ACCOUNTING REFORMS

ACCRUAL ACCOUNTING:
The NDMC Experience

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Outline
Pre-Reforms Status
Impetus and initiation
Objectives and Parameters
Challenges and Solutions
Adaptation and Innovation
Current status of Reforms

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 Pre- Reforms Macro-Accounting
Structure
 NDMC Act 1994
 Single Fund & Single Bank
 No formal Chart of Account
 Cash Based Budgeting & Accounts
 No Accounting & Budgeting Regulations

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 Impetus and Initiation
Arguments for status-quo
 No need for market access/No cash crunch
 Sufficient functional focus
 Laboriousness of the proposed reform
 Limitations of NDMC Act

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Impetus and Initiation (contd…)
Milestones towards initiation of reforms
 In principle approval of the Council for switch over to Accrual
Accounting- April 2002
 Adoption of the recommendations of CAG Taskforce – March
2003
 Appointment of a consultant – November 2003
 Adoption of National Municipal Accounting Manual- August
2005
 Appointment of software developer – April 2006

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 Reform Objectives
Cash to Accrual
Accurate and relevant financial reports
Receipt- Expenditure Correlation
Robust subsidiary accounting
Monitoring and Control through MIS
Costing of services delivered

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 Reform Parameters
Asset Mapping and Accounting
Identifying Liabilities/ Receivables
Chart of Accounts
Budgeting and Accounting Regulations
Statement of Accounting Policies
Asset valuation norms
Period end procedures and Accounting
Capacity building
Computerization of Financial System
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 Challenges and Solutions
Ownership of reform process
 A “PUSH” is needed from Top.

Leadership at multiple levels

 Creation of a Core Group as the nucleus of reform
process

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Challenges and Solution (contd…)
Managing transition
 Cash to Accrual
 Identification, measurement and valuation of assets
 Valuation of assets and receivables
- Historical value determination of assets
- Depreciation Policy and provisioning
- Age wise recording of receivables
 Valuation of liabilities and payables
- Opening Balance Sheet for liabilities & payables,
Recognition of liabilities at the year end

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Challenges and Solution (contd…)
 Manual to Computerised
 Finalization of System Requirement Specifications.
 Development and implementation of various modules
 Frequent changes in technologies & upgradations
 Data security & storage.
 Statutory Changes
 Budgeting & Accounting Regulations
 Accounting Manual

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Challenges and Solution (contd…)
Capacity building
 Strengthening and restructuring accounting cadre,
 Extensive Training of accounting as well as executive
staff at all levels
 Issuance of Advisories/Instructions
Manpower Issues
 Shortage of Qualified Staff
 Mid-way transfers of key personnel
Reconciliation Issues
 Bank Reconciliations
 Receipts through Payment Gateway
 Reconciliations with legacy systems.
 Validation of data through parallel runs 11
 Adaptations and Innovations
Additions and deviations from NMAM
 Centralized Treasury
 Segmental Accounting
 Additions in CoA
Defining Field level codes upto Sub-Divisions
 A mix of geographical as well as administrative divisions
Macro- Accounting Frame-work suitable to NDMC
situation
 Single Fund (NDMF)
 Five Segments

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Accounting Reforms-current status
Pre—Reforms Post—Reforms
Fund Structure Single Fund with non- Single Fund with
statutory Reserve Fund segmental Accounting
Functional Focus •Fair to Good •Refined and Sharp
•Restrictive
Functionary More or less Clearly defined
Identification indistinguishable • Upto Field Level
Account- Budget Existed but incoherent Excellent
Co-relation
Scheme/ Activity Not Possible Comprehensive
Accounting
Codification Non Integrated Integrated
Structure
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Accounting Reform- current status (contd..)

Asset Mapping completed

Liability/Receivable – Balances firmed up
Computerised data of actual transactions captured on
Accrual basis since April 2004
Chart of Accounts finalised as per NMAM
Accounting and Budget regulations approved by the
Parliament
Draft NDMC Accounting Manual - 32/ 36 chapters
ready and approved

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Accounting Reform- current status (contd..)
Statement of Accounting policies finalized
Asset valuation norms approved
Computerization at advance stage of completion
1st phase of Capacity building exercise completed,
2nd Phase Planned
Credit Rating of NDMC done by M/s FITCH Ratings
India Ltd. – Granted “AA” Rating , (the highest an
ULB can get) for two consecutive years

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