Annexure j

ANNEXURE

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Presented By

B.Satish Babu, I.R.A.S.,

Dy.FA&CAO/WS/LGDS.C.Railway,

Secunderabad

Venue: C-TARA, Secunderabad

Date: 18th November, 2011

“A man who has committed a

mistake and doesn’t correct, it is

committing another mistake”

By

confucius,

Chinese philospher

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“Learn from the mistakes of others ... you can't live long enough to make them all yourselves”

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index

1. Significance of Appropriation A/cs

2. P A C

3. ANNEXURE J & EXAMPLESA. PART I – MIS CLASSIFICATIONB. PART II – OTHER ACCOUNTING MISTAKES

5. NEW PU’S AND NEW ALLOCATIONS

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Before discussion on Annexure J, lets

have a look at significance of Appropriation

Accounts.

What are Appropriation Accounts?

The statements which are prepared for presentation to the PAC-Public

Accounts Committee,

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Significance of Appropriation Accounts

Railway Budget is an instrument of Parliamentary financial control as well as Important Management Tool.

---It is achieved not only through that all Voted Expenditure must receive Parliament’s approval,--- but also by the system of reporting back to it through PAC. -----This system is called as Appropriation Accounts.

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APPROPRIATION ACCOUNTS OF RAILWAYS

Two Parts

PART – II – DETAILED

APPROPRIATION ACCOUNTS

The Review generally deals with 1.Financial results 2.

Changes in procedures,

form, classification of accounts 3. Review of Receipts and expenditure

4. Block account, Balance Sheet & Different funds.

PART – I - REVIEW

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A – Statement of Expenditure held under Objection and not regularised by Competent authority.

B – Statement of Undercharges detected by Accounts or audit and recovered.

C – Statement showing Remissions and Abandonment of Claims to Revenue.

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Appropriation Accounts - Annexures

D – Statement of Expenditure on Important Open Line Works and New Constructions.

E – Statement showing Revenue and Capital Expenditure relating to Strategic Lines.

F. Reconciliation Statement of Annual Expenditure as showin in the Account Current & Appropriation Accounts.

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G – Balance Sheet, Profit and Loss Account

H – Statemaent of Losses, etc

I – Statement showing irregular Re-Appropriations

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J – Statement of important Misclassifications and other mistakes detected.

K. Statement showing the defects in Budgetting

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Among all Annexures, the

Annexure J reflects the quality of working of the

Accounts Department.

PUBLIC ACCOUNTS COMMITTEE - P A C

As per “ Rules of Procedure

and Conduct of Business in the Lok Sabha”, the

PAC – Public Accounts

Committee examines the Appropriation

Accounts and of the Audit

Report thereon, on behalf of the

Parliament.

The PAC is not an

Executive body. Its

opinions and findings are

only recommendatory and not mandatory.

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PUBLIC ACCOUNTS COMMITTEE - P A C

Government examines each of its (PAC) recommendations with a view to implementing them and report to it on the action

taken when the next year’s Accounts come up for examination.

In the exceptional cases, in which Government are not in a position to implement a recommendation, they place their views before the

PAC to enable it to present a further report to Parliament.

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What is Annexure ‘J’

A statement showing A) items of misclassification and

B) other important mistakes

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What is Annexure ‘J’

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What is the mis - classification ?

During the course of accountal

in the books,

an expendit

ure or income

wrongly appeared in any

other Head of Account instead

of Proper Head of account,

the mistake is known as

MIS CLASSIFICA

TION.

Examples are

I. While seeking Budget

II. While Booking

Expenditure

III. Mistakes in Accounting

IV. Perceptional difference

in Policy Matters

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How Mis Classification occurs? – Four stages

Perceptional difference in Policy Matters

Example: Cost of Compound work in the

Stations – Rs.28,54,309/- Booked to D.No.4

(Revenue) in the year 2009-10 – S C Rly.

As per Railway Board’s instructions, the cost of compound work should be booked to REVENUE

(Demand No.4).

However, Audit contention/objection

is, it should be capitalised. (Demand

No.16)

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Booking of expenditure in One Demand instead of another Demand.

Booking in One Civil Grant instead

of another Civil Grant.

Booking in Revenue Demand instead of Plan heads or vice –

versa.

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Areas of mis – classification

Booking in Coaching

Earnings instead of Goods Earnings.

Booking of expenditure

in One Source of

Fund instead of another Source of

Fund.

Booking in One Plan

Head instead of

another Plan Head.

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Areas of mis – classification

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Areas of Mistakes

SC Division; 6

Hqrs stores; 2Hqrs Traffic; 2

Nanded Di-

vision; 2

Hy-der-abad Divi-

sion; 1

Vi-jayada Divi-

sion; 1

Guntur Divi-

sion; 1 Lallaguda workshop, 1

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Mis – Classification – practical examples

Let us glance some of the items in the Annexure J of 2010-11 of S.C.Railway.

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Expenditure on “On Board Cleaning Services”

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Demand No. 9

Demand No. 8

Children Educational Allowance – Rs.68,000 /- SC Divn.

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Demand No. 12

Demand No. 11 ( 11-120-25)

Arbitration Award – Rs.4,24,415/- Nanded Divn.

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Voted

Charged

1.Re wiring of Staff Quarters – Rs.6,82,133/- Nanded Divn. – Source of funds2. Replacement of Corrodded Pipe Lines – Rs.59,02,485/- Guntur Divn. – Source of Funds.

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Development Fund (DF)

Depreciation Reserve Fund (D R F)

Construction of New Staff Quarters Rs.11,96,204 /- SC Divn. Source of funds

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D R F – Depreciation Reserve Fund

CAPITAL

Replacement of Staff Quarters – Rs. 32,65,919 /- SC Divn. Source of Funds

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CAPITAL

D R F – Depreciation Reserve Fund

ANNEXURE J – INDIAN RAILWAYS – comparative graph for the last 9 years

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Mis – Classification – practical examples

Now, check some of the important items figured in Part I of Annexure J of Indian Railways in the year 2009-10

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Cost of civil maintenance charges of Sri Jag Jeevan Ram RPF Academy – Rs.62,81,000/- N.Rly.

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Demand No. 4

Demand No. 2

Cost of Motor cycles for RPF staff – Rs.1,55,928 – S.C.Rly.

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Demand No.7

Demand No. 12

On Board Cleaning – Rs. 1,48,38,722/- S.C.Rly.

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Demand No. 6 (06-210) – It is a previous accepted allocation.

Demand No.8 (08 -531) – New allocation in place of 06-210

Mechanised Cleaning of Stations – Rs.66,48,542/- S.C.Rly.

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Demand No. 11

Demand No. 9

Expenditure on obtaining irrevocable Letter Of Credit (LOC) for procurement of DVTC’s – Rs.1,03,12,700 – S C Rly.

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M A R

CAPITAL

Payment made by Consumers forum on the awards of consumer Disputes tribunals – Rs. 13,177 – S.C.Rly.

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VOTED

CHARGED

Expenditure on electrification of existing Staff quarters – Rs. 5,16,064 – S.C.Rly.

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CAPITAL

D R F

Mistakes in Accounting– practical examples

Now, check some of the important items figured in Part II of Annexure J of Indian Railways in the year 2009-10

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Amount realised on account of Revenue Scrap – Rs. 4,82,64,852/- S.C.Rly.

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Demand No. 4 – Minus Debit

Demand No. 4 - Credit Side as CRRM

Credits recd. from E.Co.Rly – cost of 10 RP Rails – Rs.1,49,13,653/- S.C.Rly

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Indian Rly. Misc. Deposits

Track Renewals Plan Head

Engine Hire charges – Rs. 24,51,788/- S.C.Rly.

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Sundry Earnings – Abstract Z -650

Goods Earnings - Abstract Y

Steps to avoid Mis - Classification

Para No.217 of Accounts Code vol. I says

“The primary responsibility for the allocation of all receipts and payments rests with the concerned departmental officers…….

Each bill or voucher received from them should show the correct allocation of the receipt/expenditure in the fullest detail……….

The Accounts Department is responsible for seeing, to the extent it is possible for them to do so, that the allocation shown on the initial document is not prima facie incorrect.”

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Steps to avoid Mis - Classification

The Allocation and source of finance should be checked properly at Abstract estimate stage itself while according

financial concurrence before sanction to the work.

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Steps to avoid Mis -

ClassificationInternal check mechanism including test check to be strengthened to detect misclassifications at the initial stage.

Allocation and Source of Finance should be as indicated in the TOP SHEET of the Estimate itself which should conform to the details indicated in the PINK BOOK/LAW/LSWP booklets.

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Classification

Timely review of FMIS Reports, RAR to ensure rectification of errors with reference to the correct allocations.

MAR/MAC to be cleared promptly in the relevant year by obtaining details of accountal of

materials, inspection certificates, rendering

statements of signatures of payees for group payments etc.

Accountal of Voted expenditure as charged Expenditure and vice versa to be avoided. Example of

charged expenditure is payments arranged on court orders, arbitration awards & Consumer fora judgements.

Accounting OSD (Outside Scope of Demand) Credits as minus debits and vice

versa should be AVOIDED.

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Classification

By Verifying RAR

1.Expenditure without Budget Grant

AVOID

2. Budget Grant without Expenditure

AVOID

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Classification

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To percolate the

awareness of distinction

between Revenue

expenditure and capital

Expenditure.


Classification

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By conducting refresher courses among the staff,

because Prevention is

better than Cure.

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The References cum General Areas to be

taken note of

MATERIALITY CONCEPT

is a concept or convention

within auditing and accounting

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MATERIALITY CONCEPT

As per Auditing Standards No 47(Financial Accounting

Standards Board), "Audit Risk and Materiality in Conducting the Audit“, Several common rules that have appeared in practice and academia to

quantify materiality include:

Percentage of total

assets; (i.e.,1/3% of total

assets);

Percentage of total revenue; (1/2% of

total revenues)

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MATERIALITY CONCEPT

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It is to suggest, that the materiality concept, which is applicable at present in the commercial concerns can be applied to Railways also.

Because there is no merit in excluding Government organizations from the scope of Materiality Concept.

MATERIALITY CONCEPT

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For example, consider the current year 2010-11 Annexure J item i.e., wrong posting of Children’s Education Allowance Rs.68,000 in Demand No.12 instead of Demand No. 11.

It won’t weigh much impact considering the huge outlay in the Demand No.12/Demand No.11 of S.C.Railway.

NEW PRIMARY UNITS - REVENUE EXPENDITURE

08 – DCPS -Defined C Contributory Pension System • (w.e.f., 01-01-2004)

15 – C T G• Composite Transfer Grant

20 – Leave Encashment57


25 – CEA – Children Education Allowance (previously it is called as RTF) operated only in Demand No. 11

07- Conveyance/ Transport Allowance

41 – VAT – Value Added Tax 58


50 – cost of computer hardware systems

51 – Cost of Computer Consumables. 59


42 – Arrear payments – Salary & Wages –w.e.f 01/04/2011

43 – Arrear payments – D.P & D A – w.e.f 01/04/2011

44- Arrear payments – Allowances other than D.A. w.e.f 01/04/2011

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NEW PRIMARY UNITS - WORKS EXPENDITURE

19 – VAT – Value Added Tax

20 – Leave Encashment while in Service.

25 – CEA – Childrens Educational Allowance

26 – Arrear Payments – Pay & allowances of Dept. Establishment – w.e.f.01/04/2011

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NEW PENSION SCHEME

N P S DEBIT CREDIT

EMPLOYEE CONTRIBUTION

SALARY HEAD

000071 01

GOVT CONTRIBUTION

13-890 08

000071 01

62While uploading to NSDL, the Head 000071 02 is operated on Debit Side for both Govt. and Employee contribution

NEW ALLOCATIONS

08-531 – On Board House

Keeping Activities

(previously it was 06-210)

11-120-25 - Children

Education Allowance –

CEW (previous

name is RTF)

13-890 -08 - N P S Govt. contribution Debit side

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NEW ALLOCATIONS

93-657 -99 - Cost of depositing

Residual depreciated value of Laptops/Note

Books

06-730 - POH of DMU’s – Diesel Multiple Units

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LET US THINK ON IT

In the present scenario, Audit keeps to themselves the mistakes committed by Accounts although detected much earlier awaiting annual accounts to the closed. Then they would come out with the mistakes/misclassifications.

The process of “action to be taken” for these mistakes is long drawn. Instead, we can generate the annual provisional Account Current and get it verified by Audit. The mistakes thus identified can be incorporated in the final accounts. Audit can, however, take credit of detecting these mistakes/misclassifications.

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LET US THINK ON IT

Railway Board desires that, a monthly review should be done at the FA&CAO’s level and as such a statement in the prescribed proforma to be submitted along with MCDO.

Let us, down the line, do it. 66

Epilogue

Mistakes happen

like accidents

, un noticed.

Our endeavour should

be :

to avoid recurrence

of the mistakes already

happened;perfecting the system – mistake free to the

extent possible.

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Epilogue

On the top of it, liaising with Audit is of paramount importance i.e., it should be

convinced that the mistakes are honestly committed in the prevailing

circumstances.

The role of Accounts is like a Doctor struggling to save the life of a patient and the

role of Audit is like a Doctor doing a post-mortem where he has all the time in the

world. We must assume the role of Audit at times to correct ourselves.

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Annexure j

Economy & Finance

Transcript of Annexure j