finance staff i s limited to accounting; it does not cover the broader aspects of financial management and it certainly does not extend to supervision and monitoringof lower level implementing units. The responsibility for financial managementwithinthe line ministries implementing CSS also appears to be fragmented betweenthe CPMU, the IFD and the CCA within each ministry. This is illustrated by the fact that the CPMU is responsible for financial monitoring of the program, the IFD has responsibility for according sanctions for funds release and the CCA for accounting and internal audit. In addition, the sensitivities with center-state relationship often preclude the core financial management issues from being adequately addressed, bothduring formulation andimplementation of CSS. The Twelfth Finance Commission has commented on the lack of professionalized accounting personnel and the need to upgrade the skills of accounting personnel, particularly at the lower and middle levels. It has also recommended the setting up of a National Institute o f Public Financial accountant^^^. Go1Level: Inmost Bank funded projects, the finance function within the CPMU is looked after by consultants, with a few exceptions like the AIDS Control Project where the Go1 decided to create a position of Director (Finance) during the inception of the Phase I1 project. Inthe WCD Project (USD240 million), the finance function inthe CPMU is being managed by only one officer with support from two clerical level staff. This has restricted their ability to effectively monitor the financial management performance of the project in the states. In RCH-I, for a large part, the project was handled by one finance consultant. The IFD andthe CCA also seem constrained by staff capacity to effectively oversee various css. State Level: There is a lack of capacity, both in terms of number of staff and the skill s e d 4 inthe states and districts. The existence of many small programs also does not justify deputation of staff from the state government or for engaging full-time finance personnel on contract. Inthe DRDAs, out o f the 1486 sanctionedpositions of finance staff inapproximately 250 districts, 657 positions are vacant65. 63 Para 14.18of the Twelfth FinanceCommissionReport. 64Often finance staff indistrict implementingunitsare not familiar with doubleentry accountingandthe basicsof internal control, andthe financial statementsare preparedby the auditors. Information from approximately250 districts, as availableinthe website of MoRD (rura1.nic.h). Note on Public Financial ManagementandAccountability in Centrally SponsoredSchemes (CSS) 52 Inthe projects reviewed during the field visits generally finance staffing was found to be inadequate for example, in the Tuberculosis (except Tamil Nadu) and RCH Projects, the financial management aspects at the state level and more so at the district level were being "managed" by persons with little skill or experience in managing the finance function. At one district inthe Tuberculosis Project, the accounts were being maintained by a technician. Similarly in RCH Phase IProject, district-level staffs were found inadequate, and often persons undertaking finance related responsibilities had to take the help of personnel from other projects. The WCD Project, on the other hand, which at the state level i s integrated with the general Integrated Child Development Program (ICDS), was found to be relatively better staffed in the states. Similarly the NACP-I1 Project has put together a good staffing structure for the finance function at the state level and i s one of the reasons for successful implementation of the computerized financial management system. One constraint has been the low cost norms approved for "accountants" by the EFC in many projects. The Bank study on PFMA inPRIs has concluded that lack o f capacity (adequacy and skills) i s one o f the critical constraints that needs urgent attention (see Section XI). Box 15 Recognition of Role of Financial Management inProgram Support RCH-I1Approach This mindsethowever is showing some signs of change. Inthe RCH, PhaseI1Programthe MoHFW, recognizing that program and financial management are critical to program implementation, is augmenting such capacities in the state and districts and empowering them with qualified finance staff. A Financial Management Group (FMG) headed by a Director (Finance) with support from qualified finance consultants has been created within the MoHFW with overall responsibility for all financial management aspects of the E -_______ rogram This frees the technical professionals to concentrate on technical review and -...-..I __ - _ _ support. Regular training o f financial management staff i s also an integral part ofthe RCH- ____" --.---li I_- *-__---------__-I_- I1Program. Way Forward: The lack of financial management capacity affects the control environment and impactsthe implementation ofthe programs. Go1therefore should: a) Recognize the need for skilled finance staff to support the effective implementation of CSS. It should reviewthe experienceof certain CSS, where a positionof Director (Finance) with an appropriate team has beencreated within the ministries, to provide financial management support and consider building this into all programs in the design stage itself. b) Consider agreeing with the states and prescribing desired skill sets (e.g. minimum qualifications, IT literacy etc.) and job descriptions for the key finance functions in the states and districts. This could definitely be feasible if the number of CSS and implementing units are merged. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 53 c) Ensure that capacity building and training of the finance staff at all levels becomes an integral part of all CSS programs, especially at the PRI level, where increasingly larger resources are expectedto flow. d) Inthe near term, consider engagingvarious national institutions suchasthe Institute of Pubic Auditors, National Institute of Financial Management etc to develop training modules and imparttraining to the finance staff. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes(CSS) 54 ANNEXURE I Compiledlistof CSS for the FinancialYear 2004-05 * FY 2004-05 SI. No. Nameof the Scheme Budget Estimates (Rs in crores) DEPARTMENT OF AGRICULTURE AND CO-OPERATION 1 Technology Missionon CottodIntensive Cotton prog 50.00 2 Technology Mission on Horticulture for NE Regions 200.00 3 Agriculture Census 13.83 4 Macro Management 1034.94 5 IntegratedScheme of Oil Seeds, Pulses, Maize, Oil Palm 152.75 Comprehensive schemefor collection of Agricultural Statistics/improvement of 6 agricultural Statistics/ 24.76 7 On-Farm Water Management(New) 50.00 1526.28 DEPARTMENTOFANIMAL HUSBANDRYAND DAIRY 8 National project on Cattle and Buffalo Breeding 55.00 9 Assistance to State Poultry/ Duck Farms (includes) 8.67 10 Livestock Health 102.50 11 IntegratedDairy Development Project 41.50 12 Development of Inland Fisheries & Aquaculture 27.00 13 National Welfare of Fishermen 24.50 14 Development of marine Fisheries, Infastructure 46.00 15 Conservationof ThreatenedLivestock Breed 6.00 16 StrengtheningInfia. For quality & CleanMik 38.42 17 FisheriesTraining & Extension including HRD 2.50 18 Integrated Sample Survey 7.50 19 Livestock Census 68.39 20 StrengtheningofData Base & Infrastructure 15.oo 21 Feed and Fodder(o1d) 15.50 Assistance to Statesfor Establishment & Improvement of abattoirs carcass by 22 Products Utilization Center 0.00 458.48 MINISTRY OF COMMERCE 15 Assistance to Statesfor IDE 425.00 425.00 DEPARTMENT OFDRINKING WATER SUPPLY 23 Accelerated Rural Water Supply Programme 3 148.00 24 Central Rural Sanitation Programme 400.00 3548.00 DEPARTMENTOFELEMENTARY EDUCATION AND LITERACY 25 National ProgrammeofNutritional Support to Primary Education(MDM) 1675.OO 26 Sarva Shiksha Abhiyan(inc1udingDPEP) 3725.23 27 KasturbaGandhi SwatantraVidyalaya 100.00 28 Literacy Campaigns and Operation Restoration 26.00 29 PL & CE (Conti. Educationfor new literates) 157.24 Note on Public Financial Management andAccountability in CentrallySponsoredSchemes (CSS) 55 Support to NGOs in Adult Education (including National Population 30 Education Project) 26.25 31 Restructing & Reorganization of Teacher Education 207.00 5916.72 MINISTRY OF ENVIRONMENT AND FORESTS 32 Common EMuentTreatment Plant 4.00 Environment ManagementinHeritage, Pilgrimage and Tourist Centres including 33 Taj Protection Mission 1.oo 34 BiosphereReserves 8.00 35 National River ConservationPlan(NRCP) 254.20 36 NRCP (EAP) 62.00 37 National Lake ConservationPlan 45.00 38 Project Tiger 30.00 39 Eco-development aroundProtectedAreas (EAP) 7.25 40 Project Elephant 13.00 41 Conservationand management of Mangroves, Coral Reefs and WetLands 11.00 42 Development ofNP & Sanctuaries 43.00 43 National Afforestion Programme (NAP) 230.00 44 Integrated Forest Protection Scheme (IFP) 100.00 808.45 DEPARTMENT OF I S M& H(now AYUSH) 45 Development of Institutions 26.20 46 Hospitals and Dispensaries 20.02 47 Drugs Quality Control 7.03 53.25 DEPARTMENT OF HEALTH 48 National Leprosy Eradication Programme 55.00 49 National Tuberculosis Control Programme 140.00 National AIDS Control programme including Blood Safety Measures and 50 National S.T.D. Control Programme 476.00 51 National programmefor Control of Blindness 88.00 52 UNDP Pilot Initiatives for Community Health 0.00 53 IntegratedVector Borne Disease Control Programme 296.00 54 National Cancer Control programme 60.00 55 National Iodine Deficiency Disorders Controlprogramme 8.00 56 National MentalHealth programme 33.00 57 Hospital Waste Management 5.00 58 Assistance to states for Capacitybuilding (drug quality) 20.00 59 Assistance to statesfor Capacity buildingfor drug & PFA 23.50 60 Drug De-addiction Programme including assistance to States 7.00 61 Disease Surveillance Programme 50.00 1261.50 DEPARTMENT OF INDUSTRIAL POLICY & PROMOTION 62 Growth Centre Scheme 25.00 63 Central capital Investment Scheme-NERto be transferred to DONER 0.01 64 Central Interest Subsidy Scheme-NER to be transferred to DONER 0.01 65 Comprehensive InsuranceScheme 0.01 66 Package for Specialcategory StatesJ & K 70.00 67 Transport Subsidy Scheme 36.00 Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 56 68 CapitalInvestmentSubsidy Scheme(old) 0.25 131.28 MINISTRY OFLABOUR 69 Rehabilitationo fBondedLabour 3.OO Estt. Ofnew ITIsinNorthernEasternStates& Sikkim& J & K (100% 70 assistance) 18.10 71 Testing and Certificationof skills ofWorkers inthe informalsector 0.40 21.50 DEPTT.OF LANDRESOURCES 72 IntegratedWastelandDevelopmentProgramme(IWDP) 448.00 73 DroughtPronearea Programme(DPAP) 300.00 74 DesertDevelopmentProgramme(DDP) 215.00 75 Modernization of Revenue and LandAdmn. 70.00 1033.00 MINISTRY OFLAW AND JUSTICE 76 Developmentof infrastructureFacilities for the Judiciary 135.00 135.00 MINISTRY OFNONCONVENTIONALENERGY SOURCES 77 SmallHydroPower 30.00 78 SPV Demonstration 33.00 79 Nationalproject onBio-gasDevelopment(NPBD) 41.00 80 IntegratedRuralEnergy Programme(IREP) 22.00 126.00 MINISTRY OFROADTRANSPORT & HIGHWAYS 81 RoaddBridges ofInter-StateandEconomic Importance 96.00 82 ModelDriverTrainingSchool 6.50 102.50 MINISTRY OFRURALDEVELOPMENT 83 RuralHousing/IAY 2500.00 84 SGSY 1000.00 85 DRDA Admn. 230.00 86 SGRY 5100.00 87 Training 24.40 88 PMGSY 2468.00 89 Foodfor work 2020.00 13342.40 DEPARTMENTOFWOMENAND CHILDDEVELOPMENT 90 IntegratedChildDevelopment Services 1837.44 91 World Bank Assisted ICDSProjects 270.00 92 Integrated Women'sEmpowermentProgramme (Swayamsiddha) 20.00 93 Trainingof ICDSfunctionaries 60.00 94 BalikaSamridhiYojana 0.03 95 Rural Women'sDevelopment and EmpowermentProject (Swashakti) 25.00 2212.47 MINISTRY OF TRIBAL AFFAIRS 96 Scheme of PMS, Bookbanks andUpgradationofMerit of ST Students 65.49 97 ResearchandMass Education, TribalFestivalsandOthers 7.50 98 Ashram School in TSP areas 14.00 99 Scheme ofHostels for ST girls andboys 24.00 110.99 Note on Public Financial Management and Accountability in Centrally Sponsored Schemes (CSS) 57 DEPARTMENTOF SECONDARY & HIGHER EDUCATION 100 Integratededucation for Disabled Children (IEDC) 39.00 101 NationalMerit Scholarship Scheme 3.00 102 Area Intensive Modernization of Madarasas program 29.00 103 Vocational Education & Training 50.00 104 Access andEquity 30.00 105 Informationand Communication inSchools (ICT inSchools) 97.00 106 Quality Improvement inSchools 20.00 107 Development of Sanskrit Edn. 18.00 108 Appointment of Language Teachers 16.00 109 Education inHuman Values 3.00 110 National ScholarshipProgramme 4.00 309.00 MINISTRY OF SHIPPING 111 Inlandwater Transportation Scheme implementedby States 20.00 20.00 MINISTRY OF SOCIALJUSTICE AND EMPOWERMENT 112 Scheduledcaste Development Corporation (SCDCs) 50.00 113 Implementation ofPCR Act, 1955 & the SC/ST (POA) Act, 1989 35.00 114 Postmetric Scholarships and Book banks for SC students 3 19.55 115 Meritbasedscholarshipsfor OBC andminority students 42.75 116 Scheme for prevention and Control of Juvenile Social Mal-adjustment 21.oo 117 Pre-Metric Scholarshipsfor Children those engaged in unclean occupation 16.00 118 Hostels for SC & OBC boys and girls 64.30 119 Coaching and Allied schemefor SCs/OBCs & other weaker sections 8.00 120 Employment ofthe handicap 2.00 121 Up-gradation of Merit of SC Students 25.00 583.60 DEPARTMENT OF TOURISM 122 Product / Infrastructure andDestinationDevelopment 140.00 123 Computerization and Information Technology 17.00 124 IntegratedDevelopment of Tourism Circuits 85.00 125 Revival of Tourism inJ & K (J & K Package) 9.00 126 Assistancefor Large Revenue Generating Projects 18.00 127 Market Research including 20years perspective plan 3.00 272.00 DEPARTMENT OF URBANEMPLOYEMENT & POVERTY ALLEVIATION 128 SJSRY 103.00 129 Valmiki Ambedkar Awas Yojna PAMBAY) 280.58 130 IntegratedLow cost Sanitation Programme(ILCS) 30.00 131 Night Shelter 4.00 National Scheme of Liberation& Rehabilitation of Scavengers & their 132 Dependants(NLSRS) 20.00 133 Solid Waste Managementand Drainage in 10 Selected IAF Airfield 40.00 477.58 DEPARTMENT OFURBANDEVELOPMENT Accelerated Urban Water Suppry Programmefor Small towns with Population 134 less than 20000 150.00 135 Mega City 220.00 Note on Public Financial Management and Accountability in Centrally Sponsored Schemes (CSS) 58 136 IntegratedDevelopment o f Small & Medium Towns (IDSMT) 200.00 570.00 MINISTRY OFWATER RESOURCES 137 Command Area Development & Water Management Programme 180.00 138 Rationalization of Minor Irrigation Statistics 7.00 Critical Anti- erosion works in Ganga Basin States and 139 maintenance o f flood protection embankments inKosi & Gandak 43.OO 140 Critical anti-erosion works incoastal andother than Ganga basin States 6.00 141 Improvementof Drainage in CriticalAreas of the Country 8.00 142 FloodprooJing Programme in North Bihar 1.oo 245.00 YOUTHAFFAIRS AND SPORTS 143 National Service Scheme 28.00 144 SchemeRelating to Infrastructure 48.05 76.05 MINISTRY OF TEXTILES 145 HandloomExport Scheme 4.50 146 DeenDayal Hathkargha Protsahan Yojana 43.10 147 Cotton Technology Mission (MiniMission iii& iv) 40.00 148 Apparel Park for Export 30.00 149 Textile CentresInfrastructure DevelopmentScheme 30.00 150 Weavers WelfareScheme 6.00 151 Workshed-cum-HousingScheme 20.00 152 Catalytic Development Programme (Sericulture) 44.07 217.67 MINISTRY OF AGRO & RURAL INDUSTRIES 153 Cooperativization 1.oo 1.00 DEPARTMENTOF FAMILY WELFARE 154 Sub centres 1792.71 155 Urban FWSewices 123.04 156 Direction & Administration 226.80 157 Area Projects (IPP Projects) 53.51 158 Basic Training for ANWLHVs 72.00 Free distribution o f contraceptives(1) Conventional contraceptives 35.00 (I) Oral 159 Contraceptive 18.5 (ii) IUP 24.2 77.70 160 Sterilization 233.57 161 Immunization 220.00 162 PulsePolio 1011.70 163 Maternal Health 244.20 164 Training 32.00 165 Other Projects under RCH 0.00 166 Maternity Benefit Scheme 112.00 167 Information, Education and Communication 111.59 168 EmpoweredAction Group 185.00 169 Family Welfare Link HealthInsurance Plan 9.10 170 Contractual Services/Consultancies 58.21 171 Adolescent Health 5.OO 172 MTP services (Manual Vac. Aspirator for safe) 0.00 173 Child Health 0.50 Note on Public FinancialManagementandAccountability in Centrally SponsoredSchemes (CSS) 59 174 USAID Assisted Area Project 60.00 175 EC Assisted SIP Project 300.00 176 Maintenance & Strengtheningof HFWTCs 15.70 177 Basic Trainingfor MPWs Workers (Male) 9.40 178 Strengtheningof Basic Training Schools 2.80 179 Role of men inplanned Parenthood 3.20 180 Routine ImmunizationStrengthening 3.OO 181 Other RCHInterventions andservices 76.00 182 Logistics Improvement 2.00 183 RTI/STI prevention and management 3.25 184 Urban Slums Projects 25.00 185 Maintenance of vehicle already available 55.00 186 District Projects 0.00 187 CommunityIncentive Scheme 1.oo 188 Supply of Mope& 0.00 189 F.W. TrainingandRes. Centre,Bombay 1.53 190 NIHFW, New Delhi 4.75 191 UPS, Mumbai 1.60 192 Assistanceto IA4A 0.25 193 Population Research Centres 7.33 194 CRDI,Lucknow 2.30 195 ICMR and IRR 30.00 196 National Population Stabilization Fund 0.00 197 Social marketing of contraceptives 252.50 198 Testing Facilities 0.45 199 NGOs and SCOVA 44.00 200 Travel of ExpertsEonferences /Meetings etc. 1.oo 201 International Cooperation 1.70 202 Social Marketing Area Projects 10.00 203 Jan ShikshanSansthan 28.00 204 Policy Advocacy/Seminars/Melas 3.OO 205 Other Research Projects 0.00 5513.39 DEPARTMENT OF CULTURE 207 Setting up o f Multi-purpose cultural complexes for children 9.00 9.00 GRAND TOTALOF CSS 39507.11 * Compiledbasedon informationobtained from PlanningCommission Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 60 ANNEXUREI1 MAJORCSS WITH PROJECTEDBUDGETESTIMATESFORTHE YEAR 2005-06 (Rs. in millions) Scheme Note: The above outlaysare based on Budget Estimatesasprovided in Budget documentfor FY 2005-06, presented to theparliament. Note on Public Financial Management and Accountability in Centrally Sponsored Schemes (CSS) 61 ANNEXURE I11 CLARIFICATION ONAPPLICABILITY OF THE ACCOUNTING STANDARDS OF ICAITO NOT-FOR-PROFIT ENTITIES The `Preface to the Statements o f Accounting Standards', issued by Institute o f Chartered Accountants o f India, states the following: "3.3 The Institute will issue the Accounting Standards for use in the presentation o f the general purpose financial statements issued to the public by such commercial, industrial or business enterprises as may be specified by the Institute from time to time and subject to the attest function ofits members.,.." 3.28 The Institute has issued the following Clarification66regarding the exact purport o f the above paragrapho fthe Preface. "The reference to commercial, industrial or business enterprises in the aforesaid paragraph i s inthe context o f the nature o f activities carried on by the enterprise rather than with reference to its objects. It is quite possible that an enterprise has charitable objects but it carries on, either wholly or in part in part, activities o f a commercial, industrial or business nature infurtherance o f its objects. The Board believes that Accounting Standards apply in respect o f commercial, industrial or business activities o f any enterprise, irrespective o f whether it is profit oriented or i s established for charitable or religious purposes. Accounting Standards will not, however, apply to those activities which are not o f commercial, industrial or business nature (e.g., an activity of collecting donations and giving them to flood affected people). It is also clarified that exclusion of an entity from the applicability of the Accounting Standards would be permissible only ifno part of the activity o f such entity was commercial, industrial or business in nature. For the removal of doubts, it is clarified that even if a very small proportion o f the activities o f an entity were considered to be commercial, industrial or business in nature, then it could claim exemption from the application o f Accounting Standards. The Accounting Standards would apply to all its activities including those which were not commercial, industrial or business innature. 3.29 From the abovementioned Clarification, it is apparent that the Accounting Standards issued by the Institute do no apply to an NPO if no part ofthe activity of such entity is commercial, industrial or business in nature. The Standards would apply even if a very small proportion o f activities are considered to be commercial, industrial or business in nature. It may be mentioned that since the Accounting standards contain wholesome principles o f accounting, these principles provide the most appropriate guidance even in case o f those organisations to which Accounting Standards do not apply. It is, therefore, recommended that all NPOs, irrespective o f the fact that no part o f the activities i s commercial, industrial or business in nature, should follow accounting standards issued by the Institute. 66Published in `The CharteredAccountant' September 1995 (page 79) Note on Public Financial Management and Accountability in Centrally SponsoredSchemes (CSS) 62 ANNEXURE IV CONCLUSIONSOFA STUDY ONFUNDSFLOW BY THE PLANNING COMMISSION Major conclusions arrived at in a study commissioned by the PlanningCommission on `Flow o f Funds and Monitoring Arrangements under selected Centrally Sponsored and EarmarkedState Planschemes': Transfer from GO1 to state treasuries: Generally it is accepted that under Treasury model, fund transfer mechanism is much faster between GO1 and State, there i s a need to evolve better release procedures, if both greater accuracy and timely credit are to be ensured. The study noted that in its sample o f transfers over a 3-year period, 69% releases took more than 15 days to be credited to state Govt. accounts. Though similar transfers which involved Ministry of Finance, such delay was only around 1%. Regarding the accuracy, the study noted that almost 18% releases could not be traced to the state Govt. accounts at the RBI. Though overall conclusions for society model on time lag were not reached, mainly because o f data limitations, however scheme-wise details provide evidence to suggest large delays in the funds reaching the last stage i.e., the PRI institutions. Funds to district level under DRDA are much faster compared to other modes. States with better account keeping systems appear to show lesser time lags. This is also correlated to level of fiscal stress being experienced by states. At central level, schemes with ability to enforce greater adherence to conditions of prior expenditure by the states before making subsequent releases, clearly showed smaller time lags in releases at the intermediate level. The conclusions on time lags infunds flow draw attention to the importance o f need to adhere to appropriate design principles if better implementation i s to be secured. In themselves, time lags in expenditure can, to an extent, be curtailed if the operational guidelines, monitoring systems andpenal provisions are well structured. But spend pressure at the central level needs to be tackled if adherence to even better design o f these spheres has to have meaning. A core issue o f the principal agent problems and consequent lack o f ownership at state level will however, still continue to be bedevilling such transfer schemes. This can be mitigated only by reducing the number o f such schemes and restricting them to matters involving significant spill-overs. Overall, in sum, the conclusion o f this study is that it is not the type o f release mechanismthat i s critical to lesser time lags and (iftime lag is an appropriate proxy for this) of better performance. It is adherence to key designprinciples that matters far more andit is this areathat really needs attention. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 63 ANNEXURE V INSTANCESOFVARIATION INACCOUNTING POLCIESADOPTED BY STATE AND DISTRICT SOCIETIES* 1. Grant inaid received from GO1by the states treated as 'Revenue Grant' insome projects, while inother it i s treated as a Capital Grant'. 2. Civil works and equipments supplied to implementing units e.g., schools or health centers shown as assets in the financial statements o f the society or charged to expenditure. 3. Deposit with Public Works Dept for civil works charged to expenditure or treated as an advance till receipt o f a utilization certificate. 4. Advances to NGOs treated as advances or charged to expenditure. 5. Depreciation charged by some projects and not by others. 6. Commodities received inkindaccounted for inthe books o f account or ignored. 7. Basis o faccounting is either Accrual basis or Cash basis. "from various audit reports of bankjinancedprojects. Note on Public Financial Management and Accountability in Centrally SponsoredSchemes (CSS) 64 ANNEXURE VI INTERNALCONTROLWEAKNESSES** 1. Bankreconciliations are not preparedor preparedonce a year. 2. Lack of segregation of duties 3. No monitoringof advancesto NGOs. 4. Fund transfers from GO1 to states, states to districts and between districts are not reconciled. 5. Only a cashbook maintained and staffnot familiar with double entry accounts. 6. Lack of serial control over vouchers. 7. Lack of fixed assets & physical verification of assets are carried out. 8. Advances settled with insufficient supporting documents. 9. Physical Cashverificationnot carried out on a regular basis. ** as per findings in the study by A F Fergusson on strengthening of accounting,financial management and management information systemsfor the GOIRCH and Sector Investment Program. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 65 ANNEXURE VI1 ExtractFromthe Report of WorkingGroup6'on StrengtheningMonitoringand Evaluationsvstem for the social sector developmentschemes inthe country SYNOPSISOF RECOMMENDATIONS Mechanismswhich couldfacilitate monitoring At all India level Amalgamate, scrap CSS as necessary. There should be very few schemes inthe social sector so that M&E can be dome focally andthoroughly. To have a central instituteto coordinate betweendifferent monitoring agencies. The agency will hold review meetings with central nodal ministries and the state govt. to evaluate performance of various programs. The decisions taken in the review meetings should be binding on the central ministriesand the state Govt. for improvingthe performance. Budget fixing should be based on performance of the scheme. Present practice of fixing budget based on last financial year's expenditure should be given up. Flexibility to award additional funds for better performance of the states/UT should be considered. Tentative targets for next financial years be fixed before the commencement of the year in line with financial allocations. These should be finalized and intimated to each state latest by 3lSt May. Presently targets are fixed by Planning Commission without considering funds available. Implementation unit cost be developed for similar schemes across the states and this should be comparedacross states. At Statelevel Each state to constitute a committee headed by Chief Minister / Chief Secretary to monitor follow-up actions on the monitoringand evaluation reports. State Plan divisions and sectoral divisions of the Planning Commission should monitor and evaluate performance for the preceding year, of the states and administrative ministries respectively, before recommending release of funds. Financial monitoring to prevent diversion of development funds to non-developmental activities be made part o f review when releasing funds to the states. 67 A working group was constituted in October 2000 on strengtheningmonitoring andevaluationsystemsfor social sector developmentschemes. It consistedof membersfrom the PlanningCommission,ministries/departmentswith focus on socialsector, planning secretariesfrom seven states, MoF, CAG, academicians from reputedinstitutesanduniversitiesThe Terms of referencewas to . review existing machineryand systems of M&E incentralministries/ CSS /projects and StatePlanschemes suggests measures for strengthening M&E organisationsin the country suggests institutional framework for linking M&E results with planning, policy makingand public spending to suggest areas of use for IT suggest measuresto involve researchinstitutions,universities,PRIs, NGOsto improvequality of M&E inthe country Note on Public Financial Management andAccountability in Centrally Sponsored Schemes (CSS) 66 0 State Govts. should have program review committee at states, districts and block levels. At DistrictLevel District Collector, heads o f the monitoring units should have a minimum o f 3 year stay in their positions. At Grass-root levels States should involve punchuyuts / Nugur Polkas in planning, designing and monitoring o f all programs at the grassroots level. This is in consonance as envisaged under 73'd & 74th amendments. b) TransDarency 0 Monitoring will become more effective by enhancing transparency at the grass-root level by publicizing lists o f beneficiaries and works completed andpreparing social maps. c) Staffing, Training, IT Use multi-disciplinary teams. Diversion o f staff sanctioned for monitoring should be stopped. The performance evaluation o f grass-root functionaries should be based more on outcomes rather thantarget outputs or allocated financials. Report recognizes spirit o f experimentation intrying to improve performance and states that ifgenuine errors arepunished, improvementswill also cease. It lays importance on choosing relevant indicators to judge performance at input level, output level and at impact level, but with minimumnumberso f indicators. training institute in lothPlan. Recommends use o f palmtops for monitoring units inthe field Recognizing the importance o f Training and IT inM&E, it suggests setting up o f a national to cut down on time incollection o f data. 0 Recognizes need for networking o f all villages and blocks o f all social schemes for improving monitoring and recommends development o f an internet based system for on-line monitoring. Other measures Need to have effective monitoring o f assets created through several social sector schemes. Monitoring units to be held accountable for reports and data submitted by them on performance o f schemes. Necessary changes are made to ensure that information required for monitoring flows to unitsresponsible for such functions. Wider involvement o f stakeholders, NGOs, academic institutions in designing and monitoring should be encouraged. It recommends that huge expertise and academic manpower available with such institutes be utilized for monitoring and research. Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 67 ANNEXURE VI11 BIBLIOGRAPHYAND DOCUMENTSREVIEWED 1 Reports (including Audit Reports) Report ofthe 12thFinanceCommission(2005-2010) The WorldBank ReviewofProjectAudit Reportsin SouthAsia Regionby Grant Thornton (Oct'04) Report o fTask Forcefor Reviewo fGFRs 1963, July'2004 includingchapters on Grants inAid &Loans andonBudgetingandAccountingfor ExternallyAidedprojects Report on Bestpractices for InternalAudits inGovernmentDepartments IIReDortonBudgetawControlfrom CanadianAudit Office Audit reports issuedunder TB Project, RCHIProject, WCD ProjectincludingUdishaProject CAGUnionAudit Renort 1999 Note on Public Financial Management and Accountability in Centrally Sponsored Schemes (CSS) 68 Study on FundsFlow & Monitoring Arrangements inCSS, sponsoredby PlanningCommission RevisedDraft Study Report(May'02) on Accounting & Controlling System for Pradhan Mantri Gram Sadak Yojana Review and StrengtheningF M Systems for the Department of Family Welfare under Treasury Mechanism(Centre, State, District) by AF Ferguson& Co.- Jan'O5 Review and Strengtheningof Accounting, Financial Management& MIS(Centre/State/District) Ferguson& Co. - Mav'04 and Determining Staffing-Requirements(Statehlistrict) fo; RCHProgramme/SIP by AF Y RCHReview by Lovelock & Lewes, July'Ol Joint Tuberculosis ProgrammeReview, India by WHO, Sept, 2003 issuedby CharitiesCommissioner,UK FASB 116on Accounting for Contributionsreceivedand Contributions made (US) FASB 117 on Financial Statements ofNot-for-Profit Organizations (US) Circular No. A-133 on Audits of States, Local governments,andNon-Profit Organizations issuedby Office of Managementand Budget, The Executive Office ofthePresidentof USA ExposureDraft 2 on Accounting and Classification ofGrants-in-Aidissuedby GASAB ExposureDraft 3 on CashFlow Statements issued by GASAB Roles and Functionsof Controller General of Accounts Reviewedvarious documentsto gain understandingof roles of Department of Expenditure, PlanFinanceDivisions I& 11,PMUDivision Guidelinesand Formats for five year Plan2002-2007 and AnnualPlan(2002-03) issued by Planning Commission Guidelines/ Instructions for preparationofAnnual Plan2004-05 issued by Secretary, Planning Commission Articles / Speeches by KC Pant/ NC Saxena on CSS, Fiscal reforms, etc. Guidelines for Implementation of PlanningCommission's Project preparationFacility Inauguration Speech by CAG on occasionof setting up of GovernmentAccounting Standards Advisory Board (Nov'2002) CAG's address to International Symposiumon Standard-settingfor Government's accounts (Dec'2003) Union Budget Documents for different financial vears Note on Public Financial ManagementandAccountability in Centrally Sponsored Schemes (CSS) 69 Societies RegistrationAct 1860 Tamil Nadu Societies RegistrationAct 1975 General Financial Rules, 1963 Memorandum of Association of Tamil Nadu State Tuberculosis Society, Chennai Memorandum of Association of Uttar PradeshState Tuberculosis Society, Lucknow Memorandum o f Association o f District Health Society, Sikar, Rajasthan Various circulars / office memorandum o f GO1and state Govts. 5 World BankDocuments Project Agreement between IDA & certain states: Women and Child Development Project, July'99 InterimFundDCA: Women and Child DevelopmentProject, July'99 PAD: Women and Child Development Project, InterimTrust FundCredit for USD300 million May'98 PAD: SecondNational HIV/AIDS Control Project, May'99 Interim FundDCA: Reproductive and Child Health Project, July'97 PAD: Reproductiveand Child Health Project, Apri1'97 DCA: Tuberculosis Control Project, March'97 PAD: Tuberculosis Control Project KarnatakaPublic Financial Management and Accountability Study Orissa State Public Financial Accountability Assessment Andhra Pradesh State Public Financial Accountability Assessment undertaken by GoAP. Audit reports of individual projects ReDort on PFMA inPRI's Note on Public Financial Management and Accountability in Centrally Sponsored Schemes (CSS) 70 Websites: Web-sites Rural.nic in . Pmgsy.nic.in Cag.nic.in finmin.nic.in/ planningcommission.nic.in/ I indiabudnet.nic.in/ ddws.nic.in cga.nic.in/ www.frc.org.uk/ I www.charity-commission.gov.uk/ www.cpeonline.com/ www.iasplus.com/ifac/ www.fasb.org www.whitehouse.nov/omb/circulars/ Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 71 ANNEXURE IX LIST OFPERSONSMET OR SPOKENTO S.No. I Name IDesignation GOVERNMENTOFINDIA.NEWDELHI Vivek Rae Joint Secretary, Plan Division 11, Ministry of Finance V. Subramanian Additional Secretary & Finance Advisor, Ministry of Rural Development S.K.Roy Joint Secretary & Financial Advisor, Ministryof Human ResourceDevelopment A.S. Chauhan Chief Controller of Accounts, Ministryo f Health & Family & Health Welfare Dept. PrasannaHota, Secretary, Ministry of HealthandFamilyWelfare Pran Konchandy Chief Controller o f Accounts, Ministryof RuralDevelopment 7 MohanJoseph Joint Controller General of Accounts, Ministryof Finance 8 Sandeep Saxena Dy.Controller General ofAccounts, Ministry ofFinance 9 DrNageshSingh Director. Planning Commission 10 DrRohiniNawar ]AdvisorPlanning Commission I 11 Renuka Vishwanathan Planning Commission 12 Dr L.S. Chauhan Dy Director general ofHealthServices, (TB) 13 Chaman Kumar Joint Secretary, Dept. o f WCD, MoHRD 14 K.P. Singh Director. WCD Proiect (ICDS 111) 15 16 17 18 19 31 Anurag Bhardwaj Project Director, WCD Project (ICDS 111), Rajasthan 32 B.L.Garg Chief Accounts Officer & Joint Project Coordinator, WCD Project (ICDS 111), Rajasthan Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 72 33 M.D.Singh Jr. Accountant, WCD Project (ICDS 111), Rajasthan 34 Sharad Bhargava Consultant (Finance), RCHProject, State Project Unit Rajasthan 35 Ravi Upadhya Consultant (Training), RCHProject, State Project Unit Rajasthan 36 Naresh Bhargava Accounts officer, WCD Project (ICDS 111), Rajasthan 37 B.K.Mitta1 Director Budget, State Finance Dept., Jaipur 38 Dr.DineshParikh RCHofficer, Member Secretary, District TB Control society, Sikar 39 ......... ...... * District TB Officer, Sikar 40 AshokNirvan Dy.Director, WCD Project (ICDS 111), Dist. Sikar 41 LalaRam Asst. Accounts officer. 42 HemaRam UDC cum Cashier 43 Rajendra Sharma Statistical Asst. (Physical data) 44 SubhashVerma Cashier, Child Development Project Office (CDPO) 55 Dr.K.R.John Professor & Incharge, RNTCP, CMC, Vellore, ChairmanZonal Task Force constituted by Central TB Unit 56 Dr.V.K. Purshottam Dy. Director, MedicalRuralHealthServices & Family Welfare, Vellore 57 KrishnaVeni District Project Officer, WCD Project (ICDS 111), Dist. Vellore 58 Curie Florence Incharge, Child Development Project Office 59 E.Kamalasaray Incharge, Child Development Project Office 60 Ravi Suptd.Accounts, Vellore District Project Office, WCD Project fICDS 111) Joint Director, Vellore, Member-secretary, District TB Control 161 I Dr*Sh-ugam Societv 62 C.K.Babu Statistical Asst., DistrictTB Control Society, Vellore 63 S. Gopalkrishnan, IAS District Collector, Vellore Note on Public Financial Management andAccountability in Centrally SponsoredSchemes (CSS) 73 73 1Dr.Anirudh I WHO Consultant, Luckhnow DISTRICT ADMINISTRATION, BAHRAICH,UP 74 I Dr. B.K.Pandey I DistrictProject Officer, WCD Project (ICDS 111), Dist. Bahraich, UP 75 Vinay Mishra Accounts Clerk 76 RoopaliSingh Incharge, CDPO, Jarwal Kasha 77 DiwamaniPratap Singh Accounts Clerk, CDPO, Jarwal Kasha 78 Jaswant Kaur Incharge. CDPO. Fakar Pur 89 JaganNathPrasad Finance Controller, RCHProject, Luckhnow 90 Dr Brijendra Singh Dy.Director, SIFPSA, Luckhnow 91 Devesh Chaturvedi Executive Director. SIFPSA. Lucknow 92 Gopal Mittal AGM, Region2, StateBank ofIndia, NewDelhi 93 Avinash Chander Director, Technical, Instituteof Chartered Accountants of India, New Delhi 94 J.P. Behl DGM, (Finance & Admin.), HSCC IndiaLtd. 95 S.A.Usmani DGM(Procurement), HSCC IndiaLtd. 96 Goyal, Mamta Accountant (Procurement), HSCC IndiaLtd. 97 DrN.C. Saxena Former Secretary Planning Commission 98 Vishal Gandhi World Bank Consultant on Bihar study Note on Public Financial Management and Accountability in Centrally SponsoredSchemes (CSS) 74