Training Manual on Financial Management

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Training Manual on Financial Management
Procurement29th FCs review meeting
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Financial Management

• Training Manual Modules on Financial
  Management Procurement
• GOI developed a draft comprehensive Manual and
  Modules through a retired C AG officer,
  engaged on short term basis.
• Modules cover 5 days training of finance and
  accounts staff
• It contains 9 Chapters, covering introduction,
  planning, budgeting, accounting, fund flow
  arrangements, financial reporting, internal
  control internal audit, auditing and
  procurement.

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Contd

• Shared the Manual and Modules with all States
  through e-mail on 27th April 2011 through e-mail.
• Sought comments/suggestions of States by 5th May
  2011.
• In case any amendment is considered necessary, a
  revised formulation of that part was sought.
• Except West Bengal, nobody responded till 10th
  May 2011.
• West Bengal also did not suggest any revised
  formulation.

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Contd

• Team
• In order to facilitate a fruitful discussion
  within a short period, 3 teams are formed.
• Team I (Leader Shri Birkhe Ram) 12 States
• Planning, fund flow and financial
  reporting.
• Team II (Leader Shri U.K. Verma) 11 States
• Accounting, Internal control monitoring and
  auditing.
• Team III (Leader Shri K. Gopalan) 12 States
• Introduction, Budgeting and Procurement.
• The leader may form 3 sub teams, so that one
  Chapter is examined by each sub team.

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Contd

• Expectations from the Teams
• The Training Manual and Modules need to be in
  conformity with the provisions of FM P Manual.
• The Teams should examine the draft Manual and
  Modules carefully and ensure that the basic
  provisions of the FM P Manual are invariably
  incorporated therein.
• GOI recently developed a revised SSA Framework
  for the smooth implementation of RTE Act.
• Relevant provisions of the revised SSA Framework
  also need to be incorporated in the Manual, as
  some of the provisions incorporated are from the
  pre-revised SSA Framewark.
• The draft Manual also elaborates certain basic
  provisions on procedural matters in order to
  enrich the working knowledge of the participants,
  which if considered necessary, may be retained.

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Contd

• Expectations from the Teams
• It should be kept in mind that the Manual and
  Modules are for the benefit of the finance and
  accounts staff of SSA at all levels and therefore
  it should meet their requirement.
• While the training needs up to Block level are
  identical, the same at Cluster and school level
  will differ due to maintenance of double entry
  system of accounting up to Block level and single
  system of accounting at Cluster and school level.
• All the books of accounts and Registers
  prescribed in the Manual may not be required to
  be maintained at Cluster and school level and as
  such the Team should look into this and suggest
  the books of accounts and Registers required at
  CRC and School level and a separate training
  modules.

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Contd

• Expectations from the Teams
• Observations from IPAI review reports and JRM
  recommendations are extensively included in many
  Chapters with names of the States which is not
  considered appropriate.
• In order to understand the common mistakes
  generally committed by the implementing agencies
  in accounting, fund flow, opening of bank
  accounts, diversion of funds, misappropriation of
  funds, procurement etc, key observations brought
  out by the statutory auditors, IPAI, JRM, Team
  on post review of procurement may be included
  under the relevant subject with out naming the
  States and source.

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Some examples

• Key Observations
• Accounting
• - Weak accounting system prevailing.
• - Non-maintenance of prescribed books of
  accounts like cash book, ledger, journal, cheque
  issue register, stock register, asset register
  etc.
• - Non carrying out of annual physical
  verification of stock and asset.
• - Non preparation of bank reconciliation
  statement.
• - Delay in obtaining utilization certificates.

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Some examples

• Key Observations
• Advances
• - advances included in the expenditure.
• - expenditure not supported by utilization
  certificate/expenditure statement.
• - advances allowed as expenditure for reporting
  purpose remain as advances in the books of
  accounts.
• - not carried out adjustment of outstanding
  advances.

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Some examples

• Key Observations
• Opening of Bank Accounts
• - Accounts not opened in the name of Head of
  Office.
• - Not opened joint signatory savings bank
  account with nationalized/scheduled bank.
• - Not opened separate accounts for SSA, NPEGEL
  and KGBV.
• - Opened multiple bank accounts instead of one
  bank account.
• - Not adopted e-transfer of funds even where
  such facilities exist.

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Some examples

• Key observation on procurement
• need for tightening of procurement system
  especially on procedural lapses
• incomplete documentations
• Irregularities
• diversion of funds
• lack of monitoring the progress
• Procedural lapses
• Not issued solicitation letters to the vendors
  for obtaining quotations.
• obtained Quotations by hand by visiting the
  premises of the vendors.
• In some cases, notice inviting quotations being
  put on the notice boards of SSA offices.
• No formal agreement had been signed for
  procurement at State level.

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Some examples

• Procedural lapses
• Engagement of contractors for construction of
  additional class rooms without obtaining the
  prior approval of PAB.
• Non observance of the time limit of 30 days for
  submission of bids.
• Letter of award issued within 20 days, even
  though 30 days time limit was allowed for
  submission of bids.
• Not indicated Bid validity period in the bid
  documents.
• Not taken Earnest money deposit from prospective
  bidder.
• Absence of social audit at VEC level.
• Followed Single tender method of procurement
  particularly at VEC/school level in majority of
  cases without inviting any quotations.

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Some examples

• Procedural lapses
• Not indicated validity period of the earnest
  money deposit in the tender documents.
• Not obtained Security deposit/performance
  guarantee from selected bidders.
• Not contain clauses for liquidated damages,
  security deposits, retention money, delivery
  schedule and payment schedule in Work Orders .
• Not published advertisement in national news
  paper for open tender valuing more than Rs. 20
  lakh.
• Not clearly specified Technical specifications,
  delivery period, payment terms etc in the tender
  documents.

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Expectations from the Team

• Check list and exercise are given at the end of
  each Chapter to facilitate proper evaluation of
  the training imparted to the participants.
• In case any changes are made in the text, the
  check list and exercise also need suitable
  modifications.
• After completing the examination the Team should
  share the input during the concluding session.

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Accounting

• As per State Government procedure with the
  exception of cash book in double entry method.
• Single entry system in Cluster VEC/School.
• List of Books of Accounts and Registers provided
  in Para 52.
• Ensure maintenance of essential books of accounts
  like cash book, journal, ledger, cheque issue
  register, advance register, stock register, asset
  register, bill register, establishment register
  etc.
• Carry out annual physical verification of Assets
  and Stocks.

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Accounting

• Advances
• Following advances treated as expenditure for
  reporting purpose only
• School Grant
• Teachers Grant
• TLE
• Repair and Maintenance of School building
• Civil Works by community
• Salary of locally appointed teachers
• EGS/AIE (Salary and Materials)
• Teachers Training
• Annual Grants to BRC/CRC
• Obtain Utilization certificates from
  sub-districts and districts as per the time frame
  prescribed

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Accounting

• Advance Register
• Monitoring of Advances
• Account head
• Cash Book
• Journal
• Ledger
• Monthly Bank Reconciliation
• Indicative staffing structure of Finance and
  Accounts staff at SPO, DPO and enabling provision
  for Accountant at block level.
• Capacity Building of Accounts and Audit Staff-
  Minimum 5 days training mandatory to accounts
  staff in a year
• Control of Expenditure
• Re-appropriation of funds

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Fund Flow Arrangements

• GOI and State Share
• Procedure for release of funds
• Ad-hoc release of Ist installment of GOI share in
  April 50 of the expenditure incurred in the
  previous year less opening balance subject to
  subsequent adjustments.
• Fund flow from GOI to SIS, State to SIS, SIS to
  District and District to sub-district level.
• Opening of bank accounts Nationalized/scheduled
  bank Joint signatory SB account, Accounts in
  one bank
• Open only one savings bank account for each
  scheme.
• Opening of multiple bank accounts needs approval
  of EC.
• e-transfer of funds at all levels subject to
  availability of banking facility
• Accounting of Interest earned.

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Internal Control and Internal Audit

• Internal Audit Strengthen with adequate
  staff/CA firm, Concurrent, pursue observations to
  finality, submit reports to EC.
• In many States not being carried out on
  concurrent basis.
• Not yet started in JK.
• Not started for 2009-10 in Delhi, Haryana,
  Manipur, Rajasthan and Sikkim.
• Needs to strengthen the system on priority.

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Auditing

• Selection of Chartered Accountant Firm
  CAG/AGs empanelled list of CA firms
• Use prescribed Terms of Reference
• Initially one year and may be extended upto 3
  years subject to satisfactory service.
• Ensure engagement of CA Firm by April every year.
• Close the annual accounts by 30th June every
  year.
• Annual Audit Report by CA Firm by September every
  year
• Submit Annual Audit Report to GOI by 1st
  November every year
• Pursuance of Audit Objections
• Annual audit report for 2008-09 is still awaited
  from JK.
• Ensure submission of audit report for 2009-10 by
  October 2010

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Procurement Procedure under SSA / NPEGEL/KGBV
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PROCUREMENT

• Mandatory to follow Chapter IX of the Manual.
• Financial ceiling for each method as per State
  Government ceiling unless prescribed by MHRD.
• Presently ceiling prescribed by MHRD vide letter
  dated 17th September 2008 which applies upto 30th
  September 2012.
• Ensure the levels of procurement provided in Para
  112 is strictly followed
• School / Community level
• CRC / BRC level
• District level
• State level
• Upload the Procurement Plan every year in SSAs
  website.
• Financial ceiling prescribed for each method to
  be strictly followed.

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Method of Procurement

1. Open Tender (Para 115 of the Manual)
2. Limited Tender (Para 118 of the Manual)
3. Single Tender (Para 119 of the Manual)
4. Procurement without tender / quotation (Para 120
   of the Manual)
5. Procurement through communities (Para 121 of
   the Manual)

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Procurement Under External Funding

• Detailed Instructions issued to States/UTs on
  17th September, 2008.
• No change in method of procurement.
• Mandatory to follow Procurement procedures
  prescribed in Chapter-IX of the Manual.
• However, follow the financial ceilings indicated
  below against each for all procurement of works,
  goods and services.

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• Procurement

Open Tender (Para 115-117 of the Manual)

• Goods, excluding Information Technology
  Equipment, estimated to cost the equivalent of
  more than US 50,000 but not more than US
  300,000 per contract and works estimated to cost
  the equivalent of more than US 40,000 but not
  more than US 300,000 per contract.
• Textbooks estimated to cost the equivalent of
  upto US 1 million per contract.
• Works for SIEMAT estimated to cost the equivalent
  of upto US 800,000 per contract.
• Information Technology Equipment estimated to
  cost the equivalent of more than US 50,000 but
  not more than US 4.00 million per contract.

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2. Limited Tender (Para 118 of the Manual)

• Goods including Information Technology Equipment,
  estimated to cost the equivalent upto US 50,000
  or less per contract.
• Works estimated to cost the equivalent of US
  50,000 or less per contract.

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3. Single Tender (Para 119 of the Manual)

• Goods estimated to cost the equivalent of less
  than US 30,000 per contract and which are
  specifically certified as of proprietary nature
  or of which only a particular firm is the
  manufacturer
• Textbooks estimated to cost the equivalent of US
  500,000 or less per contract.
• Books, teaching materials, school facility
  improvement, hiring of vehicles and operation and
  maintenance of equipment estimated to cost the
  equivalent of less than US 30,000 per contract.
• Works estimated to cost the equivalent of US
  40,000 or less per contract (single tender method
  i.e. direct contract without competition).

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5. Procurement through communities (Para 121 of
the Manual)

• Works estimated to cost the equivalent of US
  40,000 or less per contract.
• Works estimated to cost the equivalent of US
  20,000 or less per contract may be procured under
  the unit/piece rate through qualified contractors
  or registered non-governmental organisation,
  other beneficiary association or Village
  Panchayats.

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6. Procurement of goods more than the above
financial ceiling not procured using the proceeds
of credit

• Goods, other than Information Technology
  Equipment, estimated to cost the equivalent of
  more than US 300,000 per contract
• Works other than SIEMAT estimated to cost the
  equivalent of more than US 300,000 per contract
• Works for SIEMAT estimated to cost the equivalent
  of more than US 800,000 per contract
• Information Technology Equipment estimated to
  cost the equivalent of more than US 4.0 million
  per contract shall be procured in accordance with
  such methods as may be established by the
  Association.

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7. Employment of Consultants

• All consulting services to be financed out of the
  proceeds of the Credit and estimated to cost
  equivalent of US 200,000 or less per contract
  shall be procured in accordance with Para 123 -
  124 of Chapter IX of the Manual on Financial
  Management and Procurement.
• Consultancy services estimates to cost equivalent
  of more than US 200,000 per contract shall not
  be procured using the proceeds of this credit.

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Key Observations of Post review of Procurement

• Irregularities in Procurement
• Selected same contractor on single source basis
  in two schools.
• Purchased Computers from agencies not on
  authorized DGSD or State Government Rate
  contract entities.
• Assets procured were not available for physical
  verification.
• Absence of concerned staff during the course of
  review despite prior notification of the visit.
• Diversion of funds
• Used ACR fund for the construction of library
• Monitoring the progress of the Procurement
• No MIS for monitoring progress of procurement at
  State and district level.

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Financial Management

• Key Issues
• Refund of unspent balance of DPEP.
• Gujarat Rs. 3.64 crore
• Kerala Rs. 4.95 crore
• Tamil Nadu Rs. 1.09 crore
• Uttar Pradesh DPEP-II - Rs. 4.44 crore
• DPEP-III Rs.
  1.36 crore
• West Bengal Rs. 15.70 crore

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Financial Management

• Key Issues
• Refund of unspent balance of SSA Pre-Project
  funds.
• Jammu Kashmir
• Manipur
• West Bengal
• Non-refund of these balances is likely to affect
  future release of SSA funds.

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Financial Management

• Key Issues
• Backlog of State share as on 31-3-2010
• Delhi Rs. 4.37 crore
• JK Rs. 79.51 crore
• Kerala Rs. 12.85 crore
• Rajasthan Rs. 245.93 crore
• Tamil Nadu Rs. 0.11 crore
• Uttarakhand Rs. 16.13 crore
• West Bengal Rs. 43.52 crore
• Release of 2nd Installment from GOI is subject to
  release of the backlog of State share.

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Financial Management

• Key Issues
• Status of finance and accounts staff and
  training.
• - Vacant posts exist in SPOs of Gujarat (1),
  Haryana (11), JK (2), UP (6), Uttrakhand (1) and
  WB (3).
• - Vacant posts exist in DPOs of Delhi (27),
  Gujarat (13), Haryana (4), JK, Orissa (13),
  Rajasthan (34), UP (47), Uttrakhand (13) and WB
  (22).
• - Fill up these posts on priority.
• - Also provide an Accountant at block level.
• - Provide minimum 5 days training in a year to
  all accounts staff.

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Financial Management

• Key Issues
• Status of finance and accounts staff and
  training.
• - Vacant posts exist in SPOs of Chhattisgarh
  (2), HP (1), JK (3), Rajasthan (1), UP (9),
  Uttrakhand (1) and WB (3).
• - Vacant posts exist in DPOs of Chhattisgarh
  (6), Gujarat (12), Kerala (5), Manipur (9),
  Rajasthan (102), Sikkim (3), Tamil Nadu, UP (62),
  Uttrakhand (11) and WB (16).
• - Fill up these posts on priority.
• - Also provide Accountant at block level or for
  a group of blocks.
• - Provide minimum 5 days training in a year to
  all accounts staff.

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Financial Management

• Key Issues
• Audit of VECs/Schools
• - Ensure that audit of VECs/schools receiving
  more than Rs. 1 lakh per year is covered in a
  three year cycle of audits.

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Financial Management

• Key Issues
• Pursuance of Audit Objections
• - Audit observation compliance awaited from the
  following States
• 2005-06- Haryana and Manipur.
• 2006-07- Jharkhand, Haryana, Karnataka, Kerala,
  Manipur, Sikkim and Tamil Nadu.
• 2007-08- Chandigarh, JK, Jharkhand, Haryana,
  Karnataka, Kerala, Manipur, Rajasthan and Tamil
  Nadu.
• Monitor the settlement of outstanding audit
  objections through the register prescribed in
  Para 110.1 of the Manual.

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Remedial Measures

• FM Action Plan
• MHRD on 19-4-2010 sought State Action Plan along
  with monthly expenditure plans by 30th April,
  2010.
• The revised action plan includes
• expected outcomes for books of accounts
• closing of accounts
• internal audit
• financial monitoring including social audit
• capacity building
• procurement
• staffing
• statutory audit
• compliance of audit observations and
• concurrent financial review by IPAI

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Remedial Measures

• Monthly Expenditure Plan
• Expenditure trends in the past indicate back
  loading of major portion in 4th Quarter
• To provide sufficient time for completion of
  activities, appropriately front load the fund
  flow at district and sub-district level.
• This will result in not only even flow of funds
  in all the Quarters but also completion of
  activities within the stipulated time frame.
• Release all the annual grants to the
  beneficiaries immediately on receipt of the
  ad-hoc/first instalment.

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Thank You