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National Panchayat Accounting Manual

Vol. I - Accounting Systems & Treatments (Draft Version)

Govt. of India Ministry of Panchayati Raj

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National Panchayat Accounting Manual Vol. I

Table of Contents
1.
1.1. 1.2. 1.3. 1.4. 1.5. 1.6.

ACCOUNTING IN PANCHAYAT RAJ INSTITUTIONS ....................................................... 1


Present Scenario ........................................................................................................................................ 1 Tier levels of the administrative set-up of Panchayats ..............................................................................1 Accounting in PRIs...................................................................................................................................... 2 Need for National Panchayat Accounting Manual (NPAM) .......................................................................2 Our Approach in preparation of NPAM .....................................................................................................3 Applicability of NPAM ................................................................................................................................4

2.
2.1. 2.2. 2.3. 2.4. 2.5.

ENVISAGED ACCOUNTING SYSTEM .................................................................................... 5


Recommendation of the Second Administrative Reforms Commission on Local Bodies ..........................5 Model Accounting System .........................................................................................................................6 Codification in Chart of Accounts ..............................................................................................................7 Basis of Codification ................................................................................................................................... 8 PRI Accounts and Budget Formats ...........................................................................................................11

3.
3.1. 3.2. 3.3.

PRIASOFT ................................................................................................................................ 13
Need for a Accounting Software ..............................................................................................................13 Basic Features .......................................................................................................................................... 15 Different Vouchers in Priasoft .................................................................................................................15

4.
4.1. 4.2. 4.3.

BASIC ACCOUNTING SYSTEM ............................................................................................ 17


Need for Accounting ................................................................................................................................17 Types of Accounting .................................................................................................................................18 Methods of Accounting - Book Keeping ..................................................................................................20

5.
5.1. 5.2. 5.3. 5.4. 5.5.

ACCOUNTING PROCESS UNDER DOUBLE ENTRY ACCOUNTING SYSTEM........... 22


Vouchers ..................................................................................................................................................23 Cash Book................................................................................................................................................. 25 Leger Posting............................................................................................................................................28 Reconciliation........................................................................................................................................... 29 Preparation of Financial Statements .......................................................................................................35

6.
6.1. 6.2. 6.3. 6.4.

ACCOUNTING OF OWN SOURCE RECEIPTS ................................................................. 50


Cash Book................................................................................................................................................. 50 Collection Book ........................................................................................................................................50 Register of contribution ...........................................................................................................................50 Register of Loans ...................................................................................................................................... 51

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6.5. Responsibility of the Accounts Officer .....................................................................................................51

7.
7.1. 7.2. 7.3. 7.4. 7.5. 7.6. 7.7.

ACCOUNTING OF PAYMENTS ............................................................................................ 52


Policy for Establishment Expenses ...........................................................................................................52 Policy for Non Establishment Expenses: ..................................................................................................53 Register of bills .........................................................................................................................................54 Scrutiny of bills. ........................................................................................................................................54 Passing of bills ..........................................................................................................................................54 Responsibilities of the Executive Officer for incurring expenses .............................................................55 Internal controls on Accounting of payments .........................................................................................55

8.
8.1. 8.2. 8.3. 8.4. 8.5. 8.6.

ACCOUNTING FOR GRANTS-IN AID ................................................................................. 57


Nature of Grants ...................................................................................................................................57 Accounting Policies for Grants ............................................................................................................58 Accounting Records & procedures for Grants ..................................................................................58 Recording of Grant Received ...............................................................................................................58 Utilisation of Grants ..............................................................................................................................59 Internal Controls ...................................................................................................................................60

9.
9.1. 9.2. 9.3.

PERIOD END PROCEDURES................................................................................................ 61


Daily Procedures ......................................................................................................................................61 Monthly Procedures ................................................................................................................................61 Annual Procedures ...................................................................................................................................62

10.
10.1. 10.2.

BUDGETARY CONTROL ................................................................................................... 63


Objectives ................................................................................................................................................63 Recommended Budgeting System ...........................................................................................................63

11.
11.1. 11.2. 11.3. 11.4. 11.5. 11.6.

AUDIT .................................................................................................................................... 65
Statutory Audit......................................................................................................................................... 65 Financial Statements Audit ......................................................................................................................66 Report of the Financial Statements Auditor ............................................................................................66 Additional Matters to be Reported ..........................................................................................................67 Timeline for financial statements audit ...................................................................................................68 Other Audits .............................................................................................................................................68

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National Panchayat Accounting Manual Vol. I

1. Accounting in Panchayat Raj Institutions


1.1.

Present Scenario
The 73rd and 74th Constitution Amendment Acts 1992, supplemented by legislation/resolutions in the States in 1994, changed the structure of governance permanently from a two-tier to a three tier three-tier system consisting of the Union, the States and the Panchayats/Municipal Bodies with a distinct developmental orientation. With these landmark distinct Constitutional amendments, the units of local self governments at various tiers/levels got a self-governments new lease of life and many far far-reaching changes in the Constitution and the State laws were brought about to ensure proper functioning of democracy at the grassroots. sure grassroots Decentralisation in the context of Panchayats means that when authority is transferred from the state to the local governments, the latter should have the prerogative of taking decisions on the planning and implementation of such activity. - The Government of India ing (GOI) Task Force on Decentralisation (2001) Panchayats have now become an integral part of the National Government structure. The level of government that is closest to the citizens is in the best position to facilitate the decision making process for improving their living conditions and a means to make use of their knowledge and capabilities in the promotion of all round development. The rapid urbanization and the consequent growth in the functioning of local governments calls for excellent support systems, therefore strengthening and capacity building of the Panchayats assumes paramount importance. As one of the steps in that direction, this training manual shall give an overview of the accounting system, an overview of the Model Accounting System and understanding of financial statements etc. The Accounting system followed in Panchayats is purely on cash basis. Here revenues are . recorded when cash is actually received and expenses are recorded when they are actually recorded paid (no matter when they were actually invoiced). Accounts in Panchayati Raj Institutions are maintained at three levels viz. Village, Block, and District. In order to synergise the entire system of accounting, at all levels, the software PRIASOFT was conceptualised.

1.2. Tier levels of the administrative set set-up of Panchayats 1.2.1. Zilla Parishad Zilla Parishad is a local government body at the district level in India. It looks after the administration of the rural area of the district and its office is located at the district headquarters. Zilla Parishad has minimum of 50 and maximum of 75 members Its sources of Income involve taxes on members. water, pilgrimage, markets, etc. and fixed grant from the State Government in proportion with the land revenue and money for works and schemes assigned to the Parishad.

Zila Parishads

Block Panchayats

Gram Panchayats

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National Panchayat Accounting Manual Vol. I 1.2.2. Block Panchayat The block Panchayat is the local government, set at the block or tehsil level, for a group of gram panchayats in states where the total population exceeds 20 lakh. 1.2.3. Gram Panchayat Gram panchayats are local governments at the village or small town level. A gram panchayat can be set up in villages with minimum population of 300. Sometimes two or more villages are clubbed together to form group-gram panchayat when the population of the individual villages is less than 300. The main source of income of the Gram Panchayat is the property tax levied on the buildings and the open spaces within the village. Other sources of income include professional tax, taxes on pilgrimage, animal trade, grant received from the State Government in proportion of land revenue and the grants received from the Zilla Parishad. 1.3.

Accounting in PRIs
The accounts of PRIs under model system of accounting are kept on cash basis. The transactions in PRI accounts represent the actual cash receipts and disbursements during a financial year as distinguished from amounts due to or by PRI during the same period.

1.3.1. Principles of cash based accounting in PRIs. 1.4. Transaction is only recorded when cash is received or paid The accruals of amounts due to or owing by Panchayats are not shown in the financial statements but are kept track by way of institutional records The expenditure on purchase of goods is not recognized until the bill is actually paid, irrespective of when the goods were received or consumed The transactions represent the actual cash receipts and payments during a financial year Cash based information has the advantage of being relatively simple and readily verifiable.

Need for National Panchayat Accounting Manual (NPAM)


The 74th Constitutional Amendment Act, 1992 redefined the role and significantly increased the responsibility of panchayats in the countrys development. With the status of Local Self Government, these authorities were now required to perform a wide range of civic and developmental functions for local development. The Panchayats now witnessed a significant increase in responsibilities with greater powers, distinct sharing of resources with the State Government and greater decentralised authority. Considering the growing importance of these bodies, there was a need felt to simultaneously improve their internal financial systems and resources, and strengthen their capacity to carry out the new responsibilities. So in order to addresses the issues related to improving financial accountability of local self-governments in India, the need to have an accounting manual at PRIs was initiated.
Articles 243 J and 243 Z provide for maintenance of accounts and audit of Local bodies, which state that The Legislature of a State may, by law, make provisions with respect to the maintenance of accounts by the Panchayats/Municipalities and the auditing of such accounts.

The NPAM is developed in order provide policy base and practice guidance to the Panchayati Raj Institutions (PRIs) in their objective of developing an effective accounting and financial

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National Panchayat Accounting Manual Vol. I management and thus the Manual is expected to serve as a comprehensive reference volume for the PRIs in their day to day functioning. As a reference document, the NPAM also provides detailed formats for accounting for transactions of different nature and prescribes the exact procedures to be followed by all accounting staff in PRI. 1.5.

Our Approach in preparation of NPAM


Our approach to the development of this NPAM is based on the guidelines issued by the MoPR and the C&AG, keeping in line to the adoption of the Cash Basis system of accounting as the pertinent Accounting System to be followed at PRI. In the preparation of the manual the International Public Sector Accounting Standard (IPSAS) Financial Reporting under the Cash Basis of Accounting, promulgated by International Federation of Accountant Committee (IFAC)-Public Sector Committee has been abided by to the extent applicable and practicable. The manual has also taken into account international accounting practices, professional literature and current accounting practices being followed at all levels of the Panchayati Raj in India. This document enumerates provisions for preparation, maintenance and presentation of accounts. It also contains forms and other needed formats for the collection of data on assets, liabilities, etc. The document provides instructions and guidance on how to fill up these forms. It will also provide detailed guidance on preparing all the required Financial Statements using PRIASoft- The accounting software developed by the MoPR in close coordination with the NIC. The purpose of the volume is not only to be ready reference, but to promote accuracy, prudence and propriety in the processing and recording of accounting transactions. Thus NPAM is expected to bring in accountability and transparency and thereby good governance in the PRIs. Field visits were carried in six states, i.e. Madhya Pradesh, Punjab, Orissa, Andhra Pradesh, Maharashtra and Assam to study the current accounting systems being followed in different states and efforts required to migrate to new model accounting system. Comprehensive discussions were held at State, Zila, Block, and Gram Panchayat level with concerned functionaries, to discuss various accounting and implementation issues and their suggestions were also undertaken. The National Panchayat Accounting Manual (NPAM) will help the PRIs in understanding and implementing: sound accounting practices and processes/procedures to be followed in financial transactions relevant to Panchayats; the basics of different accounting system; differences in cash and accrual based accounting; process/procedures to be following in financial transactions; single entry/double entry accounting systems; reconciliations procedures; period end procedures; procedures for recording transactions related to Panchayat functions and activities in different accounting system which shall include the method of identification, preparation, verification and recording of transactions in all Panchayat accounting areas such as taxes and fees, grants from various sources, salaries/wages, suppliers

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National Panchayat Accounting Manual Vol. I materials, contractors, projects and fixed assets, grants and revenue from various services provided etc. both under a manual and computerized environment; Chart of Accounts Features and use of PRIASOFT

And also help the Central and State Governments in: Aggregating the Data for PRIs; Tracking the flow of funds; and Taking decisions on subsequent release of funds

The manual will also serve as a base document for computerisation of accounting procedures in the PRIs and for ensuring that the policies, procedures and forms recommended by the central government and various state governments are amenable for computerisation. 1.6.

Applicability of NPAM
This manual is applicable to all PRIs to whom the 74th Constitutional Amendment Act, 1992, is made applicable. Accounting principles and procedures placed in the manual are primarily focused on the concept of cash basis of accounting. The accounting principles adopted for preparation of the Financial and Information Statements of the PRIs shall be followed uniformly unless stated otherwise in the manual. The manual provides for integrating the budgeting and accounting systems to enable better control.

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2. Envisaged Accounting System


As per the recommendations of the Eleventh Finance Commission, the Ministry of Finance (MOF) had issued guidelines for Utilization of Grants to Local bodies in June 2001. Para 6.4 of the Ministry of Finance guidelines states that The C & AG shall be responsible for exercising proper control and supervision over the proper maintenance of accounts and their audit for all 3 tiers/levels of PRIs and ULBs. As of 30th April, 2009 out of 24 States where 73rd & 74th amendments are applicable, entrustment of TGS to CAG has been received in 22 states and one Union Territory. An important way of securing accountability and transparency is to make available data related to finances of the local bodies, to all stakeholders viz. the local body itself, public and the district/state/central level governments. Recognizing the need for such a database, on the recommendations of the Eleventh Finance Commission, the Ministry of Finance in its guidelines had stated that, The database on finances of Panchayats and municipalities shall be developed at the district, State and Central Government levels and shall be made easily accessible by computerisation. The data shall be collected and compiled in standard formats as prescribed by CAG. 2.1.

Recommendation of the Second Administrative Reforms Commission on Local Bodies


A number of recommendations of the Sixth Report of the Second Administrative Reforms Commission titled Local Governance- An Inspiring Journey into the Future have been accepted by Government of India. The following recommendations have been accepted by the Government of India: 1. 2. The accounting system for the urban local bodies (ULBs) as provided in the National Municipal Accounts Manual (NMAM) should be adopted by the State Governments The financial statements and balance sheet of the urban local bodies should be audited by an Auditor in the manner prescribed for audit of Government Companies under the Companies Act, 1956 with the difference that in the case of audit of these local bodies, the C&AG should prescribe guidelines for empanelment of the Chartered Accountants and the selection can be made by the State Governments within these guidelines. The audit to be done by the Local Fund Audit or the C&AG in discharge of their responsibilities would be in addition to such an audit The existing arrangement between the C&AG of India and the State Governments with regard to providing Technical Guidance and Supervision (TGS) over maintenance of accounts and audit of PRIs and ULBs should be institutionalized by making provisions in the State Laws governing local bodies. It should be ensured that the audit and accounting standards and formats for Panchayats are prepared in a way which is simple and comprehensible to the elected representatives of the PRIs The independence of the Director, Local Fund Audit (DLFA) or any other agency responsible for audit of accounts of local bodies should be institutionalized by making the office independent of the State administration. The head of this body should be appointed by the State Government from a panel vetted by the C&AG

3.

4.

5.

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National Panchayat Accounting Manual Vol. I a. Audit reports on local bodies should be placed before the State Legislature and these reports should be discussed by a separate committee of the State Legislature on the same lines as the Public Accounts Committee (PAC). Access to relevant information/records to DLFA/designated authority for conducting audit or the C&AG should be ensured by incorporating provisions in the State Laws governing local bodies. Each State may ensure that the local bodies have adequate capacity to match with the standards of accounting and auditing. The system of outcome auditing should be gradually introduced. For this purpose the key indicators of performance in respect of a government scheme will need to be decided and announced in advance. To complement institutional audit arrangements, adoption and monitoring of prudent financial management practices in the local bodies should be institutionalized by the State Governments by legislating an appropriate law on Fiscal Responsibility for Local Bodies.

b.

c. d.

e.

The Comptroller and Auditor General of India has been requested by the Ministry of Urban Development to work out the methodologies for implementation of the same in consultation with the Ministries. Based on these recommendations the CAG has prescribed 2.2. A model Accounting System List of Account Codes Accounts and Budget Formats

Model Accounting System


The Ministry of Panchayati Raj, Government of India after consultative process with C&AG and State Governments prepared a Model Accounting System for the Panchayati Raj Institutions to ensure transparency and accountability in the operations of the financial transactions in Panchayats. Based on the recommendations of the Eleventh Finance Commission, for exercising proper control and securing better accountability, the formats for the preparation of budget & accounts and database on finances were prescribed by C&AG in 2002. These formats were further simplified in 2007 for easy adoption at grass root level. The Technical Committee on Budget and Accounting Standards for in the meeting held on 4th August 2008 co-chaired by Secretary, Ministry of Panchayati Raj, Govt. of India and Deputy Comptroller and Auditor General (LB), considered the need for developing simple but robust format of accounts and constituted a Sub-Committee co-chaired by Director General (LB) and Principal Secretary, Panchayati Raj Department, Govt. of Gujarat, for the purpose. The mandate of the Technical committee was to the sub-committee inter alia include to prescribe simple but robust accounting system for , comprehensible to the elected representatives and functionaries of and facilitates generation of financial reports through Information and Communication Technology. The simplified accounting formats were circulated among the members of the sub-committee, and were subsequently approved on 15th January, 2009. These formats are

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National Panchayat Accounting Manual Vol. I simple to implement and by adopting them states will have better financial control over and will gain in terms of better financial management and greater creditability. 2.2.1. Features of Model Accounting System The accounting practices prescribed for PRIs are by and large; akin to the accounting practices followed by the State Governments which are as follows. Each institution i.e. Zilla Parishad/Mandal Parishad / Gram Panchayat is an accounting entity. The accounts are kept on cash basis. The financial transactions are classified on three tier structure i.e. Functions (major head), programs/ schemes (minor head)and objects( object head) The nomenclature of the Major Heads is kept identical to the 29 functions listed in the Eleventh Schedule of the Constitution. Sub-heads have been prescribed for classification of scheme under appropriate function. States may choose and operate those major/minor heads as required in their particular context without changing the overall structure. There is a strong relationship between accounting and budgeting and the accounting system provides the basis for appropriate budgetary control. The institutions are not require-d to prepare a balance sheet and the details of assets are kept in the subsidiary registers and records of the PRI The Receipts and Payments Accounts would incorporate revenue and capital, deposits, loans and advances and remittances. Period of accounts is a financial year ending 31st March. The Accounts are to be kept in two parts, Part - I To record transactions of all receipts and expenditure relating to Panchayats Fund Part - II To record transactions relating to Provident Funds, Loans, Deposits and Advances.

2.3.

Codification in Chart of Accounts


The purpose of Codification is to better organize accounting principles and laws to simplify user access. The synchronisation of the Priasoft with the accounting codes will lessen the risk of noncompliance of accounting standards and policies. The following changes are incorporated in the model accounting system as compared to the new accounting formats introduced earlier. First tier i.e. Major Head (four-digit) represent functions enumerated in the Eleventh Schedule of the Constitution. Second tier i.e. Minor Head (three-digit) represent activity/programme of the functions. Third tier i.e. Object Head (two-digit) represent the object of receipts/ expenditure. A two digit sub-head is introduced to distinguish the grants released by central and state governments. Considering the number of state schemes Alpha-numeric sub-heads can be operated for state schemes.

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ABCD

EFG

HI

J K

ABCD-EFG-HI-JK
For the entire list of codes Vol II is to be reffered. 2.4.

Basis of Codification
The main unit of classification in accounts is a four digit 'major head' which correspond to one of the (29) functions enumerated in the 11th Schedule of the Constitution are classified under 23 major heads. In addition to the 23 Major Heads three more Major heads as shown more below have been opened to facilitate the PRIs to account their activities. 2049- Interest Payments 2071- Pension and Other Retirement Benefits and 2515- Panchayat Raj Programmes In the four digit code of Major Head, the first dig indicate whether the Major Head is a digit Receipt Head, Revenue Expenditure Head, or Capital Expenditure Head

2.4.1. First Tier Classification: Major Head

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National Panchayat Accounting Manual Vol. I Revenue Receipt Revenue receipts consist of tax collected by the government and other receipts consisting of interest and dividend on investments made by government, fees and other receipts for services rendered by government" Revenue Expenditure - It means outlay benefiting only the current year. It is treated as an expense to be matched against revenue. Capital Expenditure - Expenditure intended to benefit future period incurred for acquisition / construction of fixed assets. The term is intended to cover expenditure that adds fixed asset units or that has the effect of improving the capacity, efficiency, life span or economy of operations of an existing fixed asset. Capital Receipt is the funds that are not part of the operating activities of the establishment. Capital receipts primarily include external assistance, market loans, small saving and government provident funds etc. Inserting digit 2 to the first digit of the Revenue Receipt will give the Code Number allotted to corresponding Revenue Expenditure Head; inserting a 4 instead of 2 will give the relevant Capital Expenditure. Any addition or deletion of a major head, or a minor head will be done only with the approval of the State Accountant General.
SI. No. Functions listed in the th XI Schedule of the Constitution Agriculture. including Agricultural Extension Rural Housing Drinking Water Education. including Primary and Secondary Schools Markets and Fairs Corresponding Major Heads Nomenclature of the Revised Major Head Agriculture, including Agricultural Extension Rural Housing Water Supply Sanitation and Receipts Revenue Expenditure 2435 2216 2215 Capital Expenditure 4435 4216 4215

1. 2. 3.

0435 0216 0215

4.

Education

0202

2202

4202

5.

Market and Fairs

0206

2206

4206

In addition, Panchayats may also operate the following separate major heads to record all transactions (Receipts and Payments/Disbursement) under Loans, Pension & Provident Fund, Insurance and Pension Fund, Deposit and Advances and Civil Advance, depending upon the requirement: 7610- Loans to Panchayat Employees 8011- Insurance and Pension Fund 8550- Civil Advances 8009- Provident Fund 8443- Civil Deposit

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National Panchayat Accounting Manual Vol. I To record all unclassified transactions not immediately booked under the respective functional major heads due to lack of detail/proper classification in the challan/cheque/voucher, Panchayats may operate '8658-Suspense Accounts'. 2.4.2. Second Tier Classification: Minor Head The second tiers of Minor Heads, with a three digit code, identify the programme undertaken to achieve the objectives of the functions. A major head is divided into minor heads. Major Head 0028 Function Taxes on Profession, Trades etc. 103- Trade License Fees 101- Entertainment Tax 0045 Taxes on Duties and Commodities 102- Advertisement Tax 104- Receipts under Other Acts 101- Primary Education 2202 Education 102 -Secondary Education 103-Adult Education 101-ZiIla Parishad 2515 Panchayat Raj 102- Block Panchayat 103-Gram Panchayat 2.4.3. Third Tier Classification: Object Code For most commonly used items of expenditure a two-digit standardized object head (inputs) have been standardized. The object head under receipts head can be opened as per requirement. Item-wise details of Object head expenditure like Dearness Allowance, House Rent Allowance etc. under salaries can be kept outside accounts if required. Purpose Expenditure Salaries Overtime Allowance Administrative Expenses Petrol/Diesel Share of taxes / duties of Object Code 01 03 12 14 20 Purpose of Expenditure Wages Travelling allowance Supplies and Materials Grants in aid Maintenance Object Code 02 07 13 17 26 Minor Heads 101- Profession Tax

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National Panchayat Accounting Manual Vol. I 2.4.4. Sub Head A two digit codification of the schemes has been done as under. In order to earmark the transactions under specific scheme, the codification of schemes was desirable. Scheme Code 11 12 13 14 15 16 17 18 19 20 21 22 Scheme Description National Rural Employment Guarantee Scheme (NREGS) Sampoorna Gramin Rozgar Yojana (SGRY) Swaranjayanti Gram Swarozgar Yojana(SGSY) Indira Awas Yojana (IAY) National Rural Health Mission (NRHM) Accelerated Rural Water Supply Programme (ARWSP) Total Sanitation Campaign Mid Day Meal Scheme Sarva Shiksha Abhiyan Pradhan Mantri Gram Sadak Yojana (PMGSY) Integrated Watershed Management Programme Integrated Child Development Services (ICDS)

Receipts 1601- Grants in aid 101-Grants from GOI 14 - IAY 02- Wages (object head)

Payments 2210-Health and Sanitation 101-Primary Health Centre 14 - IAY 02-wages (object head)

2.5.

PRI Accounts and Budget Formats


As a major initiative, the accounts and budget formats for PRI prescribed by CAG in 2002 have been accepted and formal orders issued by 11 states. These formats and accounts codes have been simplified in 2007 to enable their easy adoption. The Technical Committee on Budget and Accounting Standards for PRI in the meeting held in August 2008 felt the need for further simplifying the formats of accounts considering the capacity of the Gram Panchayats staff and constituted a Sub-Committee to develop a simple but robust computerised accounting format for PRIs which should be user friendly. The Sub-committee has developed the simplified accounting formats for PRIs by changing already prescribed six-tier classification to more manageable three tier classification system. The simplified accounting formats along with list of Codes, Functions, Programmes and Activities for PRIs recommended by the Sub-committee

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National Panchayat Accounting Manual Vol. I have been accepted by the Technical Committee in January 2009. Maintenance of accounting formats as prescribed would help in subsequent switch over to the modified accrual system of accounting. These formats as prescribed by CAG can be referred to in Vol III. With a view to ensuring that accounts of the PRIs properly present the financial position of the authorities, the CAG has prescribed Guidelines for Certification Audit of PRIs, which would improve the quality of audit being undertaken by the primary auditors and bring in greater accountability 2.5.1. Registers prescribed. Under model accounting system (8) formats are now recommended instead of 16 prescribed earlier Maintenance of these Registers would eventually help in shifting over to Accrual System of Accounting The theoretical frame work of accounts developed for PRIs laid a strong foundation for the preparation and maintenance of accounts and their audit. The prescribed receipts and payments formats, along with statement of demand collections, and assets, address critical aspects of the accounts. The formats depict all the (29) functions listed in the Eleventh schedule to the constitution and show funds transferred to PRls under various programmes and schemes. The accounts and the budget formats are synchronized and linked to the functions performed by the PRIs The codification prescribed makes the accounts amenable to computerization for building up a database and generation reports for effective monitoring. Form No. Form - I Form - II Form - III Form - IV Form - V Form - VI Form - VII Form - VIII Name of the Register Monthly/Annual Receipts and Payments Account Consolidated Abstract Register Reconciliation Statement with Bank and Treasury Statement of Receivable and Payable Register of Immovable Property Register of movable Property Inventory Register Register of Demand, Collection and balance

Sl No. 1. 2. 3. 4. 5. 6. 7. 8.

The entire set of formats appear in Vol III which is a part of the document

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National Panchayat Accounting Manual Vol. I

3. Priasoft
Panchayati Raj Institutions Accounting Software is a web-based e-governance application, developed by National Informatics Centre, Ministry of Information Technology, and Govt. of India for Panchayati Raj Institutions to effectively monitor and manage their accounts. It addresses the monitoring of funds at three-tier Panchayati Raj Institutions (PRI) under different account heads, on a month end basis. Its objective is to facilitate better financial management of Panchayati Raj Institutions (PRIs) by bringing about transparency and accountability in the maintenance of accounts thereby leading to better credibility and ultimately strengthening of PRIs. The citizen section of the application provides financial information to the public whereas the government section captures data and generates MIS reports in the specified format as per the need at the state, district, block and GP levels. The project has been operational since 2003. 3.1.

Need for a Accounting Software


Keeping with the spirit of the Constitutional amendments and the philosophy of decentralization which recognizes that grassroots level participation and implementation is the very essence of good governance, Panchayats are being increasingly invested with responsibility of implementation of many schemes and programmes. But In order to deal with this challenge the Panchayats lacked the technical knowhow and the ability to manage these funds. Some of the key audit concerns brought out in CAGs Reports are summarised below: Budgeting Weak budgeting and budgetary control. Budget proposals not approved by the PRIs/gram Sabha. Due to non-formulation of annual plan in time: o majority of local bodies could not incorporate estimates of receipts and payments relating to Plan schemes in their budgets and o local bodies incurred plan expenditure without budget approval Postings in Cash Book Differences in opening and closing balances. Non-account of receipts. Incorrect and incomplete postings. Non- reconciliation of cash book with bank pass book. Accounts Delay in preparation of monthly and annual accounts Lack of up to date accounts by the local bodies leading to incomplete picture of their financial position. Non maintenance of accounts in the Accounts Formats prescribed by CAG rendering comprehensive analysis of the finances and expenditure difficult. Local bodies are yet to create the database on finances prescribed by CAG. In some States this work has been entrusted to consultants Lack of a centralized agency for consolidation of accounts and creation of a comprehensive database on finances of local bodies. Utilization of funds Incomplete works.

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National Panchayat Accounting Manual Vol. I Fraudulent/irregular/excess payment noticed during test check of muster rolls. Release of excess grants leading to increased unutilized balances. Non adjustment of Abstract contingent Bills. Non- maintenance of property records risk of encroachments/ mis-utilization. Sums due to Gram Panchayats not transferred by ZPs Diversion of expenditure for schemes to other purposes/ schemes. Weak material management absence of periodical stocktaking; reconciling shortages; purchases without tenders/ quotations. Internal controls Lack of internal controls in the areas of budgeting, procurement of stores and execution of works leading to fraud, misappropriation and embezzlement of funds Absence of periodic reconciliation of receipts and expenditure. Non-operational internal controls against errors and inaccuracies through monthly accounts. Lack of receipts and expenditure controls resulting in huge savings and excess expenditure. Weak asset management missing asset registers, inadequate physical verification, lack of effective control & no institutional mechanism to track assets. Absence/arrears in internal audit in the local bodies. Implementation of schemes Loss of assistance due to failure to adhere to stipulated conditions and underutilization of available funds. Blocking of funds. Instances of unfruitful/doubtful expenditure noticed. Diversion of scheme funds. Irregular adjustment without vouchers & utilization certificates. Defective identification of beneficiaries and selection of beneficiaries. Grassroots planning District Plans did not reflect the felt needs of local bodies. Release of funds before approval of action plans. Loss of revenue Non-realisation of taxes, rent, license fee and auction proceeds. Short collection of sales tax; non-remittance of statutory taxes & cess to govt. account. The Ministry of Panchayati Raj have therefore requested the National Informatics Centre (NIC) to develop a software to address these issues, capturing the 3-tier classification, and providing a true and fair view of the existing financial position of the Local self Governments. The software should take into account the reports, codes and formats as prescribed by CAG. Accordingly, NIC working closely with the CAG developed the software called PRIASOFT.

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National Panchayat Accounting Manual Vol. I

3.2.

Basic Features
Simplicity o Simple & Easy to Use o Focus on Schemes; Account Head details hidden as much as possible o Double Entry Accounting concepts hidden from end users o Panchayats only need to understand the use of four vouchers; all reports are generated automatically Adaptability o Can be easily configured to meet State-Specifc Needs o Can be used in States official language Security o Data is passed over a secure network o Audit logs of all transaction data maintained by the system Availability o Web-based software, available 24X7 Transparency o Reports generated are available on public domain Two Stage Data Entry o Operator o Administrator Alerts on Important Transactions Through o SMS o E-mail

3.3.

Different Vouchers in Priasoft


In Priasoft vouchers have been sub categorized as under: a) Receipt Voucher i. ii. iii. iv. v. vi. vii. Direct Transfer Advance Receipt Refund of Advance Cancellation of Cheque Refund of Excess Payment Refund of OB advance.

b) Payment Voucher i. ii. iii. iv. Expenditure Transfer Advances Receipt Cancellation

c) Journal Voucher i. Expenditure Rectification 15

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National Panchayat Accounting Manual Vol. I ii. iii. iv. v. Receipt Rectification Advance Rectification Advance Adjustments Deductions

d) Contra Voucher i. ii. Withdrawing Cash from Bank/Treasury / Post office etc. Depositing Cash in Bank/Treasury/Post Office etc.

The entries of different type of entries into the vouchers have been explained in section 5.1 of this manual.

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4. Basic Accounting System


"Accounting is an art of recording, classifying and summarizing in significant manner and in terms of money transactions and events which are, in part at least, of a financial character and interpreting the results thereof The process involved in making a financial record of thereof. transactions and in the preparation of statements concerning the assets, liabilities, and nd operating results of an entity is termed as Accounting. Accounting is a process of identification, measurement and communication of economic information involving four interconnected phases. They are outlined herein: interconnected
1.

2.

3.

4.

At the outset, the first phase is meant to record the economic events or transactions -depending upon their occurrences, chronologically in the books of depending accounts - called journals. This process is known as journalizing. journalizing. Next comes the phase of ledger ledger-posting: It is the process by which all the : transactions are synthesized account wise so that the accumulated balance of each account-wise of those accounts can be determined. The process of ledger posting is vitally important as it helps in ascertaining the net effect of various transactions during a helps given period. The subsequent stage is preparing the trial balance which involves the arrangement of all ledger accounts having been aggregated into debit and credit balances. This activit IS reconciliation which enables to check and confirm activity whether the total of debits is equal to that of credits. Finally, comes the phase of preparing financial statements. This is the phase where , reporting is done by measuring profit & loss account and preparing Balance SheetSheet at the end of accounting period.

4.1.

Need for Accounting


Accounting with accuracy, efficiency and effectiveness in terms of overall economic activities is of a great assistance to management for planning, controlling and decision making process. controlling It is with the help of accounting information that the performance of an entity can be appraised, at the same time as, its methodical records make possible to eliminate the frauds and the thefts. Furthermore, being concerned primarily with the creation of financial information for its users, accounting provides useful information for ascertaining the effectiveness and efficiency of the entity. Hence, accounting is must for every entity.

Recording of Financial Transactions with

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4.2.

Types of Accounting
Under the cash basis of Accounting, transactions are recorded when the related cash receipts or cash payments take place. Thus the revenue is recognized when cash is collected. Similarly, expenditure on acquisition and maintenance of assets used in rendering service as well as on employee remuneration and other items is recorded when the related payments take place. The end-product of cash basis of accounting is a statement of receipts and payments that classifies cash receipts and cash payments under different heads. A statement of assets and liabilities may or may not be prepared. Budget is the principal tool of financial control in the government which sets forth the targets, objects and purpose for which expenditure should be incurred and during the period and correspondingly the sources from which funds should be raised to meet the expenditure. Since, cash basis of accounting seeks to measure actual expenditure and receipts under various budget heads to facilitate a comparison of actual performance viz-a-viz the budgeted targets, it is adopted in the government. Some benefits and limitations of cash based accounting are explained below: Benefits of cash basis of accounting o Government budgets and appropriations are cash based, therefore, monitoring of receipts and spending is easier. o Cash based financial reports are budget compliant. o Principles underlying the cash basis are easy to understand and easy to explain. o Compilation of cash based information is easier o Operating cost is low o No need to exercise any judgment in determining the amount of cash flows for the period. Limitations of cash basis of Accounting o Information on assets and liabilities is not available. o Impact of consumption of stock of net assets held by government is not known. o Cash based accounting focuses solely on the cash flows of the current period. o The timings of the cash receipts and cash payments may not coincide with earning of revenues and incurring of expenditure. o Measurement of performance based on cash basis of accounting is susceptible to alternation through slight variation in the timing of cash receipts and payments. o A budgetary deficit can be concealed by postponing payment by few days. o In cash basis of accounting expenditure incurred on major changes to the infrastructure that results in increase in its life, will be treated as revenue on normal repairs and maintenance. o Refundable deposits are normally treated as charges for services. o Performance and financial position under cash basis of accounting, therefore, may not yield correct results.

4.2.1. Cash Basis of Accounting

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National Panchayat Accounting Manual Vol. I 4.2.2. Accrual basis of Accounting In the accrual basis of accounting (also known as Mercantile Basis of Accounting), transactions by which revenue, costs, assets and liabilities are reflected in the accounts in the period in which they accrue. The accrual basis of accounting includes considerations relating to deferral, allocations, depreciations and amortization. In the accrual basis of accounting financial effects of the transactions and other events of an organizations are recorded in period in which they occur, unlike the cash basis of accounting where financial transactions are recorded in the period(s) when cash is received or paid, The goal of the accrual basis of accounting is to relate the performance of the organization in earnings in revenues and incurring expenditure during a period and not listing cash receipts and payments. Apart from income and expenditure measurements, accrual basis of accounting recognizes assets, liabilities or components revenues and expenses for amounts received or paid in cash in past, and amounts expected to be received or paid in cash in future. Benefits of accrual basis of accounting are summarized below: Under the system income and expenses are taken into the books of accounts as soon as they happen. This is like issuing a cheque and noting the amount down in the cheque book. That way we always know how much money we shall finally have at the end of the day, whether or not the cheque has been encashed by the person to whom we have given it. Under this system liabilities are recognized (moneys that are committed for payment but may not have actually paid) and also assets (physical assets like land or buildings or monitory assets like fixed deposits or moneys that PRI is sure to get). Since, the accrual system recognizes income and expenditures as and when they happen, it reflects exact financial position at any given point of time. Using the accrual system we can then create not only an income and expenditure statement of the PRI which tells us in real terms its deficit or surplus, and also a balance sheet of its assets and liabilities. The balance sheet of assets and liabilities in turn, tells the net assets position of the organization, which basically is a statement of its overall financial worth. For example, take the case of a person who owns a house worth Rs.10 Lakh and he has Rs.10, 000 in the bank. Now, if that person has actually run up bills of Rs.20,000, his creditors are unlikely to bother him because they all know that he owns that house. In accounting terms we say that his net assets position is Rs.9 Lakhs and 90 Thousands Rupees. Of course, this money is not in cash but this is his monitory worth. If he wants to pay the extra Rs.10, 000 that he does not have in cash, he can always raise a small loan against his house and the other assets, pay the outstanding Rs.10, 000, and perhaps, chalk out a scheme for repaying his loan over a longer period of time. In the PRI also we can adopt these kinds of strategies to get over our periodic shortages of cash; but for that, like in our example, we need to know our exact net assets position. And we will not know that unless we have an accrual system of accounting in place.

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National Panchayat Accounting Manual Vol. I 4.2.3. Differences between Cash Basis and Accrual Basis of Accounting Basis of Cash Basis of Accounting Distinction Nature of the Transactions are recorded when transactions the related cash receipts or cash payments take place whether or not the transactions actually belonged to that accounting period Accounts Financial Performance Accrual Basis of Accounting All incomes and expenses relating to the particular Accounting Period are recorded, whether or not received or paid during that period. Nominal

Only Personal accounts and Cash Personal, Real and Books are opened Accounts are opened

Financial Performance cannot be Financial Performance of an entity ascertained as an Income and can be ascertained by preparing the Expenditure Account is not Income and Expenditure Statement prepared Only a Statement of Affairs is A Balance Sheet is prepared on prepared which does not give the going concern principle, which gives true and fair state of affairs a true and fair state of affairs. This system is not considered to be authentic by the financial institutions, lending agencies and other outside bodies This system of accounting is well accepted by the Financial institutions, lending agencies and other bodies.

Financial Position Authenticity

4.3.

Methods of Accounting - Book Keeping


Two common methods for recording financial transactions by organizations are the singleentry bookkeeping system and the double-entry bookkeeping system. In the single-entry bookkeeping method, only income and expense accounts is recorded primarily in cash book or day book. Single-entry bookkeeping is adequate for many small businesses. Double-entry bookkeeping requires posting (recording) each transaction twice, using debits and credits.

4.3.1. Single Entry System The primary bookkeeping record in single-entry bookkeeping is the cash book, which is similar to a checking account register but allocates the income and expenses to various income and expense accounts. Separate account records are required to be maintained for petty cash, accounts payable and receivable, and other relevant transactions such as inventory and assets etc. We can also say single entry bookkeeping system is an incomplete form of double entry bookkeeping as it does not show on equal debits and credits. Advantages of Single Entry System It is being used in the interest of simplicity. It is less expensive compare to double entry bookkeeping system. It does not require a professionally trained person Disadvantages of Single Entry System It is difficult for management to do effectively planning and controlling the business as perfect data may not be available. As it does not show the perfection, it may lead to inefficient administration and may reduce the control over the business affairs

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National Panchayat Accounting Manual Vol. I The major disadvantage of this system is that it does not provide a check against clerical error. Since every debit does not have a corresponding credit, a trial balance cannot be extracted to test the arithmetical accuracy of the entries. In absence of proper records of any assets and of any allowances for depreciation or other losses of value, it is not possible to prepare a balance sheet. It is too easy to perpetrate the errors and frauds and too difficult to detect them. 4.3.2. Double Entry System Double Entry Accounting System recognizes that every transaction has a dual effect. There are two sides of every transaction. If one account is debited, any other account must be credited. Every transaction affects at least two accounts in opposite directions. It may, however, be noted that double entry does not mean that a transaction is recorded twice. It actually means that at least two accounts are affected by a transaction, one account receiving a benefit and other account yielding a benefit. It is because of dual aspect principle that two sides of Balance Sheet are always equal and the following accounting equation will always hold good at any point of time.

Assets = Liabilities + Capital (or net worth)


Whenever, a transaction is to be recorded, it has to be recorded in two or more accounts to balance the equation. If a transaction affects ( increases or decreases) the one side of equation, it will also affect (increase or decrease) the other side of equation or increase one account and decrease another account on the same side of equation. Advantages of Double Entry System It is possible to keep a full record of dual aspect of each transaction. Transactions are recorded in a scientific and systematic manner , thus providing reliable information for controlling the organization efficiently and effectively. Since the total Debit under this system be equal to total Credit, arithmetical accuracy of the books can be tested by means of trial balance. An income and expenditure accounts can be prepared to know the excess income/expenditure during a particular period and to know how such excess income/expenditure has arisen. The financial position of organization can be readily ascertained by preparing a balance sheet. Frauds are prevented, because alternation in accounts becomes difficult and discovery of irregularities is facilitated.

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National Panchayat Accounting Manual Vol. I

5. Accounting Process under Double Entry Accounting System

TRANSACTIONS Receipt Payment Deposit/Withdrawal Adjustment

Receipt Voucher VOUCHER

Payment Voucher

Contra Voucher

JOURNAL

CASH BOOK

JOURNAL BOOK

TRIAL BALANCE

Balance Sheet Payment

Income & Expenditure Account

Receipt & Account

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National Panchayat Accounting Manual Vol. I

5.1.

Vouchers
The process of recording a financial transaction begins with its documentation in vouchers. A voucher is an accounting document representing an internal intent to make a payment to an external entity. On the basis of source documents entries are first recorded on vouchers. A serial number is put on each voucher and the relative source documents are attached with the voucher. The vouchers are properly filed according to their serial number so that auditors may easily vouch them and these may also serve as documentary evidence in future. In Priasoft there are four types of vouchers: Receipt Voucher Payment Voucher Contra Voucher Journal Voucher

5.1.1. Receipt Voucher A Receipt Voucher is used to record or capture the details of any inflow of funds for the Panchayat. Panchayati Raj Institutions may receive money as Direct Receipt Transfer Receipt (money transferred to them by other PRIs) Advance given by other panchayats to do deposit work Refund of Advance Refund of Excess Payment Cancellation of Cheques

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National Panchayat Accounting Manual Vol. I 5.1.2. Payment Voucher A Payment Voucher is used to record the details of any outflow of funds from the Panchayat. The outflow of funds incurred by the Panchayat could be related to Actual Expenditure incurred by the Panchayat Transfer of Funds to other Panchayats Payment of Advance to other Panchayats, Line Departments, Agencies or Employees

5.1.3. Contra Voucher A Contra Voucher is used to record any transactions occurring between cash-in-hand and bank/treasury/post office and vice versa and also between two bank/treasury/post office accounts. Contra voucher can only be used to record the transactions that occur within a scheme or its components

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National Panchayat Accounting Manual Vol. I 5.1.4. Journal Voucher Journal Voucher is used to record any book adjustment (from one Account Head to another Account Head). Journal Voucher can be used by Panchayats for Receipt Rectification Payment Rectification Advance Rectification Adjustments Deductions

5.2.

Cash Book
A cash book is a book of original entry for cash receipts and disbursements. Cash comprises cash on hand and demand deposit. Cheques and demand drafts not in favour of Panchayat do not fall within the scope of definition of cash. The cash book is the primary record for keeping accounts of money received and payments made. Only one main Cash book in each PRI may be maintained incorporating balances from all subsidiary cash books, which are to be kept as necessary. The cash book should be properly bound and the pages numbered.

5.2.1. Writing a Cash Book The Cash book should be written daily, recording all the transaction on that day, both on receipts and payment-side. The first entry on the debit side (left side) of the cash book shall be the opening balance as on the 1st April which shall be the closing balance as on 31st March of the preceding year. All transactions, whether in 'cash or by cheque shall be entered in chronological order in the cash book. Head of account for each transaction shall be clearly mentioned All receipts namely grants-in-aid, bank drafts, credit slips from bank etc are entered first in the register of cheques received. Challans for the amount credited in to Treasury to PRI funds should be taken to receipts side of Cash book giving full details of the remittances The adjustments shown in pay bills like recovery and the adjustments shown in work bills should be classified and exhibited in the cash book both on receipts and payment side. All the payments by cheques are exhibited on the right side of the cash book. Brief narration should be given for every transaction. Each item transacted should be given voucher number serially for the financial year and noted in the cash book as well as on the voucher. Prepared by Infrastructure Professionals Enterprise (P) Ltd. 25

National Panchayat Accounting Manual Vol. I The last entry in the cash book shall be the closing balance of cash on hand and in bank on the right side. The abstract of balances in various bank books is prepared and agreed with the closing balance in the cash book. The details of cash in hand cash at banks should invariably be appended in the cash book and attested. Entries regarding remittances of receipts to the bank/ treasury for credit to Panchayats Account shall be attested by the competent authority after verifying the bank's receipt or the pay-in-slip or challans. 5.2.2. Closing of cash book The cash book shall be closed regularly and checked. The Closing Balance worked out in the cash book would form the Opening Balance for next day transaction. The totalling of cash book columns shall be verified by the authority other than the writer of the cash book who shall initial it as correct. The closing balance as per cash book shall be compared with U1C balances as per bank/ treasury pass book and a monthly reconciliation statement drawn up on the last working day of the month. At the end of each month the head of the office should verify cash balance and record dated certificates The difference between the receipts and payment shall represent closing balance both in cash and bank columns. When the credit appears in the bank/ treasury, the actual date of realization of the cheque shall be indicated against the original entry in the cash book so as to keep track of outstanding items. An eraser or over-writing of an entry once made in the cash book is strictly prohibited. If a mistake is discovered, it shall be corrected by drawing the pen through the incorrect entry and inserting the correct one in red ink between the lines. The competent officer shall initial every such correction and invariably date his initials Cash, cheque, drafts, etc. shall be kept in safe custody in cash chest. At the time of transfer of the cashier proper handing over of cash balances shall be made under the dated signature. Dishonoured cheque returned by bank will be reversed by minus entry. 5.2.3. Internal controls on cash book maintenance The following general internal controls shall be observed by the PRIs: Balance brought forward is the opening balance to be entered The date of receipt to be shown in Cash book shall be the date on which amount has actually been received All moneys received shall be immediately, without reservation be entered in the Cash book The receipts shall be classified in the column provided according to budget heads The payments side of Cash book shall be posted from the details of vouchers and of the cheques drawn The amount of each cheque shall be entered as soon as the cheque is signed Prepared by Infrastructure Professionals Enterprise (P) Ltd. 26

National Panchayat Accounting Manual Vol. I Each entry in the cash book .should be attested by the authorized officer The classification and totals of cash book should be initialled Cash book should be closed daily and monthly. 5.2.4. Bank Payments /Drawing of Cheques The following of points should be kept in mind while using cheques: Payment Voucher has to be prepared before preparing any cheque. All Vouchers have to be verified and approved before payment is released. Payment has to be made only against original bills and claims. Duplicate copy of bill or claim should not be entertained. All supporting documents should be attached with the Payment Voucher The cheque number should be written on every Payment Voucher On receipt of cheque books from Treasury/Bank they should be carefully examined to see that all the cheque leaves are in intact. Cheques should be written legibly and doubly ensure that the amount in words and figures are the same. All cheques have to be crossed. A Rubber Stamp stating A/C Payee only should be put on every cheque. No cheque shall be signed unless it is required for immediate delivery. Never sign cheques in advance or in blank Bearer cheques Post-dated cheques should not be issued. Cheques prepared on a day shall be dispatched on the same day All letters/instructions to the bank should be signed by the authorized signatories. Cheque books should always be kept under lock and key. Only authorized persons should be allowed to handle them. If the cheque is lost, an intimation of the fact shall be given at once to bank for stopping payment. A cheque if not encashed within six months, is presented for revalidation, the cheque can be revalidated under the dated signature of Drawing officer If a cheque is not encased within one year of its drawl it shall be written back by a minus entry under the relevant expenditure head if in the same financial year of by credit to the connected receipt head, if after the close of the financial year. When a cheque is cancelled the fact of cancellation shall be recorded on the counterfoil and also at the relevant cash book entries and on the paid vouchers etc. The cancelled cheque shall be preserved till audit is over. When a cheque is cancelled after the cash book is closed in the same financial year, the amount shall be adjusted by minus entry under the corresponding expenditure heads in the posting register and in the cash book. The recoveries of overpayment whether made in cash or from payment vouchers shall be posted direct under the service head concerned as reduction of expenditure, irrespective of whether they relate to overpayment pertaining to the current year or to any previous year. Net amount is taken as the amount of payment 5.2.5. Internal controls on writing of accounts The following general internal controls shall be observed by the PRIs: Prepared by Infrastructure Professionals Enterprise (P) Ltd. 27

National Panchayat Accounting Manual Vol. I The closing balance of cash as per the Cash Book shall be verified daily with the physical cash balance and must be signed by the person verifying the cash. The accountant in the office should be made responsible for maintenance of books of Account The same individual who encashed the cheques should not be entrusted with responsibility writing the cheques. The totals in the cash book, Should be got checked by person other than the Person who writes the above books. All the corrections and alteration in accounts shall be neatly made in red ink and attested by the Executive authority If cash chest is maintained it should have two keys. One key with the cashier and the other with another officer designated for this purpose by the PRI Bank reconciliation shall be carried out monthly by the accountant. At the time of recording collections, the Accounts Section shall ensure that the total amount of collections as per the Collection Register tallies with the total amount as per Receipt Register. Original copies of all the cancelled documents such as receipts, payment vouchers shall be retained in the office file with reasons / justification for cancellation written on the cancelled documents. The Accounts Section shall ensure that all the bank charges accounted based on the bank reconciliation statement are supported with original bank debit advices. The Accounts Section shall certify all Reconciliation Statements

5.3.

Leger Posting
Ledger contains classified and permanent record of all the transactions of an organization. It is the chief book of accounts, and it is in this book that all the business transactions would ultimately find their place under their accounts in duly classified form. Each ledger is divided into two parts left side is known as debit side and right hand side as credit sides.

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National Panchayat Accounting Manual Vol. I 5.3.1. Rules for Posting Posting is the process of transferring entries from journal or subsidiary books to the ledgers. The following rules should be observed while posing entries in the ledger:1. All transactions relating to an account should be entered at one place. In other words two separate accounts should not be opened for posting transactions relating to the same account. 2. The word To is used before the accounts which appeared on the debit side of an account. Similarly the word By is used before the accounts which appeared on the credit side of an account. 3. If an account has been debited in the journal entry, the posting in the ledger should also be made on the debit side of such account. In the particular column, the name of the other account which has been credited in the journal entry should be written for reference. 4. If an account has been credited in the journal entry, the posting in the ledger should also be made on the credit side of such account. In the particular column, the name of the other account which has been debited in the journal entry should be written for reference. 5. Similarly amount which has been posted in the debit side of an account should also be posted on the credit side of other account and vice versa.

5.4.

Reconciliation
The objective of the reconciliation procedures is to ensure that there are no discrepancies between the different sets of records. The recommended reconciliation procedures will ensure that the receivables figure is the same in both the sets of records. In case of differences, necessary adjustments may need to be carried out. The reconciliation procedures are to be carried out by the concerned PRI. The procedures will include the following:

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National Panchayat Accounting Manual Vol. I 1. Bank Reconciliation, 2. Reconciliation of deposits, 3. Reconciliation of receivables and collections in respect of: i. Tax Revenue ii. Non Tax Revenue; iii. Other heads of revenues. 4. Reconciliation of advances to: i. Contractors/suppliers; ii. Other PRIs; and iii. Employees of the PRI. 5. Reconciliation of loans received (borrowings) , 6. Reconciliation of payables including contractors payables, 7. Reconciliation of balances with Government, quasi-Government agencies, Government Corporations, and 8. Reconciliation of the accounts for the income and expense heads falling under the following categories with the Function wise Income / Expense Subsidiary Ledgers maintained at the Accounts Department in respect of those categories: i. Fees & User Charges, ii. Sale & Hire Charges, iii. Establishment Expenses, iv. Administrative Expenses, and v. Repairs & Maintenance Expenses. 5.4.1. Bank Reconciliation Bank Reconciliation is a procedure which aims at reconciling the bank balance as shown in the Cash Book of the PRI with the bank balance as per the pass book / bank statement received from the bank. The Bank Reconciliation shall be carried out on a monthly basis for each of the bank accounts maintained by the PRI. The bank balances as per the Cash Book and the Bank Statement may not match for the reasons listed in Table
Reconciliation factors Cheques issued but not presented for payment Cheques deposited but not cleared Cheques deposited received but not Effect on Cash Book bank balance Bank balance reduces by that amount Bank balance increases by that amount Bank balance increases to the extent of cheque received but not deposited No effect Effect on bank balance as per Bank statement No effect No effect

No effect Bank balance reduces to the extent of charges levied Bank balance increases to the extent of deposit Bank balance increases to the extent of interest credited

Debit of charges by bank for any services rendered Direct deposit of amount in the bank account Interest allowed and credited by the Bank

No effect

No effect

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National Panchayat Accounting Manual Vol. I


Effect on bank balance as per Bank statement Bank balance reduces to No effect the extent of the payment made Bank balance increases to No effect the extent of money credited in difference between bank balance as per Cash Book and Bank Effect on Cash Book bank balance

Reconciliation factors Payment by the bank in respect of standing instructions given to the bank Fixed Deposit or any other sum directly credited by bank to the account Any other reason which may result Statement.

5.4.2. Reconciliation of Deposits Reconciliation of Deposits aims at reconciling the balance of Earnest Money Deposit, Security Deposit and any other deposits received by the PRI. The reconciliation shall be carried out between the records. The Deposit Reconciliation shall be carried out every half year. The PRI which had received the deposits shall prepare a Reconciliation Statement of Deposits Outstanding from the Deposit Register (Form PIR 25, 26) in the format provided in Table below for all the deposits received. This statement shall be prepared for each type of deposit. In case there is a discrepancy between the records of the two, this statement may have to be prepared for each contractor/supplier. Reconciliation Statement of Deposits Outstanding with the PRI as on ____ Particulars Amount (Rs.) Deposits outstanding at the beginning of the current year Add: Deposits received during the current accounting year (specify all the Statement of Collections through which deposit has been received) Less: Deposits returned during the current accounting year(specify all the Payment Orders through which the deposit has been refunded) Less : Deposits Adjusted (Give details) Less : Deposits Lapsed Deposits outstanding at the end of the accounting period The balances computed above would be reconciled with the balances for Deposits shown in the Ledger and the Deposit Register (Form PRI 25,26). The reasons for differences, if any, shall be identified and rectification entries passed wherever required by the department, which has recorded the entry incorrectly. 5.4.3. Reconciliation of Receivables and Collections The receivables and collections shall be reconciled on a yearly basis. The procedure for reconciling the outstanding balance of receivables and collections shall be the same for all kinds of receivables. For instance, for reconciling water charges receivables the PRI based on their records, especially the Demand Register and the Collection Register (Form PRI 12) shall ascertain the information required in Table below: Reconciliation Statement of Receivables and Collection

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National Panchayat Accounting Manual Vol. I Details Sr. No. A i ii Particulars OPENING BALANCE OF DEMAND OUTSTANDING Demand outstanding in respect of the previous year Demand outstanding in respect of previous accounting years (This detail should be given year-wise, wherever applicable) Add: Demand raised during the current year TOTAL DEMAND OUTSTANDING COLLECTIONS DURING THE CURRENT Year Collection of demand pertaining to current year Collection of demand pertaining to previous year Collection of demand pertaining to demand for the years prior to the previous accounting years collected during the current accounting period (This detail should be given year-wise, wherever applicable) Collection in advance pertaining to future accounting periods Total collections during the current period (i + ii + iii + iv) CLOSING BALANCE OF DEMAND OUTSTANDING Demand outstanding in respect of the current periods [B D(i)] Demand outstanding in respect of the previous accounting year [A(i) D(ii)] Demand outstanding in respect of years prior to the previous accounting year (This detail should be given year-wise, wherever applicable) [A(ii) D(iii)]
The Reconciliation Statement shall be reconciled with the respective ledger accounts maintained by the PRI. The reasons for differences, if any, shall be identified and rectification entries passed in the department which has recorded the entry incorrectly.

as on ____ Amount (Rs.) Amount (Rs.)

B C D i. ii. iii.

iv. E F i. ii. iii.

5.4.4. Reconciliation of Advances Given This section describes the reconciliation procedure to be followed on a half-yearly basis for reconciling the advances given to, namely: 1. Contractors/Suppliers; 2. Departments of the PRI; and 3. Employees of the PRI. 5.4.5. Reconciliation of advance given to Contractors/Suppliers The PRI shall maintain a record of the advances given to each of the contractors/suppliers. The PRI shall also maintain a record of the advances provided in a Register of Advances (Form PRI24).

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National Panchayat Accounting Manual Vol. I The PRI who has given advance to the contractor/supplier shall prepare a Reconciliation Statement of Advance Outstanding in the format provided in Table below for all the contractors/suppliers. In case there is a discrepancy between the records this statement may have to be prepared for each contractor/supplier.

Reconciliation Statement of Advance Outstanding provided to Contractor/Supplier ______________ as on ____


Particulars Advance outstanding at the beginning of the accounting year Add: Further advance given during the current accounting year (specify all the Payment Orders through which advance have been provided) Total Advance Provided Less: Advance recovered during the current accounting year (specify all the Statement of Collection through which advance had been recovered) Less : Advance Adjusted (Give details) Advance outstanding at the end of the accounting period The Reconciliation Statement of Advance Outstanding shall be reconciled with the respective ledger accounts and the Register of Advances. The reasons for differences, if any, shall be identified and rectification entries passed wherever required by the PRI, which has recorded the entry incorrectly. 5.4.6. Reconciliation Of Loans / Advance Given To Employees The employees of the PRI may be provided with some loans / advances such as House Building Advance, Vehicle Advance etc. The details of such advances granted to the employees shall be recorded in a Register of Advances in Form PRI-23. The details of recovery of advances shall also be recorded in that Register. At the end of the accounting period, a confirmation statement shall be obtained from each of the employees to whom advance has been provided in the format provided in Table below. The confirmation statement so obtained shall be reconciled with the record of the employees maintained in the PRI. The PRI shall reconcile the total amount of advance provided with the control ledger accounts. Amount (Rs.)

Reconciliation Statement of Personal Advance provided to ______________ (name of the employee) as on ____
Particulars Advance outstanding at the beginning of the accounting year : Further advance given during the current accounting year (specify all the Payment Orders through which advance have been provided/replenished) Total Advance Provided : Advance recovered including recovery from the salary during the current accounting year Advance outstanding at the end of the accounting period Amount (Rs.)

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National Panchayat Accounting Manual Vol. I 5.4.7. Reconciliation of Loans Taken The PRI shall maintain a record of all the loans borrowed in Register of Loan (Form PRI- 29). At the end of each accounting year, the PRI shall prepare and forward to the lender, a Confirmation Statement for loan borrowed in the format provided in Table below stating therein, the amount borrowed or disbursed directly to Executing Agency, the amount repaid and interest accrued and paid on the loan.

Confirmation Statement of Loan borrowed from ______ (name of the lending agency) as on ____
Particulars Loan outstanding at the beginning of the accounting year Add: Instalments received during the accounting year Sub-total loan outstanding Less: Instalments paid during the accounting year Net Loan outstanding at the end of the accounting year (A) Total Interest Payable at the beginning of the accounting year Add: Interest accrued during the accounting year Total Interest Payable Less: Interest paid during the accounting year Total Interest Payable at the end of the accounting year (B) Total amount due (principal plus interest) at the end of the accounting year (A+B) Amount (Rs.) Amount (Rs.)

Based on the reply received, the PRI shall take steps for reconciliation of the difference, if any. 5.4.8. Reconciliation of Payables (Suppliers and Contractors) The concerned departments and the Accounts Department maintain a Register of Bill for Payment (Form PRI - 11) in which all bills submitted for payment are recorded. The PRI shall ascertain the information required as per Table below: Reconciliation Statement of Payables Details for ____ Department as on ____
Sr. No. A i. ii. Particulars OPENING BALANCE OF UNPAID BILLS Bill outstanding in respect of the previous accounting year Bill outstanding in respect of years prior to previous accounting year (This detail should be given year-wise, wherever applicable) Add: Bills received during the current period GROSS TOTAL LIABILITY OUTSTANDING (A + B) PAYMENTS DURING THE CURRENT PERIOD Payment of bills pertaining to the current accounting year Payment of bills pertaining to previous year Amount (Rs.) Amount (Rs.)

B C D i. ii.

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Sr. No. iii. Particulars accounting year during the current period Payment of bills pertaining to prior to the previous accounting years during the current period (This detail should be given year-wise, wherever applicable) Total payments during the current period (i + ii + iii) CLOSING BALANCE OF UNPAID BILLS Bill outstanding in respect of the current accounting year [B D(i)] Bill outstanding in respect of the previous accounting year [A(i) D(ii)] Bill outstanding in respect of years prior to the previous accounting year (This detail should be given year-wise, wherever applicable) [A(ii) D(iii)] Amount (Rs.) Amount (Rs.)

E F i. ii. iii.

The Reconciliation Statement PRI shall be reconciled with the respective accounts maintained. The reasons for differences, if any, shall be identified and rectification entries passed wherever required by the PRI, which has recorded the entry incorrectly. 5.5.

Preparation of Financial Statements


The Model Accounting System prescribes following formats/financial reports to be prepared: Monthly/Annual Receipts and Payment Accounts Consolidated Abstract Register Reconciliation Statement Statement of Receivables and Payables Register of Immovable Property Register of Movable Properties Inventory Register Register of Demand Collection and Balance

However, it has been decided in addition to the above, annual financial report of the PRI under Double Entry Cash Accounting system shall now also include the following financial statements: Statement of Receipts and payments. Statement of Income & Expenditure Statement of Assets & Liabilities Notes to Accounts including Accounting Policies Notes to Accounts

Apart from above the management of PRI shall also give some additional information regarding Financial & Non Financial Performance Indicators of the PRI operations. In determining the accounting treatment and manner of disclosure of an item in the Statement of Assets & Liabilities & Statement of Receipts and Payments, due consideration shall be given to the materiality of the item .i.e. even if small amount is relevant and important to disclose, then it shall be disclosed as a part of financial statements. Thus,

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National Panchayat Accounting Manual Vol. I information is material if its omission or misstatement could influence the decisions or assessments of users made on the basis of the financial statements. Materiality depends on the nature or size of the item or error judged in the particular circumstances of omission or misstatement. Period of Preparation The financial statements should be prepared from 1st April to 31st March. Audit The annual statements should be audited internally and externally. Comparative Financial Statements The annual Financial Statements of PRI shall be prepared on comparative basis i.e. Statement of Receipts and Payments & Statement of Assets and Liabilities shall disclose figures for the current year and the previous year. They shall also disclose the figures of third party separately, If third party disclosure are not possible initially, then a flexibility of one year only may be taken in this regard This will not only help in better understanding of financial statements but also it will ensure better control. In addition, Annual Financial Statements shall also disclose the relevant budgeted figures. Approval Authority The Financial Statements shall be approved by the designated authority in the PRI. The amount stated in the annual financial statements and the schedules forming part of the financial statements shall be stated in Indian Rupees. The approved statement must have exact figures because it will be audited .However, for presentation purposes, a separate statement in 1000 ` may be given. 5.5.1. Process of Preparation of Financial Statements Under the double entry accounting system, there are three stages in recording a transaction completely: 1. In first stage, enter the transaction in the primary books of account. 2. In the second stage, post the transactions in the ledger; 3. In the third stage the trial balance to ascertain the arithmetical accuracy of debits and credits in the books of account is prepared. After completion of the above, the process of preparation of the Financial Statements shall follow. The process of financial statements is as follows: a. The process of financial statements shall begin with the preparation of trial balance. b. Trial Balance will be prepared once all the vouchers as per new accounting system have been entered in the ledgers. c. The Trial Balance is a list of closing balances in all the accounts in the Ledger and the Cash Books. It checks the accuracy of accounting and acts as a Gateway for the preparation of Financial Statements. d. The basic objective of Preparation of Trial Balance at this stage is to ensure the authenticity of the accounting records and posting of accounting figures. e. It should be noted that while preparing the Trial Balance all receipts accounts and cash & cash equivalents shall generally have credit balances and the all payments accounts shall generally have debit balances.

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National Panchayat Accounting Manual Vol. I 5.5.2. Preparation of Trial Balance Before carrying out the below mentioned steps following steps are essential in regard to closing of books of accounts: 1. Verification of Period end Cash Balance 2. Identification of Outstanding Checks and ensure reconciliation of bank 3. To check the transfers in and transfers out 4. To determine the unpaid bills or any prepaid payment 5. Identification of those grants which has been sanctioned but not credited by bank on the date of balance sheet 6. Identification of those grants which has been sanctioned but not received in the bank 7. Identification of revenues which have become due but not actually received. 8. Identification of the balance of cash & cash equivalents, whether it is positive or negative, if negative reasons thereof shall be investigated. The following are the steps involved in the preparation of a Trial Balance: 1. All the ledger accounts shall be closed at period end and the debit or credit balance shall be calculated; 2. The debit balances shall be posted in the debit column of the Trial Balance and the credit balances in the credit column of the Trial Balance.; 3. The posting of Ledger Accounts in the Trial Balance shall be in the same order as shown in the Chart of Accounts. 4. The Bank Books shall be closed and the balances shall be posted in the Trial Balance.; 5. Both the Debit Column and the Credit Column of the Trial Balance shall be totaled. 6. Then from Trial Balance (prepared one), accounting cell shall prepare financial statements .These are being discussed in the succeeding sections. Matching the trial balance In case, the Trial Balance does not tally, some of the steps that should be taken for finding those errors and rectifying them are as follows (It is only relevant for the period the accounts are being maintained manually under new system) Check for totaling errors in the Trial Balance; Ensure that the cash and Cash Equivalents is not omitted from inclusion into the Trial Balance;

If above doesnt result in tallying the trial balance then, verify: Check the ledger account totals and their postings in the Trial Balance; Check the journal to see that the total debits and credits for each entry tally; If above doesnt result in tallying the trial balance then, verify: Verify the postings to the ledger accounts from the books of original entries, i.e., the Cash Book and Journal to ensure that no error is made while posting entries in ledgers;

(It may be kept in mind that all these steps are essential in Manual accounting. When PriaSoft is used after posting of journal, all the following steps including preparation of financial statements will be done automatically. 5.5.3. Preparation of Statement of Receipts and Payments

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National Panchayat Accounting Manual Vol. I Following Steps shall be followed in the preparation of Statement of Receipts and Payments: Initially, it shall be prepared on double entry cash accounting basis (DECA), later gradually shifted to accrual system of accounting. It shall be prepared as per the format prescribed in the Model Accounting System as far as practically possible; The responsibility for preparation of financial statements shall be of the designated officer in the PRI. 1. The Statement of Receipts and Payments discloses the results of the working of the PRI during the period covered by the statement; 2. The opening and closing Cash and Cash equivalents balances should be ascertained and entered:; 3. It shows Receipts and Payments of the PRI for an accounting period and the excess of receipts over payments or vice-versa for that period; 4. Since the Financial Statements are prepared under cash basis, the Statement of Receipts and Payments shall include all the receipts actually received during the year and all the payments actually paid; 5. The receipts considered are on cash basis and does not take into account the receivables. Similarly, the payments considered are on cash basis and does not take into account the payables. 6. Non-cash items like Depreciation, Miscellaneous Expenditure w/off(written off), Profit/Loss on disposal of Fixed Assets, Profit/Loss on disposal of Investments will not be considered while preparing these statements; 7. The Statement of Receipts and Payments is drawn from the Trial Balance. The various heads of Receipts and Payments shall be posted from the Trial Balance to the Statement of Receipts and Payments ; 8. The Statement of Receipts and Payments shall be prepared in the format as prescribed in the Model Accounting System. Note: 1. The payment by/from third parties can be separately disclosed by adding additional column as per cash based IPSAS an

2. If any amount has been forfeited by PRI relating to deposit from suppliers, then it shall be disclosed under Extraordinary Receipts.
Accoun t Code Sched ule No. 20X2 Budget Estimates (Rs.) RECEIPTS Part I - PANCHAYAT FUND 0028 0029 0030 0035 0041 0042 0044 Taxes on Profession, Trades etc. Land Revenue Stamps and Registration Fees Taxes on Property other Agriculture Land Taxes on Vehicles Taxes on Goods and Passengers Service Tax than R1 R2 R3 R4 R5 R6 R7 Amount Actuals (Rs.) 20X1 Amount Actuals (Rs.)

HEADS OF ACCOUNT

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National Panchayat Accounting Manual Vol. I

Accoun t Code 0045 0049 0059 0071 0202 0206 0210 0215 0216 0403 0405 0406 0435 0515 0702 0801 0810 0851 1601 4000 7610 8009 8011 8443 8550 8658

HEADS OF ACCOUNT

Sched ule No. R8 R9 R10 R11 R12 R13 R14 R15 R16 R17 R18 R19 R20 R21 R22 R23 R24 R25 R26 R27 R28 R29 R30 R31 R32 R33

20X2 Budget Estimates (Rs.) Amount Actuals (Rs.)

20X1 Amount Actuals (Rs.)

Taxes on Duties and Commodities Interest Receipts Maintenance of Community Assets Contribution & Recoveries towards Pension and other Retirement Benefits Education Market & Fairs Health & Family Welfare Water Supply & Sanitation Rural Housing Animal Husbandry, Dairying, Poultry and Fuel and Fodder Fisheries Forestry Agriculture including Agriculture Extension Panchayati Raj Programmes Minor Irrigation Rural Electrification Non-Conventional Sources of Energy Village and Small Scale Industries Grants in aid Capital Receipts Part II PROVIDENT FUND ETC Loans to Panchayat Employees Provident Fund Insurance & Pension Fund Civil Deposit Civil Advances Part III - SUSPENSE ACCOUNT Suspense Account Total of Receipts PAYMENTS Part I - PANCHAYAT FUND

XXXX

2049 2059 2071 2202

Interest Payments Maintenance of Community Assets Pensions & Other Retirement Benefits Education

P1 P2 P3 P4

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Accoun t Code

HEADS OF ACCOUNT

Sched ule No. Vocational P5 P6 P7 P8 P9 P10 P11 P12

20X2 Budget Estimates (Rs.) Amount Actuals (Rs.)

20X1 Amount Actuals (Rs.)

2203 2205 2206 2210 2211 2215 2216 2225 2235 2402 2403 2405 2406 2408 2435 2501 2515 2702 2801 2810 2851 3054 4205 4206 4210 4215 4216 4235 4402 4405 4406 4408

Technical Training and Education Art, Culture and Libraries Market and Fairs Health and Family Welfare Women and Child Welfare Water Supply and Sanitation

Rural Housing Welfare of Scheduled Castes, Scheduled Tribes and other Weaker Sections Social Security & Welfare Soil and Water Conservation Animal Husbandry, Dairying, Poultry and Fuel and Fodder Fisheries Forestry Public Distribution System Agriculture including Agriculture Extension Poverty Alleviation Programme Panchayati Raj Programmes Minor Irrigation Rural Electrification Non-conventional Sources of Energy Village and Small Scale Industries Transportation Capital Outlay on Art, Culture and Libraries Capital Outlay on Market and Fairs Capital Outlay on Health and Family Welfare Capital Outlay on Water Supply and Sanitation Capital Outlay on Rural Housing Capital Outlay on Social Security & Welfare Capital Outlay on Soil & Water Conservation Capital Outlay on Fisheries Capital Outlay on Forestry Capital Outlay on Public Distribution System

P13 P14 P15 P16 P17 P18 P19 P20 P21 P22 P23 P24 P25 P26 P27 P28 P29 P30 P31 P32 P33 P34 P35 P36

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National Panchayat Accounting Manual Vol. I

Accoun t Code

HEADS OF ACCOUNT

Sched ule No. P37 P38 P39 P40 P41 P42 P43 P44 P45 P46 P47 P48

20X2 Budget Estimates (Rs.) Amount Actuals (Rs.)

20X1 Amount Actuals (Rs.)

4435 4515 4702 4801 4810 4851 5054 7610 8009 8011 8443 8550

Capital Outlay on Agriculture including Agriculture Extension Capital Outlay on Panchayati Raj Programmes Capital Outlay on Minor Irrigation Capital Outlay on Rural Electrification Capital Outlay on Non-Conventional Sources of Energy Capital Outlay on Village and Small Scale Industries Capital Outlay on Transportation Part II PROVIDENT FUND ETC Loans to Panchayat Employees Provident Fund Insurance & Pension Fund Civil Deposit Civil Advances Part III - SUSPENSE ACCOUNT Part III SUSPENSE ACCOUNT

8658

Suspense Account Total of Payments Increase/Decrease of Cash in current year Closing Balance of Cash in Hand Closing Balance of Cash in Bank Total of Closing Cash & Bank Opening Balance of Less: Cash in Hand Opening Balance of Cash in Bank Total of Opening Cash & Bank Difference between opening & closing balance

P49

YYYY ZZZZ

XXXX

YYYY ZZZZ For: _________________ (Panchayat Secretary) ____________________ (Pradhan)

As per our report on even date ________________________ Name of the Audit Firm Date: Place:

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National Panchayat Accounting Manual Vol. I 5.5.4. Preparation of Statement of Income & Expenditure Account In the Income & Expenditure account of PRI all receipts and payments of revenue nature will be recorded. All the payments will be recorded on the debit side and all the receipts will be recorded on the credit side. A format of Income & Expenditure account is given below: Income and Expenditure Account of _________________ For the Period 1-4-20X1 to 31-3-20X2 20X2 20X1 Budget Amount Amount Estimates Actuals Actuals (Rs.) (Rs.) (Rs.)

Account Code

HEADS OF ACCOUNT

OPERATING EXPENSES
2049 2059 2071 2202 2203 2205 2206 2210 2211 2215 2216 2225 2235 2402 2403 2405 2406 2408 2435 2501 2515 2702 2801 2810 2851 3054 Part I - PANCHAYAT FUND Interest Payments Maintenance of Community Assets Pensions & Other Retirement Benefits Education Technical Training and Education Art, Culture and Libraries Market and Fairs Health and Family Welfare Women and Child Welfare Water Supply and Sanitation Rural Housing Welfare of Scheduled Castes, Scheduled Tribes and other Weaker Sections Social Security & Welfare Soil and Water Conservation Animal Husbandry, Dairying, Poultry and Fuel and Fodder Fisheries Forestry Public Distribution System Agriculture including Agriculture Extension Poverty Alleviation Programme Panchayati Raj Programmes Minor Irrigation Rural Electrification Non-conventional Sources of Energy Village and Small Scale Industries Transportation Vocational P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P13 P14 P15 P16 P17 P18 P19 P20 P21 P22 P24 P25 P26 P27

Total Operating Expenses OPERATING REVENUE


Part I - PANCHAYAT FUND
0028 Taxes on Profession, Trades etc.

X1

X1

X1

R1 R2

0029

Land Revenue

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Account Code
0030 0035 0041 0042 0044 0045 0049 0059 0071 0202 0206 0210 0215 0216 0403 0405 0406 0435 0515 0702 0801 0810 0851 1601

HEADS OF ACCOUNT Stamps and Registration Fees Taxes on Property other than Agriculture Land Taxes on Vehicles Taxes on Goods and Passengers Service Tax Taxes on Duties and Commodities Interest Receipts Maintenance of Community Assets Contribution & Recoveries towards Pension and other Retirement Benefits Education Market & Fairs Health & Family Welfare Water Supply & Sanitation Rural Housing Animal Husbandry, Dairying, Poultry and Fuel and Fodder Fisheries Forestry Agriculture including Agriculture Extension Panchayati Raj Programmes Minor Irrigation Rural Electrification Non-Conventional Sources of Energy Village and Small Scale Industries Grants in aid

20X2 20X1 Budget Amount Amount Estimates Actuals Actuals (Rs.) (Rs.) (Rs.)
R3 R4 R5 R6 R7 R8 R9 R10 R11 R12 R13 R14 R15 R16 R17 R18 R19 R20 R21 R22 R23 R24 R25 R26

Total Operating Revenue Surplus/Deficit activities from operating

Y Z

As per our report on even date ________________________ Name of the Audit Firm Date: Place:

For: _________________ (Panchayat Secretary) ____________________ (Pradhan)

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National Panchayat Accounting Manual Vol. I 5.5.5. Preparation of Statement of Assets & Liabilities The Statement of Assets and Liabilities is a statement of financial position of the PRI. In short it could be described as a listing of those unexpired costs or revenues which are carried forward to the next period. Thus the Statement of Assets and Liabilities would contain a listing of assets and liabilities as on the last date of the accounting year (31st March). Thus, the Statement of Assets and Liabilities forms a very important part of the annual financial statements of any organisation as it reflects the financial position of the PRI as on a particular date. It presents the assets, liabilities and fund of the PRI as on a specified date. Following Steps shall be followed in the preparation of Statement of Assets and Liabilities : The details of various items of the Statement of Assets and Liabilities would be given in separate schedules attached to the statement; Till now PRI doesnt have any financial statements .So, they need to provide the data for the preparation of Statement of Assets and Liabilities on the basis of available records and Information; As discussed above that no Statement of Assets and Liabilities was prepared till now, so there will be a problem of matching of Statement of Assets and Liabilities as they are not maintaining any accounts till now on double entry system of accounts. Benefits of a Statement of Assets and Liabilities The benefits of preparing a Statement of Assets and Liabilities are: Provides a record of the assets (amounts owned) and liabilities (amount owed) by the PRI; Allows follow up and better management on the amounts receivable and payable by the PRI; Informs the fund balance for the fund. This is the difference between assets and liabilities of the PRI; Allows the financial strength of the PRI to be assessed, based on analysis of assets and liabilities; Allows comparability and analysis of financial position over different years; Without an Opening Statement of Assets and Liabilities, the Statement of Assets and Liabilities at the end of the period (i.e. Closing Statement of Assets and Liabilities) cannot be prepared; Hence, all PRI are required to prepare an opening Statement of Assets and Liabilities as on the date before which they are required to start implementation of DECA. Matching the Opening Statement of Assets and Liabilities As mentioned earlier, the PRI generally does not have adequate information to prepare a Statement of Assets and Liabilities. Hence, they must be carry out the whole process of identifying assets and liabilities of the PRI, and then valuing them in order to reflect them in the statement of assets and liabilities. In this context, the two principles that shall guide the preparation process shall be RIGOUR and SIMPLICITY rigour in the sense that no asset or liability must be left out of the records (i.e. at least quantitatively, all assets and liabilities MUST be included in the forms for the purpose) and Simplicity in the sense that valuation of assets must be made simple and practical.

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National Panchayat Accounting Manual Vol. I Steps in Preparing the Opening Statement of Assets and Liabilities. The steps to be followed in order to prepare the statement of assets and liabilities in respect of PRI are as follows: ification 1) Identification of Assets and Liabilities; 2) Valuation of Assets and Liabilities 3) Preparation of Accounting records (Fixed Asset Register etc.) 4) Preparation of Opening Statement of Assets and Liabilities with the required disclosures Period of Preparation The opening statement of assets and liabilities shall be prepared as on 01 01-04-2010. Treatment of Difference The opening fund balance or deficit of the PRI shall thus be arrived at by deducting the total of all liabilities from the total assets as at the date of the first balance sheet. The difference between the assets and liabilities constitutes the capital or fund balance or deficit of the PRI. as the case may be; Data for Preparation i. Since PRI have generally not been preparing a Statement of Assets and Liabilities, the Asset assets and liabilities balances are not readily available, and thus these figures have to be arrived at by compiling all assets and liabilities from information available with the PRI. ; The data for capital assets will be taken out of the accounting records maintained by the PRI. All capital assets shall be valued as per the valuation guidelines.

ii. iii.

Process of Preparation of Statement of assets and liabilities The process of collection of data for opening Statement of Assets and Liabilities can be exhibited as follows:

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National Panchayat Accounting Manual Vol. I Approval Authority The Statement of Assets and Liabilities needs to be approved by the Designated Authority and their suitable observations and comments shall be suitably incorporated. Treatment of Information received at later stages a. The available information may not be sufficient to arrive at a balance sheet which is correct in all respects, and at a later point, the PRI may come across information that may have a bearing on the assets or liabilities shown in the opening balance sheet, or may come across assets or liabilities that have been left out of the opening balance sheet.; b. Amount of all such adjustments to the opening balance sheet shall be transferred to Fund Balance at the end of the year. Format of Statement of Assets and Liabilities The data for preparation of Statement of Assets and Liabilities shall be captured from the formats of Immovable Properties, Movable Properties and Receivable and Payables prescribed in the Model Accounting System. The Statement of Assets and Liabilities will be prepared in the following format:
Account Head ASSETS Immovable Properties Roads Land Others Immovable Properties Current Assets Advances Not Acquitted till Now Inventories Bank Accounts (As per Schedule P.No;6) Receivables (As per Statement of Receivables ) TOTAL OF ASSETS LIABILITIES Fund PRI Fund (Balancing Figure) Grants, Loans& Deposit Security Deposit(Net) (As per statement of SD )* Grants (If later Refundable) Schedule Current Amount Year Previous Amount Year Budgeted Amount

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Loans/Borrowing Other Liabilities (As per statement of payables under new system) TOTAL OF LIABILITIES

5.5.6. Preparation of Notes to Accounts The Notes to Accounts shall disclose all Significant Accounting Policies, and other information which shall make the financial statements meaningful and representative of the PRI financial situation. It shall also contain the detailed explanation on items that are material to the presentation and proper understanding of financial statements. The Notes to Accounts shall disclose all Significant Accounting Policies, Contingent Liabilities if any and other information which shall make the financial statements meaningful and representative of the PRI financial situation. The main purpose of giving the notes to accounts is to enable any reader of the accounts to understand the context in which the accounts have been prepared. A reader would have a better understanding on the position shown by the accounts with reference to the notes. The Notes to Accounts shall comprise of Statement of Significant Accounting Principles, Statement on Contingent Liabilities, Subsidy Report and Other Disclosures. A. STATEMENT OF SIGNIFICANT ACCOUNTING PRINCIPLES The Statement of Significant Accounting Principles shall state important accounting principles followed by the Panchayat in respect of accounting for its transactions and in the preparation and presentation of the Financial Statements. Where any of the accounting principles adopted by the Panchayat while preparing its Financial Statements is not in conformity with the principles prescribed in this Accounts Manual and the effect of deviation from the accounting principles is material, the particulars of the deviation shall be disclosed together with the reasons therefore and the financial effect thereof, except where such effect is not ascertainable. The disclosure of such deviation reasons thereof and financial effect thereof shall be made in the section Other Disclosures. In case the financial effect thereof is not ascertainable, either wholly or in part, the fact that it is not so ascertainable shall be indicated. Likewise, any change in the accounting principles which has no material effect on the Financial Statements for the current period but which is reasonably expected to have a material effect in later periods, the fact of such change should be appropriately disclosed in the period in which the change is adopted. The statement of significant accounting policies to be disclosed in the financial statements is given below. 1. BASIS OF ACCOUNTING The financial statements are prepared on a going concern and under historical cost basis under cash/accrual basis of accounting. 2. RECOGNITION OF REVENUE i. Revenue a. Property and Other Taxes are recognised in the period in which they become due and demands are ascertainable

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National Panchayat Accounting Manual Vol. I b. c. d. e. Revenues in respect of Profession Tax on Organisations / entities are accrued in the year to which it pertains and when demands are raised. Advertisement taxes are accrued based on Demand or the contract. Revenue in respect of Trade License Fees is accrued in the year to which it pertains and when Demands are raised. Assigned revenues like Entertainment Tax, Duty / Surcharge on transfer of Immovable properties are accounted during the year only upon actual receipt. However, at year-end, they are accrued if sanction order (or proceedings) is passed and the amount is ascertained. Other Incomes, which are of an uncertain nature or for which the amount is not ascertainable or where demand is not raised in regular course of operations, is recognised on actual receipt Provision against receivables Prudential norms are applied based on type of income and age of receivable. Based on the policy on provisioning, incomes that have been accrued and are doubtful of recovery are provided for.

f.

ii. a.

3. RECOGNITION OF EXPENDITURE a. Expenses on Salaries, bonus and other allowances are recognised as and when they are due for payment b. All revenue expenditures are treated as expenditures in the period in which they are incurred. c. In case of works, expenditures are accrued as soon as the work has been measured and becomes due for payment. d. Provision for expenses are made at the year-end for all bills received upto a cutoff date. 4. FIXED ASSETS a. All Fixed Assets are carried at cost. The cost of fixed assets include cost incurred/money spent in acquiring or installing or constructing the fixed asset, interest on borrowings directly attributable to acquisition or construction of qualifying fixed assets up to the date of commissioning of the assets and other incidental and indirect expenses incurred up to that date. b. All assets costing less than Rs.5,000/- are expensed / charged to Income & Expenditure Account in the year of purchase. c. Any Fixed Asset, which has been acquired free of cost or in respect of which no payment has been made, is recorded at nominal value of Re. 1/-. 5. GRANTS a. Grants, which are re-imbursement of specific revenue expenditure is recognised as income in the accounting period in which the corresponding revenue expenditure is charged to the Income and Expenditure Account. c. Grant received towards capital expenditure is treated as a liability till such time the fixed asset is constructed or acquired. On construction/acquisition of fixed asset, the grant corresponding to the value of the asset so constructed/acquired is treated as a capital receipt and transferred to capital contribution.

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National Panchayat Accounting Manual Vol. I 6. EMPLOYEE BENEFITS Contribution towards Leave Encashment on retirement is recognised as and when it is due. All other retirement benefits are met by the State Government. B. STATEMENT ON CONTINGENT LIABILITIES The Contingent Liabilities represent an obligation, relating to a past transaction or other event or condition, that may arise in consequence of a future event now deemed possible but not probable. They represent a claim against the Panchayat which is contingent on the happening of a future uncertain event, the financial implications of which may or may not be ascertainable at the end of an accounting period. The following shall be disclosed by the Panchayat in the Statement on Contingent Liabilities: a. Amount of Capital Contracts remaining to be executed and not provided for; b. Amount of claim in respect of suits filed against the Panchayat for which the Panchayat may be liable, in case the Panchayat loses suits; c. Claim against the Panchayat not acknowledged as debts; and d. Other money for which the Panchayat is contingently liable. C. OTHER DISCLOSURES This section shall give other important financial information about the Panchayat, which have not been disclosed in the Financial Statements. These shall include: a. Details of the expenses incurred under various Government Circulars together with the details, in broad terms, of the beneficiaries; b. The following shall be disclosed separately in case of each of the incomes of the Panchayat: i. amount of refunds, remissions and write-offs made during the year, and ii. Arrears collected during the year. In addition to disclosures required to be made as specified above, the Panchayat may also furnish information in respect of the following; a. Percentage of properties defaulting on property tax both in terms of number and value in comparison to total properties and income earned; b. Details about the various health programs undertaken by the Panchayat from its own resources and the section of the population being benefited; c. Percentage of connections, category-wise, defaulting on payment of water supply charges both in terms of number and value in comparison with the total number of connections and demand raised together with the remedial measures taken; d. Details about the water purification and water distributed and billed in terms of quantity; e. Number of lamp-posts erected and the areas in which they are erected (the expenses incurred in respect of the street lighting shall be given in the Subsidy Report); f. Age analysis of receivables; g. Age analysis of payables; and h. Such other details as the Panchayat may decide to give for better disclosure and governance.

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6. Accounting of Own Source Receipts


The PRls are authorised to levy, collect taxes, duties, tolls and fees and are also assigned to collect certain taxes, duties and tolls levied imposed by the State Government. The Demand and Collection Register is maintained to ensure that the various levies, taxes, fees and other amount due to Panchayats are demanded and collected in time. Panchayats shall be responsible to ensure that all sums due to them are regularly and promptly assessed, realised and credited to the account of the Panchayat. A Separate register for each category of demand shall be maintained along with the register of assesses. The PRIs usually receive funds from following sources: Revenue Receipts Tax Receipts Non Tax Receipts Capital Receipts Grants/Transfers/Donations Extra Ordinary Receipts (not in nature of income) As per cash basis IPSAS, amount received from third parties shall be separately disclosed, and along with current years figures, last years figures shall also be disclosed. The sources of income of PRIs can be further categorised as from Own Sources, Grants from State/Central Government and Contribution from Public or Other Institutions). The following are the registers to be maintained to account receipts in PRIs 6.1.

Cash Book
A cash book is a book of original entry for cash receipts and disbursements. Cash comprises cash on hand and demand deposit. Cheques and demand drafts not in favour of Panchayat do not fall within the scope of definition of cash. The cash book is the primary record for keeping accounts of money received and payments made. Only one main Cash book in each PRI may be maintained incorporating balances from all subsidiary cash books, which are to be kept as necessary. The cash book should be properly bound and the pages numbered.

6.2.

Collection Book
In this register all the collections made by PRI through Misc. Receipts are noted. If this register is maintained promptly it will facilitate to ensure that all the money collected are accounted for and brought to cash book. This will avoid to a great extent the possible misappropriation of the amounts collected in PRI's.

6.3.

Register of contribution
In this register all types of contributions made to Panchayat from public or any other institution for any specific purpose are noted, showing the challan number etc. When expenditure is incurred out of contribution, the voucher number and the date, together specifying the purpose for which this amount is utilized is recorded.

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6.4.

Register of Loans
Loans received shall be entered in the Register of Loans (PRI 29) and treated as liabilities in the accounts. The amounts actually received and repaid shall be recorded in the Receipts a Payment account and Register of Loans shall be appropriately updated.

6.5.

Responsibility of the Accounts Officer


The Responsibilities of Accounts Officer with report to realization of Revenues are detailed below: 1. 2. 3. 4. 5. 6. Asses the demand of all revenue other than purpose grants. Take steps to realize the revenue promptly Maintain proper account of collection Maintain Demand Collection Balance register and watch realization against demand Take steps to apply to competent authority for writing off irrecoverable revenues Remit the cash collection to treasury immediately

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7. Accounting of Payments
The expenses made by PRI can be classified as under: Revenue Expenses o Establishment Expenses o Operational Expenses o Supplies Capital Expenses Grants/ Transfers/Donations if paid. Extraordinary Payments (not in nature of expenses) Establishment Expenses primarily relate to employees expenses like salary,

The above classification can further be categorized into Establishment and Non Establishment Expenses. allowances and addition to salary etc. whereas Non Establishment Expenses relate to works, operational expenses, purchase of stores, acquisition of assets etc. The following procedure will be followed in accounting of expenses. 7.1.

Policy for Establishment Expenses


Only that component of establishment expenses will be taken into account which is paid for the PRI employees. Salary paid out of PRI funds will be taken into accounts. However, salary paid through treasury for employees on rolls of PRI, shall be treated as third party payment. The expenses on salaries and other allowances will be recognized when actually paid. Statutory deductions out of the salary including those for income tax, professions tax etc. shall be recognized as liability and entered in the Register of TDS and Other Deductions Employees (PRI 21) at the time when the salary is actually paid. It will be cleared when payments are made to the respective authorities Advances to employees will be treated as assets at the time of payment and entered in Register of Advances to Employees (PRI 24). Deductions from salary towards recovery of advance along with interest shall be treated as receipts at the time of payment of salary. Terminal benefits payable by the PRI will be recognized at the time of actual payment. Contribution made for meeting retirement benefits expenses will be recognized at the time of actual payment.

7.1.1. Records and Procedure for Establishment Expenses Every state has its own standardized formats of pay bills, pay bill registers etc. It is recommended that PRI uses the same format for sake of compatibility with state systems as salaries of some employees are paid from treasuries also. Only registers for deductions and advances to employees have been prescribed which will have direct effect on accounting of assets and liabilities. The following procedure will be followed in recording accounting entries of Establishment related expenses:

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When the salary or allowances are actually paid to the employees, the PRI will prepare a Payment Voucher (PRI 6). Thereafter, an entry will be passed in the Cash Book (PRI 1). After recording the entry in the cash book entries will be made in the respective ledgers (PRI 3). Journal Vouchers (PRI 7) will be prepared for adjustments. The statutory deductions will also be recorded separately as liabilities in Register of TDS and other Deductions -Employees (PRI 21). The recoveries of Advances shall be entered separately in Register of Advances to Employees (PRI 24).

7.2.

Policy for Non Establishment Expenses:


All expenses will be recognized when actually paid. Third Party payments i.e. payments made by any other agency on behalf of PRI shall be appropriately reflected and accounted (even though it does not pass through PRI accounts). Expenses of capital and revenue nature are segregated and classified properly Records of Assets are properly maintained. Appropriate record of payables is maintained. Advances to contractors/suppliers will be treated as assets at the time of payment and will be recognized as expenditure at the time of acquittal. Consequently, the amount acquitted during the period shall be shown as deemed receipts in the Cash Book and included in the respective expenses head in order to reflect expenses at actual gross amount. Deposits, Earnest Money, Security and statutory deductions made from payments shall be treated as liabilities when received /recovered. They shall be treated as cleared when the check of for refund/remittance is issued.

7.2.1. Records and Procedure for Non Establishment Expenses: When the bill is received in the PRI, it shall be entered in the Register of bills for payment (PRI 11). After the bill has been appropriately passed by the competent authority, and payment will be made and Payment Voucher (PRI 6) will be prepared. Based on the payment voucher, entries will be made in Cash Book (PRI 1). Journal Voucher (PRI 7) will be prepared for adjustments. Consequently entries will be made in the respective ledgers (PRI 3). Statutory deductions will be treated as liabilities and entered separately in Register of TDS and other Deductions-Contractors/Suppliers (PRI 22) Prepared by Infrastructure Professionals Enterprise (P) Ltd. 53

National Panchayat Accounting Manual Vol. I Recoveries of Advances given to Contractors shall be separately recorded in register of Advances to Contractors/Suppliers (PRI 26). After adjustment of advances from the bills the register will be appropriately updated. 7.3.

Register of bills
A bill is a claim with voucher in a prescribed form with full details as to the amount and nature of the claim, period for which the claim relates to and orders sanctioning such claim and all particulars necessary for the proper classification of the payment in the Accounts. All the bills received should be entered in a register which will show the amount of the bill, the period of claim, amount actually paid and progressive totals of expenditure. Separate pages should be allotted for each detailed Head of Account. The provision under each Head of Account shall be recorded at the top of each page. Thereafter the bill received is entered on the connected page. The register will guard against exceeding provision in the budget and double claims if any can also be defected. This register will help in preparing the list of payables, after close of the year.

7.4.

Scrutiny of bills.
The bills prepared shall be in the form prescribed Printed form shall be used to prepare the bills Charges against two different heads of accounts shall not be included in one bill. No payment should be made on a bill unless it is passed by E.O duly signed in ink. Copies of sanction orders should be enclosed with the bill. The bills should be checked by Sr. Asst., first before it is passed by EO. The amount of the bill shall be written in words and figures. In respect of stores/material stock entry certificate mentioning that articles have been received in good condition and entered in stock register, indicating page no, should also be written on the reverse of the sub-vouchers. After making payment the sub vouchers/supply bills should be stamped with paid and cancelled rubber stamp. No bill is sanctioned unless budget provision is indicated there in. If there is no budget provision and if it is decided to fund the amount by reappropriation, the same shall be indicated in the bill with the due sanction of PRI

7.5.

Passing of bills
Before passing the bill the EO should ensure that The bill is for charge which is admissible against the PRI fund The arithmetical calculations are correct it contains no erasures or unattested alterations Where previous sanction is necessary, such sanction has been obtained The bill has been endorsed in favour of proper person. The expenditure does not exceed the sanctioned budget

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7.6.

Responsibilities of the Executive Officer for incurring expenses


All payments out of Panchayat funds in respect of bills presented shall be made only after the bills are passed by the Executive Authority (E.O). 1. 2. Where any item of expenditure requires the sanction of higher authority, such sanction shall be obtained and quoted in the bill. No item of expenditure shall be sanctioned unless the budget provision is noted in the bill. If there is no budget provision under the Head concerned, the EO shall indicate the Head from which it is to be met by re appropriation with the approval of the body. The E.O. shall be personally responsible for the amounts drawn, until it has been disbursed to the proper person under stamped acknowledgement. No work or scheme sha11 commence and no material change in any item or cost of expenditure shall be carried out unless it has been sanctioned by the competent authority. For sanction of any expenditure the E.O. shall prepare note for the information of the members along with his specific remarks and recommendations: whether the proposed expenditure is within its power of sanction whether it requires the sanction of higher authority Whether such expenditure is prohibited either by any statutory rules or by the executive orders issued by Government or by any authority. whether in the circumstances of the case, he does or does not recommend the sanction of expenditure 6. If any irregular or objectionable item of expenditure is sanctioned by the general body without previous information of EO or without giving him reasonable time to scrutinize its propriety and legality, the EO shall before incurring the expenditure invite the attention of the general body to the correct rule position. He shall also bring such cases to the notice of higher authorities. If the general body sanction any item of expenditure subject to sanction of Zilla Parishad or Government the EO shall obtain such sanction before incurring the expenditure.

3. 4.

5.

7.7.

Internal controls on Accounting of payments


The general internal controls in respect of all payments made by the PRI including payment of suppliers/contractor's bills, refund of taxes, payment of advance, refund of deposits, investments made, etc., are described below: 1. The bills or claims against the PRI shall be received at the Accounts Section. The concerned accountant shall verify the bills. On satisfactory verification, the bills shall be entered into the Register of Bill 2. On approval of the payment by the concerned authorities the bills forwarded to accounts Section for payment 3. Before release of payment, the accounts section shall verify and ensure the following relating to Payment

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Whether the supporting documents such as invoices, bills, etc are signed by the authorities concerned
Whether adequate provision is available under the particular head. Whether evidence of entry into Purchase/Fixed Assets/Investments Register with folio and reference numbers are noted. Whether work / job completion certificate is received and a copy is attached with the Payment Voucher in the case of release of Security relating to construction or acquisition of fixed assets. Whether a copy of the purchase order with update of items/ stocks received along with the reference to goods in good condition / satisfactory condition as per specification receipt etc is attached with the payment voucher

b. c. d.

e.

4. At the time of approving payment; the Accounts Section shall ensure that the Payment Order provides reference of Register of Bills, Measurement Book, Stock Ledger or Fixed Asset Register, etc, depending on the purpose for which payment is made In case of any queries in the process of verification of 'payment order' the same shall be noted and returned to the respective Section. 5. The concerned Section shall resolve the query and make the necessary changes in the Payment Order if required, and forward the documents back to the accounts section for review of the revised payment order. 6. After satisfactory verification of the payment order and its supporting documents the claim shall be admitted for payment 7. On approval of payment, entry shall be mode in the Register of Bills 8. On approval of payment, a cheque shall be prepared. The E.O .or the authorized signatories shall sign the cheque. 9. After the signing of the Payment Voucher, the Accounts Section shall pass the entry in the cash book and other subsidiary registers. 10. The Accounts Section shall stamp "paid and cancelled" on all the bills/ sub vouchers, once approved for payment, to ensure that the same bill is not processed once again.

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8. Accounting for Grants-in Aid


Grants-in-aid are payments in the nature of assistance, donations or contributions made by one government to another government, body, institution or individual. Grants-in-aid are given for specified purpose of supporting an institution including construction of assets. The general principle of grants-in-aid is that it can be given to a person or a public body or an institution having a legal status of its own. Such grants-in-aid could be given in cash or in kind used by the recipient agencies towards meeting their operating as well as capital expenditure requirement. The 73rd and 74th Constitutional Amendment Acts envisage a key role for the Panchayati Raj Institutions (PRIs) and the Urban Local Bodies (Panchayats) in respect of various functions such as education, health, rural housing, drinking water, etc. The State Governments are required to devolve funds, functions and functionaries upon them for discharging these functions. The extent of devolution of financial resources to these bodies is to be determined by the State Finance Commissions. Such funds received by the Local Bodies from the State Governments as grants-in-aid are used for meeting their operating as well as capital expenditure requirements. The ownership of capital assets created by Local Bodies out of grants-in-aid received from the States Government lies with the Local Bodies themselves. Grants-in-aid are an important component of Finance Commission transfers. Grants allow making corrections for cost disabilities faced by many states which are possible to address only to a limited extent in any devolution formula. The 13th Finance Commission has accordingly suggested several categories of grants-in-aid amounting in aggregate to Rs. 3,18,581 crore which constitutes 18.03 per cent of total transfers. The first of such grants is the post-devolution Non-plan Revenue Deficit (NPRD) grant. The second grants recommended in pursuance of the goal of universalisation of elementary education, underpinned by the constitutional right of all children, in the age group 6 to 14, to free and compulsory schooling. The third grant is aimed to address the need to improve the quality of public expenditure to obtain better outputs and outcomes The fourth grant is to manage ecology, environment and climate change consistent with sustainable development The fifth grant is for maintenance of roads. Panchayats receive a significant portion of their revenue in the form of State and Central grants. 8.1. Nature of Grants All grants received by the Panchayats are for a specific scheme or for meeting specific costs of a programme. There are conditions attached to the utilisation of such grants which usually require maintenance of separate bank account, periodic submission of utilisation certificates etc. Examples of grants include Swarna Jayanti Shahri Rozgaar Yojana (SJSRY), Malaria Grant, as well as MP Local Area Development Scheme (MPLADS). The Grants require opening of a Designated Bank Account from which all expenditures in respect of the grant are paid and/or maintenance of separate Books of Accounts.

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National Panchayat Accounting Manual Vol. I 8.2. Accounting Policies for Grants The following Accounting Policies shall govern the recording, accounting and treatment of transactions relating to Grants: 1. The Grants in Panchayats have restriction on their spending and need to be accounted on receipt during the year. If there is a sanction order at the end of the year, amount sanctioned shall be accrued. Grants shall be treated as a liability till they are utilised. 2. To the extent the Grant is used for revenue expense, it shall be transferred as an income to the Income & Expenditure Account. If the amount is used for capital expenditure, the amount of the grant shall be treated as a contribution and transferred to Capital Contribution. Fixed assets acquired out of such grant shall be accounted at cost, and depreciation shall be charged on them. 3. Grants received or receivable as reimbursement of specific expenditure shall be recognised as income in the accounting period in which the corresponding revenue expense is charged to the Income and Expenditure Account. 4. In the some grants where the amount is to be recovered from the beneficiaries and paid back to the Government, the amount received for the Scheme shall be shown as a liability. The amount utilised shall be shown as a recoverable (current asset). 5. In case of grants (i.e. expenses of the PANCHAYATS met directly by the government) where deduction is made by the Government for service provided, loan recovery etc, gross amount shall be accounted as grant, and the amount deducted shall be accounted as payment of liability or expenditure, as appropriate. 8.3. Accounting Records & procedures for Grants This section describes the records, register, documents, accounting entries, etc., in respect of accounting for transactions related to Grants. The Accounting Officer shall maintain Separate Grant Registers with separate pages for each grant to record the details of receipt and expenditures incurred from it. The Finance Commission grants, MPLAD funds are all central schemes and the same will appear under 1601-101- Grants from Central Government. Regarding grants from other institutions or international donor agencies etc. the same will be booked under Minor Head 103- Grants from other Institutions. It is suggested that Grants will be treated as liability and will appear under Major Head 1601. The reason for treating it as a liability is that mostly the grants are unutilized and the unspent balance of grants remains with the PRI, and therefore, only that part which has been spent by the PRI should be taken as receipt under Major Head 1601 and the remaining balance will appear under the liability Head. In some cases the state grants are routed through ZP and therefore when they transfer funds to BP or GP, it should not be reflected in their Income & Expenditure Account. Hence it should be treated as liability as it cannot be acknowledged as their income. 8.4. Recording of Grant Received Grants received shall be recorded as a liability in the name of the grant under Grant received for Specific Purposes till its determination and disbursement for payment. The Grants received shall be included in the Summary of Daily Collections maintained by the Accounts Department. If it is received in cheque, it shall also be entered in Register of Cheques Received

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National Panchayat Accounting Manual Vol. I before being deposited into the Bank Account. The details of the Grant Sanction Order shall be recorded in the Grant Register Once the Grant is received by the Panchayat, it has to be utilised for the purposes as outlined in the agreement with the donor. The Panchayat shall account for it according to its purpose under Revenue or Capital expenditure.

8.5. Utilisation of Grants After the Grants are received, it has to be utilised for the purposes as outlined in the scheme / donor agreement. The Panchayat shall account its utilisation in accordance with the procedure given in other chapters of the Manual. However, all such transactions must mention the Scheme / Grant name as the Source of Financing Code and ensure that payments are made only from the grants bank account. The grant may be used either for: a. Construction of assets through Original Works; b. Maintenance Expenses through Repair Works, if the terms of grant use allow; c. Other revenue / maintenance expense, if the terms of the grant allow. The accounting treatment in such case would be the same as described in the relevant sections of the Manual. For example, in case of SJSRY funds received in the entry above, the Panchayat may decide to use it for repair works in slum areas. The entries in this case would be exactly on the lines of Chapter 10 - Public Works. The only variation to entries shall be: a. Use of Grants Bank Account Head for all transactions related to the work. This means that bills, statutory deductions etc. are to be paid only from the grants bank account. Similarly any security deposit etc. received shall be deposited in the grants bank account only;

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National Panchayat Accounting Manual Vol. I b. Use of appropriate Scheme Code as the Source of Financing in transactions of a particular grant. c. Simultaneous record of the grants utilisation in the Register of Grants 8.6. Internal Controls The following internal controls shall be observed by the Panchayat in respect of transaction related to Grants: The Head of the Accounts Department shall ensure that the grant received for a specific purpose shall not be utilised for any other purpose. The Head of the Accounts Department and the Head of the Department implementing the project/scheme sponsored by the grant shall quarterly reconcile the expenditure incurred during the period in respect of each of the grant from the Ledger and the Grant Register maintained at the Accounts Department and the relevant records maintained at the respective departments. The Head of the Accounts Department shall quarterly reconcile the amount of grant received and receivable in the Ledger and the Grant Register maintained at the Accounts Department. The Head of the Accounts Department shall, after entry in Cash Book in respect of grants received, ensure that the grant received is recorded in the Grant Register. Further, it shall be ensured that the Receipt in the summary of Daily Collections prepared provides reference of Grant Register. The Head of the Panchayat shall specify an appropriate calendar of returns /reports for monitoring. As per the minutes of the meeting held on 21st January, 2011 under the Chairmanship of Sh.D.K.Jain, Jt. Secretary, MoPR on issues related to the preparation of the National Panchayat Accounting Manual, it was decided that, the major head 8782-Cash Remittances & adjustments between Panchayats will now be modified into 8782-Grants for Specific Schemes. So the Priasoft will now book all grants received under the accounting code 8782

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9. Period End Procedures


In this chapter, the procedure for regular updation and preparation of accounts by the PRIs is described. PRIs will prepare annual accounts of the financial year starting from 1st of April and ending on 31st March year. The annual accounts will be compilation of monthly accounts. Certain reconciliation and accounting procedures in addition to normal annual procedures are to be carried out on a daily and monthly basis so that the recording of transactions is up to date. The procedure to be followed on daily, monthly and annual basis can be described as under: 9.1.

Daily Procedures
Balancing of Cash/Bank Book: The Cash/Bank Book shall be totalled and balanced daily. The posting of the days transactions shall be made in the respective Ledger Accounts by the end of the day. The closing cash and bank balance of the day shall be carried forward to the next day as closing balance for that day. Physical verification of cash balance: Cash available with the Accounts Department shall be physically verified by the Cashier. The values and denomination of the cash physically verified shall be noted in the Cash Book itself. This shall be certified by the Cashier and the Head of the Accounts Department. The cash balance as physically verified should match with the closing cash balance as per the cash book. Deposit of Collections (both cash & Cheque) in the Bank: The cash and cheque collection shall be remitted to the Accounts Department or deposited with the respective bank on the same day or in the first half of the next day but not later than 24 hours within receipt. The cash and Cheques received in the first half of the last working day of the week or day prior to any holiday should be deposited in the bank on afternoon of the same day. The Cash and Cheques received on afternoon of the last working day of the week or day prior to any holiday should be kept in the safe custody i.e. cash chest and deposited in the bank in the first half of the next working day after the holiday. Checking of Ledgers accounts with the books of original entries i.e. Cash Book and Journal Book: The daily postings of entries in the Ledger Accounts from the Cash/Bank Book and the Journal Book shall be checked and certified by the designated officer. The person making the concerned postings shall also certify the posting of each transaction recorded in the books of original entries. Necessary rectification entries shall be passed immediately in respect of differences or errors in posting. Updation of Demand & Collection Books The designated officer will update the DCB on the basis of receipts of revenue issued. This will help in computing receivables at the end of the year.

9.2.

Monthly Procedures
Bank Reconciliation and Treasury Reconciliation should be completed and all differences between Cash Book and bank and treasury balances are rectified. Bank reconciliation shall be carried out for each of the Banks either on monthly basis or for such shorter time as the PRI may decide. Reconciliation procedures have been prescribed in the separate chapter.

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National Panchayat Accounting Manual Vol. I Corrections if any should be made in the Register of Receipts and Register of payments. If any discrepancies are found between the bank figures and register of receipts or payments, it should be immediately rectified. Monthly Receipt and Payment account prepared up to object head level: At the end of the each month, totals of Receipt and Payment (up to the object head level) shall be posted to the Monthly Receipt and Payment. Consolidated abstract should be updated by adding current months figure to the previous months progressive total: The monthly figure is added to the previous months progressive total and the figures up to the end of the current month can be worked out in the Consolidated Abstract. Closing of Ledger Accounts: The ledger accounts shall be totalled and balanced at the end of the each month. The closing balance of each of the ledger accounts shall be determined and posted in the Trial Balance prepared for the period. The procedures for preparation of Trial Balance have been outline in the Chapter Financial Statements. 9.3.

Annual Procedures
All the period end procedures including the passing of adjustment shall be performed at the end of each accounting year. In addition to that, further period end procedures required to be performed at the year- end have been prescribed below: Physical verification of stores: The physical verification of stores shall be carried out at least once in year on the last day of accounting year. The verification should be carried out by the stores-in-charge in presence of the designated officers of accounts/audit as the department may decide. Physical verification of assets: Each Fixed assets should be physically verified at least once in a year. PRI should establish a system to enable physically verification each fixed assets. Any discrepancy in the fixed asset register should be rectified. Reconciliation and updation of all advances: At the end of the accounting year, the PRI will update and reconcile all the advances given to the employees and contractors/suppliers, and recoveries/adjustments made against these advances. If some discrepancy is found out, the same may be rectified. Closing of Ledgers: All the ledger accounts shall be balanced and totalled at the end of the each accounting year i.e. 31st March, for preparation of Financial Statements. The closing balances for each of the ledger accounts shall be posted in the Trial Balance from, which Financial Statements shall be prepared in accordance with the procedures outline in Chapter Financial Statement

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10. Budgetary Control


The budget should reflect the principles and programmes of the organisation and should enable organisation to measure and promote accountability in respect of service delivery. To do this a Budget Statement is prepared simply called a Budget. The Budget in the context of a PRI is also a sanction document, i.e. to say, no expenditure can be incurred unless there is a budget approval for it. Thus it implies: Any expenditure prior to being incurred should be backed by appropriate sanctions in accordance with the procedures laid down by the Rules in this regard; No work order can be issued without a budget availability; No payment can be incurred unless backed by a budget sanction; Any expenditure prior to being incurred must be identified to its budget head for allocation of money; This chapter contains a discussion to an improved budgeting and budgeting control system. The purpose of this document is to make recommendations for improvement in the budgeting system in PRI. 10.1. Objectives In the context of PRI, Budgeting should have the following objectives: Serve as a vehicle for communication of PRI top managements goals and vision for the budget year and future years. Budget of PRI shall reflect the service expectation of the citizens. Provide an opportunity to all line departments to participate in the process of preparation and implementation of Budget. Ensure commitment of all the managers towards achievement of annual goals Ensure that budgets are prepared in a realistic manner after taking into consideration the potential for taxation and other resources which are likely to be available as also the constraints being experienced and likely to experienced in terms of manpower skills availability. Since resources are likely to be limited, ensure that there is appropriate prioritization while approving budgets particularly with regard to capital projects and expenditures, so that projects which will result in maximum citizen welfare are given priority and expenditures which are relatively more essential are given priority. 10.2. Recommended Budgeting System 10.2.1. Budget Guidelines and Variance Report: Serve as MIS at PRI The effectiveness of the budgeting exercise improves considerably if the various managers in an organization have clarity about the vision and direction in which the top management wishes to steer the organization. This can be brought about by the top management issuing Budget Guidelines prior to the preparation of the budgets. The Budget Guidelines would be a formal document issued by the top management. It will contain the following: Top Managements analysis of the past performance of PRI, including trends in revenues, trends in expenditures, progress of capital projects, availability of resources, efficiency standards achieved, manpower availability, etc.

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National Panchayat Accounting Manual Vol. I Its perceptions about the environment including expectations of State Government , expected role of PRI and regulatory constraints in which PRI has to function, etc. Its expectations of the likely environment. Its expectations about standards of citizens services to be achieved, projects to be completed, efficiency standards to be reached, manpower to be recruited and/or trained, resources to be obtained, revenue growth to be attained, expenditure control to be exercised, etc. PRI has never done this before. It is, therefore, likely to face difficulty in doing so. It is recommended that this exercise be initiated in the next budget even it is not perfect. This will also serve as pre budget MIS reports from PRI management perspective. As, being able to streamline your budgeting and forecasting process is great, but the real value of budgets and forecasts is only realized when they are compared with actual and the variances are analyzed. Besides this, variance report will also serve as additional post budget MIS report 10.2.2. Features of Revised Forms Some of the basic features of preparation of budget are discussed below. a. PRI would be required to prepare its budget in four sections viz. Revenue Budget (showing its earnings from whatever source appropriate to it); Payment Budget (showing its expenditures on salaries and other items as relevant for it); Staff Budget (showing the existing staff strength for each major category of staff and the proposed strength); and Capital (showing proposed capital expenditures on projects of PRI either construction of roads etc either for better functioning &control or for providing better service, as may be appropriate). All the line departments should actively contribute in preparation of the budget exercise to achieve objectives of the budget. Moreover, budget will be based on realistic assumptions after considering the expectations down the line and the ground realities. Thus the prioritization would be better. While preparing a budget, to keep it simple and based on current practice, the trends of last year prior to the current year i.e. two years prior to the budget year will be considered so that the budgets are prepared in a realistic manner and over-optimism and pessimism are both avoided. Here just last year will not be the basis of new requirement rather a justification has to be given for each and every new requirement without reference to previous sanctions. Thus new budgeting system will be justification and obligation based rather comparison based. Each activity centre or department would be expected to give the following along with its budget. Assumptions for the numbers chosen by it, including justification. The steps to be taken by it for improving its functioning. Improvements in service standards expected to be achieved by it.

b.

c.

d.

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11. Audit
This chapter discusses the format and content of the Audit Report to be submitted in relation PRIs. At present different states are using different systems of audit. This chapter will prescribe the model audit system which PRIs will follow: The audit in local bodies generally covers the following: a. Statutory Audit; b. Financial Statements Audit; and c. Other Audits. 11.1. Statutory Audit This audit is normally conducted by the Local Fund Auditor appointed by the State Governments. The powers and duties of such an auditor, and its reporting requirements are described in the relevant statute and Rules. The statutory audit is primarily focused on verifying the propriety of transactions undertaken by the PRI and the manner in which its affairs are conducted. Irregularities if any, including non-compliance with relevant statues etc. are to be reported by such an auditor. The statutory auditor will include, in his report, a statement of: i. ii. iii. iv. Every payment which appears to him to be contrary to law; The amount of any deficiency or loss which appears to have been caused by the gross negligence or misconduct of any person; The amount of any sum which ought to have been but is not brought into account by any person; and Any material impropriety or irregularity which he may observe in the accounts other than those mentioned in clauses (i), (ii), and (iii).

Though, the different states have different audit rules/guideline, the main points which the auditor has to cover in his report are: i. ii. iii. iv. Whether grants or borrowings are utilised for the purpose of the grant or loan; List of loans availed and whether necessary provisions have been made for repayment of principal and interest; Whether all advances and investments are fully secured; Result of the verification of stock, and whether any losses have occurred, and whether the system of stores accounts requires to be improved etc.

This audit is conducted under the current system of accounting and will continue under the new system as well. The statutory auditor shall continue to verify the transactions, essentially with regard to their propriety, and give his opinion on the accounts and transactions of the PRI.

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11.2. Financial Statements Audit At present most of the PRIs are preparing different types of financial statements. Different states are following different systems. With the implementation of the new accounting system proscribed in this manual, PRIs will be required to prepare Annual Financial Statements consisting of Balance Sheet, Income & Expenditure Statement and Receipts & Payment Account, Statement of Assets and Liabilities and also the formats prescribed under Model Accounting System along with Notes to Accounts, These are discussed in Chapter 11 earlier. The audit of these financial statements shall be carried out primarily to establish whether they represent a true and fair view of the affairs of the PRI during the period. Such an audit is referred to as a Financial Statements Audit. The Financial Statements Audit shall be carried out by an auditor appointed by the State Governments under the relevant state rules. (It is recommended that at the initial stage, State Governments may appoint Chartered Accountant Firms to conduct this audit holding certificate(s) of practice under the Chartered Accountants Act, 1949. They shall be appointed by the State Government in consultation with the State AG, from an audit panel maintained for the purpose. These Auditors shall be subjected to regular rotation of audits. ) 11.3. Report of the Financial Statements Auditor The Financial Statements Auditor shall, upon completion of audit of the accounts, issue a report on the financial statements of the PRI. The report shall be addressed to the PRI, with copies sent to Head of the Department and the Controller, State Accounts Department. The Report of the Financial Statements Auditor shall state: a. b. whether he has obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purposes of his audit; whether, in his opinion, proper books of account as required by the Act, Rules and the Accounts Manual have been kept by the PRI so far as it appears from his examination of those books; whether the financial statements prepared by the PRI are in agreement with the books of accounts; whether the Financial Statements give a true and fair view: i. ii. In case of the Balance Sheet, of the State of Affairs of the PRI as on the last day of the financial year; and In case of Income and Expenditure Statement, of the surplus / deficit of the PRI for the year ended on that date.

c. d.

Where any of the matters referred to above are answered adversely or with a qualification, the auditors report shall state the reason for the same and with further explanation and the financial impact of such qualification.

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National Panchayat Accounting Manual Vol. I 11.4. Additional Matters to be Reported Apart from the above, the Financial Statements Auditor shall also report in respect of the following matters in an Annex to the Audit Report: 1. Whether all sums due to and received by the PRI have been brought to account and have been appropriately classified? 2. Whether all grants sanctioned or received by the PRI during the year, have been accounted properly, and where any deduction is made out of such grants towards any dues of the PRI? Whether such deductions have been properly accounted? 3. Whether any Special Funds, have been created as per the provision of any statute and whether the Special Funds have been utilized for the purposes for which they have been created? 4. In respect of contracts that are in existence during the year, whether there are any deviations from the sanctioned plans and the estimates without the sanction of the competent authority; 5. Whether the PRI is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets; whether these fixed assets have been physically verified at reasonable intervals; whether any material discrepancies were noticed on such verification and if so, whether the same has been properly dealt with in the books of account? 6. Whether in case of leasehold property given by the PRI, lease rentals are collected regularly by the PRI and that the lease agreements are renewed after their expiry? 7. Whether physical verification has been conducted by the PRI at reasonable intervals in respect of stores? 8. Whether the procedures of physical verification of stores followed by the PRI are reasonable and adequate? If not, the inadequacies in such procedures should be reported; 9. Whether any material discrepancies have been noticed on physical verification of stores as compared to book records, and if so, whether the same has been properly dealt with in the books of account? 10. Whether proper procedures are in place to identify any unserviceable or damaged stores and whether provision for the loss in this respect, if any, has been made in the accounts? 11. Whether the valuation of stores is in accordance with the accounting principles laid down in the Accounts Manual? Whether the basis of valuation of stores is same as in the preceding year? If there is any deviation in the basis of valuation, the effect of such deviation, if material, should be reported; 12. Whether the parties to whom the loans, or advances in the nature of loans, have been given by the PRI are repaying the principal amounts as stipulated and are also regular in payment of the interest and if not, whether reasonable steps have been taken by the PRI for recovery of the principal and interest?

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National Panchayat Accounting Manual Vol. I 13. Whether Advances and loans given to employees and interest thereon are being regularly recovered; 14. Whether there exists an adequate internal control procedure for the purchase of stores, including components, plant and machinery, equipment and other assets? 15. Whether the PRI is regular in depositing statutory dues including tax deducted at source, works contract tax, cess payable to the government etc., and if not, the nature and cause of such delay and the amount not deposited; 16. Whether the PRI is regular in remittance of pension and leave encashment contributions or any other amounts which the PRI is liable to remit towards the retirement dues of its employees, including employees on deputation; 17. Whether any personal expenses have been charged to the PRIs accounts; if so, the details thereof? 18. Whether the Bank Reconciliation statements have been properly prepared for all the bank accounts of the PRI? 19. Whether the year-end and reconciliation procedures prescribed have been carried out; 11.5. Timeline for financial statements audit The financial statements audit is expected to be completed within 6 months of the end of the financial year i.e. within September 30 of the year. 11.6. Other Audits In addition to the statutory and financial statements audit, the Government may additionally require certain PRIs to get their accounts audited in the following forms: Internal Audit regular audit to be conducted by the internal staff of the PRI or professional agency on a regular basis; Special Audit An investigative or audit in depth with a specific objective of verifying or checking some specific type of transaction(s) or activities. This may be conducted at the discretion of the Controller, if such a course appears to him to be necessary in any case. The Head of the Department may in special circumstances request the Controller to arrange for a special audit of the accounts of a PRI for any period.

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