Government Accounting

Book-keeping in Public Sector

National Academy of Audit Accounts

Address: Near Chaura Maidan,

Shimla-171 004
Himachal Pradesh

Edition: First (2016)

First Published : 2016

Printed at: Prolific Incorporated

A-507/A, Shastri Nagar, New Delhi-110 052
Table of Contents

Chapter Title Page No.

Foreword i
Preface iii
1 Introduction 1
2 Accounting Entities and Role of CAG 7
3 Accounting Rules 15
4 Budgetary Process 35
5 Budget Review 51
6 Functioning of Treasuries 55
7 Receipt of Accounts 79
8 Departmental Compilation 87
9 Public Works and Forest Division Accounting 99
10 Account Current Section 115
11 Pension Authorisation and Accounting 129
12 Accounting of Institutional Loans and Advances 135
13 Contingency Fund Transaction & its Recoupment 145
14 Debt Accounting 149
15 Accounting of Deposits and Reserve Funds 157
16 General Provident Fund Accounting 165
17 RBD Accounting and Cash Management 171
18 Review of Balances 185
19 Transfer Entries 193
20 Accounting System for Union 203
21 Preparation of Monthly Accounts 217
22 Preparation of Annual Accounts 229
23 Budget-Plan Link Document 233
24 Internal Controls in Accounts 239
25 Way Forward 251
Epilogue 269
 Introduction

Foreword

A
ccountability is the cornerstone of a democratic set up, and effective management of
public resources is a crucial aspect of such accountability. ‘Accounts’, a reflection
of inflows and outflows, in turn, facilitate assessing accountability - how is the tax
payers’ money utilized. Accounts are also an important input for determining future allocation
of resources as part of the budgetary exercise.
With both the past and the future, drawing upon the accounts, it is imperative that
Government accounts are a faithful presentation of the performance of the executive, both to
the legislature and the public. An appropriate government accounting system must be relevant,
reliable and ensure transparency; thereby promoting accountability as well as forming the
basis for informed decision making, including policy formulation.
For an organization that is entrusted with the responsibility of ensuring accountability,
the importance of a proper understanding of Government Accounting cannot be overstated.
It is essential that the Officer Trainees comprehend the nuances of this vast and distinctive
subject, at the outset of their career. Not only will this knowledge stand them in good stead
in processing information for assessing accountability of the executive, but will also enable
proper appreciation of various accounting issues and public finance reforms.
This volume fulfills a long felt need of comprehensive literature in the field of
Government Accounts. It incorporates the general principles of Government accounting as
laid down by the Comptroller and Auditor General and the Controller General of Accounts.
It dwells upon financial arrangements, administration of the country and the executive’s
accountability to Parliament and legislatures.
While standardizing training on government accounting at the Academy, this text book
also lays the basis for further research on issues relating to accounting and their possible
solutions. A comprehensive understanding of the subject will enable better and more
analytical utilization of the extensive accounting information available in the public domain.
I am confident that this book will not only be beneficial to the Officer Trainees, but will
assist the Indian Audit & Accounts Department in effectively discharging its Constitutional
responsibilities.

August 2016 Prasenjit Mukherjee

New Delhi Deputy Comptroller & Auditor General

i
Government Accounting

ii
 Introduction

Preface

T
he curriculum of the IA&AS Officer Trainees underwent a significant modification
during the year 2014. Academy imparts training in 12 core subjects and a few
other subjects, which taken as a whole, constitute a body of knowledge aimed
at proficiency in public sector auditing and accounting. The accounting part is covered
under four subjects; Government Accounting: Book-keeping in Public Sector, Commercial
Accounting: Book-keeping in Private Sector, Public Sector Financial Reporting and Private
Sector Financial Reporting.
This text book titled Government Accounting: Book-keeping in Public Sector is aimed at
providing comprehensive knowledge to the Officer Trainees on book-keeping in Government.
This forms the basis for learning Public Sector Financial Reporting and paves way for learning
Financial Auditing, after being familiar with Principles of Public Sector Auditing.
Unlike the private sector entities, the public sector entities have an overall objective
of providing goods and services for community or social benefit. Many of the transactions of
public sector entities are non-exchange in nature. Markets often do not exist. Public benefit
entities hold many specialized assets and have obligations that cannot be readily transferred
to third parties. Therefore, an assessment of their value needs to take into account the nature
and purpose of such entities (that is, to deliver future services to the community) rather than
future cash flows. The main users of general purpose financial reports are Parliament and
the public.
The government as a whole and most of the public sector entities maintain their accounts
on cash basis or modified cash basis. A study of the public sector accounting in different
countries will show that each country has acquired its own peculiar features, which vary
from those in other countries having different sets of circumstances. Even within a country,
each different set of entities would have acquired their own distinctive features of financial
reporting. This text book attempts to expose the young Public Sector Auditors in India to the
principles and practices of government accounting in the Union and States of India.
This text book is the outcome of strenuous efforts made by Mr. V.S. Venkatanathan,
Director of NAAA. It was very difficult task considering the fact that no comprehensive
book on this subject has come out during the last two decades and the extent of impact
of information technology on the accounting process. Ms. Vidhu Sood, Director of
NAAA, made invaluable contributions to this effort. We acknowledge the contributions of
Mr. Subir Mallick and Mr. R. Naresh in developing examples for various accounting entries
as Directors in the Academy, which have been used extensively in this textbook. We have

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Government Accounting

benefitted immensely from contributions made by officers of the AG offices at Andhra

Pradesh, Himachal Pradesh, Kerala, Nagpur, Orissa, Punjab, Tamil Nadu, Uttar Pradesh &
West Bengal.
While we have taken every possible effort to remove printing errors, it is possible that
some may still remain. If the reader comes across any such error, she/he is requested to point
out the same to us so that we can make necessary corrections in the forthcoming editions.
Readers are also welcome to suggest improvements in the content.
I am confident that in its present form, the book will not only be very useful to the
Officer Trainees, but also to all other young officers and staff of the department who are
interested in the subject.
Further suggestions for improvement of the book are eagerly solicited.

August 2016 L.V. Sudhir Kumar

Shimla Director General
National Academy of Audit and Accounts

iv
 Introduction
CHAPTER-1

Introduction

A
ccounting is the process of recording financial transactions and creating further value
additions like summarizing, analysing, verifying and reporting them. Accounting
provides information to various stakeholders like owners of the entity, its managers,
creditors, regulators etc. It also ensures accountability of those carrying out the transactions.
It is for this reason that accounting is a very important activity. However, accounting of
Government transactions is different from that of private entities because of the nature of
their transactions. Unlike most of the private entities, Government does not function for profit.
The geographical spread and number of Government transactions is huge as compared to a
private entity. These differences require Government accounting to be simple to enable easy
recording. Yet it needs to be effective and transparent.

1.1 Government Financial Process

Accounting is an integral part of the Government financial process. The following flow
chart presents an overview of the financial process in Government:
The Government financial
process begins with the financial
sanction by the Legislature
to draw money out of the
Consolidated Fund of India/
State. This is done through the
process of annual budgeting.
On the basis of the financial
sanctions, the Executive, which
includes various departments
of the Government, incurs expenditure. The transactions are recorded and compiled by the
accounting agency of the concerned Government (Controller General of Accounts in the
case of Union and Accountant General (Accounts and Entitlement) in the case of States).
They then prepare the annual accounts of the respective Governments. Finance Accounts and
Appropriation Accounts are the annual accounts. These are audited by the Comptroller &
Auditor General of India (CAG) and the audit reports are placed in the Parliament/Legislature.
This ensures accountability of the Executive to the Legislature. It also provides a feedback
to the Legislature on the effectiveness of its fiscal plan. This feedback enables the financial
process to get more effective with every cycle.

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Government Accounting

The Government finance is operated under three parts. All revenues received by the
Government of India or any State, all loans raised by the Government and all moneys received
by the Government in repayment of loans form one fund called the Consolidated Fund of India
or of the State (Article 266 (1) of the Constitution). The second part is the Public Account
of India or of a State which includes all other public moneys received by or on behalf of the
Government of India or of the State (Article 266 (2) of the Constitution). The third part is
the Contingency Fund of India or of a State created under Article 267 of the Constitution. It
is constituted with a fixed corpus by the Parliament/Legislature to enable the Government to
incur unforeseen expenditure without prior legislative approval. For example, the Government
may spend from the Contingency Fund to provide immediate relief after a natural calamity.
The expenditure out of the Contingency Fund is later to be recouped from the Consolidated
Fund through the regular legislative approval procedures.

1.1.1 Budgeting
The annual budgeting process begins with the assessment of requirement of funds for various
departments of the Government by the Finance Department. The process culminates in:
i. The Annual Financial Statement – which includes the estimated receipts and
expenditure of the Government categorized as charged/voted and revenue/capital.
This deals with all three parts of Government finance, namely the Consolidated Fund,
Contingency Fund and the Public Account;
ii. Finance Act – incorporating taxation proposals including continuance of existing
taxes, their modifications and new taxes; and
iii. Appropriation Act – for withdrawal from the Consolidated Fund of India/State of the
amount to be spent during the year. Each department manages one or more Grants,
which are funds allocated for expenditure by the department. The total of all Grants,
which is the fund requirement of all departments of the Government for the year, is
appropriated out of the Consolidated Fund through the Appropriation Act.

1.1.2 Government Business

The Finance Department communicates
Parliament/Legislative sanction to the Secretary
of the various departments who are the grant
controlling authorities. The Government
departments could be categorized into expenditure
oriented departments like the education/health
departments and revenue oriented departments
like the income tax department. The structure of
a typical government department and the flow of
financial sanction would be as follows:

2
 Introduction

The sanctions are further apportioned within a department up to the Drawing and
Disbursing Officers (DDOs). The DDOs incur expenditure as per the sanctions. The revenue
oriented departments focus on revenue collection. The expenditure incurred and the revenue
collected are recorded through the accounting process.

1.1.3 Government Accounting

Government accounting in India follows a rule-based accounting system. It is a simple
form of accounting. There are rules, account codes and manuals that specify when transactions
are to be recognised, how they are to be recorded and reported and the nature of accounting
records to be maintained. There are specific rules for different kinds of transactions. The
level of assumptions to be made during the process of accounting is minimum in a rule-based
accounting system.
Government Accounting Rules, 1990, Central Government Account (Receipts and
Payments) Rules, 1983, General Financial Rules, 2005, Delegation of Financial Powers
Rules, 1978, Account Code for Accountants General, CAG’s Manual of Standing Orders
(Accounts & Entitlement) and Civil Accounts Manual are some of the important rules, codes
and manuals that contain detailed instructions relating to the accounting process. They have
identified all possible kinds of transactions and the accounting treatment for each of them.
The accounting entities have to adopt the appropriate rule for each scenario. This ensures
uniformity in the process of accounting and the level of accounting skill required is not as
sophisticated as compared to accrual accounting. Rule-based accounting is particularly suited
for Government transactions because of its wide geographic spread, enabling staff with varied
levels of accounting knowledge to record those transactions appropriately.
Government Accounting Rules, 1990 prescribe that Government accounting shall
follow cash basis of accounting (Rule 21). This means that a transaction is recognised only
when cash is actually paid or received. This is opposed to the accrual basis of accounting,
where transactions are recognised as soon as risks/rewards are transferred between the
transacting entities. Accrual basis of accounting is widely practiced in the private sector.
When an Income Tax Officer raises a tax demand on an assesse, there is no accounting
entry made under cash basis of accounting because there are no cash flows at this point.
An accounting entry is made as a receipt to the Government only when the tax amount is
actually paid by the assesse. If the Government were to follow accrual basis of accounting,
the transaction would be recognised as an amount receivable to the Government when the
demand is raised. Subsequently, when the tax is paid by the assesse, the receivable is reduced
by that amount and a receipt would be recorded for the same amount.
The following example illustrates the difference between cash and accrual basis of
accounting on the financial results of an entity:

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Government Accounting

Consider a company that incurs an expenditure of ` 100 and generates a revenue of

` 200 during the first month. The entire revenue is received during the month in cash. In the
second month, the company incurs a further expenditure of ` 200 and generates a revenue
of ` 400. This amount is not received during the month. In the third month, the company
received ` 600, ` 400 in discharge of the receivable amount of the previous month and ` 200
as advance for the next month. However, it does not spend or generate any revenue during
the month. In the fourth month, it incurs an expenditure of ` 100 and generates a revenue of
` 200 for which it had already received the amount the previous month. The financial results
of this company as arrived on cash basis as compared to the figures arrived on accrual basis
are tabulated below:
First Month Second Month Third Month Fourth Month
Cash Accrual Cash Accrual Cash Accrual Cash Accrual
Revenue (A) 200 200 0 400 600 0 0 200
Expenditure (B) 100 100 200 200 0 0 100 100
Profit (A-B) 100 100 (-)200 200 600 0 (-)100 100
Cash Balance 100 100 (-)100 (-)100 500 500 400 400
Accounts Receivable - 0 - 400 - 0 - 0
Deferred Revenue - 0 - 0 - 200 - 0

As is seen from the above table, if we attempt to calculate profits in a cash basis system,
we realise that profits cannot be accurately calculated. Whereas, under accrual basis, the
financial results are presented more accurately and information relating to amounts receivable
and those received in advance are captured.
Though cash basis of accounting does not give a complete picture of the financial
position of Government, it is much simpler than accrual based accounting. It is for this reason
that cash basis has been adopted for Government accounting. However, the operations of
some departments of Government sometimes include undertakings of a commercial or a
quasi-commercial character e.g., an industrial factory or a store. Even though they may be
maintained almost entirely for the benefit of the Department, it is still necessary that the
financial results of the undertaking should be expressed in the normal commercial form so
that the cost of the service or undertaking may be accurately known. Such departments have
to maintain accounts on accrual basis, in addition to the regular cash based accounts. These
accounts on accrual basis are maintained outside the regular Government accounting/reporting
framework and are called pro forma accounts (Rule 18 of GAR, 1990)

4
 Introduction

1.1.4 Financial Reporting

The accounting information are compiled to prepare the accounts of the Government.
The Controller General of Accounts compiles the accounts of the Union Government and the
Accountants General (Accounts & Entitlement) compile the accounts of the State Governments.
Rule 20 of the Government Accounting Rules, 1990 prescribes that the annual accounts shall
record transactions which take place during a financial year running from 1st April to 31st
March. The annual accounts consist of the Finance Accounts and the Appropriation Accounts.
The Finance Accounts provide details of receipts and expenditure during the year under
the three parts of government finance, namely, the Consolidated Fund, the Contingency Fund
and the Public Account. The Appropriation Accounts are in the nature of a budget compliance
document. It deals only with expenditure incurred out of the Consolidated Fund. It gives details
of expenditure incurred against each grant by the concerned department as compared to the
appropriation made through the budgetary process. It highlights instances of excess expenditure
and savings as compared to the budget and provides the reasons for such excess/savings.
The Finance and Appropriation Accounts prepared by the CGA and AG (A&E) are
audited by the Comptroller and Auditor General of India (CAG). The CAG checks the
reliability of the accounting system in place and the accuracy of the figures depicted in the
accounts. On the basis of this audit, the CAG certifies the accounts. The CAG’s certificate
could be of three types
i. Unqualified opinion – given when there is reasonable assurance that the accounts
present a true and fair view of the financial position and the sums expended.
ii. Unqualified opinion with emphasis of Matter – given when there is reasonable
assurance that the accounts present a true and fair view, but there are certain issues or
concerns which must be brought to the notice of the stakeholders as part of the audit
opinion. These issues/concerns are included in the Report on State Finances in the
case of State Accounts and Report on Financial Audit in the case of Union Accounts.
iii. Qualified opinion – given when it is not possible to satisfy that the financial statements
are free from material misstatements caused by fraud, error or other irregularity.
The annual accounts along with the audit certificate are submitted to the Parliament/
Legislature (Rule 4 of GAR, 1990) to complete the financial process. A democracy can be vibrant
only when the Executive is accountable to the Legislature and ultimately to the people. Accounts are
the most powerful tool to enforce this accountability. It is essential that the accounts are transparent
and simple to be understood by the Legislature and the people. Many of the problems faced by
the country, including adoption of populist policies and spending in non-priority areas, are due to
deficiencies in the accounts or inability of the stakeholders to comprehend/use the information
contained in accounts. It is, therefore, essential that any deficiency in the accounting process is duly
remedied and capacity of stakeholders to understand and use accounts is increased.

5
Government Accounting

6
 Accounting Entities and Role of CAG
CHAPTER-2

Accounting Entities and

Role of CAG
2.1 Constitutional Provisions

T
he Constitution of India has envisaged a very important role for the Comptroller and
Auditor General of India. The importance of the functions discharged by the CAG is
reflected in the statement of B.R. Ambedkar in the Constituent Assembly on 30 May
1949. He said “Personally speaking for myself, I am of opinion that this dignitary or officer
is probably the most important officer in the Constitution of India. He is the one man who is
going to see that the expenses voted by Parliament are not exceeded, or varied from what has
been laid down by Parliament in what is called the Appropriation Act. If this functionary is to
carry out the duties-and his duties, I submit, are far more important than the duties even of the
judiciary – he should have been certainly as independent as the Judiciary”.
Chapter V of Part V of the Constitution (Articles 148 to 151) deals with the Comptroller
and Auditor General of India. Article 148 deals with the manner of appointment of the CAG
and the system put in place to ensure independence of the institution of CAG. Article 150 of
the Constitution states that the accounts of the Union and of the States shall be kept in such
form as the President may, on the advice of the CAG, prescribe. Government Accounting
Rules, 1990 (GAR) have been framed by the President in exercise of the provisions of Article
150. These contain the basic rules relating to the form of accounts of the Union and States. It
also incorporates certain general principles of Government accounting laid down by the CAG
for the guidance of Government Departments.
Rule 28 of GAR, 1990 states that the word “Form” has a comprehensive meaning so as to
include the prescription not only of the broad form in which the accounts are to be kept but also
the basis for selecting appropriate heads under which the transactions are to be classified. Form
of accounts would include the structure of government accounts, classification of transactions,
basis of accounting, format of financial reporting and the principles governing recognition,
measurement, classification and disclosure of government transactions. Proposals are also
received from time to time in the office of the CAG relating to changes in the form in which
accounts are maintained. These are vetted and appropriate recommendations given on them.
An example of a proposal to change the form of accounting and the recommendations
given by the CAG is as follows. Service tax is an important component of Indirect Tax receipts
of the Union Government. Initially, a positive list of Services was listed out, on which Service

7
Government Accounting

tax was leviable. A separate accounting head was assigned to each of the taxable Service and
the tax receipts against each of these Services were reported distinctly in the Annual Accounts
of the Union. Later, the Government moved to a negative list based taxation, wherein the
list of Services that would not be taxed was defined and all other Services became taxable.
When Service taxation moved from positive list to a negative list based tax, the Government
proposed to do away with separate Heads of Account for each Service. Instead, it proposed to
have a single accounting head for all Services as it was not feasible to have separate Heads of
Account for all conceivable Services.
However, CAG recommended that the Government continue with the current system
of having separate Heads of Account for various Services. A separate category called ‘Other
Services’ was recommended to be opened to account for all other new Services that had
been brought into the tax net. It was further recommended to review the ‘Other Services’
category periodically to check if any single Service had become significant enough to be
assigned a separate Head of Account. This, it was recommended, would ensure granularity
and transparency in financial reporting of Service tax. It was reasoned that a single head for
all service tax receipts would have resulted in lumping of the receipts and providing less
information to the stakeholders on important sectors of Service taxation.
Article 151 of the Constitution deals with audit reports relating to accounts of the Union
and States. The reports relating to the Union are to be submitted to the President to be laid
before each House of Parliament. The reports relating to the States are to be submitted to the
Governor to be laid before the Legislature of the State.
Article 149 states that the duties and powers of the CAG would be prescribed by law
made by Parliament. In exercise of the provisions of this Article, the CAG’s Duties, Powers
and Conditions of Service Act, 1971 has been enacted by the Parliament.
In addition to Chapter V of Part V, a few more provisions of the Constitution assign
certain responsibilities on the CAG. As per Article 279 of the Constitution, the net proceeds
of taxes and duties, after deducting the cost of collection, is to be ascertained and certified
by the CAG. The net proceeds of taxes and duties are then allocated between the Centre and
the States, as well as among the States, as per the Finance Commission recommendations. An
independent certification of the net proceeds is essential to ensure fiscal federalism.
Schedule VI of the Constitution that deals with administration of tribal areas of Assam,
Meghalaya, Tripura and Mizoram assigns the responsibility of deciding the form of accounts
of the district/regional councils to the CAG. Their accounts are to be audited as decided by the
CAG and presented to the Governor.

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 Accounting Entities and Role of CAG

2.2 Provisions of Law

In compliance with the provisions of Article 149 of the Constitution, the CAG’s (Duties,
Powers and Conditions of Service) Act was passed in 1971. Section 10 of the Act provides that
the CAG shall be responsible for compilation of the accounts of the Union and the States from
the initial accounts rendered by the treasuries and other account rendering units. It further
provides that the President may relieve the responsibility of compiling the accounts of the
Union after consultation with the CAG. In exercise of these powers, the President has relieved
the CAG of the responsibility for compiling the accounts of the Union Government in stages
beginning April 1976. With the Presidential notification of 1st June 1980, the CAG is relieved
of the responsibility for compiling the accounts of Central Civil Ministries/Departments and
Union Territory Administrations except accounts pertaining to the Indian Audit and Accounts
Department, Union Territory Administrations of Chandigarh, Dadra and Nagar Haveli and
Lakshadweep and certain pension payments.
The CAG continues to discharge the responsibility of compiling the accounts of the
States, except Goa. The section provides that the Governor of a State, with the previous
approval of the President and after consultation with the CAG, may relieve her/him of the
responsibility of compiling the accounts of the State.
Section 11 of the Act states that CAG shall prepare the annual accounts of the Union,
the States and Union Territories with a Legislative Assembly on or before such dates as
she/he may, with the concurrence of the Government concerned, determine. The annual
accounts shall then be submitted to the President/Governor/Administrator, as the case may
be. The section further provides that the President may, after consultation with the CAG,
relieve her/him of the responsibility of preparation of accounts of the Union or of a Union
Territory with a Legislative Assembly. In exercise of this provision, the President relieved
the CAG of the responsibility of preparing the accounts of the Union in June 1978. The
responsibility of preparing the accounts of the States, except Goa, is discharged by the CAG.
As per the provisions of section 11 of the Act, the Governor may, with the previous approval
of the President and after consultation with the CAG, relieve her/him of the responsibility of
preparing the accounts of the State.
Section 12 of the DPC Act states that the CAG shall provide information, relating to
the accounts she/he maintains, as may be required from time to time by the Union/States and
render assistance in preparation of their Annual Financial Statements. Accordingly, the CAG
provides the actual expenditure figures of the previous years for preparation of the budget for
the State Governments, for whom she/he maintains the Accounts. Other information relating
to accounts are also rendered on a monthly basis (and in some cases as and when required)
by the CAG to the State Governments as per the requirements identified from time to time.

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Government Accounting

Section 22 of the Act deals with making rules for carrying out the provisions of the DPC
Act relating to maintenance of accounts. It empowers the Central Government to make such
rules after consultation with the CAG. These rules could relate to the manner in which initial
and subsidiary accounts shall be kept by the treasuries, offices and departments rendering
accounts to audit and accounts offices, the manner in which accounts are to be compiled/kept
for Union/States where the CAG has been relieved of such responsibility and the manner in
which accounts of stores and stock shall be kept in any office or department of the Union/
State. These rules are to be passed by both Houses of Parliament.
Section 23 of the DPC Act authorizes the CAG to make regulations for carrying into
effect the provisions of the Act, including laying down the general principles of Government
accounting for the guidance of the Government Departments. In accordance with the provisions
of this Section, the Regulations on Audit and Accounts were framed in 2007. Chapter 16 of
the regulations deals with the general principles of Government accounting.

2.3 Provisions of Rules and Manuals

Chapter 2 of the Government Accounting Rules, 1990 prescribes the general outline of
the system of Accounts of the Central and State Governments. The Comptroller and Auditor
General’s Manual of Standing Orders (MSO) prescribes the accounting procedures and
practices to be adopted for the State Governments.
For payments to be made for expenditure incurred against budgetary provisions, the
Drawing and Disbursing Officers (DDOs) prepare a bill. The bill contains various information
including the purpose for which the expenditure is incurred, the sanction of the competent
authority to incur the expenditure and the accounting classification under which the transaction
is to be accounted. The bill, in the case of State Government transactions, is then submitted
to the treasury. Treasuries have a geographic jurisdiction and the DDOs of all Ministries/
Departments located in that area operate through that treasury. The treasury, after checking the
bill, makes payment through a designated bank branch authorized to carry out Government
business.
State Government receipts are also made by these designated bank branches through
challans. The bank branch sends the list of all government receipts and payments to the
treasury through receipt/payment scrolls. The treasury maintains the accounts of all receipts
and payments. The accounts are sent to the Accountant General (Accounts and Entitlement)
(AG (A&E)), who is mandated with the responsibility of compiling the accounts of the State.
Some DDOs are authorized to operate directly with the bank to effect Government
transactions. They do not have to submit the bills to the treasury. This has been done taking
into consideration the nature of operation of such DDOs, which includes operation in
remote areas. Examples of such DDOs are those belonging to the Public Works and Forest

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 Accounting Entities and Role of CAG

Departments. These DDOs are called Cheque-drawing DDOs. The Cheque-drawing DDOs
prepare their accounts and submit them directly to the AG (A&E) for compilation. The AG
(A&E) also receives accounts from other State Accountants General and accounting agencies
of the Central Government relating to transactions of the concerned State occurring outside
the territory of the State.
Reserve Bank of India is the banker of the Government. The designated banks of the
treasuries could be a branch of RBI or of any Agency Bank authorized by the RBI to carry
out Government transactions. The RBI maintains State-wise accounts at its Central Accounts
Section (CAS) in Nagpur. Thus, every State Government has an account with the RBI.
However, Sikkim does not have accounts with the RBI. Instead, they have accounts with
State Bank of Sikkim, Gangtok. CAS, Nagpur receives the details of government transactions
made in all agency bank branches, consolidates the information and sends it to AG (A&E) of
the State.
On the basis of accounting information received from various accounts rendering units, the
AG (A&E) prepares the monthly accounts of the State and at the end of the year, the Annual
Accounts, which consist of the Appropriation Accounts and the Finance Accounts.

2.4 Departmentalisation of Union Accounts

On discharge of the responsibility of the CAG to compile and prepare the accounts of the
Union as per provisions of Sections 10 and 11 of CAG’s DPC Act, an institution of Controller
General of Accounts (CGA) has been created under the Department of Expenditure in the
Ministry of Finance to discharge these responsibilities. The CGA prepares and compiles the
accounts of the Union Government and those of Union Territories. A Presidential notification
of September 1980 defined the allocation of business of the CGA. The responsibilities of
the CGA include consolidation of the monthly accounts, preparation of annual accounts of
the Union Government, assisting in the introduction of management accounting system in

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Government Accounting

the Ministries/Departments of the Union and dealing with general principles of Government
accounting relating to Union/State Governments, form of accounts and framing/revising
rules/manuals relating to them.
The accounting system for the Union Government is based on Departmentalised
Accounts Offices. The Civil Accounts Manual prescribes the process of maintaining the
Accounts of the Civil Ministries of the Union. Under this scheme of accounting, the Secretary
of the Ministry/Department shall be the Chief Accounting Authority for the concerned
Ministry/Department. The Chief Accounting Authority is assisted by a Financial Advisor
of the Ministry/Department. The Principal Pay and Accounts Officer (Pr.PAO) of the Civil
Ministry/Department (excluding Railways, Post & Telecom and Defence departments), is
responsible for compilation and consolidation of accounts of the Civil Ministry/Department,
preparation of annual Appropriation Accounts of the Demands for Grants controlled by the
Civil Ministry/Department and providing material for the preparation of Finance Accounts of
the Union Government to the Controller General of Accounts.
There are Pay and Accounts Offices (PAOs) at different locations for each Civil Ministry/
Department that would authorize and make payments against bills prepared and presented to
them by the Drawing and Disbursing Officers of the concerned Civil Ministry/Department
at that location. The PAO discharges a function similar to that of the treasury in the State.
However, unlike the treasury which has a territorial jurisdiction, the PAO has a jurisdiction
over the DDOs of a particular Civil Ministry/Department. Each PAO operates on a designated
bank. Receipts relating to the Civil Ministry/Department are deposited into the designated
bank through challans. The designated bank sends details of receipts and expenditure made
on behalf of the Civil Ministry/Department through receipt/payment scrolls to the PAO.
The PAO accounts for all the receipts and payments made. The PAO also receives details
of transactions carried out by the Cheque-drawing DDOs of the Civil Ministry/Department
under her jurisdiction. She consolidates all the transactions and sends the details to the Pr.PAO
for compilation and accounting.
The RBI maintains Ministry/Department-wise accounts at CAS, Nagpur. Unlike the
State Governments which have a consolidated account, every Ministry/Department of the
Union Government has an account with the RBI. It receives details of transactions made by all
PAOs/Accounts Offices of a Ministry/Department from the agency banks. It consolidates this
information and sends monthly accounts to the Pr.PAOs of the Ministries/Departments. The
RBI also sends a consolidated monthly account of the Central Government to the Controller
General of Accounts.
The Pr.PAOs of Civil Ministries/Departments prepare the Appropriation Accounts of
the concerned Ministry/Department, and along with it, provide the information required for
preparation of the Finance Accounts of the Union to the CGA. The CGA also receives these

12
 Accounting Entities and Role of CAG

accounting information relating to Railways, Defence, Post and Telecommunication prepared

by their respective accounting agencies, namely, the Financial Commissioner (Railways),
Controller General of Defence Accounts and Principal Controller of Communication Accounts.
These departmental accounting agencies are governed by their respective accounting rules
and manuals. The CGA prepares the annual accounts, namely the consolidated Appropriation
Accounts of all Civil Ministries/Departments and the Finance Accounts of the Union, with
the information received from all these accounting entities. The accounting agencies of the
Railways, Defence and Post & Telecom prepare the Appropriation Accounts of the respective
Departments. The following flow chart presents the flow of accounting information relating to
the Union. This is further discussed in detail in the chapter on Accounting System for Union.

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Government Accounting

14
 Accounting Rules
CHAPTER-3

Accounting Rules

3.1 Basic Structure of Government Accounts

3.1.1 Chart of Accounts

R
ules 23 to 27 of Government Accounting Rules (GAR), 1990 deal with the form
in which Government accounts is to be maintained. This is also called the Chart of
Accounts. As provided constitutionally under Articles 266 and 267, Government
finances are maintained in three parts. They are the Consolidated Fund, Contingency Fund
and the Public Account. The Consolidated Fund of India or of a State is further divided into
two Divisions, namely, Revenue Division and Capital, Public Debt, Loans and Advances
Division. The Divisions are further divided into Sections. The Revenue Division consists of
the Revenue Receipts and Revenue Expenditure Sections. The Capital, Public Debt, Loans and
Advances Division is divided into three Sections, namely, the Receipt Section, Expenditure
Section and the Public Debt, Loans and Advances Section. The Sections are divided into
Sectors.
The Sectors are distinguished by a letter of the Alphabet. The Revenue Receipts Section
consists of three Sectors – A. Tax Revenue, B. Non-Tax Revenue and C. Grants-in-Aid and
Contributions. The Revenue Expenditure Section consists of four Sectors – A. General
Services, B. Social Services, C. Economic Services and D. Grants-in-Aid and Contributions.
The Receipt Section under the Capital, Public Debt, Loans and Advances Division has no
Sectors. The Expenditure Section, however, has four Sectors with the same names as the
Revenue Expenditure Section. The Public Debt, Loans and Advances Section also has four
Sectors – E. Public Debt, F. Loans and Advances, G. Inter-State Settlement and H. Transfer
to Contingency Fund.
Contingency Fund has no further Divisions, Sections or Sectors. Public Account is
directly divided into six Sectors – I. Small Savings, Provident Funds etc, J. Reserve Funds,
K. Deposits and Advances, L. Suspense and Miscellaneous, M. Remittances and N. Cash
Balance. Some Sectors may further be divided into Sub-Sectors. For example, the Sector
Tax Revenue is divided into three Sub-Sectors – Taxes on Income and Expenditure, Taxes on
Property and Capital Transactions and Taxes on Commodities and Services. The details of the
Chart of Government Accounts is available in the List of Major and Minor Heads of Account
of Union and States.

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Government Accounting

3.1.2 Numeric Classification

Below the Sectors/Sub-Sectors,
there are numeric classifications to
record various transactions. The numeric
classification consists of 15 digits in
6 tiers. The numeric classification
starts with a 4 digit Major Head which
indicates the functions of the government
like Police and Housing. Some Major
Heads may have a 2 digit Sub-Major
Head which denote sub-function. For
example, under the function Housing,
Government Residential Buildings
is a sub-function. Rural Housing is another sub-function. The next tier of classification
involving 3 digits is the Minor Head indicating programmes. Under the sub-function Rural
Housing, Provision of house site to the landless, Assistance to Housing Boards and Housing
Co-operatives are programmes. Subordinate Head, Detailed Head & Object heads are the other
3 tiers of classification, each with 2 digits. They denote the Scheme, Sub-scheme & Object of
expenditure respectively.

3.1.3 Codification Scheme of Numeric Classification

The codification of Major Heads is so designed to give quick information about the
nature of transactions. Major Heads beginning with 0 or 1 indicate revenue receipts. Those
beginning 2 or 3 are revenue expenditure heads. There is a single Major Head 4000 for

16
 Accounting Rules

capital receipts. Heads beginning 4 or

5 are capital expenditure Major Heads.
6 or 7 indicate Public Debt, Loans &
Advances. 8000 stands for Contingency
Fund. Other Major Heads beginning
with 8 pertain to Public Account.
As the Major Heads denote the
function of Government activity, by
adding 2 to the first digit of the revenue
receipt of a function, you get the revenue
expenditure of that function. Further
additions of 2s to the first digit give the capital expenditure, & loans relating to that function.
An example with the Crop Husbandry function is depicted in the chart below.
However, in some cases certain
heads would not be available for a
function. For example, Major Head
2016 is the revenue expenditure head
of the function - Audit. But there is no
Major Head 0016 relating to revenue
receipt of Audit function because audit
is an expenditure oriented function
and audit receipts would be meagre. A
separate Major Head for the purpose is not needed. Such meagre receipts are accounted under
the Major Head ‘0075 – Miscellaneous General Services’
Classification up to Minor Head level is codified & fixed in the List of Major and Minor
Heads of Account (LMMH) for the purpose of uniformity across States and the Union. This
uniformity allows consolidation of accounts & comparison across units and accounting periods.
Any change in these levels involves an elaborate procedure leading to the incorporation of
such changes in the List of Major and Minor Heads. Rule 5 of GAR, 1990 prescribes that
executive orders containing instructions for opening of new heads of accounts or modification
of existing ones would be issued by Ministry of Finance on the advice of the CAG.
The general directions provided in the LMMH include few Minor Heads which can be
opened under certain Major Heads without any additional approvals. For example, the minor
head “Suspense” (code ‘799’) can be opened under those Major Heads where expenditure
on ‘works’ is involved. These Major Heads relate to expenditure on public works, like
construction of a building or laying of a road. This Minor Head is utilised to account for the
stock maintained, advances made relating to the works and other related expenditure.

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Government Accounting

There is flexibility in the classification tiers of Subordinate, Detailed & Object Heads to
suit the needs of various accounting entities. However, Rule 8 of the Delegation of Financial
Powers Rules, 1978, has standardised certain Primary units of Appropriation (Object Heads).
It further states that the Finance Ministry may add to the Primary units. Accordingly, the
Ministry issued instructions for standardisation of around 45 Object Heads under seven
classes. These classes are as follows:
Class 1 – Personnel Services and Benefits
Class 2 – Administrative Expenses
Class 3 – Contractual Services and Supplies
Class 4 – Grants etc.
Class 5 – Other Expenditure
Class 6 – Acquisition of Capital Assets and other Capital Expenditure
Class 7 – Accounting Adjustments
The standardisation of Object Heads enables consolidation and reporting on these
primary units of appropriation across various functions of the Government. Thus, it is
possible to report on the total expenditure on salaries incurred by the Government across all
Departments by consolidating expenditure information by the Object Head ‘01 – Salaries,
Sumptuary Allowance’

3.1.4 Service Heads and DDR Heads

The Accounting Heads under the Sections Revenue Receipts, Revenue Expenditure,
Capital Receipts and Capital Expenditure (Major Heads from 0020 to 5475) are called
Service Heads. These Heads are Government’s own transactions. The balances under these
heads lapse at the end of the year as these heads pertain to expenditure which is governed by
the budget for the year and any unspent amounts lapse; the revenues for the year are taken
into account to work out the surplus/deficit and cash balance at the end of the year. These
Heads are said to close to Government Account i.e. their balances are not carried forward.
However, for the Capital Expenditure Heads, a cumulative balance is shown in the Finance
Accounts which, given the limitations of cash accounting, represents the asset position of
the Government. The cumulative balance is actually the total capital expenditure, till date,
on the assets by the Government.
The remaining Heads in the Sectors from E. Public Debt to N. Cash Balance (Major
Heads from 6001 to 8999) are called Debt, Deposit and Remittance (DDR) Heads. These
Heads are said to close to Balance i.e. their balances are carried forward. The balances in these
Heads are carried forward because of the following reasons:
a. The other party in these transactions are other Governments or non-Government
entities

18
 Accounting Rules

b. These transactions create liabilities for the Government which need to be

discharged in future
c. These transactions create receivables for the Government which need to be
recovered in future
d. Transactions where the Government acts as a banker for others
These are heads of account that record transactions where the Government acts as a
borrower, lender, remitter and banker. In these cases, it is necessary that detailed accounts
are maintained. The balances in these cases are to be closed at the end of the year, confirmed
with the other party concerned and carried forward to the next year. Subsidiary Accounts,
containing details of these transactions are maintained in these cases.
However, there are three Major Heads under the DDR Heads that are closed to
Government Account at the end of the year. These Heads are as follows:
a. ‘7810 – Inter State Settlement’: This Head is operated to make adjustments (receipts/
payments) between new States that are created through bifurcation of existing States.
b. ‘7999 – Appropriation to the Contingency Fund’: This Head is operated when
the corpus of the Contingency Fund is altered (increased/decreased) by the
Parliament/Legislature
c. ‘8680 – Miscellaneous Government Account’: This Head is operated to account
for any balances lying in Sinking Funds after repayment of debt. This Head is
also operated to write-off amounts outstanding in DDR Heads due to book-
keeping errors after approval of the CAG/CGA as per provisions contained in
Rule 38 of GAR, 1990.
The DDR Heads under the Sectors E. Public Debt, F- Loans and Advances, G. Inter-
State Settlement and F. Appropriation to Contingency Fund are part of the Consolidated Fund.
Therefore, these heads have budgetary provisions. However, the DDR Heads under the other
Sectors (I to N) do not have budgetary provisions

3.1.5 Non-numeric Accounting Information

Rule 27 of GAR, 1990 states that expenditure which, under the provisions of the
Constitution, is subject to the vote of the Legislature shall be shown in the accounts separately
from expenditure which is “Charged” (on the Consolidated Fund of India/State/Union
Territory). The expression “Charged” or “Voted” shall be appended to the heads concerned
to distinguish the two categories of expenditure. Accordingly, in addition to the numeric
classification, information about the nature of transactions with respect to voted/charged is
also captured in the accounts.
Rule 78 of the General Financial Rules, 2005 states that Plan expenditure, representing
expenditure on Plan outlays approved for each scheme or organisation by the Planning

19
Government Accounting

Commission and indicating the extent to which such outlays are met out of budgetary
provisions, shall be shown distinctly from the other (Non-Plan) expenditure in the accounts
as well as in the Budget documents. Accordingly, these information are also captured as plan/
non-plan in the accounts.

3.1.6 Form of Accounts of Commercial Departments

Considering the nature of functioning of the Railways, Posts, Telecommunications and
Defence Departments, the form of accounts relating to these departments is to be determined by
the Departmental Accounting authorities after taking into consideration the accounting aspects
prescribed by the Ministry of Finance on the advice of the CAG (Rule 6 of GAR, 1990).

3.2 Classification of transactions in accounts

As a general rule, the classification of transactions in Government accounts is to be
aligned to the function, programme and activity of the Government and the object of the
revenue/expenditure, rather than to the department in which the revenue/expenditure occurs
(Rule 29 of GAR, 1990). For example, development of North Eastern areas is a function of
the Government. Departments like Department of School Education and Literacy, Department
of Social Justice and Empowerment and Ministry of Food Processing Industries have incurred
expenditure on this function during 2016-17. However, all these expenditure are classified
under the function ‘2552 North Eastern Areas’.
There are certain exceptions to this rule. For example, interest receipts/payments
are always accounted under 0049/2049, irrespective of the function under which the
interest receipts/payments are made. Similarly, expenditure on repair/maintenance of non-
residential buildings under the administrative control of the Public Works Department are
always accounted under “2059 – Public Works” irrespective of the function under which the
expenditure is incurred.

3.2.1 Classification of transactions under Capital and Revenue Sections

Rule 30 of GAR, 1990 deals with the criteria for determining whether an expenditure
should be classified under Capital Section or Revenue Section of the Consolidated Fund. It
states that expenditure of a capital nature to be classified in the Capital Section shall broadly
be defined as expenditure incurred with the object of increasing concrete assets of a material
or permanent character. Expenditure on a temporary asset or expenditure on Grants-in-aid
to local bodies or institutions (for the purpose of creating assets which will belong to these
local bodies or institutions) cannot be classified as capital expenditure unless specifically
authorised by the President on the advice of Comptroller and Auditor General.
Under a Capital project, certain expenditure are to be booked under Capital Section,
while the others are to be accounted under Revenue Section. Rule 31 of GAR, 1990 lists the

20
 Accounting Rules

principles governing such allocation between Revenue and Capital Sections, which are as
follows:
a. All expenditure for the first construction and intermediate maintenance when the
project is still not completed are to be booked under Capital Section
b. Any genuine improvement of the project subsequently, duly determined by
prescribed rules, formulae or under special orders of Government can be booked
under Capital Section
c. Expenditure on maintenance/replacement of wastages and other works are to be
accounted under Revenue Section.
d. Depreciation of a property is to be charged as revenue expenditure
e. Any capital receipts during the process of construction of a project relating to the
capital expenditure already incurred are to be treated as reduction of such capital
expenditure. Such receipts, after completion of the project, should not be credited
to the revenue account except under a special rule or order of Government.
3.2.2 Expenditure relating to more than one head of account
For the sake of convenience or for other special reasons, receipts or expenditure
pertaining to more than one head of account may be booked in the first instance under one
of the heads concerned. In such cases, the portion creditable or debitable to the other head or
heads involved should be transferred from the former head to the latter before the accounts
of the year are closed (Rule 33 of GAR, 1990). Accounting of collection charges of Income
and Corporation taxes is an example for this type of accounting. Both Income tax and
Corporation tax are administered by the Income Tax Department. An inter se allocation of cost
of collection between these taxes is to be done on the basis of the formula provided in Note 1
under Major Head 2020 in the List of Major and Minor Heads of Account (LMMH). So, the
cost of collection is initially accounted under the Minor Head ‘101 – Collection Charges –
Income Tax’ below the Major Head ‘2020 – Collection of Taxes on Income and Expenditure’.
At the end of the year, the cost of collection for Income Tax and Corporation Tax is calculated
on the basis of the formula and the cost of collection of Corporation Tax is transferred from
‘101 – Collection Charges – Income Tax’ to ‘102 – Collection Charges – Corporation Tax’.

3.2.3 Recoveries of overpayments

As per rule 35 of GAR, 1990, recoveries of overpayments are always to be taken as
reduction of expenditure under the appropriate expenditure head concerned irrespective of
the year to which such recoveries relate. This is to ensure correct depiction of receipts and
payments. If the recoveries of overpayments are accounted as receipts, it would inflate both
the expenditure and the receipts. Accounting these recoveries as reduction of expenditure

21
Government Accounting

ensures that the expenditure is correctly depicted and the receipts are not unnecessarily
inflated. Paragraph 3.10 of the General Directions in LMMH deals with the manner in which
such recoveries of overpayments are to be accounted.
a. Recoveries of overpayments made during the same financial year in which such
overpayments were made, are to be recorded as reduction of expenditure under
the concerned expenditure head.
b. Recoveries of overpayments pertaining to previous year(s) shall be recorded
under a separate minor head ‘911 – Deduct- Recoveries of Overpayments’ below
the concerned expenditure major head.
c. Refund of unspent balance by the grantee during the same financial year of
grant/contribution given by the Government are to be recorded as reduction of
expenditure under the concerned Grant-in-aid major/sub-major head.
d. However, if the refund of unspent balance of grant/contribution that was initially
charged to major head ‘3605-Technical and Economic co-operation with other
countries etc.’ is made in subsequent year(s), it is to be adjusted under a distinct
minor head ‘912 –Deduct Recoveries of unspent balance’ below that major head.
e. Similarly, refund of unspent balance of grants-in-aid by State/U.T. Government
in subsequent year(s) shall be adjusted in the Union Accounts under a separate
minor head ‘913 –Deduct -Recovery of unspent balance of grant-in-aid from
State/U.T, Governments’ below the major head where the grants-in-aid was
originally debited – ‘3601 Grants-in-aid to State Governments’ or ‘3602-Grants-
in-aid to Union Territory Governments’ as the case may be.
f. If the investments made by Government of India in Nationalised Banks are to
be written down to adjust the losses incurred by banks, they are to be shown as
‘Deduct Recoveries’ below the line in the Capital Section.
3.2.4 Recoveries of expenditure
Recoveries of expenditure and receipts relating to the following cases are to be accounted
as reduction in expenditure under the concerned head as per rules 55 and 56 of GAR, 1990:
a. Receipts from sale proceeds of material, plants etc. received from the old
structure in a construction project
b. Receipts under the Minor Head “Stock and Suspense” in a works project
c. Receipts and recoveries on Capital Account in so far as they represent recoveries
of expenditure previously debited to a Capital Major Head. As per paragraph
4.3 under General Directions in LMMH, “Deduct-Receipts and Recoveries on
Capital Account” is to be opened as a Sub-Head below the relevant Minor Head
under the Capital Major/Sub-Major Head where the expenditure was initially

22
 Accounting Rules

incurred and such receipts/recoveries are to be accounted as a reduction of

expenditure under this Sub-Head.
3.2.5 Refund of revenue
Refunds of excess revenue collected shall, as a general rule, are to be taken in reduction
of the revenue receipts. To account for such reduction of receipts, ‘900 –Deduct-Refunds’ is to
be opened as a Minor Head under the Major/Sub-Major Heads falling in the Sector “B. Non-
Tax Revenue”, unless it is not practicable to account for such refunds as Sub-Heads below the
concerned programme Minor Heads under the relevant Major/Sub-Major Heads. This Minor
Head is also to be opened under the Major/Sub-Major Heads of the sector “C. Grants-in Aid
and Contributions” to account for refunds. In respect of Major/Sub-Major Heads falling under
the Sector “A. Tax Revenue”, the head “Deduct- Refunds” should, however, be opened as a
distinct Sub-Head below the appropriate Minor Heads so that the net collection of each tax/duty
is readily ascertainable from the accounts (Paragraph 2.2 of General Directions in LMMH).

3.2.6 Recoveries for service provided

Rules 53 and 54 of GAR, 1990 deal with the manner of classification of recoveries of
expenditure of a different kind. This relates to repayments made by a non-government body
or a Government Department to another Government Department which initially incurred
the expenditure and classified it in the accounts as final expenditure by debit to a revenue/
capital head of account. The underlying principle in this accounting is that the receipts and
expenditure must be correctly reflected, without unduly inflating or under-reporting them.
Recoveries of expenditure for services or supplies made to non-Government parties
or other Governments (including local funds and Governments outside India) shall, in
all cases be classified as receipts of the Government rendering such services or supplies.
However, when a Government undertakes a service merely as an agent of a private body,
so that the entire cost of the service is recovered from that body, the net cost to Government
being nil, the recoveries are to be taken as reduction of expenditure. In the case of projects,
jointly executed by several Governments, where the expenditure is to be shared by the
participating Governments in agreed proportions, but the expenditure is ab initio incurred by
one Government and shares of other participating Governments recovered subsequently, such
recoveries from other Governments should be exhibited as abatement of charges (reduction of
expenditure) under the relevant expenditure head of account in the books of the Government
incurring the expenditure initially (Rule 53 of GAR, 1990).
Recoveries of expenditure made by a department for services or supplies rendered to
another department of the same Government is to be classified as reduction of expenditure.
This is to be shown as “below the line” recovery under the major head in which the expenditure
was originally booked. However, if such recoveries are made by a commercial department

23
Government Accounting

(e.g. Railways, Department of Posts/Telecommunication) or a departmental commercial

undertaking (e.g. All India Radio) for services rendered in pursuance of its regular functions,
then it is to be accounted as a receipt of that department. If the commercial department renders
service not related to its regular functions, then the recoveries for such services are to be taken
as a reduction of expenditure (Rule 54 of GAR, 1990).

3.2.7 Recovery of charges for service rendered/articles supplied by

Government Departments
Chapter 4 of GAR, 1990 deals with the criteria for recovery of charges for services rendered
or articles supplied by Government Departments. As per rule 42 of GAR, 1990, Government
Departments are classified into Service Departments and Commercial Departments.
A. Service Departments discharge those functions which are
a. Inseparable from and form part of the idea of Government. e.g. Departments of
Justice, Defence, Jails, Medical, Police, Public Health, Education, Forest etc.
b. Necessary to and form part of the general conduct of the business of Government.
e.g. Departments of Survey of India, Printing and Stationery, Public Works etc.
B. Commercial Departments or Undertakings are those that are constituted mainly for
rendering services or providing supplies on payment basis related to functions that
are not necessarily Government functions. They maintain accounts on commercial
basis to determine their financial results. Government needs to specify a Department
or Undertaking as Commercial.
A Service Department shall not charge another Department for services rendered which
fall within its regular class of duties (Rule 43 of GAR, 1990). Some of the exceptions to this
rule are as follows:
a. Forest Department shall charge for forest produce
b. Film Division of the Government shall charge for production of films and other
services
c. Central Industries Security Force shall charge for cost of force provided
d. Public Works Department shall charge establishment, tools and plant charges for
works executed on behalf of other Departments
e. Defence Department shall charge and be charged by other Departments except
for use of non-residential buildings and aerodromes of each other (Rule 46 of
GAR, 1990).
Commercial Departments or Undertakings shall charge and be charged for supplies and
services (Rule 44 of GAR, 1990). When one Department makes payment or renders service as
an agent of another Department, it shall recover those charges from the principal Department.

24
 Accounting Rules

For example, if a Civil Department acquires land on behalf of the Public Works Department,
it shall recover those charges from the latter (Rule 45 of GAR, 1990). A branch of a Service
Department performing duties supplementary to the main function of the Department on
payment basis, shall charge for the work for which it has been constituted. For example,
produce of jail manufacture through convicts shall be chargeable (Rule 47 of GAR, 1990).
Similarly, a branch of a Department constituted for subsidiary service of that Department shall
charge other Departments for those services. For example, workshop of a Department shall
charge other Departments for services rendered (Rule 48 of GAR, 1990).
In all these cases, if the charge is less that ` 1000, no claim will be made. However, with
a commercial department, claim would be preferred without any exception. The payments
against the claim are to be made by cheque/draft by the Departments (Rule 40 of GAR, 1990).
All services rendered to foreign Governments and outside bodies are to be charged. Any relief
in this regard should ordinarily be given through grants-in-aid rather than by remission of
dues (Rule 41 of GAR, 1990). However, notwithstanding anything contained in these rules,
a Government may permit inter-departmental adjustments in the interest of economy or of
departmental control of expenditure (Rule 50 of GAR, 1990).

3.2.8 Classification of Losses

If a claim of the Government is relinquished, it shall not be recorded as a loss (Rule 58
of GAR, 1990). This is because Government follows cash basis of accounting under which a
claim is not recorded as a receivable. Therefore, no loss is to be recorded when such claim is
relinquished. However, when the money is received by a Government Servant and is embezzled,
stolen or lost before it is deposited into Government Account, it is to recorded initially as a
receipt and then accounted in the appropriate Head as a loss. All losses or deficiencies of cash
in hand is to be recorded under the relevant Head as a loss. Any recovery made in the course
of the year in which the losses are brought to account shall be shown by deduction from the
Head under which the loss was recorded. Any recovery made after the accounts of the year are
closed shall be accounted as an item of receipts (Rule 60 of GAR, 1990).
Any losses of buildings, land, stores and equipment are to be written off from any
value or commercial account that may be maintained for it. Such losses, however, are not to
be classified under a separate Head in the accounts (Rule 59 of GAR, 1990). Any irregular
or unusual payments are to be accounted under their regular Heads, unless there are special
Heads available for accounting such payments. For example, overpayment of salary is to be
accounted under the Head ‘Salaries’ (Rule 61 of GAR, 1990). Where losses are an inevitable
feature of the working of a particular Department, the Major Head of account under which the
expenditure of that Department is classified shall contain separate descriptive Heads under
which such losses shall be recorded (Rule 62 of GAR, 1990).

25
Government Accounting

3.2.9 Miscellaneous rules governing classification

Some of the other rules relating to classification are as follows:
A. Pay and allowances of a Government servant are to be classified in accounts as part
of scheme, activity or organisation (Sub-Head) under a programme (Minor Head)
below a function (Major Head) to which the services of the Government servant
closely relate. Where, however, the duties of a Government servant extend to several
activities, programmes, functions etc. and it is not possible to classify ab initio her pay
and allowances under the appropriate Sub-Heads, the charges may be classified as part
of the scheme or activity or organisation to which the major portion of the work of the
Government servant relates. (Rule 66 of GAR, 1990)
B. The transit pay and allowances of a Government servant proceeding to join an
office whether on first appointment, or on transfer from one department to another,
or proceeding on/returning from deputation to another Department/Government are
to be borne by the Department/Government to which the Government servant is
proceeding. (Rule 66 of GAR, 1990)
C. The transit pay and allowances, both ways, of a Government servant transferred on
foreign service are to be borne by the foreign employer. (Rule 66 of GAR, 1990)
D. The travelling expenses of a Government servant should, on whatever duty she may
be employed, be debited under the same Major/Minor/Sub-Head as her pay (Rule
67 of GAR, 1990). However, in the following cases, the travelling expenses of a
Government servant may be debited to a Head different from that to which her pay is
debited:
a. In cases where a Government servant is required to travel on duty connected with
an outside body or fund
b. When Government considers it necessary to show separately the cost of a special
service in connection with which the tour is undertaken
E. Contributions made by the Central/State Government to district boards, Municipalities,
etc. or vice versa should be debited as expenditure or shown as receipts (as the case
may be) under the head of account most closely connected with the object for which
the contributions are made/received. Thus, a grant for the construction of a school
should be debited to ‘2202 – General Education’, grant for construction of a drainage
system to ‘2205 – Water Supply and Sanitation’ and a grant for the construction of
a road to ‘3054 – Roads and Bridges’ and grant given for general purposes, such as
grant to make good a deficit or a compensation for revenue resumed, shall be classified
under ‘3604 – Compensation and Assignments to Local Bodies and Panchayati Raj
Institutions’. (Rule 68 of GAR, 1990)

26
 Accounting Rules

F. Advances of Pay and Travelling Allowances should be debited to the final head of
account and not to ‘8550 –Civil Advances’. Settlement of such advances, by way of net
payment/net recovery through adjustment bills, are to be accounted for in the books of
the Government where the adjustment bills are preferred. (Rule 69 of GAR, 1990)
G. Receipts/payments which cannot at once be taken to a final head of receipt/expenditure
owing to lack of information as to their nature or for any other reasons, may be held
temporarily under the Major Head ‘8658 – Suspense Account’ in the sector “L.
Suspense and Miscellaneous” of the Accounts. However, a service receipt of which
full particulars are not given must not be taken to the head “Suspense Account” but
should be credited to the Minor Head ‘800 – Other Receipt’ under the revenue Major
Head to which it appears to belong pending eventual transfer to the credit of the correct
head on receipt of detailed particulars. (Rule 70 of GAR, 1990)
H. Sale proceeds of Government buildings/land are to be taken as a reduction of
expenditure in the concerned Capital Expenditure Head, if the cost of the building/
land was originally debited to the Capital Expenditure Head. If the original debit was
made to a Revenue Head, the receipts are to be accounted under ‘0075 – Miscellaneous
Government Services’. If there was no original debit for the cost of the Land/building,
the receipts are to be accounted under ‘0075 – Miscellaneous Government Services’ if
sold by civil departments. If sold in the Public Works Department, it is to be accounted
under ‘0059 – Public Works’. If sold in the Defence Department, it is to be accounted
under 0076, 0077 or 0078 for Army, Navy and Air Force respectively. (Rule 71 of
GAR, 1990)
I. Municipal rates and taxes on a non-residential building utilised for functional purposes,
such as for schools, colleges or hospitals, if paid by the relevant departments dealing with
those functions, should be adjusted under the Detailed Head “Rent, Rates and Taxes” of
the Major Head related to the department. Where, however, the whole or a part of the
tax is paid by the Public Works Department in administrative control of the building, the
payments may be debited to the maintenance estimates of the buildings concerned, viz.
‘2059 – Public Works-Maintenance and Repairs’. (Rule 72 of GAR, 1990)
J. Taxes on non-residential buildings, occupied by departments other than the Defence
Department, if paid by a department nominated by Government in this behalf and
not passed on to the occupying departments, should be debited to ‘2070 – Other
Administrative Services-Other Expenditure’. (Rule 72 of GAR, 1990)
K. Taxes on residential buildings, if payable by Government, should be debited to the
maintenance estimates of the buildings under the head ‘2216 – Housing – Government
Residential Buildings – Maintenance and Repairs’ or ‘2059 – Public Works’, in case
the Government has decided to debit maintenance expenditure to the latter head. (Rule
72 of GAR, 1990)

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Government Accounting

3.3 Procedure for effecting Government transactions

Article 283 of the Constitution states that the custody of the Consolidated Fund of
India/State and the Contingency Fund of India/State, the payment of moneys into such Funds,
the withdrawal of moneys therefrom, the custody of public moneys other than those credited
to such Funds received by or on behalf of the Government, their payment into the public
account of India/State and the withdrawal of moneys from such account and all other matters
connected with or ancillary to matters aforesaid shall be regulated by law made by Parliament/
Legislature. In accordance with these provisions, the Central Government Account (Receipts
and Payments) Rules (R&P Rules) have been framed in 1983 for the Union Government
transactions. Certain payments of the Central Government, like the pension payments, which
are made through State/Union Territory treasuries and public sector banks, the accounts of
which are not rendered to the Pay and Accounts Office (PAO) are governed by the Central
Treasury Rules. The State Governments have framed their respective Treasury Rules for their
transactions. Some of the important rules relating to the procedure for effecting Government
transactions are discussed here.

3.3.1 General Principles

All Government money received should be paid into the accredited bank, without
undue delay, for inclusion in the Government Account. Moneys received should not be
utilised directly to meet the expenditure of the Department (Rule 6 of R&P Rules, 1983).
A few exceptions have been provided in this rule. For example, cash received by the Forest
Department can be utilised to meet immediate local expenditure. In special cases authorised
by the Government, moneys received may be deposited with a bank outside the Consolidated
Fund. The conditions under which such deposits may be made and the manner in which the
balances of such deposits shall be included in the Government Account are to be decided by
the Government in each case after consultation with the CAG.
Money can be withdrawn from the Government Account by cheque issued by an
Accounts Officer/Cheque-drawing DDO on an account in their favour at a specified branch
of the accredited bank. Such account can be opened only under orders issued by the Financial
Advisor of the Ministry/Department concerned in consultation with the Controller General of
Accounts (Rule 11 of R&P Rules, 1983).
No withdrawal shall be permitted on pay and allowances for the first of any series
of payments to a Government servant (other than on first appointment) unless the claim is
supported by a copy of the last pay certificate issued by the DDO of the previous office in
which the Government servant had served (Rule 11 of R&P Rules, 1983).
Rule 13 of R&P Rules, 1983 deals with general instructions for handling cash. Every
officer who is authorised to receive/handle Government cash and/or perform the functions

28
 Accounting Rules

of a DDO should maintain a cash book. All monetary transactions should be entered in the
cash book as soon as they occur. At the end of each month, the Head of Office or a nominated
Gazetted Officer should verify the cash balance in the cash book and record a certificate of its
correctness. Entries of Government receipts in the cash book should be verified with the pay-
in-slips/challans for their proper deposit in to Government Account and attested by the Head
of Office or her nominated Gazetted Officer. Over-writing should be avoided in the cash book
and where such over-writing has been made should be duly initialled by the Head of Office
or her nominated Gazetted Officer. The officer who handles Government money should not
be allowed to handle non-Government money. When she has to do so under special sanction
of the Head of Office, then the moneys should be kept separately and separate accounts
maintained for them. The Government money should be kept in safe custody under two locks,
the keys of which should be kept apart with different persons to prevent unauthorised access.

3.3.2 Government Receipts

Receipts should be issued for Government receipts after ensuring proper entries in the
cash book. The receipt should show the amount in figures and words. It should be duly signed
and stamped. When recoveries are made as deductions from payments, receipts should be
provided only when specifically requested by the payer, after clearly recording the fact that
the recovery has been made as a deduction from payment (Rule 21 of R&P Rules, 1983). No
duplicate receipts are to be issued against lost receipts. Only a certificate that the receipt was
made can be issued in such cases (Rule 23 of R&P Rules, 1983).

3.3.3 Withdrawal from Government Account

3.3.3.1 General rules of withdrawal
A bill needs to be presented for every withdrawal from the Government Account.
A bill is a statement of claim against the Government containing the nature and amount of the
claim. It becomes a voucher when it is passed and paid. A duplicate of the bill is to be retained
by the DDO as an office copy (Rule 28 of R&P Rules, 1983). Printed forms in the prescribed
format should be used for the bills. The amount should be mentioned in figures and words.
Corrections/alterations should be avoided and when made should be duly authenticated
with full signature of the DDO. Full accounting classification should be recorded on the
bill. Payments against two or more Major Heads should not be made through a single bill.
This does not apply to the pay bill which could include more than one Major Head relating
to pay and allowances. The bill should include a copy of the sanction order for charges
incurred under any special order (Rule 33 of R&P Rules, 1983). Net payments of more than
` 5000 should be stamped and acknowledged by the recipient unless exempt from stamp duty
(Rule 37 of R&P Rules, 1983).

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Government Accounting

Payments to be made to private party for work done/service rendered should be

discharged expeditiously after due verification. Income tax is to be deducted at source from
such payments by the DDO as per provisions of Section 194 of the Income Tax Act, 1961. An
acknowledgement of receipt should be obtained for the payments made. Payments could be
released directly into the bank accounts of the private party after obtaining an authorisation
from them (Rule 30 of R&P Rules, 1983).
Different types of Government cheques are provided in rule 44 of R&P Rules, 1983.
Cheque drawn in favour of Government offices/Departments or for payment on account of
inter-departmental or inter-Governmental dues are not negotiable and not payable in cash but
creditable to Government Account only. These are “Government Account” cheques. Cheques
payable to Government officers to enable them to make disbursement in cash, such as of pay
and allowances of establishments, of contingent expenditure on behalf of the Government,
etc. are “Not-Transferable” cheques. All cheques towards payment or personal claims of
Government servants, pensioners, contractors and suppliers are issued as “Account Payee/
Order” cheques (Rule 44 of R&P Rules, 1983).
The procedure regarding issue of cheques, issue of fresh cheque in lieu of a lost one and
issue of fresh cheque in lieu of cancelled/time barred cheques has been elaborated in Para 2.3
to 2.5 of CAM and Rule 46 to 48 of R&P Rules, 1983. The period of validity of cheques shall
be three months after the month of their issue (Rule 45 of R&P Rules, 1983). As per Para 2.5
of CAM, revalidation of time-barred cheque by PAO/cheque drawing DDO is not permissible
irrespective of the date of its drawing, and fresh cheques will be issued in all such cases. The
time barred cheque received back by the PAO should be cancelled under her signature and
not destroyed. The cancelled cheque should be treated as a voucher/sub-voucher for issuing
fresh cheque in lieu thereof and the fact of issuing fresh cheque should be noted on it. If the
time-barred cheque is not returned by the payee, the DDO should request the payee to return
the cheque or explain the causes for its non-return (Rule 46 of R&P Rules, 1983).
When a cheque has to be cancelled, it should be defaced, entries made in the cheque
issue register about its cancellation and accounting entries suitably reversed. When the cheque
is not available, the DDO should satisfy himself that payment has not been made and inform
the bank to stop payment. During the validity of such cheques, they should be treated as
cancelled only after an acknowledgement from the bank that it has kept note of the ‘stop
payment’ order. A cheque remaining unpaid for more than six months after the month of its
issue and not surrendered for renewal should also be cancelled (Rule 47 of R&P Rules, 1983).
In case of a lost cheque, in addition to the procedures mentioned above, an indemnity bond
should also be obtained, if the payee is a private party, before cancelling the lost cheque and
issuing a fresh one (Rule 48 of R&P Rules, 1983).

30
 Accounting Rules

As mentioned earlier, cheque-drawing DDOs operate directly through the banks.

However, the PAOs shall communicate to the relevant branch of the accredited bank, the
amount of quarterly assignment authorized in favour of cheque-drawing DDOs rendering
accounts to them. These are called Letter of credit (LoC). The cheque-drawing DDOs cannot
exceed this amount. Unspent balances can be carried forward to the next quarter during the
year, but will lapse at the end of the financial year (Rule 50 of R&P Rules, 1983).
All orders/authorities for payment issued from one Accounts Office on another
(e.g. Pension Payment authority) will be stamped with a special seal. The other Accounts
Office will honour payment only on such special seal authority. Specimen impression
of the seal, duly attested, should be supplied to all Accounts Officers concerned
(Rule 53 of R&P Rules, 1983).

3.3.3.2 Personal claims of Government servant

Salaries are to be paid on the last working day of the month. Last working day is the day
on which the office in which salary is to be paid, the concerned PAO and the accredited bank
branch are all open (Rule 64 of R&P Rules, 1983). Drawal and disbursement of salary for part
of a month is permitted when a Government servant is transferred, proceeds on deputation or
quits service (Rule 65 of R&P Rules, 1983). Any arrears of pay and allowances after transfer
of a Government servant in respect of the old post can be drawn by the DDO of the new post
through an arrear bill on the basis of a ‘Due and Drawn Statement’ prepared by the DDO of
the old post (Rule 83 of R&P Rules, 1983).
Arrears of pay and allowances should not be drawn in the ordinary monthly bill, but
in a separate arrear bill, showing month-wise additional amount claimed. Entries of the
arrear claim are to be made in the Pay Bill Register (Rule 89 of R&P Rules, 1983). Pay
and allowances can be paid only to a Government servant on her personal receipt. She may,
however, receive payment through a duly authorised messenger with her formal acquittance
(Rule 85 of R&P Rules, 1983).
When a payment is disallowed by internal check or statutory audit, such amounts
should be recovered. Such recoveries from a Government servant should not exceed one-
third of her pay unless, in receiving the excess, she had acted contrary to orders or without
due justification or taken an advance for a specific purpose, not utilised it for the purpose
within the prescribed time and failed to refund the outstanding amount within the stipulated
time (Rule 62 of R&P Rules, 1983). The recovery of a sum disallowed from pay bill may
be made from the next pay bill. A sum disallowed from a travelling allowance bill may be
recovered from the next payment of travelling allowance, or in cash or from the next pay bill
if the Government servant concerned does not, within a month, present any other travelling
allowance bill (Rule 73 of R&P Rules, 1983).

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Government Accounting

When pay of a Government servant is attached by order of a Court of Law, it is

the duty of the officer receiving the order to ensure proper deduction and to keep record
of such deductions (Rule 74 of R&P Rules, 1983). Any deductions which may have to be
made on account of subscriptions to provident funds recognised by Government, taxes on
income payable by the Government servant, dues of co-operative societies and debts due to
Government should be made from the non-attachable portion of the Government servant’s
salary (Rule 76 of R&P Rules, 1983).
Pay and allowances can be drawn for the day of the Government servant’s death, the
hour of death has no effect on the claim (Rule 94 of R&P Rules, 1983). Arrears payable
after death of a Government servant can be paid without production of legal authority under
approval of the Head of the Department and on furnishing of an indemnity bond, if the amount
exceeds ` 5000 (Rule 95 of R&P Rules, 1983).

3.3.3.3 Contingent Charges

Contingent charges or contingencies include all incidental and other expenses (including
on stores) which are incurred for the management of an office but other than expenditure
which has been specifically classified as falling under some other head of expenditure e.g.,
‘works’, ‘tools and plant’ (Rule 96 of R&P Rules, 1983). There are five types of contingencies
(Rule 98 of R&P Rules, 1983). They are as follows:
A. Contract contingencies – a lump sum is placed annually at the disposal of the disbursing
officer for expenditure without further sanction of any kind. For example, payment
against Annual Maintenance Contract charges.
B. Scale-regulated contingencies – scales are laid down by the competent authority for
such contingent payments. For example, payment on fixed rates made for evaluation
of answer sheets of an examination.
C. Special contingencies – those that cannot be incurred without the previous sanction of
superior authority. For example, purchase of furniture, equipment, vehicle etc.
D. Countersigned contingencies – require approval of controlling authority before they
can be admitted as expenditure. Approval is accorded in the form of countersignature
after payment on a detailed bill submitted to the PAO. For example, drawing of
advance to meet expenditure for an event being organised by the office.
E. Fully vouched contingencies – require neither special sanction nor countersignature,
but may be incurred by the Head of Office on her own authority. For example, payment
for telephone, electricity, water charges etc.
3.3.3.4 Purchase of Stores
Payment for purchase of stores should be made only after proper receipt of the supplies.
Payment prior to actual receipt can be permitted only in exceptional cases after providing for
adequate safeguards to protect Government interest (Rule 126 of R&P Rules, 1983).

32
 Accounting Rules

3.3.3.5 Works Expenditure

When contingent bills are drawn for petty construction and repair works, details
showing the name of the work, order sanctioning the work and sanctioned amount should
invariably be entered in the bill. A full description of each item of expenditure, showing the
rates and quantities should be included (Rule 131 of R&P Rules, 1983). Payment to labourers
engaged departmentally should be drawn on muster rolls showing names of the labourers,
number of days they have worked and the amount due to each (Rule 132 of R&P Rules, 1983).
Payments made on muster rolls must be witnessed and certified by a responsible officer (Rule
133 of R&P Rules, 1983). Payments to suppliers and contractors are to be made on the basis
of measurements recorded in measurement books for the work. Claims for such payments are
to be prepared by the claimants themselves in the prescribed bills. Payment is released after
verifying the correctness of the claim (Rule 135 of R&P Rules, 1983).

3.3.3.6 Miscellaneous Payments

Bills for sums payable to the Reserve Bank, such as bills in connection with the flotation
of new loans or management of Public Debt, should be countersigned by an officer of the
Ministry of Finance before they are paid. However, the Reserve Bank is authorised to debit
the Government Account in advance of the submission of such consolidated bills subject
to the condition that the Reserve Bank would be responsible for any excess payments. The
advance so made are to be adjusted against the final bill of the Reserve Bank (Rule 152 of
R&P Rules, 1983).

3.3.4 Public Debt and Deposits

Subscription to Provident Fund of the Government are recovered ordinarily by
deduction from pay bills of Government servants concerned and the responsibility of making
such deductions regularly and correctly rests on the DDO (Rule 171 of R&P Rules, 1983).

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Government Accounting

34
 Budgetary Process
CHAPTER-4

Budgetary Process

S
carcity is a fundamental economic problem. Resources are insufficient to satisfy all
human needs and wants. Budgeting is an invaluable tool to help prioritize spending
and manage the limited resources. The word ‘Budget’ means a small leather bag. It
refers to statements of proposed receipts and expenditure for a particular future period. For the
Government, budget refers to the estimated revenues and proposed spending for the ensuing
financial year. It is an important part of the public financial management. It is not merely a
statement of receipts and expenditure, but a significant statement of government policy. It
helps to allocate the limited resources to priority areas of the Government, thereby bringing
in efficiency in resource use, targeted at overall benefit of the society. Budgetary process
is a medium for framing and implementing fiscal policy aimed at achieving certain macro-
economic objectives. Budget is also a tool for legislative control over the executive.
The budget documents presented to the Parliament, with the Finance Minister’s speech,
consist of the following:
i. Documents mandated by Constitution
a. Annual Financial Statement
b. Demands for Grants
c. Appropriation Bill
d. Finance Bill
ii. Explanatory documents supporting mandated budget documents
a. Memorandum Explaining the Provisions in the Finance Bill
b. Expenditure Budget Volume-1
c. Expenditure Budget Volume-2
d. Receipts Budget
e. Budget at a glance
f. Highlights of Budget
iii. Documents presented by individual Ministries/Departments
a. Detailed Demands for Grants
b. Outcome Budget
c. Annual Reports

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Government Accounting

iv. Documents presented as per provisions of the Fiscal Responsibility and Budget
Management (FRBM) Act, 2003
a. Macro-economic Framework for the relevant financial year
b. Fiscal Policy Strategy Statement for the financial year
c. Medium Term Fiscal Policy Statement
d. Medium Term Expenditure Framework Statement

4.1 Documents mandated by Constitution

4.1.1 Annual Financial Statement (AFS)
Article 112(1) of the Constitution states that the President shall, in respect of every
financial year, cause to be laid before both the Houses of Parliament a statement of the
estimated receipts and expenditure of the Government of India for that year, referred to as the
“Annual Financial Statement”. Article 202 of the Constitution provides for a similar provision
for the States. The AFS shows the estimated receipts and expenditure of the Government for
the budgeted year in relation to the estimates of the current year and the actual expenditure
of the previous year. For example, the AFS of 2016-17 would contain the estimates of
2016-17 as compared to the Revised Estimates of 2015-16 and the actual expenditure figures of
2014-15. The receipts and disbursements are shown under all three parts of Government
account, namely, the Consolidated Fund, Contingency Fund and the Public Account.
Articles 112(2)/202(2) state that the AFS shall show separately the charged from the
voted expenditure and expenditure on revenue account from other expenditure. Articles
112(3)/202(3) list out the expenditure that are charged on the Consolidated Fund. Accordingly,
AFS distinguishes expenditure on revenue/capital account (revenue budget and capital budget)
and voted/charged. The estimates of receipts and expenditure included in the AFS are for the
expenditure net of refunds and recoveries, as would be reflected in the Finance Accounts.
Revenue Budget consists of the revenue receipts of Government (tax revenues and other
revenues) and the expenditure met from these revenues. Tax revenues comprise proceeds of
taxes and other duties levied by the Union. The estimates of revenue receipts shown in the
AFS take into account the effect of various taxation proposals made in the Finance Bill.
Other receipts mainly consist of interest and dividend on investments made by Government,
fees, and other receipts for services rendered by Government. Revenue expenditure is for the
normal running of Government departments and various services, interest payments on debt,
subsidies, etc. Broadly, the expenditure which does not result in creation of assets for the
Government is treated as revenue expenditure. All grants given to State Governments/Union
Territories and other parties are also treated as revenue expenditure for the Union Government,
even though some of the grants may be used for creation of assets.

36
 Budgetary Process

Capital Budget consists of capital receipts and capital payments. The capital receipts
are loans raised by Government from public, called market loans, borrowings by Government
from Reserve Bank and other parties through sale of Treasury Bills, loans received from foreign
Governments and bodies, disinvestment receipts and recoveries of loans from State and Union
Territory Governments and other parties. Capital payments consist of capital expenditure on
acquisition of assets like land, buildings, machinery, equipment, as also investments in shares
etc., and loans and advances granted by Central Government to State and Union Territory
Governments, Government companies, Corporations and other parties.

4.1.2 Demands for Grants

Articles 113/203 of the Constitution state that the estimates of expenditure from the
Consolidated Fund are to be submitted in the form of Demands for Grants to the Lok Sabha/
Legislative Assembly for its assent. The Demands for Grants are presented along with the
AFS. Generally, one Demand for Grant is presented in respect of each Ministry or Department.
However, more than one Demand may be presented for a Ministry or Department depending
on the nature of expenditure. In regard to Union Territories without Legislature, a separate
Demand is presented for each of the Union Territories to the Lok Sabha. In the Union budget
2016-17, there are 98 Demands for Grants.
Each Demand first gives the totals of ‘voted’ and ‘charged’ expenditure as also the
‘revenue’ and ‘capital’ expenditure included in the Demand separately, and also the grand
total of the amount of expenditure for which the Demand is presented. This is followed
by the estimates of expenditure under different Major Heads of Account. The breakup of
the expenditure under each Major Head between ‘Plan’ and ‘Non-Plan’ is also given. The
figures shown here are gross figures as would be reflected in the Appropriation Accounts.
The amounts of recoveries taken in reduction of expenditure in the accounts are also shown
separately. The figures net of the recoveries is shown subsequently. Details of ‘New Service’
or ‘New Instrument of Service’1 such as, formation of a new company, undertaking or a new
scheme etc., if any, are indicated at the end of the document.
Each Demand normally includes the total provisions required for a service, that
is, provisions on account of revenue expenditure, capital expenditure, grants to State and
Union Territory Governments and also loans and advances relating to the service. Where

1 The term ‘New Service’ has been held as referring to expenditure arising out of a new policy decision, not
brought to the notice of Parliament/Legislature earlier, including a new activity or a new form of investment.
Likewise, relatively large expenditure arising out of important expansion of an existing activity is treated as
a ‘New Instrument of Service’ which is a slight variant of the term ‘New Service’. The basic principle is that
no expenditure can be incurred from the Consolidated Fund on a ‘New Service’/’New Instrument of Service’
without prior approval of Parliament/Legislature. The criteria for treating an expenditure as New Service/New
Instrument of Service is contained in Government of India’s decisions relating to Rule 10 (Appropriation and
Re-appropriation - General Restrictions) of Delegation of Financial Rules, 1978.

37
Government Accounting

the provision for a service is entirely for expenditure charged on the Consolidated Fund of
India, for example, interest payments, a separate Appropriation, as distinct from a Demand,
is presented for that expenditure and it is not required to be voted by Lok Sabha/Legislative
Assembly. Where, however, expenditure on a service includes both ‘voted’ and ‘charged’
items of expenditure, the latter are also included in the Demand presented for that service but
the ‘voted’ and ‘charged’ provisions are shown separately in that Demand.

4.1.3 Appropriation Bill

Articles 114/204 of the Constitution provide that no money shall be withdrawn from
the Consolidated Fund except under appropriation made by law. They further provide that
after the Demands for Grants have been assented by the Lok Sabha/Legislative Assembly,
an Appropriation Bill is to be introduced for the appropriation out of the Consolidated Fund
of all moneys required to meet the grants so made by the Lok Sabha/Legislative Assembly
and the expenditure charged on the Consolidated Fund. Accordingly, after the Demands
for Grants are voted by the Lok Sabha/Legislative Assembly, approval for the withdrawal
from the Consolidated Fund of the amounts so voted and of the amount required to meet the
expenditure charged on the Consolidated Fund is sought through the Appropriation Bill.

4.1.4 Finance Bill

Finance Bill is presented to the Parliament/Legislature along with the AFS in fulfilment
of the requirement of Article 110 (1)(a) of the Constitution. Article 110 (1)(a) provides for
a money bill for the imposition, abolition, remission, alteration or regulation of any tax. In
compliance of these provisions, the Finance Bill details the imposition, abolition, remission,
alteration or regulation of taxes proposed in the Budget. It is accompanied by a Memorandum
explaining the provisions included in it.

4.2 Explanatory Documents supporting Mandated Budget

Documents
To facilitate a more comprehensive understanding of the major features of the Budget,
certain other explanatory documents are presented. These are briefly summarized below.

4.2.1 Memorandum Explaining the Provisions in the Finance Bill

To facilitate understanding of the taxation proposals contained in the Finance Bill, the
provisions and their implications are explained in this document.

4.2.2 Expenditure Budget Volume-1

This document deals with revenue and capital disbursements of various Ministries/
Departments and gives the estimates in respect of each under ‘Plan’ and ‘Non-Plan’. It includes
analysis of various types of expenditure and broad reasons for the variations in estimates.

38
 Budgetary Process

Certain classes of receipts, like payments made by one department to another and receipts
of capital projects or schemes, are taken in reduction of the expenditure of the receiving
department. The document makes certain other refinements like netting expenditure of related
receipts so that inflation of receipts and expenditure figures is avoided and there can be better
appreciation of the magnitudes of various expenditure.
An example for the netting is the case of receipts/expenditure relating to Railways for the
Union Government. Railways is the principal departmentally-run commercial undertaking of
Government. The Budget of the Ministry of Railways and the Demands for Grants relating to
Railway expenditure are presented to Parliament separately. The total receipts and expenditure
of the Railways are, however, incorporated in the AFS of the Government of India. To portray
the actual working and not inflate either receipts or expenditure, the expenditure as reflected in
the Receipts Budget and Expenditure Budget Volumes 1 and 2 has been taken net of receipts
of the Departmental Commercial Undertakings.
Contributions to International bodies and estimated strength of establishment of various
Government Departments and provision therefor are shown in separate annexes. A statement
each, showing (i) Plan grants and loans released by Ministries/Departments directly to State
and district level autonomous bodies, under various Central and Centrally Sponsored Plan
schemes, (ii) Gender Budgeting and (iii) Schemes for Development of Scheduled Castes and
Scheduled Tribes including Scheduled Caste Sub Plan (SCSP) and Tribal Sub Plan (TSP)
allocations and (iv) Schemes for welfare of children are also included in this document.
Plan expenditure forms a sizeable proportion of the total expenditure of the Central
Government. The Demands for Grants of the various Ministries show the Plan expenditure
under each head separately from the Non-Plan expenditure. The Expenditure Budget Volume 1
also gives the total Plan provisions for each of the Ministries arranged under the various heads of
development and highlights the budget provisions for the more important Plan programmes and
schemes. Statements showing Externally Aided projects under State and Central Plan are also
included in the document. Variations in the estimates of Plan expenditure are also explained.
A large part of the Plan expenditure incurred by the Central Government is through public
sector enterprises. Budgetary support for financing outlays of these enterprises is provided by
Government either through investment in share capital or through loans. Expenditure Budget
Volume 1 shows the estimates of capital and loan disbursements to public sector enterprises
in the budgeted year and the previous year for Plan and Non-Plan purposes and also the extra
budgetary resources available for financing their Plans. A detailed report on the working of
public sector enterprises is given in the document titled ‘Public Enterprises Survey’ brought
out separately by the Department of Public Enterprises.

39
Government Accounting

The details of grants given to bodies other than State and Union Territory Governments
are given in the statements of Grants-in-aid paid to non-Government bodies appended to
Detailed Demands for Grants of the various Ministries. Details of grants-in-aid exceeding
` 5 lakhs (recurring) or ` 10 lakhs (non-recurring) to private institutions, organizations and
individuals sanctioned during the year for which audited figures are available are shown as
an annexure to Expenditure Budget Volume 1. Thus, in the budget for 2016-17, the figures of
2014-15 are shown.

4.2.3 Expenditure Budget Volume-2

The provisions made for a scheme or a programme may spread over a number of Major
Heads in the Revenue and Capital sections in a Demand for Grants. In the Expenditure Budget
Vol. 2, the estimates made for a scheme/programme are brought together and shown on a net
basis at one place, by Major Heads. To understand the objectives underlying the expenditure
proposed for various schemes and programmes in the Demands for Grants, suitable explanatory
notes are included in this volume in which, wherever necessary, brief reasons for variations
between the Budget Estimates and Revised Estimates for the current year and requirements
for the ensuing Budget year are also given.

4.2.4 Receipts Budget

Estimates of receipts included in the AFS are further analysed in this document.
The document provides details of tax and non-tax revenue receipts and capital receipts and
explains the estimates. The document also provides the arrears of tax revenues and non-tax
revenues, as mandated under the Fiscal Responsibility and Budget Management Rules, 2004
of the Union Government. Trend of receipts and expenditure along with deficit indicators,
statement pertaining to National Small Savings Fund (NSSF), statement of revenues foregone,
statement of liabilities, statement of guarantees given by the government, statements of assets
and details of external assistance are also included in Receipts Budget.

4.2.5 Budget at a glance

This document shows in brief, receipts and disbursements along with broad details of
tax revenues and other receipts. This document also exhibits broad break-up of expenditure -
Plan and Non-Plan, allocation of Plan outlays by sectors as well as by Ministries/Departments
and details of resources transferred by the Central Government to State and Union Territory
Governments (in the case of Union Government). This document also shows liabilities of the
Government on account of securities (bonds) issued in lieu of oil and fertilizer subsidies in
the case of Union Government.
This document shows the revenue deficit, the primary deficit and the fiscal deficit of
the Government. The excess of Government’s revenue expenditure over revenue receipts

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 Budgetary Process

constitutes revenue deficit of Government. The difference between the total expenditure of
Government by way of revenue, capital and loans net of repayments on the one hand and
revenue receipts of Government and capital receipts which are not in the nature of borrowing
but which finally accrue to Government on the other, constitutes fiscal deficit. Primary deficit
is measured by fiscal deficit reduced by gross interest payments.
In the case of Union Government, the document also includes a statement indicating
the quantum and nature (share in Central Taxes, grants/loan) of the total resources transferred
to States and Union Territory Governments. Details of these transfers by way of share of
taxes, grants-in-aid and loans are given in Expenditure Budget Volume 1. Bulk of grants and
loans are disbursed by the Ministry of Finance and are included in the Demand ‘Transfers to
State and Union Territory Governments’. The grants and loans released to States and Union
Territories by other Ministries/Departments are provided for in their respective Demands.

4.2.6 Highlights of Budget

This document explains the key features of the Budget, inter alia, indicating the
prominent achievements in various sectors of the economy. It also explains, in brief, the
budget proposals for allocation of funds to be made in important areas. The summary of tax
proposals is also reflected in the document.

4.3 Documents presented by individual Ministries/Departments

4.3.1 Detailed Demands for Grants
The Detailed Demands for Grants are laid on the table of the Lok Sabha sometime after
the presentation of the Budget, but before the discussion on Demands for Grants commences.
Detailed Demands for Grants further elaborate the provisions included in the Demands for
Grants as also actual expenditure during the previous year. A break-up of the estimates relating
to each programme/organisation, wherever the amount involved is not less than ` 10 lakhs
(in the case of Union Budget), is given under a number of object heads which indicate the
categories and nature of expenditure incurred on that programme, like salaries, wages, travel
expenses, machinery and equipment, grants-in-aid, etc. At the end of these Detailed Demands
are shown the details of recoveries taken in reduction of expenditure in the accounts.
In the case of Union Budget, the receipts and expenditure of the Defence Demands
shown in the AFS are explained in greater detail in the document Defence Services Estimates
presented along with the Detailed Demands for Grants of the Ministry of Defence. The details
of grants given to bodies other than State and Union Territory Governments are given in the
statements of Grants-in-aid paid to non-Government bodies appended to Detailed Demands
for Grants of the various Ministries.

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4.3.2 Outcome Budget

In the case of Union Government, the Outcome Budget is presented by each Ministry/
Department in respect of all Demands/Appropriations controlled by them, except those
exempted from this requirement. Outcome Budget broadly indicates physical dimensions
of the financial budget of a Ministry/Department, indicating actual physical performance
during the previous year, performance during the current year and the targeted performance
during the budgeted year. For example, the Outcome Budget of 2016-17 would include actual
physical performance during the year 2014-15, performance during the year 2015-16 and the
targeted performance during the year 2016-17. A description of important schemes included
in the Plan along with the objectives, targets and achievements is also given in the Outcome
Budget of the respective Ministry.
Outcome Budget contains a brief introductory note on the organization and function
of the Ministry/Department, list of major programmes/schemes implemented by the
Ministry/Department, its mandate, goals and policy framework, budget estimates, scheme-
wise analysis of physical performance and linkage between financial outlays and outcome,
review covering overall trends in expenditure vis-a-vis budget estimates in recent years,
review of performance of statutory and autonomous bodies under the administrative control
of the Ministry/Department, reform measures, targets and achievements and plan for future
refinements. Coverage of women and SC/ST beneficiaries under various developmental
schemes and schemes for the benefit of North Eastern Region are also separately indicated.

4.3.3 Annual Reports

A descriptive account of the activities of each Ministry/Department during the previous
year is given in the document Annual Report which is brought out separately by each Ministry/
Department and circulated to Members of Parliament/Legislature at the time of discussion
on the Demands for Grants. A report on the working of the enterprises under the control of
various administrative Ministries is also given in the Annual Reports.

4.4 Fiscal Responsibility and Budget Management Act, 2003

This Act provides for the responsibility of the Central Government to ensure inter-
generational equity in fiscal management and long-term macro-economic stability. This is
envisaged to be achieved through sufficient revenue surplus and removing fiscal impediments
in the effective conduct of monetary policy and prudential debt management. It aims at fiscal
sustainability through limits on the Central Government borrowings, debt and deficits. It
provides for a medium-term framework for greater transparency in fiscal operations of the
Central Government and conducting fiscal policy. State Governments have framed their own
FRBM Acts. The documents laid in each financial year before both Houses of Parliament, in
compliance of the provisions of the FRBM Act, 2003 of the Union Government are as follows:

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 Budgetary Process

4.4.1 Macro-economic Framework Statement

It contains an assessment of the growth prospects of the economy with specific
underlying assumptions. It contains assessment regarding the GDP growth rate, fiscal balance
of the Central Government and the external sector balance of the economy.

4.4.2 Fiscal Policy Strategy Statement

It outlines the strategic priorities of Government in the fiscal area for the ensuing
financial year relating to taxation, expenditure, lending and investments, administered pricing,
borrowings and guarantees. The Statement explains how the current policies are in conformity
with sound fiscal management principles and gives the rationale for any major deviation in
key fiscal measures.

4.4.3 Medium-term Fiscal Policy Statement

It sets out three-year rolling targets for four specific fiscal indicators in relation to GDP
at market prices namely (i) Revenue Deficit, (ii) Fiscal Deficit, (iii) Tax to GDP ratio and
(iv) Total outstanding debt at the end of the year. The Statement includes the underlying
assumptions, an assessment of sustainability relating to balance between revenue receipts
and revenue expenditure and the use of capital receipts including market borrowings for
generation of productive assets.

4.4.4 Medium-term Expenditure Framework Statement

The objective of this statement is to provide a closer integration between budget and the
FRBM Statements. It sets forth a three-year rolling target for the expenditure indicators with
specification of underlying assumptions and risks involved.

4.5 Other Important Documents

4.5.1 Economic Survey
The Economic Survey is presented to the Parliament ahead of the Budget for the ensuing
year. It brings out the economic trends in the country which facilitates a better appreciation
of the mobilisation of resources and their allocation in the Budget. The Survey analyses the
trends in agricultural and industrial production, infrastructure, employment, money supply,
prices, imports, exports, foreign exchange reserves and other relevant economic factors which
have a bearing on the Budget.

4.5.2 Result Framework Document (RFD)

This helps to monitor the performance management of various Ministries/Departments.
It has been implemented in a phased manner since 2009-10. It determines the performance
index of the Ministry/Department based upon the agreed objectives, policies, programs and

43
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projects/schemes. To ensure the success in achieving the agreed objectives and implementing
agreed policies, programs and projects, the RFD also includes a commitment for required
resources and necessary operational autonomy. Achievements of the Ministry/Department
against the performance indices are placed before the Cabinet. 73 Ministries/Departments
prepared the RFD during 2013-14.

4.5.3 An Economic and Functional Classification of the Central

Government Budget
The Economic Division of the Ministry of Finance prepares this document. Economic
classification involves arranging the expenditures and receipts of the Central Government,
including those of railways and posts, by significant economic categories distinguishing
current from capital outlays, spending for goods and services from transfers to individuals and
institutions, tax receipts from other receipts, and from borrowing and inter-governmental loans
and grants etc. Reclassified in this manner, the flows into and out of the Central Government
can be related to important categories of transactions influencing the behaviour of the other
sectors of the economy. The methodology and concepts used in this analysis are those used in
the national income accounting system.
In view of the economic planning in the country, annual plan outlays have been integrated
with the budgetary outlays. A functional classification helps in analysing how much the Central
Government is allocating to different functions or purposes in accordance with the priorities
laid down in the Plan. The figures of total expenditure of the Central Government as per
economic and functional classification do not tally with figures given in the Budget documents.
In the economic and functional classification, interest transferred to Departmental Commercial
Undertakings (DCUs), loans written off etc., are excluded from the current account. In the
capital account, expenditure financed out of Railways and Posts own funds etc., are included.

4.6 Process of Budget Preparation

4.6.1 Preparation of Budget Estimates
The process of Budget preparation of the Union Government begins with the issue of
the Budget circular by the Budget Division under the Department of Economic Affairs of the
Ministry of Finance in the month of September. The Budget circular contains the timelines
for submission of information by the various Ministries/Departments to the Ministry of
Finance along with prescribed formats. The Budget Circular also contains the compendium
of instructions relating to the formulation of Budget, issued from time to time, by Ministry of
Finance on various issues.
Since the Non-Plan expenditure is of a committed nature, it is mostly budgeted based
on historic parameters. After estimation of the Non-Plan expenditure, the resources (both
tax and non-tax) are estimated. The amount of resources left after meeting the Non-Plan

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 Budgetary Process

expenditure is called the Balance from Current Revenue (BCR) and is a part of the non-debt
resources that is available for plan expenditure. The second part of non-debt resources is the
Miscellaneous Capital Receipts (MCR) taken on net basis. These non-debt resources added
to the amount of net borrowing planned to be incurred is called the Gross Budgetary Support
(GBS) for Plan. The Internal and Extra Budgetary Resources (IEBR) generated by the Public
Sector Enterprises, together with the GBS would give the total amount of resources available
for plan expenditure. This constitutes the total annual plan size. The natural corollary of this
budgetary practice is that while the Non-Plan envelope is based broadly on the requirement of
the departments depending on the expenditure items that are more or less committed, the plan
envelope is broadly based on the availability of resources.
The receipt estimates are prepared based on past and current trends, policy decisions
and other relevant developments. It should have cogent explanations for any large variations
as well as broad particulars wherever the estimates under a minor head exceed ` 10 lakh. These
estimates are scrutinised by the Financial Advisor of the concerned Department/Ministry to
the correctness of accounts classification, full coverage and reasonableness of the estimates
and modified (reduced, increased and/or missing items added) to the extent necessary in her
judgment. Thereafter, the Controller of Accounts furnishes the estimates as finally approved
by the Financial Advisor, to the Budget Division
In the case of estimates of Public Account transactions, the Controllers of Accounts of
Ministries/Departments and the concerned Accounts Officers of Union territory Governments/
Administrations (i.e. both with and without legislatures) make a detailed review of the Public
Account transactions which are accounted for in their books, and work out on the basis of the
past trends and other information available with them, estimates for receipts and payments
under Public Account relating to their Ministries/Departments. The estimates are then
furnished to Budget Division as approved by the Financial Advisor and duly consolidated for
the Ministry/Department as a whole, Demand-wise.
For the estimates of expenditure, the current year’s Expenditure Budget is reviewed to
prioritise the activities and schemes, both on the Plan and Non-Plan side and those activities
and schemes are identified, which can be eliminated or reduced in size or merged with any
other scheme. All the Ministries/Departments (except those specifically exempted by Ministry
of Development of North Eastern Region) are required to spend 10 per cent of the Gross
Budget Support from their Central Plan for the benefit of North Eastern Region & Sikkim.
The estimates are then scrutinised by the administrative units of the Ministry/Department
and forwarded to the Financial Advisor for further examination and processing. The estimates
finally recommended by the Financial Advisor are summarised in the form of Statement
of Budget Estimates (proposed) and forwarded to the Budget Division of the Ministry of
Finance by the month of October. The estimates are on the same pattern as appearing in the
Expenditure Budget Volume 2.

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Government Accounting

The estimates are finalised after Secretary (Expenditure) holds discussions with the
Financial Advisors of the Ministries/Departments. These discussions focus on the net Budget
of each Ministry/Department i.e. expenditure less revenue receipts and capital receipts,
like recoveries of loans, issue of bonus shares etc. During the meetings with Secretary
(Expenditure), the totality of the requirements of funds for various programmes and schemes,
along with receipts of the Departments (viz. interest receipts, dividends, loan repayments,
departmental receipts, receipts of Departmental Commercial Undertakings etc.) are discussed.
These pre-Budget meetings are held in the months of October and November.
After the pre-Budget meetings, the approved ceilings for expenditure, as finalised in these
meetings, are communicated by end of December, on the basis of which Financial Advisors
prepare the Statement of Budget Estimates (SBE) Final and forward the same to Budget Division.
In the month of January, the SBE (Final) are sent to Budget Division in two stages:
i. Immediately after the ceilings are communicated by the Department of Expenditure,
the columns relating to Non-Plan Revised Estimate (RE) of current year, Budget
Estimate (BE) of budget year and Plan RE of current year are filled and forwarded to
the Budget Division; and
ii. When the Planning Commission was functional, as soon as it communicated the
Annual Plan allocations, SBE (Final) for the Plan expenditure of budget year was
forwarded to the Budget Division.
The total expenditure available for Plan expenditure was indicated by the Ministry
of Finance to the Planning Commission. This was done keeping in mind the total estimated
expenditure/receipts and the projected fiscal deficit. The Planning Commission used to finalise
the Plan expenditure Ministry/Department-wise. By the end of January, the Plan figures
Ministry/Department-wise were made available. The Plan allocation was worked out scheme-
wise by the Ministry/Department in consultation with the Planning Commission and these
were incorporated in the SBE (Final).
With the scrapping of the Planning Commission and constitution of the National
Institution for Transforming India (NITI) Aayog, a shift in the way of allocation of resources
and implementation of schemes is envisaged. The 14th Finance Commission has not made a
distinction between the Plan and Non-Plan expenditure in viewing the revenue expenditure of
the States. It has increased the quantum of allocation of shareable tax proceeds to the States
from 32 per cent to 42 per cent. This significant increase in allocation by the Centre to the
States would be matched by a corresponding decrease in the quantum of untied and tied grants
by the Centre. However, the Union budget continues to show Plan and Non-Plan expenditure
and this would continue at least till the end of the 12th Plan period (till 2017).
The respective Ministries/Departments prepare the Detailed Demands for Grants.
While preparing the Detailed Demands for Grants, the Ministries/Departments ensure that the
classification, namely, Major Head, Minor Head, etc. is as per the heads of account prescribed
in the List of Major and Minor Heads of Account. It is also ensured by Ministries/Departments

46
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that the totals for each Major Head and the total provisions by Revenue and Capital Sections
separately for ‘charged’ and ‘voted’ included in the Detailed Demands for Grants exactly
correspond to the provisions included in the main Demands for Grants which are prepared by
the Budget Division.
The Ministry of Finance holds series of meetings with interest groups, including
industry representatives, Unions and economists. The tax proposals are given final shape in
the month of February. The final receipt and expenditure figures, including Plan and Non-plan
figures are then consolidated in various budget documents. The Budget is generally placed
before the Parliament on the last working day of February.

4.6.2 Parliamentary/Legislative Procedure

The Rules of Procedure and Conduct of Business in Lok Sabha prescribe the process
to be adopted for passage of the Union Budget. Chapter XIX (Rules 204 to 221) deals with
the procedure for financial business in Lok Sabha. Budget is generally presented on the last
working day of February. The Finance Minister makes the Budget Speech. As per these rules,
there shall be no discussion of the Budget on the day on which it is presented to the House.
It is discussed on a subsequent day fixed by the Speaker. The Speaker allots fixed number of
days for discussion and voting of Demands for Grants. After discussions and voting of the
Demands for Grants, sanction for withdrawal of the amount of grant made by the Parliament/
Legislature is obtained through the Appropriation Bill.
Articles 116/206 provide for a grant in advance in respect of the estimated expenditure
for a part of the financial year pending the completion of the budgetary procedure. Accordingly,
a Vote on Account is passed to meet the fund requirements of Ministries/Departments till the
budget is passed.
The Estimates Committee is a Parliamentary Committee consisting of 30 members,
elected every year by the Lok Sabha from amongst its members. It selects a few estimates
pertaining to some Ministries/Departments for detailed study. The functions of the Estimates
Committee are:
a. to report what economies, improvements in organisation, efficiency or administrative
reform, consistent with the policy underlying the estimates may be effected;
b. to suggest alternative policies in order to bring about efficiency and economy in
administration;
c. to examine whether the money is well laid out within the limits of the policy
implied in the estimates; and
d. to suggest the form in which the estimates shall be presented to Parliament.
The observations/recommendations of the Committee are embodied in its reports which
are presented to Lok Sabha. The Ministry/Department concerned is required to take action on
the recommendations and conclusions contained in the report within a period of six months.
This helps to improve the process of budgeting.

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Government Accounting

Need for reallocation of funds would arise during implementation of the budget
proposals by the executive. Delegation of Financial Powers Rules (DFPR), 1978, provides for
re-appropriation of funds allotted by the budgetary process. Rule 10 of DFPR, 1978 places
certain restrictions on such re-appropriations. These restrictions are as follows:
i. Funds shall not be re-appropriated to meet expenditure not sanctioned by a competent
authority
ii. Funds shall not be re-appropriated from charged to voted expenditure and vice versa
iii. No re-appropriation shall be made for charged expenditure from one grant/
appropriation to another
iv. Funds shall not be re-appropriated to meet expenditure on new service/new instrument
of service not contemplated in the approved budget
v. Expenditure on works are subject to the following conditions;
a. Funds shall not be re-appropriated to a work that has not received administrative
and technical sanction
b. Funds can be re-appropriated from an appropriate Works Head, where savings
are available, to an approved work to cover excess expenditure over authorized
limits up to 15 per cent. Beyond this limit, previous consent of the Finance
Ministry is required
c. No re-appropriation shall be made from the primary unit “Major Works” to any
other unit without the previous consent of the Finance Ministry. However, if such
a provision is made under a Revenue Head in the budget, it can be re-appropriated
to the allied primary units “Major Works”, “Minor Works”, “Maintenance” and
“Tools and Plants” within the same Grant/Appropriation. No re-appropriations
can be made from or to the “Suspense Head” relating to a public work.
d. No re-appropriation shall be made, except with the specific approval of Parliament
or an advance from the Contingency Fund, for a new public work not provided
for in the Budget costing ` 50 lakh or more
e. For re-appropriations or a new public work costing between ` 10 lakh and ` 50
lakh, previous consent of the Finance Ministry is required
i. Previous consent of the Finance Ministry is required for the following re-appropriations:
a. To augment the provision under the primary units “Salaries”, “Wages”, “Office
Expenses” and “Other Charges” taken together for the entire Grant/Appropriation
b. From the provision made for any specified new item of expenditure in a Grant/
Appropriation for another purpose
c. From funds provided under the Plan Heads to the Non-plan Heads both under
Revenue and Capital Heads
d. To augment the provision under the primary unit “Overtime Allowance”

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 Budgetary Process

Department of Economic Affairs, under Ministry of Finance, has fixed monetary limits
for various re-appropriations beyond which they would be considered as new service/new
instrument of service, beyond which prior approval/report to Parliament would be required.
Ministries/Departments can re-appropriate from one Plan Head to another, except in cases
involving foreign exchange. Re-appropriations between direct expenditure in the Revenue
section to grants-in-aid to States/Union Territories in the same section require prior approval
of the Finance Ministry. Similarly, re-appropriations between Capital Outlay and loan heads
would require prior approval of the Finance Ministry. Savings in the Revenue Section are
not available for re-appropriation to Capital Section and vice versa. Re-appropriations that
increase the budget provision by ` 5 crore or more require the prior approval of Secretary
(Expenditure). Any re-appropriation of funds beyond the limits prescribed under the DFPR,
1978, would require Parliamentary sanction.
Articles 115/205 of the Constitution provide for Supplementary, additional and excess
Grants. Supplementary or additional Grants are passed when the amount authorised by a
Grant of the Parliament/Legislature to be expended for a particular service for the current
financial year is found to be insufficient for the purposes of that year or when a need has arisen
during the current financial year for supplementary or additional expenditure upon some new
service not contemplated in the annual financial statement for that year. When the amount
spent by a Ministry/Department is in excess of the Grant made by the Parliament/Legislature,
it needs to be regularized through the Excess Grant.
The regular budgetary procedure is to be followed for the passage of supplementary/
additional/excess grants. The demands are to be passed followed by the passage of the
Appropriation Bill to appropriate the funds out of the Consolidated Fund. The grants can be
a token grant, technical grant or a grant involving actual cash outflows. In the case of a token
grant, the funds required to meet the proposed expenditure on a new service can be made
available by re-appropriation. So a token amount is made under the grant, basically to get
approval of the Parliament/Legislature for the new service. In the case of a technical grant,
the funds are available in the form of savings in other heads of account, but the amount is
higher than the ceiling prescribed for re-appropriations. Therefore, a technical grant is made
to transfer money from one head to another. A grant with cash outflow involves a situation
where the funds are not adequate for a particular service and needs to be appropriated out of
the Consolidated Fund.
Where in an emergent case of ‘New Service’/‘New Instrument of Service’ it is not
possible to wait for prior approval of Parliament/Legislature, the Contingency Fund can be
drawn upon for meeting the expenditure pending its authorization by Parliament/Legislature.
Recourse to this arrangement should normally be taken only when Parliament/Legislature
is not in session. Such advances are required to be recouped to the Fund by obtaining a
Supplementary Grant in the immediately next session of Parliament/Legislature.

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4.7 Issues in Budget Implementation

Excessive savings and surrenders and frequent re-appropriations indicate poor budgeting.
Ad hoc announcement of projects, during the course of the year, which were not included in the
Plan/Budget and poor allocation of funds to existing projects lead to avoidable delays in their
implementation and locking of funds already spent on those projects. Budgetary allocations
transferred to implementing agencies and funds in the Public Account or bank accounts at the
end of the year to avoid their lapse compromise the process of budgeting. Rush of expenditure
towards the end of the year causes poor implementation of Government schemes.
A modified exchequer control based expenditure management system has been put in
place with the following objectives:
i. Obtain greater evenness in the budgeted expenditure within the financial year,
especially in respect of items entailing large sums of advance releases and transfers
to corpus funds
ii. Reduce rush of expenditure during the last quarter, especially the last month of the
financial year
iii. Reduce tendency of parking of funds
iv. Effectively monitor the expenditure pattern
v. Better planning of Indicative Market Borrowing Calendar of the Central Government
As per this system, in respect of each Demand for Grant, Monthly Expenditure Plan
(MEP), separately for Plan and Non-Plan Expenditure, is worked out and included as an
annexure to the Detailed Demand for Grant of the said Demand for Grant. MEP would form
the basis of Quarterly Expenditure Allocations (QEA). The Department/Ministries concerned
may not issue cheques beyond the Quarterly Expenditure Allocation (which would be equal
to the sum of provisions under Monthly Expenditure Plan), without prior consent of Ministry
of Finance (Cash Management Cell, Budget Division).
The MEP is to be finalized taking into account the following -
a. MEP for the month of March cannot exceed 15 per cent of the budgeted provision
(Budget Estimate)
b. MEP for the months of January-March are to be so fixed that the QEA for the last
quarter should not exceed 33 per cent of the budgeted provision
Savings, if any, incurred under the Quarterly Expenditure Allocations would not be
available for automatic carry forward to the next quarter. The Department/Ministry may,
however, approach Ministry of Finance for revalidation of such savings through modification
in the Monthly Expenditure Plan and thereby Quarterly Expenditure Allocation. The scheme
was implemented for 46 Demands for Grants with effect from April, 2012.

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 Budget Review
CHAPTER-5

Budget Review

A
fter the budget is passed by the Parliament/Legislature, it is scrutinized by the
accounting entities (CGA in the case of Union and AG (A&E) in the case of States)
for any errors or misclassifications. The deficiencies pointed out are then rectified by
the Government through a Supplementary passed by the Parliament/Legislature concerned.
Some of the checks carried out and common errors identified include the following:

5.1 Breach of Constitutional Provisions

As per Articles 112(2)/202(2) of the Constitution, the expenditure charged on the
Consolidated Fund should be shown separately in “Annual Finance Statement”. If the budget
provision for charged expenditure is not shown distinctly from that for the voted expenditure,
this would need to be corrected through a supplementary. Moreover, Articles 112(3)/202(3)
provide that certain expenditure like emoluments of President/Governor, salaries of
Chairperson/Deputy Chairperson and Speaker/Deputy Speaker of the Houses of Parliament/
Legislature, debt charges, salaries and pension of Judges of Supreme Court and High Courts,
salary of the CAG and any sums required to satisfy any judgment/decree of any court/tribunal
are to be budgeted as charged expenditure. It needs to be verified during budget scrutiny that
the provision for these expenditure is budgeted as charged expenditure in the budget.

5.1.1 Incorrect exhibition of revenue/capital provision under expenditure

heads
Provision for Grants-in-aid to be given by the Government are to be budgeted as
revenue expenditure. Even grants given by the Government for creation of capital assets by
the grantee are to be budgeted as revenue expenditure. Provisions under Object Heads 31,
35 and 36 relating to Grants-in-aid should appear only under revenue expenditure heads. If
provision for any grants are made as capital expenditure in the budget, this is to be taken up
for correction through a Supplementary. Provisions for minor works, maintenance and repairs
are to be made under Revenue expenditure heads. If these provisions are made under Capital
expenditure heads, these are also to be corrected. These errors have the effect of understating
the revenue deficit of the Government.
Budgetary allocations under major works (Object Head 53) are intended to create
capital assets. Therefore, these allocations are to be made under Capital expenditure heads.
This is to be checked during budget scrutiny to ensure that such allocations have been made
under Capital expenditure heads. Similarly, other Object Heads like ‘54 Investments’ can be
provided for only under Capital expenditure heads.

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5.1.2 Deviations in use of standardized classification structure

The classification heads of account consist of 15 digits in six tiers. It is to be checked as
to whether the budgetary provisions are made showing all the tiers of classification. The List of
Major and Minor Heads of Account of Union and States (LMMH) has standardized the Major,
Sub-major and Minor Heads of account for uniformity across the country. In addition to this,
the Object Heads, which are the primary unit of appropriation, have also been standardized.
The standardized list of Object Heads of classification are available in the Delegation of
Financial Powers Rules. It needs to be ensured that the budget is fully compliant with the
standardized codification of classification at these levels. It is verified during budget review
whether the standardized classification, including the description for the heads of account as
reflected in the LMMH, has been used in the budget documents.

5.1.3 Lack of transparency in budgeting

The Minor Head ‘800 Other Receipts/Expenditure’ is available under many Major
Heads. When no other Minor Head is available for budgeting some transactions, they can
be budgeted under this Minor Head. However, it should be ensured that this head is not used
routinely to budget for significant transactions. When a significant portion of the receipt/
expenditure is budgeted under this Minor Head of a Major Head of Account, it reflects lack of
transparency in the budgetary process. It needs to be ensured that appropriate Minor Heads are
used for budgeting receipts and expenditure and the use of the Minor Head for miscellaneous
transactions should be minimized. If there is no appropriate Minor Head available for
budgeting a significant portion of transactions under a Major Head, the procedure prescribed
for opening a new Minor Head should be followed to ensure that the budgeting process, and
consequently the accounting and financial reporting, is transparent.

5.1.4 Lack of adequate disclosures

Revenue foregone is an important incentive given by the Government to promote certain
sectors. This is equivalent to collecting the revenue due and then providing for a matching
amount as a subsidy to such activities/sectors. They could be an effective tool, provided there
is adequate ownership and accountability of such incentives. It is essential that such incentives
are clearly documented and disclosed as part of the budget disclosures. Any deficiencies in
disclosure of such aspects should be pointed out during budget scrutiny.

5.1.5 Plan Scheme nomenclature and allocation

The Plan Schemes are implemented across several years. It is essential that proper
accounting of resources spent and output generated through such schemes are maintained
to ensure effective monitoring of the achievement of its objectives. Any change in the name
of such schemes creates difficulty in tracking the resources spent across years. It is essential
that any change in the nomenclature of Plan Schemes are duly documented to enable their
effective monitoring across budget years.

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 Budget Review

Centrally sponsored schemes implemented in the States have a part of the resources
contributed by the Union. States would have to contribute their share to such schemes. In such
cases, it is to be checked whether the contribution of the Union to be received during the year
have been budgeted as a revenue receipt under grants from the Centre. It is also to be checked
whether this amount, along with the State’s share, has been budgeted under the expenditure heads
of account through which the scheme is to implemented. Any deficiencies in budgeting for the
receipts and expenditure are to be taken up with the State Government for necessary action.

5.1.6 Misclassifications
There could be instances where budget provisions are made under heads of account
which are not the correct heads for such cases. For example, share capital assistance by the
Government to a public sector undertaking is to be budgeted under the Minor Head ‘190
Investment in Public Sector and other Undertakings’. However, if this is budgeted in any other
Minor Head, this would require to be corrected.

5.1.7 Deficiencies in budgetary control procedures

Certain transactions out of Public Account require budgetary provision under a
revenue expenditure head in the Consolidated Fund. Examples for this include provisioning
for incurring expenditure out of a Reserve Fund created through transfer of funds from the
Consolidated Fund. Such Funds are created through an initial transfer from the Consolidated
Fund through a budgetary sanction. However, when expenditure is to be incurred from such
funds, budgetary provisions are to be made under relevant revenue expenditure heads to
ensure that the Parliament/Legislature controls all such expenditure.
After the expenditure is incurred from the revenue expenditure head, an equivalent amount
is transferred from the Reserve Fund to the revenue expenditure head, resulting in nullifying the
expenditure booked under the latter. This results in the expenditure being ultimately met out
of the Reserve Fund, but through the budgetary approval process. When provisions for such
expenditure are not made in the budget, it should be pointed out through the budget scrutiny
process. (Please refer the procedure of incurring expenditure from State Disaster Response Fund
under the Chapter on Deposits and Reserve Funds for details of such transactions).

5.1.8 Information required for subsidiary accounting

Accounting of each loan/advance and its interest charges require additional information.
Unique number for each loan is required for maintaining Subsidiary Loan Registers. Budget
should contain such additional information required for proper accounting. Any gaps in such
information should be taken up to ensure that accounting of transactions is hassle-free and
budget compliance documents are generated seamlessly.

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54
 Functioning of Treasuries
CHAPTER-6

Functioning of Treasuries

T
reasury system is followed in the States. Treasuries exercise key controls over the
financial transactions of the State. They have a geographic jurisdiction and the Drawing
and Disbursing Officers (DDOs) of all Departments located in their geographic
jurisdiction transact through that treasury. There is a directorate of treasuries in the Finance
Department of the State, which exercises administrative control over all the treasuries in the
State. Each district has a district treasury. They maintain accounts of the transactions that
occur in their geographic region. There are sub-treasuries at the tehsil/sub-tehsil level. The
sub-treasuries render daily accounts to the treasuries. The treasuries consolidate accounts of
all transactions under their jurisdiction and of those in their sub-treasuries. They then render
the accounts to the Accountant General (A&E) of the State.

6.1 Strong Room

The key functions of treasuries are exercising pre-checks on financial transactions,
preparing and maintaining accounts of all transactions occurring in the geographic jurisdiction
of the treasury to be rendered to the Accountant General of the State and safe custody of
valuables in the treasury strong room. The strong room is an important part of the treasury
where Government money, stocks of stamp papers for sale and other valuables like jewellery,
promissory notes, security deposits etc., coming into the hands of a Government servant in
her official capacity at the direction of the District Magistrate/Chief Judicial Magistrate, are
kept for safe custody. Various Government departments, local bodies, co-operative banks and
societies can also lodge their valuables in the strong room for safe custody for special reasons
with the approval of the District Collector.
The strong room is a room within a room, with adequate space between the walls for the
sentry to go around. The strong room is protected by double locks, the key of one lock being
held by the District Treasury Officer and that of the other with the treasurer (the strong room
in-charge). The strong room is guarded round the clock. The strong room is to be certified
annually to be fit for storing the Government treasure by the Executive Engineer of the Public
Works Department. The money, stamp papers and other valuables that would be required on
a short term basis are kept under a single lock separately under the custody of the treasurer of
the strong room. With the treasuries moving to a banking system of transacting business, the
amount of Government money kept in the treasury has reduced considerably.

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Government Accounting

6.2 Government Transaction Procedure

Rule 64 of GAR, 1990 states that the manner in which the initial and subsidiary
accounts shall be kept by the treasuries and the accounts returns to be rendered by them
to the Accounts Offices shall be such as may be prescribed by the President from time to
time on the advice of the Comptroller and Auditor General of India. The forms of initial and
subsidiary accounts prescribed in this behalf shall be regarded as standard or model forms
which may be modified by Government according to local requirements in consultation with
the Accounts Officer concerned. Similarly, as regards accounts returns, the Accounts Officer
concerned may introduce such changes in detail as she may deem necessary. In respect of such
modification of standard or model forms to suit the local requirements of Governments or of
changes in the accounts returns to be rendered by the Treasuries, the Accountant General will
consult the Comptroller and Auditor General of India, wherever necessary. Treasury Rules
have been framed in the States taking into consideration the provisions of the Government
Accounting Rules.
Accordingly, the States have framed their Treasury Rules to suit their local requirements,
in consultation with the Accountant General in the State. The treasury rules prescribe the types
of bills to be used by the Drawing and Disbursing Officers (DDOs) of the State. The types and
format of bills vary from State to State. Some of the general types of bills used by the DDOs
to incur expenditure are as follows:
A. Establishment bill – This is used to draw pay and allowances of Government servants.
Separate bills are to be prepared for establishments whose charges are debitable to
different heads of account. Any arrears of pay drawn are made through separate bills.
The sanctioned strength of the establishment is to be mentioned in the bill. In the case
of temporary posts, details of sanction of such posts are also to be mentioned. An
Absentee Statement is attached to the bill, when the officiating arrangements of the
establishment have been delegated to the Heads of Office by the Head of Department,
giving the list of government servant who were absent or under suspension during
the month and the posts that are vacant. Unusual events such as death, retirement,
transfers and appointment are to be noted in the remarks column against the respective
Government servant. In case of a Government servant joining an office on transfer,
Last Pay Certificate (LPC) from the previous office is to be attached with the bill.
When a periodical increment is drawn, an Increment Certificate is attached with
the bill. Schedules are to be attached for all deductions effected from the pay of the
Government servant, like deduction towards Provident Fund, repayment of Advances
drawn, Income Tax deductions etc.
B. Travelling Allowance (TA) bill – This bill is used to reimburse Government servant of
expenses incurred on official travel, transfers and leave travel. Any advances drawn for
the travel are adjusted in the TA bill. Any amount of travel allowance to be refunded
by the Government servant is adjusted as a deduct amount in the subsequent bill.

56
 Functioning of Treasuries

C. Medical Charges Reimbursement bill – This bill is used to reimburse Government

servant of medical expenses incurred by her or her dependents.
D. Fully Vouched Contingent bill – This bill is used for payment against incidental and
other expenses incurred for the management of an office. This bill is to be presented
after verifying that the purchases have been received in correct quantities, in good
condition and as per specifications prescribed.
E. Abstract Contingent (AC) bill – This bill is used for scale-regulated, special and counter-
signed contingencies where the counter-signature of the controlling officer is to be
obtained after payment. This is drawn in the form of an advance. After incurring the
expenditure, the adjustment bill, in the form of a Detailed Contingent bill is submitted
with the counter-signature of the controlling officer. Abstract Contingent bill is to be
drawn with a certificate that Detailed Contingent bills have been submitted for all
Abstract Contingent bills drawn in the earlier months. A contingent register is to be
maintained for monitoring all such advances drawn through Abstract Contingent bills.
F. Detailed Contingent (DC) bill – A monthly Detailed Contingent bill is drawn for
expenditure incurred from advances drawn through Abstract Contingent bills. No
payment is made against this bill and is to be clearly marked ‘Not for Payment’. A
certificate is included in the bill stating that all purchases have been received in correct
quantities, in good condition and as per specification prescribed. These are verified
and counter-signed by the controlling officer concerned.
G. Grants-in-aid bill – This bill is used to pay grants-in-aid to Government and non-
Government entities. The bill is to be accompanied by a copy of the sanction order.
Any conditions attached to the utilisation of such grants are to be specified in the
bill. Fulfilment of the conditions attached to the grants are to be watched through the
utilisation certificate to be furnished by the grantee after utilisation of the grants for
the purpose for which they were provided.
H. Transfer Credit bill – This bill is used to transfer funds from one Head of Account to
another of the same Government. It is a book adjustment. For example, funds could
be transferred from Consolidated Fund of a Government to its Public Account. No
money is paid against this bill. One Head of Account is debited and another Head of
Account is credited.
The DDO prepares the bill in the prescribed format and submits it to the treasury. Every
bill received in the treasury is recorded in a bill register and acknowledged through a token
number. The treasury exercises several pre-checks on the bill before passing it for payment.
Some of the checks exercised by the treasury are as follows:
A. Whether the DDO has powers to authorize payment as per delegation orders, copies
of which are to be maintained for all DDOs in guard files
B. Whether the signature on the bill tallies with the specimen signature of the DDO
furnished to the treasury

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Government Accounting

C. Whether the bill has complete accounting classification to which the amount of the
bill is to be debited
D. Whether the details of plan/non-plan and voted/charged have been marked in the bill
E. Whether bills requiring sanctions/special authorization/counter-signature have been
presented with such orders/signature
F. Whether the payments claimed are covered under the relevant rules
G. Whether corrections/alterations in the bill are attested by full signatures of the DDO
H. Whether the totals in the bill and its arithmetic compilations are correct
I. Whether the bill has been submitted in the prescribed form
J. Whether the deductions in the bill have been duly classified and recovery schedules
for each kind of deductions have been attached. Whether the totals of such schedules
tally with the figures shown in the bill
K. Whether budget under the relevant head of account is available with the DDO
If there are certain deficiencies noticed in the bill, it is returned to the DDO for
rectification after making necessary entries in the bill register. When the bill is found complete,
it is stamped and initialled as passed for payment. If the payment is to be made through a
cheque, the treasury draws a cheque, makes necessary entries in the cheque issue register
and issues the cheque to the DDO. When cheque is issued against passed bills, the following
accounting entry is made by the treasury:
Debit Concerned 15 digit expenditure head of account
Credit ‘8670-104 Treasury Cheques’
The head ‘8670-104’ is used to monitor encashment of the cheque issued. When the
cheque is encashed in the nominated bank of the treasury/sub-treasury, the bank will pass the
following entry:
Debit ‘8670-104 Treasury Cheques’
Credit ‘8675-106 Deposit with Reserve Bank-States’
‘8675-106 Deposit with Reserve Bank - States’ is the head of account for the bank
account of the State Government with RBI. The credit raised under 8670-104 when a cheque
is issued is reversed when it is encashed by the bank. So all credit balances lying under 8670-
104 represent un-encashed cheques. Provisions relating to lapsed cheques are to be taken
up by the treasuries if certain items are lying under this head for more than six months. If
the payment is to be credited into the bank accounts of the recipients, the details of the bank
account and the passed bill are sent to the nominated bank of the treasury. The nominated bank
makes the payment to the bank account of the payee. When the payment is made directly into
the account of the payee, the following accounting entry is made by the nominated bank:

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 Functioning of Treasuries

Debit Concerned 15 digit expenditure head of account

Credit ‘8675-106 Deposit with Reserve Bank-States’
The bank then stamps and initials the bill as paid and returns it to the treasury. The bill
which is passed and paid becomes a voucher. The nominated bank also receives Government
receipts like taxes, duties and other non-tax receipts like fees and interest receipts. These
are deposited into the bank through a document called the Challan. The challan will include
details like the complete accounting classification of the receipt, the details of the person
remitting the receipt and the purpose for which such receipts are made. When the receipts are
accepted in the nominated bank, the following accounting entry is made by the bank:
Debit ‘8675-106 Deposit with Reserve Bank-States’
Credit Concerned 13 digit receipt head of account1
The nominated bank maintains the pass book of the concerned treasury/sub-treasury.
All the transactions of the day are entered in the pass book and furnished to the treasury/
sub-treasury concerned on the subsequent day for its verification and confirmation. For this
purpose, the bank maintains two pass books, one for every alternate day. The format of the
pass book maintained by the bank is shown in Annexure 1. The sub-treasuries render their
accounts to the concerned district treasury on a daily basis. At the end of the month, the
nominated bank of the treasury/sub-treasury renders its accounts to the treasury/sub-treasury.
For all payments relating to the Government effected in the bank, it prepares a payment scroll.
The payment scroll is supported by paid cheques and payment authorisation documents. For
all the receipts relating to the Government effected in the bank, it prepares a receipt scroll.
The receipt scroll is supported by challans. The payment and receipt scrolls, along with the
supporting documents are rendered to the concerned treasury/sub-treasury. The format of
payment and receipt scroll is shown as Annexure 2.
The Accounts Section in the treasury records and consolidates all the Government
transactions in the district. It maintains a day book to record all transactions. All transactions
that are effected in the bank are recorded and reconciled in the day book. The treasury/
sub-treasury proposes a Memorandum of Error in the format given in Annexure 3 for any
discrepancies found in the scrolls furnished by the Bank. On receipt of the Memorandum of
Error, the Bank verifies the transactions and corrects the error in scroll and pass book under
proper authorization. The pass book is sent with these corrections to the treasury/sub-treasury
the next day for its authentication of the corrections.
The second entry in all cash transactions in the bank, both receipts and payments,
relates to ‘8675-106 Deposit with Reserve Bank- State’ (RBD). While the first half of each
accounting entry showing the heads of accounts reflecting the daily payments and receipts are

1 Receipt heads do not have Object Heads. In some States, receipts are classified only up to 11 digits and do not
have Detailed Heads.

59
Government Accounting

recorded in the pass book, the net of the payments and receipts will provide the RBD figure
which reflects the second half of each accounting entry. Thus, if there are receipts of ` 100 on
a particular day and payments of ` 70 for the day, then the RBD figure for the day would be
a Debit balance of ` 30. This is because for the receipts amounting to ` 100, the accounting
entry would be:
Debit ‘8675-106 RBD’ ` 100
Credit Concerned receipt heads of account ` 100
The accounting entry for all the payments would be as follows:
Debit Concerned expenditure heads of account ` 70
Credit ‘8675-106 RBD’ ` 70
The receipts and payments, which is the first half of each accounting entry, would be
accounted under the respective parts in the pass book while the RBD figure, which is the
second part of each accounting entry, would be netted and reflected as the balancing figure.
In this example, the pass book will have a debit amount of ` 30 under ‘8675-106 RBD’. At
the close of the business hours every day, the Agency Bank branch sends an advice bearing
separate serial number showing the aggregate receipts and payments of the day on State
Government Account to its Link office by Fax/e-mail. For all the RBD figures, the bank also
prepares a Date-wise Monthly Statement (DMS) at the end of the month. This consists of the
total amount of payments made for the day, the total receipts of the day and the net amount
of RBD for that day. The format of the DMS is shown as Annexure 4. The DMS is sent to
the treasury/sub-treasury at the end of the month. The treasury/sub-treasury verifies the RBD
figure from its day book. It returns a copy of the DMS after verification. This verified copy
of DMS is called VDMS. The bank sends this VDMS to its nodal branch/link office, which
consolidates the RBD figures of all the branches in the State. The consolidated position of
RBD is communicated to the RBI for arriving at the cash balance position of the State.

6.3 Non-banking Treasuries/Sub-treasuries

A treasury with no nominated bank to carry out Government transaction is a non-
banking treasury. Similarly, a sub-treasury with no nominated bank is a non-banking sub-
treasury. To transact the Government business, these treasuries/sub treasuries are provided
with the Currency Chest by the R.B.I. They also have a Cash Chest of their own to deal in
cash transactions. The money in the Cash Chest of such non-banking treasuries/sub-treasuries
are accounted under ‘8999-101 Cash in Treasuries’. They make cash payments for the passed
bills. They also receive Government money. When the receipts are more than the payments,
excess money in the Cash Chest beyond a limit is deposited into the RBI Currency Chest
maintained in such non-banking treasuries. The money in the RBI Currency Chest belongs to
the RBI and not to the State Government concerned. When the excess money is deposited into
the RBI Currency Chest, the following accounting entry is made in the treasury/sub-treasury

60
 Functioning of Treasuries

Debit ‘8782-101 Cash Remittances between Treasuries and Currency Chest’

Credit ‘8999-101 Cash in Treasuries’
When the expenditure is more than the receipts over a period of time leading to depletion
of cash in the Cash Chest of the treasury, money is withdrawn from the RBI Currency Chest
to replenish the Cash Chest. The following accounting entry is carried out when such drawal
is made:
Debit ‘8999-101 Cash in Treasuries’
Credit ‘8782-101 Cash Remittances between Treasuries and Currency Chest’
The RBI periodically adjusts the balances in the Currency Chest. During such
adjustments, the remittances raised by the treasury are reversed by the accounting entry made
by the RBI. Thus when excess money is taken out of the Currency Chest, the following entry
is made by the RBI:
Debit ‘8999-102 Deposit with Reserve Bank’
Credit ‘8782-101 Cash Remittances between Treasuries and Currency Chest’
This will reverse the original debit under ‘8782-101’ raised by the treasury when
depositing the excess money into the Currency Chest. Similarly, when RBI replenishes money
withdrawn from the Currency Chest, the following accounting entry is made:
Debit ‘8782-101 Cash Remittances between Treasuries and Currency Chest’
Credit ‘8999-102 Deposit with Reserve Bank’
This will reverse the original credit under ‘8782-101’ raised by the treasury when
withdrawing money out of the Currency Chest. For all the transactions (both receipts and
payments) that occur in such non-banking treasuries, the second entry relates to ‘8999-
101 Cash in Treasuries’ instead of the head ‘8675-106 RBD’ which is operated in banking
treasuries. The RBI has, however, directed all State Governments to convert non-banking
treasuries into banking treasuries. In States where there are no non-banking treasuries, these
transactions would not happen. In others, where there are still a few non-banking treasuries,
these transactions occur.

6.4 Reporting Procedure of Banks

The Link Office of the Agency Banks consolidates the total receipts and payments on
the basis of Daily Advices received from its branches and reports them to the Public Accounts
Department (PAD) of the RBI. At the end of the month, the Link Office receives the VDMS
from its branches. On receipt of VDMS, the daily transactions relating to State Government
reported by the Agency Bank branches (through fax/e-mail on day to day basis) are verified
with the VDMS by the Link Office. In case of any difference between the figures in the VDMS
and the daily figure reported by the Link Office to PAD, such differences are rectified with
reference to the VDMS. The Link Office consolidates the VDMS figures and forwards the

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Monthly Consolidated Statement (Agency Bank branch wise) to the RBI, PAD by 8th of the
succeeding month in two set one for current month transaction and another for adjustments
pertaining to the earlier months.

6.5 Accounting Procedure

The Accounting Section in the district treasury accounts for every Government
transaction in the district. The receipts are accounted on the basis of the pass book received
from the bank and verified with the receipt scroll and the challans provided by the bank at the
end of the month. Payments are accounted when the bill is passed for payment. The actual
payments against those bills are monitored through the head ‘8670-104 Treasury Cheques’.
In the case of payments with deductions, the treasury only accounts for those deductions
for which detailed accounts are maintained by the DDO. These deductions include those
for tax deduction at source, group insurance etc. If a bill has deductions for which detailed
accounts are maintained by the AG (A&E), the treasury does not account for those deductions.
These deductions include contributions to the General Provident Fund (GPF), repayments of
long-term advances like Motor Car Advance (MCA), House Building Advance (HBA) etc.
The following example shows the accounting carried out by treasury in case of payments with
deductions.
In the case of a pay bill, consider an individual posted in the Soil & Water Conservation
Department drawing a gross salary of ` 1,00,000 from the head of account ‘2402-Soil & Water
Conservation’. She contributes ` 20,000 towards GPF contribution (Major Head ‘8009’). An
amount of ` 10,000 is deducted as repayment of HBA (Major Head ‘7610’). ` 15,000 is
deducted as tax at source (Head of Account ‘8658-112 TDS’) and ` 500 is her contribution
towards group insurance scheme (Head of Account ‘8011-103 CGEGIS’). She draws a net
pay of ` 54,500. The treasury would account for the net amount plus the deductions to be
accounted at the treasury, in this case, the tax deducted at source and the group insurance
contribution. The accounting entry2 would be as follows:
Debit ‘2402 Soil & Water Conservation’ ` 70,000
Credit ‘8658-112 TDS’ ` 15,000
‘8011-107 State Govt EGIS’ ` 500
‘8675-106 RBD’ ` 54,500
The AG deductions, in this case, contributions towards GPF and repayment of HBA,
are not accounted by the treasury. The treasury only ensures that all schedules relating to
these deductions are attached to the voucher. The AG deductions are accounted in the AG
(A&E) office on the basis of the summary of such deductions provided in the bill and the

2 Complete 15 digit classification is provided in the accounting entry. Only the major and minor heads are
shown in the illustrations for the purpose of simplicity

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details contained in the schedules relating to these deductions. In the AG (A&E) office, the
accounting is proved by equating the following:
Net Amount + Treasury Deduction = Gross Amount – AG Deductions
The first part of the accounting is carried out in the treasury while the second part in
the AG (A&E) office. In the AG office, the accounting entry for this transaction would be as
follows:
Debit ‘2402 Soil & Water Conservation’ ` 1,00,000
Credit ‘8009-01-101 GPF’ ` 20,000
‘7610-00-201 HBA’ ` 10,000
Minus Debit Amount booked in Treasury ` 70,000
The incomplete amount of ` 70,000 that was debited in the treasury is removed through
a minus debit in this entry. Credits are provided to GPF and HBA and the gross amount of
` 1,00,000 is debited to the functional head ‘2402-Soil & Water Conservation’. The final
impact of both these accounting entries (by netting the initial entry in the treasury and the final
entry in the AG office) would be as follows:
Debit ‘2402 Soil & Water Conservation’ ` 1,00,000
Credit ‘8658-112 TDS’ ` 15,000
‘8011-107 State Govt EGIS’ ` 500
‘8009-01-101 GPF’ ` 20,000
‘7610-00-201 HBA’ ` 10,000
‘8675-106 RBD’ ` 54,500
The treasury prepares accounts to be rendered to the AG (A&E). These consists of the
List of Payments (LoP) supported by the Schedule of Payments (SoP) and the vouchers for
the payments and Cash Account (CA) supported by Schedule of Receipts (SoR) and challans
for the receipts. The LoP consists of all the heads of account where expenditure has been
incurred in the district. For every head of account appearing in the LoP, there is a SoP with the
list giving the break-up of individual voucher details for the amount booked under the head
of account. Each of the item in the SoP is supported by the voucher. The CA consists of all
the receipt heads of account where there have been receipts recorded in the district. For every
head of account appearing in the CA, there is a SoR with the list giving break-up of individual
challan-wise details for the receipts booked under the head of account. Each of the item in the
SoR is supported by the challan.
The LoP and CA only have DDR heads. There are no Service heads shown in them.
The Service heads are accounted as a Sub Head under the Suspense Account ‘8658-111
Departmental Adjustment Account’ (DAA). The reasons for booking the Service head
transactions under DAA Suspense are as follows:

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A. The treasury only accounts for the net amount and treasury deductions. The accounting
is not complete and the AG deductions need to be accounted for. So the amount cannot
be booked directly into the final heads
B. When recoveries are made against excess expenditure already incurred, they are
shown as a receipt under the receipt head of account. This is because such recoveries
are deposited in the bank through a challan. Though they are accounted for as receipts
in the treasury accounts, these are to be transferred from the receipt head to the
concerned expenditure head as a reduction in expenditure.
C. When refunds are made by the Government for excess receipts collected earlier, the
money is withdrawn through a voucher. This is accounted as an expenditure in the
treasury accounts. However, these are to be transferred from the expenditure head of
account to the concerned receipt head of account as a refund of revenue.
These adjustments are carried out in the AG (A&E) office. During the process of
compilation of accounts, the Service head transactions booked under DAA suspense are
transferred to the final head of account after making these adjustments.
The treasury submits its accounts in two lists. The first list consists of expenditure
incurred in the first ten days of the month. This consists of LoP, SoP and vouchers. This
is received in the AG office by the prescribed day (around 13th of the month). The second
list consists of all receipts and expenditure transactions during the month. This consists of
the LoP/CA, SoP/SoR and vouchers/challans. This is to be received in the AG office by the
prescribed day (around 9th of the subsequent month). Accounting for receipts in the AG office
is carried out on the basis of SoR only. Details up to Sub Head level (13 digits) is captured
during the accounting process in the AG office. Only in certain cases which require certain
accounting adjustments, the challans are sent to the AG office. The treasury, therefore, does
not provide all challans to the AG office.
The treasury prepares an RBD Abstract/Disburser’s account. In addition to these
documents, the treasury also furnishes a copy of the VDMS to provide the verified cash position
at the end of the month. For certain Major Heads pertaining to the Sector ‘K. Deposits and
Advances’, the treasury furnishes a supporting document called the plus/minus memorandum.
This provides summary information on deposits into and withdrawals out of such heads of
account. The LoP, CA, an SoP, an SoR, voucher, challan and the Disburser’s account of the
Dharamsala treasury of Himachal Pradesh pertaining to December 2015 is shown in Annexure
5. The following example demonstrates the process of preparation of treasury accounts relating
to a few transactions occurring at the Hamirpur treasury in Himachal Pradesh:
Three vouchers are passed and paid in Hamirpur Treasury for the month of
December 2015

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 Functioning of Treasuries

Voucher 1 (Pay Bill): Head of Account ‘2202-01-001-01-00’

Gross pay of ` 75,000
Deductions from the pay bill were
Income Tax ` 8000; GPF ` 10000; MCA ` 2000
Net payment is ` 55,000. The pay is disbursed directly into the bank account of the
employee.
Voucher 2 (AC bill): Head of Account ‘2235-01-107-05-01’
Amount ` 15,000; No deduction; Amount paid by cheque.
Voucher 3 (Transfer Credit bill): Head of account ‘2401-109’
Amount ` 25,000; No deduction; Amount transferred to 8443-106 Personal Deposit
Account
In addition to above transactions, Hamirpur treasury received accounts from SBI,
Hamirpur which showed credits of ` 50,000 and debits of ` 25,000. The details of
credits were Major Head ‘0039-00-105’ ` 35,000 and Major Head ‘0040-00-102’
` 15,000
Details of debits were Major Head ‘8670’ ` 25,000 (This reflects encashment of a
cheque issued by the treasury)
The accounting entries in the Treasury would be as follows:
Voucher 1
Debit ‘2202-01-001-01-00’ ` 63,000
Credit ‘8658-112 TDS’ ` 8,000
‘8675-106 RBD’ ` 55,000
Voucher 2
Debit ‘2235-01-107-05-01’ ` 15,000
Credit ‘8670 Cheques & Bills’ ` 15,000
Voucher 3
Debit ‘2401-109’ ` 25,000
Credit ‘8443-106 Personal Deposit Account’ ` 25,000
On the basis of information relating to credits received from the treasury
Debit ‘8675-106 RBD’ ` 50,000
Credit ‘0039-00-105’ ` 35,000
‘0040-00-102’ ` 15,000
On the basis of information relating to debits received from the treasury
Debit ‘8670 Cheques & Bills’ ` 25,000
Credit ‘8675-106 RBD’ ` 25,000

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At the end of the month, LoP and CA are prepared on the basis of the accounting entries
passed by the treasury. In this case, the LoP and CA would be as follows:

List of Payment Cash Account

Head of Account Amount Head of Account Amount
8658-111-2202 63000 8443-106 25000
-2235 15000 8658-111-0039 35000
-2401 25000 -0040 15000
8670 25000 8658-112 8000
8670 15000
Total 128000 98000

The Disburser’s Account would be as follows:

Treasury Receipt Payment RBD
Hamirpur 98000 128000 30000 (Cr)

6.6 Integrated Financial Management System (IFMS)

Several States have computerized the functioning of the treasuries. This has led to
more effective checks in the treasuries and improved quality of accounting. This has also
resulted in reduced delays in the furnishing of treasury accounts to the AG. However, such
computerization has been on a stand-alone basis, with no interface with/functionality for other
related processes like budgeting, bill preparation by the DDOs, banking etc. This meant that
there was a necessity of data entry from physical documents for inputs and print-outs of
output in different offices involved in financial management. The errors caused during these
processes required reconciliation at various levels to prevent mistakes getting incorporated
into the accounts. Financial monitoring, including real-time cash management, under such
stand-alone systems was also not effective/feasible.
The Integrated Financial Management System (IFMS) is envisaged as an integrated
web-based system for all core finance functions, including planning, budget preparation,
execution, accounting, reporting and monitoring. The National e-Governance Plan (NeGP)
provides for treasury computerization as a Mission Mode Project for achieving greater
efficiencies, reducing costs, eliminating redundancies and facilitating the adoption of modern
public expenditure management practices. It is expected to make budgeting processes more
efficient, improve cash flow management, promote real-time reconciliation of accounts,
strengthen Management Information Systems (MIS), improve accuracy and timeliness in
accounts preparation, bring about transparency and efficiency in public delivery systems, better
financial management along with improved quality of governance. This scheme provides for

66
 Functioning of Treasuries

interface for data sharing among treasuries, State finance departments, AG office, Reserve
Bank of India (RBI) and agency (nominated) banks.

The various modules planned under IFMS are as follows:

A. Budget module: Aims at providing support for budget management, including
preparation, communication and revision of budgets for the State/UT Governments.
It will enable the departments to moderate the demands made by field offices and
submit them to the Finance Department, indicating their requirements of funds. The
Finance Department would analyze the demands from various perspectives and finally
recommend provisions for each of the budget heads/departments. The module would
be able to print the document for being placed before the legislature for approval. This
module will facilitate timely releases as well as adherence to the authorized limits of
expenditure by the DDOs. The module allows re-appropriation/supplementary grants,
surrenders to be handled through it in similar manner.
B. Personnel Management & Pay Roll module: Has the objective of providing support
for personnel resource information and salary management for the generation of pay
bills electronically and electronic submission of the same to the treasury. This module
will have pre-audit features to apply initial checks and minimize the time required for
processing of bills. This system will handle establishment functions such as advances,
medical and travel allowances, GPF, defined pension contributions, GIS, LTC, etc.
C. Receipt module: Will provide for the online receipt/refunds of tax dues to the State/
UT from the taxpayers through ECS/EFT related electronic facilities.
D. Accounts module: Aims at comprehensively capturing all accounting information
including all recoverable/receivable accounts. The module shall maintain the
departmental cashbook and consolidate monthly accounts in the prescribed format for
online transmission to Finance Department/Accountant General.
E. Pension module: Will process pension payment orders (PPOs) received from the AG
for monthly payment of pension/family pension and social pensions etc. The module
will generate monthly pension bills and provide for calculation of arrears of pension.
The module will also provide for online accounts statements to the pensioners and
various transactions with the pensioners, including their annual life certificates etc.
F. Fund Management module: Aims at day to day control over spending/expenditure,
fixing up priorities of payments, allowing expenditure based on objectives, finding
additional sources, monitoring of revenue generation and managing cash flow to avoid
over drafts. This module enables working out cash flows on day to day basis.
G. Virtual Treasury module: Would enable the taxpayers/receipt paying agencies to fill
challans (e-challans) on its website and make online payments using the participating
Banks internet banking facility.

67
Government Accounting

H. Banking Interface module: Would enable electronic capture of receipt as well as

payment data from the commercial banks authorized to do Government business, as
well as the RBI. It would also allow departments to exchange information of receipts.
I. C&AG Interface module: Would allow exchange of voucher level data electronically
with the AG’s office, thus providing an efficient means for reconciliation of accounting
transactions. It would allow access to AG to make modifications/add transactions on
an online basis. Further, the module would enable compilation of accounts, so that
monthly/annual accounts are available expeditiously. This would facilitate decision-
making. The module will also facilitate audit of Government offices by providing data
samples for verification to the audit and ensure quick availability of audit reports of
C&AG along with reference data for legislative oversight.
J. Financial Data Warehouse module: Data generated by all modules is processed on a
central server for generating various MIS reports. The objective of this MIS portal
would be to make available up to date financial information required for various
departments of the Government. The system would impart detailed information for
various financial transactions like budget of the State, ways and means position,
payment data, receipt data, and bills in process etc. It would also give reports for
various types of transactions through a multi-dimensional query support based on
various financial parameters.
Some States like Andhra Pradesh and Telangana already have systems in place for
effective management accounting. They have a Finance Department Portal (FDP) that helps
in getting the budget estimates of the various DDOs and prepare the budget for legislative
sanction. The portal provides for budget authorization through Budget Release Orders (BRO)
to the various departments of the State. The treasuries have an IT package called the Impact.
This is linked to the FDP and the budget provisions are fed into the treasury application. The
DDOs prepare their bill in the Impact. This is checked and approved online by the treasury
for payment.
Bills of ` 1 crore and more are sent to finance department for approval through the FDP.
The details of bills approved for payment are sent by the treasury to the bank in an encrypted
format for payment. Any payments of more than ` 1 crore are released by the bank after approval
by the finance department once again through the FDP. This is for the finance department to have
an effective check on the cash management of the State. The Link branch of the agency banks
populate the details of daily transactions and cash balance position into the FDP.
The FDP provides for monitoring of daily receipts and payments. Since the Impact
application is used by the DDOs to prepare the bills, the finance department has information
of all bills that are pending for payment. The FDP has a module for monitoring various deposit
accounts. The FDP has a Human Resource Management System (HRMS) integrated to it. The
HRMS has information on all sanctioned posts in various departments of the State, the men in

68
 Functioning of Treasuries

position against these posts and their details including leave etc. This helps in preparation of
pay bills at the end of the month.
In addition, they have an online bills monitoring system for Works and Forest Division
related payments. This provides, information on contractor-wise and work-wise payments
made and bills pending. The State also collects information from the banks about accounts
into which funds are transferred from the Consolidated Fund of the State. Thus, they have a
very effective management accounting information. These States are in the process of further
integrating these systems under the IFMS and bringing in more functionality.
There are other States where the systems are not computerized so far. The AG
(A&E) is part of the group responsible for planning and implementing IFMS in the States.
Given the different levels at which various States are in the process of computerization
and integration, the AsG would play a crucial role in ensuring that all States make rapid
progress in implementing an effective IFMS by enabling knowledge and experience
sharing across the States. This would bring in an effective financial management system
that is robust and transparent.

6.6.1 Challenges in implementing IFMS

Government financial process will have to be re-engineered to get the full benefits of
the end-to-end computerization that IFMS would usher in. Some of the checks and controls in
the manual system need to be reviewed to make them relevant under the new system. Manuals
and rules relating to financial management, accounting and reporting will have to be revised
to make them relevant and become a guiding framework for the IFMS system.
At present, the terms and process used for different types of transactions vary in different
departments. Under the IFMS, these will have to be standardized and made uniform to enable
electronic consolidation and comparison. This would require development of common data
model, data naming and data dictionary across the Government.
Data security and authentication system of various users would be a challenge
considering the number of users of the system and its geographical spread. With so many
modules, the IFMS needs to be integrated in a robust manner, allowing data to flow across
modules seamlessly in a secure fashion.
Availability of IT infrastructure and internet connectivity in remote areas need to be
ensured to enable all stakeholders transact business through the IFMS. Provisions should
be made to get information in physical documents and enter them into the system for those
DDOs who do not have access to the required infrastructure.

69
Government Accounting

6.7 Quality Assurance of Treasury Functioning

Though the finance department of the State Government is administratively responsible
for the proper functioning of the treasuries, the AG (A&E) is an important stakeholder. Most
of the financial transactions of the State take place through the treasuries. They carry out
pre-checks on these transactions and ensure that the transactions are properly classified and
accounted. They ensure that the documentation of these transactions are complete. The quality
of accounts of the State Government considerably depends on the proper functioning of the
treasuries. It is, therefore, necessary that the AG (A&E) independently checks the functioning
of the treasuries and assures himself of the adequacy of the controls in place to ensure proper
financial management.
The AG (A&E) office conducts inspection of the treasuries and sub-treasuries annually.
This is in the nature of a compliance audit. The inspection parties visit the treasuries/sub-
treasuries and carry out sample checks on the effectiveness of their internal controls and their
compliance to various rules. A Local Audit Report (LAR) is issued to the treasury listing out
the deficiencies observed during such reviews for corrective action. Significant observations
that have a wider implication are incorporated into a Treasury Review Report and submitted
to the Finance Department for necessary action.
The treasury inspection is also used to collect missing information to clear suspense
and improve subsidiary accounts like the GPF accounting. The inspection parties educate the
DDOs on some of the common deficiencies observed in the accounting process. Thus, the
treasury inspection is an effective tool to improve the system of accounting in the State.

70
 Functioning of Treasuries

Annexure 1
Pass-Book of Daily Transactions
Pass-Book of Receipts and Payments-Side ‘A’ (for use by Bank branch)
Date of Date of Total No. of Total No. of Initials of Initials with
Transmittal Transaction Receipts challans Payments Vouchers Branch date of TO/
for the for the Manager STO
day day

Pass-Book of Receipts and Payments-Side ‘B’ (for use by Treasury/Sub-Treasury Officer)

Date of Date of Certified No. of Certified No. of Remarks Initials with
Receipt Transaction Receipts challans Payments Vouchers (attach working date of TO/
for the received for the received sheets if STO
day day required)

Annexure 2
Payment Scroll
State Bank of India
Scroll No : _________ Date: _________
Dealing Bank Name : Shimla Main Branch
Sr. No. Name of Payee Head of Account Amount (`) Progressive (`) Bill/Chq No.

Total

Receipt Scroll
State Bank of India
Scroll No : _________ Date: _________
Dealing Branch Name : Shimla Main Branch
Sr. No. Name of Depositor Head of Account Amount (`) Progressive (`) Challan No.

Total

71
Government Accounting

Annexure 3
Memorandum of Error
The Branch Manager
--------Bank
Dear Sir,

With reference to your Daily Receipt/Payment Scroll No. ------ dated ----we advise that
the following deficiencies have been observed:
Sl. No. in Receipts/payments Amount Nature of Suggested
Scroll discrepancy rectificatory action

Please arrange to rectify the above deficiencies at the earliest and confirm.

Date: (Treasury Officer)

The above deficiencies have been rectified on ------ and reflected at serial no. ----- in
our scroll no.----- of date ----.
Date: (Branch Manager)
Bank’s Seal
Annexure 4
Date-wise Monthly Statement (DMS)
Statement for the month of ………., 20.. in respect of …..State Government Transactions
Name of the Bank Government Account Code. No.
Name of Branch Code No.
Date Receipts (`) Payments (`) Net Balance (`) Dr/Cr
1
2
.
.
31
Total

Certified that the particulars furnished above are correct to the best of my knowledge.

Officer-in charge of STO/TO Branch Manager

Date Date

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 Functioning of Treasuries

Annexure 5
List of Payments
Dharamsala Treasury for Period ________ to _________

Head of Payment Vouchers First List Second List Total Amount

Consolidated Fund
F - Loans and Advances
7610-00-201-01 2 303600.00 - 303600.00
xxxx-xx-xxx-xx
xxxx-xx-xxx-xx
xxxx-xx-xxx-xx
Public Account
I - Small Savings, Provident Fund
8009-01-101 315 111247523.00 24666876.00 352014399.00
xxxx-xx-xxx-xx
L - Suspense and Miscellaneous
8658-111-2013 2 762600.00 - 762600.00
-2515 149 9643861.00 736438.00 10380299.00
M - Remittances
8793 83 - 35307769.00 35307769.00
Grand Total 1384711574.00 906643091.00 2291345665.00
Bank Transfer Amount 64846289.00 29752340.00 94598629.00
Net Amount 1319865285.00 876881751 2196747036.00

Schedule of Payment
From: Dharamsala Treasury For the period ------------- to -------------
Major Head: 2515
Voucher Date Total TO Net Gross AG DDO Code & Name Heads of Account Object/ SOE
/Number Amount Deduct Amount Amount Deduct Code
xxxx
0089 20805.00 30.00 20775.00 29805.00 9000.00 045-Block Div.Offices 00-102-01-SOON-00-NV 01-Salaries
xxxx
xxxx

1st List Total 9643861.00 433923.00 9209938.00 14335795.00 0.00 4691934.00

2nd List Total 736438.00 9187.00 727251.00 752472.00 0.00 16034.00

Grand Total 10380299.00 443110.00 9937189.00 15088267.00 0.00 4707968.00

73
 Format of Voucher, GPF schedule and RTGS advice

74
Government Accounting
 Functioning of Treasuries

Schedule of General Provident Fund Deductions

Office of the ___________________ (here write the designation of Drawing

Officer and Stamp). Deduction made from the salary 11/2015 payable on
__________. Name of Accounts Officer who maintains these accounts _________.
Account No. Name Pay or/and Monthly Refund Total Remarks
leave salary Subscription Amount No. of Refund
31st March Installment
1 2 3 4 5 6 7 8
HP 07 xxxxx Sh. XXX 11/2015 9000.00 - - 9000.00
- -
Total 9000.00 9000.00

Block Dev. Officer

RTGS/NEFT Advice
Treasury Code: KNGOS D.D.O. Code: 045 SDO Code:
D.D.O. Description Dated:
Pre-Assigned token No.
To be directly credited to the following accounts Total Amount

Sr. No. Name of Officer/Official/ IFS code of Bank Name Account Amount (`)
Contractor/Supplier Bank Branch No.
01 XXXXXXXXXX XXXXX XXXXX XXXXXX 20775.00

Total 20775.00
Amount in words: Twenty thousand seven hundred seventy five only.
DDO
Seal

Pay order by DTO/TO for NEFT/RTGS

Received by: ---------------------

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Government Accounting

Cash Account
State Cash Accounts to the Accountant General, Himachal Pradesh and Chandigarh, Shimla
From: Dharamsala Treasury For the period: ------------ to ----------------
Head of Payment No. of Challans Total Amount
Consolidated Fund
F - Loans and Advances
6216-02-800-01 14 95351.00
xxxx-xx-xxx-xx
xxxx-xx-xxx-xx
Public Account
L - Suspense and Miscellaneous
8658-111-0029 53 71257.00
-0515 20 95511.00
xxxx-xx-xxx-xx
M - Remittances
8782-00-103 - 1194519.00

Grand Total 526142892.00

Cash Amount 431544263.00
Bank Transfer Amount 94598629.00

Schedule of Receipt
Dharamsala Treasury For the Period ________ to ___________
Major SMJ MN SMN S-HD Amount Cash Amount B.T. Amount
0515 00 101 04 18020.00 18020.00 0.00
00 102 01 750.00 750.00 0.00
00 102 02 42442.00 46442.00 0.00
00 800 01 19040.00 15900.00 3140.00
00 800 02 1663.00 0.00 1663.00
00 800 03 9596.00 9596.00 0.00
Major HD Total 0515 95511.00 90708.00 4803.00
No. of Challans 20 10 10

District Treasury Officer

Seal

76
 Functioning of Treasuries

Challan

Challan No. _________________ Dated _______________

(To be filled in by the tendered)
Tendered by _____________________ at Dharamsala. Particulars of monthly recovery
of attached vehicle in respect of Sh. ________________ and Sh. _______________ at
Dharmasala for the month of _______________ amounting to ` 750/- (` Seven hundred
fifty) only.
Sr. No. Name & Designation
1. Shri XXXXXXX ` 375/-
2. Shri XXXXXXX ` 375/-
Total ` 750/-
xxxxxx
Signature of Tenderer
.......................................................................................................................................
(To be filled in by Departmental Officer or Treasury)
Try. Code No,. KNG-00
DDO Code No. 540 (on whose behalf the money is tendered)
Major Code Sub Major Minor Code Sub Code Amount
0515 00 102 01 (`)
Head of account
0515 - Other Rural Dev. Programme
102 - Community Dev.
01 - Deptt. of RDD
Recovery of attached Vehicle = 750/-
Total:- = 750/-

xxxxxx
Signature of the Officer
ordering the money to be paid
__________________________________________________________________________
(For Treasury/Bank use only)
Received
` 750.00 (` Seven hundred fifty only)
xxxxxx
Signature & Seal of Treasury/Bank

77
Government Accounting

Disburser’s Account
Consolidated RBD Figures in respect of District Treasury at Dharamsala
For the month ___________________
Treasury Month Receipt Payment RBD
Dharamsala
-
-
Grand Total 431544263 2196747036 1765202773

Net Payments 2196747036

Net Receipts 431544263
Net RBD Pay/Rec. 1765202773

District Treasury Officer

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 Receipt of Accounts
CHAPTER-7

Receipt of Accounts

7.1 Office of the Accountant General (Accounts & Entitlement)

T
he Accountant General (Accounts & Entitlement) prepares the accounts of the State
Government and manages certain entitlement functions relating to provident fund,
pensionary benefits of State government employees and HR related functions of senior
gazetted officers in the State.
The AG office is headed by the Principal Accountant General or the Accountant
General. The office has functional groups headed by a group officer. The group officer
could be a Deputy Accountant General or a Senior Deputy Accountant General. Accounts
(compilation and preparation of accounts), Works & Forest Accounts (consolidation of Works
and Forest divisional accounts), Funds (maintenance of subsidiary accounting of provident
fund subscribers), Pension (authorization of retirement benefits), Gazetted Entitlement
(issue of pay slips and other HR functions of senior gazetted officers), Administration (office
administration of AG (A&E) office) are some of the groups in an AG (A&E) office. Based
on the quantum of work, these groups could have different responsibilities. For example,
there are two Funds groups in AG (A&E), Tamil Nadu as the number of GPF subscribers are
more in the State. In many States, the Works & Forest Accounts group is combined with the
Accounts Group. In States where the Funds, Pension or Gazetted Entitlement function is not
performed by the AG, these groups are not available.
The groups are divided into branches, each headed by a branch officer. The branch
officer could be a Senior Accounts Officer or an Accounts Officer. Each branch consists of
a few sections, each headed by an Assistant Accounts Officer (AAO). The functions of a
section are divided into units, the work of each unit being performed by an Accountant or a
Senior Accountant. Apart from the various accounting rules discussed so far, the accounting
work of the AG (A&E) office is regulated by the Account Code for Accountants General
and the CAG’s Manual of Standing Orders (Accounts and Entitlements). For the entitlement
functions, the office relies on the relevant rules of the State Government. The organogram of
an AG (A&E) office showing the different groups is as follows:

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Government Accounting

The functions performed in the AG (A&E) office is computerized. There are several
computer applications implemented to aid performance of these functions. Some of the
important software in the AG (A&E) office are listed below:

7.1.1 Voucher Level Computerization (VLC)

This is the key application of the AG (A&E) office. This oracle based application was
developed and implemented in 1998 across all AG (A&E) offices in the country. This has now
been upgraded to Oracle 11g. The VLC is in a three tier architecture, with a database server,
application server and a web server. The users of the application access the web server through
a browser, which then interfaces with the application server through various forms and reports.
VLC has forms to input accounting information received from various account rendering
units, including treasuries and works/forest divisions. Various accounting transactions that
are carried out in the AG office are also made through this application. It provides for various
reports to monitor the quality and progress of accounts compilation. The monthly and annual
accounts of the State are generated through this application.

7.1.2 General Provident Fund VLC (GPF VLC)

This is also an oracle based application that enables maintenance of subsidiary accounts
relating to GPF subscribers. This has an interface with the VLC application to fetch the ledger
figures (which is the total amount of debits and credits booked under ‘8009-State Provident
Fund’) for the purpose of control totals in the process of preparing the subscriber-wise
subsidiary accounts. It provides for forms to feed the subscriber-wise subscription details
from the schedules attached to the establishment (pay) vouchers. It has provisions to enter
credits made by subscribers through challans and withdrawals made from GPF account.
Various reports on missing credits/debits, unposted credits/debits etc. aid in maintaining
quality of these accounts. Annual accounts statements of subscribers are generated through
this application and sent to the subscribers for their confirmation. The final payments out of
the GPF account at the time of retirement/death of the subscriber is also processed through
this application.

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 Receipt of Accounts

7.1.3 SAI Pension Application

System Automation Initiative (SAI) Pension application is an oracle based application
developed and implemented in 2007 across all AG (A&E) offices rendering the services of
pension authorisation to the State government. It has provisions to capture details of qualifying
service, emoluments etc. The pension, commutation and gratuity calculations are made in this
application. Separate orders for their payments are generated, printed and dispatched to the
concerned DDO, treasury and the retiring government servant.

7.1.4 Gazetted Entitlement Application

Gazetted entitlement relates to pay fixation, pay slip generation and processing of
entitlement claims of State Gazetted officers. This function is based on the rules relating to
the State. Gazetted Entitlement Management System (GEMS) is an application developed and
implemented in Kerala to process this function. This Oracle based application is used in pay
fixation, generation of pay slip, leave salary, leave surrender pay etc.

7.1.5 PAO Compact

This SQL server based application is installed in the Pay and Accounts Office that
processes and pays the bills prepared by various offices of the Indian Audit and Accounts
Department (IAAD) that operate through the PAO. It has provisions for receiving the bills
submitted to the PAO, carry out necessary pre-checks and authorize and pay those bills if found
in order. The receipt details received from the banks are also entered into the application. The
complete accounts of all the IAAD offices that operate through the PAO are then sent to the
Principal PAO of the IAAD, which is located in the office of the Principal Accountant General
(Audit), New Delhi. The Principal PAO compiles these accounts and renders it to the CGA for
its consolidation into the Union Accounts.

7.2 Receipt of Accounts

The accounts of the State are prepared on the basis of accounts rendered by the various
account rendering units. The account rendering units that render accounts to the AG are as
follows:
A. Treasuries - bulk of the transactions occur in the treasuries
B. Public Works Divisions – render compiled accounts of transactions in the public
works divisions
C. Forest Divisions – render compiled accounts of transactions in the forest divisions
D. Departmental and other commercial undertakings maintaining proforma accounts –
render accounts relating to the heads of account which are to be compiled with the
State Accounts

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Government Accounting

E. Pay and Accounts Offices (PAOs) located outside the State who account transactions
of designated offices like the State Guest Houses in New Delhi – render compiled
accounts of transactions occurring in the PAO
F. AsG also render accounts of transactions in their State treasuries pertaining to the
other States to the respective AsG
G. PAOs of Central Civil Ministries render accounts of transactions between the
concerned Ministry/Department and the State
H. Accounting entities in Railways, Post, Telecommunications and Defence also render
accounts relating to transactions with the State
I. Reserve Bank of India
Treasury accounts represent bulk of the transactions of the State. These accounts need
to be further compiled from the basic documents. These are received through a dedicated
section called the Central Treasury Section (CTS) (Paragraph 5.2 of MSO (A&E) Vol I). This
could have different nomenclatures in different States. The compiled accounts of the Works/
Forest divisions, departmental/commercial undertakings and State PAOs do not require
further compilation from the basic documents. These accounts are directly received in the
respective sections that are responsible to consolidate such accounts. Accounts rendered by
other State AsG, PAOs of Central Civil Ministries and accounting entities of Railways, Post,
Telecommunications and Defence are received through post, e-mail or downloaded from
their respective websites. They are initially handled by the Accounts Current Section which
deals with transactions that occur outside the territory of the State. After initial accounting,
these accounts are then sent to the concerned sections for further accounting. In this chapter,
we would focus on treasury accounts. The other accounts would be dealt with in the other
chapters.

7.2.1 Treasury Accounts

The treasury accounts consist of List of Payment (LoP) supported by Schedules of
Payment (SoP) and vouchers for the payments and Cash Account (CA) supported by
Schedules of Receipt (SoR) and certain challans for receipts. The treasury also provides a
copy of the VDMS consisting of the daily summary of transactions and the net Reserve Bank
Deposit (RBD) figure. In addition, the treasury accounts include plus/minus memoranda
for deposit accounts. These are received in the CTS. The Accountant in the CTS carries out
certain preliminary checks on the treasury accounts rendered before acknowledging receipt.
The following are the checks exercised during receipt of the treasury accounts:
A. Whether the totals of LoP/CA are correct?
B. Whether the totals of LoP and CA tally?
C. Whether the net RBD figure in the disburser’s account tallies with net figure shown
in the VDMS?

82
 Receipt of Accounts

D. Whether the amount booked under each Major Head in the LoP/CA tallies with the
totals of SoP/SoR of the concerned Major Head?
E. Whether the SoPs are supported by vouchers and the SoRs by challans where required?
F. Whether the deposit heads are supported by a plus/minus memoranda?
If the treasury accounts are found to be complete, the CTS issues an acknowledgement
to the treasury representative. If there are any total mistakes or if the LoP/CA figure does not
tally with the SoP/SoR figure, the difference is booked in Sub Head ‘Treasury Suspense’ under
‘8658-102 Suspense Account (Civil)’. If the voucher bundle supporting a SoP is missing,
the amount is booked in Sub Head ‘Objection Book Suspense’ under ‘8658-102 Suspense
Account (Civil)’. Any other document of the treasury account which is missing is noted in
the CTS and pursued with the concerned treasury. With the computerization of the treasuries,
totalling mistakes and discrepancies between LoP/CA and SoP/SoR have been eliminated
as these are generated through the treasury software. As a result, bookings under Treasury
Suspense are rare.
Treasuries also render their accounts in softcopy, in addition to the physical documents.
The softcopy includes the voucher details and information relating to receipts. This information
is fed into temporary tables in the VLC. During the process of compilation, the information
is fetched from these temporary tables and, after due verification with the vouchers/receipt
details, posted into the final tables in the VLC. This has helped minimise mistakes that
occurred during data entry of all the information into VLC during the process of compilation
from the physical documents.

7.2.2 Preparation of Detail Book Part I (DB I)

The CTS then sends
the LoP and CA to the
Book Section. The SoP/
SoR supported by vouchers/
challans of the Service Heads
are sent to the respective
Departmental Compilation
(DC) Sections. The SoP/
SoR supported by vouchers/
challans of the DDR Heads are
sent to the respective Sections
maintaining their detailed accounts. For example, the SoP/SoR with its vouchers/challans
relating to loans and advances are sent to the LA Section and those relating to Deposit Heads
are sent to the Deposit Section for maintenance of their subsidiary accounts.

83
Government Accounting

The Book Section posts the head of account-wise details in the LoP and CA of all
the treasuries in the State into the VLC. These Heads are DDR Heads and start with ‘6003
– Internal Debt of State Government’. The expenditure Service Major Heads appear as Sub
Heads under ‘8658-111 DAA Suspense’ in the LoP and the receipt Service Major Heads
appear as Sub Heads under ‘8658-111 DAA Suspense’ in the CA.
After posting of the figures in the LoP/CA into the VLC, the Book Section generates the
Detail Book Part I (DB I). The DB I consists of the treasuries as the column headers and the
Heads of Account as the row headers. The DB I format of AG (A&E) of Himachal Pradesh
is shown in Annexure 1. Feeding of the LoP/CA figures by the Book Section is the process
through which all the accounting entries made in the treasuries are brought into the VLC
system. The process of compilation that follows in the other sections of the AG office on the
basis of vouchers/challans is a mere alteration/addition, where necessary, to the accounting
entries made by the treasuries. The form for posting LoP/CA in VLC at AG office in Himachal
is shown as Annexure 2.
The DB I generated by the Book Section provides the control totals for the process
of compilation that is carried out in the other sections. The following example shows the
procedure of preparation of DB I.
Accountant General (A&E), Rajasthan has received accounts for the month of June
2016 from following district treasuries.
District treasury, Udaipur (Banking)

List of Payment Cash Account

Head of Account Amount Head of Account Amount
6402-101 2,50,000 6003-101 25,00,500
8009-01-102 7,25,000 8009-01-102 12,50,000
8658-111:-- 8443-106 15,50,500
2210 74,25,000 8658-111
2235 15,50,000 0039 25,75,000
8670-104 56,25,000 0040 12,25,000
8782-102 10,00,500 8670-104 78,50,000
District Treasury, Jaisalmer (Banking)
List of Payment Cash Account
Head of Account Amount Head of Account Amount
6225-01-190 12,50,000 6003-101 8,25,000
8009-01-102 8,75,000 8009-01-102 4,58,000

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 Receipt of Accounts

8658-111:-- 8448-109 7,85,500

2210 12,35,000 8658-111
2402 7,56,000 0030 12,35,000
8670-104 15,75,000 0040 7,28,000
8782-102 3,25,000 8670-104 16,50,000

The DBI prepared by the Book Section from the accounts rendered by the account rendering
units would be as follows:
DB-I (Receipt) DB-I (Payments)
Head of Udaipur Jaisalmer Total Head of Udaipur Jaisalmer Total
Account Account
6003-101 25,00,500 8,25,000 33,25,500 6225-01-190 12,50,000 12,50,000
8009-01-102 12,50,000 4,58,000 17,08,000 6402-101 2,50,000 2,50,000
8443-106 15,50,500 15,50,500 8009-01-102 7,25,000 8,75,000 16,00,000
8448-109 7,85,500 7,85,500 8658-111-2210 74,25,000 12,35,000 86,60,000
8658-111-0030 12,35,000 12,35,000 -2235 15,50,000 15,50,000
-0039 25,75,000 25,75,000 -2402 7,56,000 7,56,000
-0040 12,25,000 7,28,000 19,53,000 8670-104 56,25,000 15,75,000 72,00,000
8670-104 78,50,000 16,50,000 95,00,000 8782-102 10,00,500 3,25,000 13,25,500
8675 3,34,500 3,34,500 8675 3,75,500 3,75,500
Total 1,69,51,000 60,16,000 2,29,67,000 Total 1,69,51,000 60,16,000 2,29,67,000

Annexure 1
Format of DB I
Office of Accountant General (A&E), Himachal Pradesh
Treasury Detail Book-I
Month: Payments/Receipt

Bilaspur Shimla Dharamshala Grand

MH SMH MNH SBH DTH .....
Treasury Treasury Treasury Total
6003 00 103 01 01
xxxx
xxxx
xxxx
8793 00 101 32

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Government Accounting

Annexure 2
VLC Form for posting Cash Account

VLC Form for posting List of Payments

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 Departmental Compilation
CHAPTER-8

Departmental Compilation

T
he work of compilation of Service Head receipts and payments is distributed department-
wise to the Departmental Compilation (DC) sections. The reasons for assigning the
compilation work department-wise is that the concerned Accountant would be dealing
with all transactions of a department. This would enable the Accountant to be aware of all the
nature of transactions in the department. This would also help in the process of reconciliation
of the compiled figures with the concerned department. As the accounts received from the
treasuries contain heads of account pertaining to all departments, the voucher bundles are
to be sorted department-wise in the CTS before sending them to the concerned DC section.
The CTS section has pigeon-hole counters to sort the voucher bundles heads of account-
wise, which would enable the bundles pertaining to a particular department received from all
treasuries of the State to be sent to the concerned DC section.

8.1 Compilation of transactions

The process of compilation is contained in Chapter 5 of CAG’s MSO (A&E) Volume I
and Chapter 1 of the Account Code for Accountants General. On receipt of all the SoPs/SoRs
pertaining to a Major Head of Account from all treasuries supported by their vouchers and
challans where necessary, the Accountant in the DC section starts the process of compilation.
All the Service Head transactions are booked in the DAA Suspense by the treasuries. These
have been fed into the VLC application by entering the LoP/CA figures by the Book Section.
These are transferred to the final head of account during the process of compilation after
making adjustments where necessary. The VLC screens related to accounting of receipts
and payments are shown in the Annexure. The accounting entries made on the basis of each
voucher/challan during compilation is as follows:
8.1.1 Accounting entry for a voucher with no deductions
Debit Service Head (e.g. 2235-01-107-05-01)
Minus Debit 8658-111-Service Head (in this case 2235)
This will clear the amount pertaining to this voucher from the total booked under ‘8658-
111-2235’ when the LoP figure was fed into the VLC by the Book Section. The DAA Suspense,
thus, works as a management tool to know how much of compilation is left in the DC Section
for a particular head of account. When all the vouchers/receipt items are compiled, the DAA
for that Head of Account raised by the Book Section becomes nil.

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8.1.2 Accounting entry for a voucher with deductions

Debit Service Head (e.g. 2402-00-001-00-01) Gross amount
Credit AG Deductions (e.g. GPF, HBA, MCA) Deduction amount
Minus Debit 8658-111-Service Head (in this case 2402) Net + Treasury Deductions
In the treasury, a debit was given to this head for the net amount plus the treasury
deductions. The net amount was paid to the payee, while credits were given for the treasury
deductions like tax deducted at source, professional tax, group insurance etc. During compilation
from the vouchers in the DC Section, the Accountant debits the gross amount of the voucher and
credits the AG deductions in the voucher. A minus debit is given to the figure of Gross amount
minus AG deductions which is equal to the figure of Net amount plus Treasury deductions. This
minus debit clears the amount pertaining to the voucher from the total booked under ‘8658-
111-2402’ when the LoP figure was fed into the VLC by the Book Section. Please refer to the
example in the chapter on ‘Functioning of Treasuries’ for further clarity.
Before accounting for the AG deductions, the Accountant checks whether these
deductions have separate Schedules attached to the voucher. She checks if these Schedule totals
tally with the deductions shown in the voucher. After accounting for the AG deductions, the
Accountant then detaches the Schedules and sends them to the concerned sections maintaining
subsidiary accounts of these deductions. The Schedules relating to GPF deductions are sent
to the Funds Group of the AG office. The Schedules of long term advances like the HBA and
MCA are sent to the sections maintaining the subsidiary books of these loans and advances.

8.1.3 Accounting entry for receipts

Credit Service Head (e.g. 0401-00-800)
Minus Credit 8658-111-Service Head (in this case 0401)
Compilation is not done on the basis of challans. It is carried out on the basis of
information in the SoR, which has classification details up to Sub Head level (13 digits). The
minus credit clears the amount pertaining to this head of account from the total booked under
‘8658-111-0401’ when the CA figure was fed into the VLC by the Book Section.
8.1.4 Accounting entry for refund of excess receipts
Minus Credit Service Head (e.g. 0030)
Minus Debit 8658-111-Service Head (in this case 2030)
Refund of excess receipts is effected as a payment through a bill drawn by the DDO.
Since this is a payment, this transaction is included in the LoP and SoP. This would, therefore,
be accounted initially under the corresponding Revenue expenditure head. As this is a refund
of receipts, this amount is to be accounted as a deduction from the concerned receipt head.
Therefore, a minus credit is provided to the receipt head of account. A minus debit is given to
clear the amount from the DAA Suspense booked on the basis of the LoP, as this figure would
appear as an expenditure figure in the treasury accounts.

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8.1.5 Accounting entry for recovery of expenditure

Minus Debit Service Head (e.g. 2210)
Minus Credit 8658-111-Service Head (in this case 0210)
When excess expenditure has been incurred, it is ordered to be re-paid into Government
Account. When the person repays this amount in the bank through a challan, it gets incorporated
into the Cash Account (CA) of the treasury as a receipt item. This has to be accounted as a
reduction of expenditure during the compilation of accounts. Therefore, a minus debit is given
to the expenditure head where the original expenditure was booked. Minus credit to DAA
Suspense is given to clear the amount booked through the CA in the Book Section.

8.1.6 Accounting entry for a misclassified voucher

Debit 8658-111-Correct Service Head (e.g. 2203)
Minus Debit 8658-111-Service Head (e.g. 2202)
Consider the Accountant compiling the Major Head ‘2202’. While compiling, she finds
a voucher which should have been accounted under ‘2203’. Since this voucher has been
included in the account for the Major Head ‘2202’, she needs to clear the DAA Suspense
raised for this Major Head. She, therefore, gives a minus debit to this Major Head, in this
case ‘2202’. She now has to pass this voucher to the Accountant who is compiling the Major
Head ‘2203’. She, therefore, raises fresh DAA Suspense by debiting the amount to the head
‘8658-111-2203’. To inform the Accountant concerned, she raises a Suspense Slip. She notes
this in her Outward Suspense Slip register and passes this, along with the voucher, to the
concerned Accountant for further compilation. The Accountant receiving the Suspense Slip,
enters the details in the Inward Suspense Slip register. On the basis of the voucher details, she
would then clear the DAA Suspense raised by the Accountant compiling Major Head ‘2202’,
following the procedure of accounting entries for voucher with/without deductions, as the
case may be.

8.1.7 Accounting entry for a missing voucher

Debit 8658-102-Sub Head ‘Objection Book Suspense’
Minus Debit 8658-111-Service Head (e.g. 2202)
While compiling the voucher bundle for Major Head ‘2202’, the Accountant finds
that the voucher for one of the item in the SoP is missing. In this case, she clears the DAA
Suspense by giving a minus debit for the amount of the item. She raises a new Suspense called
the Objection Book (OB) Suspense. For all the items that are booked in the OB Suspense,
the Accountant takes up with the treasury concerned to furnish the missing voucher. If the
voucher is not traceable, the amount is transferred from the OB Suspense to the final head by
getting a certificate of payment duly authenticated by the treasury concerned, after following
the procedure given in paragraph 5.11 in Volume I of MSO (A&E).

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8.1.8 Accounting entry for clearing the OB Suspense

Debit 8658-111-Correct Service Head (e.g. 2202)
Minus Debit 8658-102-Sub Head OB Suspense
On receipt of the missing voucher or when the certificate of payment is received
from the treasury, the OB Suspense is cleared by giving it a minus debit. The amount
is booked through a debit to the final head of account (15 digit). If it is a voucher with
deduction, then credits are accordingly given to AG deductions as shown in the earlier
accounting entry procedure.

8.1.9 Other information captured during the process of compilation

In the case of expenditure that are to be countersigned after payment, the money is
drawn through an Abstract Contingent (AC) bill. This money is drawn as an advance to spend
on specific contingent expenditure. The amount so drawn, however, is booked into its final
head of account as an expenditure. All AC bills are flagged in the VLC during the process of
compilation for monitoring receipt of Detailed Contingent (DC) bill, duly countersigned by
the Controlling Officer after incurring the expenditure. The receipt and linking of DC bills to
its AC bill is needed to ensure that the amount drawn was actually incurred for the purpose
for which it was drawn.
The Government issues Grants-in-Aid (GiA) to local bodies, non-Government or
Quasi-Government bodies/institutions. These grants might be conditional grants or they
may be given without any conditions attached to it. Conditional grants may specify the
purpose for which the grant is to be utilized, the timeline or any other condition that
needs to be complied with while utilising the grant. Though these grants are in the form
of advances to the implementing agencies, they are booked as final expenditure. However,
the conditions attached to the grant are captured in the VLC at the time of compilation.
Utilisation certificate is obtained and linked with the GiA expenditure after the grant is
utilised for the purpose for which it was released. The sanctioning authority of such grants
shall be responsible for certifying fulfilment of the conditions attached (paragraph 16.4 of
MSO (A&E) Vol I).

8.1.10 Checking of the compilation process

Paragraph 5.18 of MSO (A&E) Vol I lists the quality check to be ensured by the
Accountant compiling the accounts. It also provides for checks to be exercised by the
AAO and the Branch Officer of the accounts compiled by the Accountant. The percentage
of vouchers and receipt items that are to be checked for correctness of classification
have been fixed on the basis of their monetary value. This is to improve reliability of the
accounts compiled.

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8.2 Examples for compilation

The following are some examples for accounting entries passed during compilation
from vouchers and challans/SoR:
a. Voucher had classification ‘2235-01-109’. The gross amount was ` 15,00,000.
There was no deduction. The accounting entry would be:
Debit ‘2235-01-109’ 15,00,000
Minus Debit ‘8658-111-2235’ 15,00,000
b. One voucher had the classification ‘2210-01-105’. The Gross amount was
` 25,00,000. The deduction towards GPF was ` 2,50,000 and HBA was
` 1,25,000. The accounting entry would be:
Debit ‘2210-01-105’ 25,00,000
Credit ‘8009-01-101’ 2,50,000
‘7610-00-201’ 1,25,000
Minus Debit ‘8658-111-2210’ 21,25,000
c. One voucher amounting to ` 2,25,000 was missing. It was accounted under
the Schedule of Payment pertaining to head of account ‘2202’. The accounting
entry is:
Debit ‘8658-102 OB Suspense’ 2,25,000
Minus Debit ‘8658-111-2202’ 2,25,000
d. The voucher bundle and SoP of ‘2030’ included an item of ` 2,00,000 which was
a refund of revenue of major head ‘0030’. The exact nature of refund was not clear
from the voucher. The accounting entry on compilation would be as follows:
Minus Debit ‘8658-111-2030’ 2,00,000
Minus Credit ‘0030-00-800’ 2,00,000
e. One voucher amounting to ` 1,75,000 pertaining to ‘2203 Technical Education’
was wrongly included in the voucher bundle pertaining to ‘2202’. The accounting
entry would be:
Debit ‘8658-111-2203’ 1,75,000
Minus Debit ‘8658-111-2202’ 1,75,000
The section would then prepare a suspense slip and send it, along with the
voucher, to the DC section compiling the Major Head ‘2203’.
f. During the month, the DC section obtained a voucher from Allahabad treasury
for ` 55,000 under Major Head ‘2402’, which had not been received in an earlier
treasury account and had been booked under OB Suspense. The break-up of
voucher is as follows:

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2402-001-Salaries = ` 80,000
GPF = ` 10,000
HBA = ` 15,000
The following transfer entry is passed to clear the OB Suspense:
Debit ‘2402-00-001’ 80,000
Credit ‘8009-01-101’ 10,000
‘7610-00-201’ 15,000
Minus Debit ‘8658-102 OB Suspense’ 55,000
g. In the Cash Account, the receipts under ‘0210’ included a schedule for reduction
of expenditure of ` 50,000 from ‘2210-01-101’. The accounting entry would be:
Minus Debit ‘2210-01-101’ 50,000
Minus Credit ‘8658-111-0210’ 50,000
h. On compilation of a challan, the classification was found to be ‘0401-800’ and
amount was ` 2,25,000
Credit ‘0401-800’ 2,25,000
Minus Credit ‘8658-111-0401’ 2,25,000

8.3 Preparation of Classified Abstracts

The list of accounting entries made during compilation of vouchers (expenditure items)
are then listed in Compilation and Deduction Sheets. The gross debit amounts booked to the
final head of account are taken to a Compilation Sheet. All deductions from such vouchers
that are accounted for during the process of compilation are taken to a Deduction Sheet. After
compilation, the DC Section, then generates the Classified Abstract for the concerned Major
Heads of the Service Head (expenditure Major Head and its corresponding receipt Major
Head). The Classified Abstract consists of seven parts. These are as follows:
Part 1. Service Head Receipts – These would include all the receipt bookings in the
final receipt heads of account of Service Heads
Part 2. DDR Receipts – These relate to DDR heads that are operated for receipts
in the compilation of Service Heads. These include DAA Suspense and OB
Suspense cleared for receipts through minus credits
Part 3. Deductions – These would include all deductions entered in the Deduction
Sheet. These are deductions carried out in payment vouchers
Part 4. Service Head Expenditure – These include all the gross amount booked in
the expenditure Service Heads during the compilation process and are found
entered in the Compilation Sheet.
Part 5. DDR Expenditure –These relate to DDR heads that are operated for expenditure
in the compilation of Service Heads. These include DAA Suspense and OB
Suspense cleared for payments through minus debits

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Part 6. Receipt Proof Sheet

Part 7. Expenditure Proof Sheet
The Classified Abstract provides treasury-wise information up to Object Head level of
classification. The Classified Abstract is prepared to ensure that the compilation process has
been carried out correctly. The relevant figures in the Proof Sheets should tally to confirm that
the compilation has been performed without any errors. This was to be calculated with great
care under the manual system to ensure that no mistakes were made. But, in the computerized
VLC system, where accounting is hard-coded into the system, chances of mistakes in
accounting entry do not arise.
Moreover, the deductions are classified into treasury and AG deductions because the
subsidiary accounting books for these deductions are physically located in different places. This
requirement under the system of accounting in physical registers results in such complex accounting
and proving procedures for Government accounts. But with end-to-end computerization that would
be implemented with the operationalization of IFMS, the requirement of accounting deductions at
two places, viz. the treasury and the AG office would become unnecessary.
Accounting of refund of revenue as reduction in receipts and recovery of payments
earlier made as reduction of expenditure could also be hard-coded into the IFMS, when it is
implemented. This would completely eliminate the requirement for compilation of the accounts
received from the treasuries. The Service Head transactions could then be directly posted into
the final heads of account, instead of initially booking them under DAA Suspense and clearing
them through the process of compilation. This has already happened in the departmentalized
PAO system of accounting in the Union Government. Under this system, the PAO for every
department prepares compiled accounts, booking the transactions in the final heads of
account. These compiled accounts are furnished to the Principal PAO of the department for
consolidation. Therefore, DAA Suspense is not operated for Union Government accounting.
The following is an example for preparation of Classified Abstract and proving the accounts:
Office of the Account General (A&E), Uttar Pradesh, Allahabad has received accounts
from District Treasury, Kanpur. An extract of LoP and Cash Account is given below:

List of Payment Cash Account

Head of Account Amount (`) Head of Account Amount (`)
8658-111-2202 35,50,000 8658-111-0202 4,35,000

a. On compilation, it was found that one voucher had the classification 2202-
01-105. The gross amount was ` 32,00,000. The deduction towards GPF was
` 50,000.
b. One voucher amounting to ` 1,75,000 was missing.

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c. The voucher bundle and SoP of 2202 included an item of ` 1,00,000 which was
a refund of revenue major head 0202. The exact nature of refund was not clear
from the voucher.
d. One voucher amounting to ` 1,25,000 pertaining to 2203-Technical Education
was wrongly included in the voucher bundle pertaining to 2202.
e. During the month, the DC section obtained a voucher from Kanpur treasury for
` 15,000 under Major Head 2202, which had not been received in an earlier
treasury account and had been booked under OB suspense. The breakup of
voucher is as follows:
2202-01-105- Salaries = ` 20,000
GPF = ` 3,000
HBA = ` 2,000
f. In the cash account, the receipts under 0202 included a schedule for reduction of
expenditure from 2202 -01-1010-NV for ` 35,000.
g. The balance amount in the Cash Account were supported by challans pertaining
to receipts under the head 0202
Based on the above information, accounting entries passed during compilation are as follows:
Particulars Dr. Cr.
(a) 2202-01-105 32,00,000
8009 50,000
8658-111-2202 (-) 31,50,000
(b) 8658-102 (OB Suspense) 1,75,000
8658-111-2202 (-) 1,75,000
(c) 0202-800 (-) 1,00,000
8658-111-2202 (-) 1,00,000
(d) 8658-111-2202 (-) 1,25,000
8658-111-2203 1,25,000
(e) 8658-102-2202 (-) 15,000
2202-01-105 20,000
8009 3000
7610-201 2000
(f) 2202-01-101 (-) 35,000
8658-111-0202 (-) 35,000
(g) 0202-800 4,00,000
8658-111-0202 (-) 4,00,000

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 Departmental Compilation

A Combined Transfer Ledger (CTL) is prepared to obtain the net affect of adjustment
for the transaction at (e) above in the following format:
Dr. Head of Account Cr.
A [(-) Cr.] B [Dr.] C [Cr.] D [(-) Dr.]
0 20,000 2201-01-105
8009 3,000
7610 2,000
8658-102 15,000
0 20,000 Total 5,000 15,000
The net effect of adjustment through CTL is equal to C-A or B-D.
C-A is 5,000-0 which is equal to B-D, which is 20,000-15,000.
Therefore, the net effect of CTL is +5,000
After compilation, the classified abstract for the Major Head ‘2202’ is prepared. Parts 1 to
5 have all the treasuries in the State as column headers, followed by transactions accounted
through Suspense Slips (SS) and Transfer Entries (TE). In this example, transactions of only
one treasury is shown. Therefore, the Classified Abstract has only on column for treasuries.
In preparing the Classified Abstract, each half of the accounting entries are posted into the
concerned part of the Abstract.
Part-1 : Details of Service Head Revenue
Head of Account Treasury Suspense Slip Transfer Entry Total
0202-800 (-) 1,00,000
4,00,000 3,00,000
Total 3,00,000 3,00,000
Parts-2&3 : DDR Receipts and Deductions
Head of Account Tr SS TE Total
7610-201 2,000 2,000
8009 50,000 3,000 53,000
8658-111-0202 (-) 4,35,000 (-) 4,35,000
Total (-)3,85,000 5,000 (-)3,80,000
Part-4 : Details of Service Head Expenditure
Head of Account Tr. SS TE Total
2202-01-101 (-) 35,000 (-) 35,000
2202-01-105 32,00,000 20,000 32,20,000
Total 31,65,000 20,000 31,85,000

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Part-5 : DDR Expenditure (Sub-Head)

Head of Account Tr. SS TE Total
8658-102 1,75,000 (-) 15,000 1,60,000
8658-111-0202 (-) 31,50,000
(-) 1,75,000
(-) 1,00,000
(-) 1,25,000
Total of 8658 (-)35,50,000 (-)35,50,000
8658-111-2203 1,25,000 1,25,000
Total (-) 32,65,000

Parts- 6&7 : Proof Sheet

Details Receipt Payments
(i) Service Head Receipts/Expenditure 3,00,000 31,85,000
(ii) DDR Receipts/Expenditure (-) 3,80,000 (-) 32,65,000
(iii) Total (i) & (ii) (-) 80,000 (-) 80,000
(iv) DAA Raised 4,35,000 35,50,000
(v) Refunds 1,00,000 1,00,000
(vi) Recoveries 35,000 35,000
(vii) Total (iii) to (vi) 4,90,000 36,05,000
(viii) Total deductions from pay vouchers 50,000 50,000
(ix) Net adjustments through CTL (+) 5,000 (+) 5,000
(x) vii- (viii +/- ix) 4,35,000 35,50,000

In preparation of the Proof Sheet, the Service Head receipts and expenditure are picked
from Parts 1 and 4 of the Classified Abstract respectively. The DDR receipts are picked from
Parts 2 and 3, while the DDR expenditure figure is picked from Part 5. The DAA raised
(row iv) includes the amount raised by the treasuries and those raised through suspense slips
by other Sections. Refunds, recoveries and deductions from pay vouchers (rows v, vi & viii)
are accounted during the process of compilation. The totals of such transactions are taken into
both the receipt and payment side in the Proof Sheet because each accounting entry has both
the debit and credit parts. The net accounting impact of Transfer Entries is calculated through
the combined transfer ledger (CTL). This is also posted into both the receipt and payment sides.
The account is tallied when the receipt and payment figures in row (iv) tally with
those in row (x). The figures in row (x) reflect the overall effect of the compilation process
and this should tally with the DAA raised. In the above example, these figures tally and,
therefore, the accounts are proved and complete.

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 Departmental Compilation

8.4 Preparation of Consolidated Abstract

After preparation of the Classified Abstract, a Consolidated Abstract is prepared for
the Service Heads. While the Classified Abstract is prepared for the transactions of the
month, the Consolidated Abstract shows the progressive figures, month by month under
the major, minor and detailed heads of receipts and service payments appearing in the
Classified Abstract. The monthly totals under the various heads of account as per the
Classified Abstract are posted in the relevant columns of the Consolidated Abstract and
progressive total is arrived at. In the computerized VLC system, the Consolidated Abstract
is automatically generated after the completion of the compilation process. The format of
Consolidated Abstract is shown below:
Departmental Consolidated Abstract
Month:_______ Major Head: 2014
Grant Actuals up to Progressive up
P/NP V/C SMH MNH SBH DTH This month
No. previous month to this month

The Classified and Consolidated Abstracts are sent to the Book Section for preparation
of the Monthly Civil Accounts (MCA). The flow chart of DC Section processing is as
follows:

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 Annexure Screens relating to voucher compilation

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Government Accounting

Screens relating to receipt accounting

 Public Works and Forest Division Accounting
CHAPTER-9

Public Works and

Forest Division Accounting

R
ule 65 of Government Accounting Rules (GAR) states that the manner in which
the initial and subsidiary accounts shall be kept by departments like, Public Works,
Forests etc. and the forms in which the compiled accounts of these departments shall
be rendered to the Accounts Offices shall be such as may be prescribed by the President from
time to time on the advice of the CAG. These forms may be modified by State Governments
according to local requirements in consultation with the Accountant General concerned and
by the Central Ministries/Departments in consultation with their Principal Accounts Offices
concerned. Changes in detail of accounts returns, as may be deemed necessary, may be
introduced:-
a. by the Accountant General concerned, in the case of State Public Works Accounts,
on the advice of the CAG, in respect of returns due to be submitted to them.
b. in consultation with the Controller General of accounts (CGA), in the case of
Central Public Works Accounts, by Chief Controller of Accounts/Controller
of Accounts/Dy. Controller of Accounts of Ministries/Departments of Central
Government.

9.1 Public Works Accounting

Account Code Volume III deals with departmental accounts, including those of
Public Works and Forest divisional accounts1. For the Central Public Works department, the
accounting procedures are embodied in the Central Public Works Account (CPWA) code
and forms. States have framed their code for the State Public Works department. The Public
Works department (PWD) executes infrastructure development projects and is responsible
for its maintenance. A major portion of the capital expenditure of the Government is incurred
through the PWD. Considering the nature of work of PWD, the Account Code prescribes
accounting procedures specific to the department. It is essential that the accounting procedure
of the PWD ensures transparency and accountability. A comprehensive understanding of the
accounting procedure of the PWD is essential for a proper audit of its functioning to ensure
that the objectives of the department in creating and maintaining quality infrastructure for the
country’s development are duly fulfilled.

1 There were four Account Code Volumes before departmentalisation of Union Accounts. Volume I dealt with
General Principles and Methods of Accounts. This has been replaced by the Government Accounting Rules,
1990. Volume II deals with Treasury Accounts. For the State Governments, these are supplemented by the
Treasury Rules. Volume IV has been replaced by the Account Code for Accountants General.

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The rules quoted in this chapter are based on CPWA code and forms, as there would be
variations in the State codes and forms. However, the accounting entries shown for various
transactions are those for the State PWD.

9.1.1 PWD Structure

The PWD is headed by the Secretary of the department. The Engineer-in-Chief is the
Grant Controlling Authority of the department. She/He is assisted by the Chief Engineers
who head different Zones of the department and are the Chief Controlling Officers. Zones
are further divided into Circles headed by the Superintendent Engineers. Executive Engineers
(EE) head the Divisions. They are, therefore, called the Divisional Officers and report to
the Superintendent Engineers. The EE is responsible for recording, compiling and rendering
the accounts of the Division to the Accountant General and is supported by the Divisional
Accountant (DA) in discharge of this function. Considering the significance of the functions
discharged by the DAs in ensuring a true and fair representation of the position of the Division
in the accounts rendered, their cadre control is entrusted with the Accountant General of the
State. Thus, the AG decides the transfer and posting of the DAs.
The Divisions may have many Sub-divisions under them, headed by the Assistant
Executive Engineer and supported by
the Assistant Engineers and Junior
Engineers. The Sub-divisions render
their accounts to the Division for
consolidation into the Divisional
accounts. The EE and the Assistant
Executive Engineers are the Drawing
and Disbursing Officers. They have
cheque drawing powers, i.e. they can
directly incur expenditure without
submitting their bills to the treasury.
They are, therefore, called Cheque-
drawing DDOs.

9.1.2 Budgetary Control

The Cheque-drawing DDOs operate bank accounts in their designation. The budget
is released to the Cheque-drawing DDOs through Letters of Credit (LoC). The Divisional
Officer (EE), is the primary disbursing officer of the Division who is permitted by the Chief
Controller of Accounts through Letter of Credit to obtain, by cheque on the banks, the funds
required for all disbursements in connection with the execution of works, pay and allowances
of employees directly linked to a Work etc. As provided in Rule 50 of R&P Rules, 1983, the

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LoC is communicated to the relevant branch of the accredited bank. It releases the amount of
quarterly assignment authorized in favour of the Cheque-drawing DDO. A fresh LoC is issued for
every quarter. The balances of unspent amount in the LoC is carried forward to the next quarter.
However, the assignment remaining unspent as at the end of a financial year is not to be carried
forward to the first quarter of the next financial year. This amount will lapse at the end of the year.
In some States like Uttar Pradesh, two types of LoCs are released. The first is for the
Government Public Works to be carried out by the Division. This is called the Cash Credit
Limit (CCL). The other LoC is for works relating to Local Bodies and other non-Government
bodies that are taken up by the PWD on the basis of initial deposit of money by these bodies
(Deposit Works). This is called Deposit Credit Limit (DCL).
The system of budget releases to the treasuries is followed for all DDOs. However, for
Cheque-drawing DDOs budget releases are made through LoC directly to the agency banks.
This is followed because the geographic reach of the banking system was limited earlier.
Moreover, these departments were functioning in remote areas of the State, where regular
financial transactions through the treasuries were difficult. However, with the increased reach
of the banking system, many States like Punjab, Karnataka and Kerala have moved away from
LoC system to the treasury system for these departmental transactions. In these States, the
DDOs of the PWD also operate through the treasury.

9.1.3 Establishment expenditure

Expenditure of regular establishment (pay & allowances) in Divisions is incurred
through the treasuries like all other departments. This expenditure will appear as part of the
treasury accounts. However, the salaries of those whose services are charged to a particular
work (work charged establishment) are paid in the Division through cheques and are included
in the Divisional Accounts. The work charged establishment expenditure is booked to the
Work to which they pertain. The regular establishment expenditure is apportioned among the
Works executed by the Division on the basis of percentage charges. The procedure of such
apportionment is detailed under ‘Percentage Charges’ below.

9.1.4 Stores
Stores form an important component of Public Works. The department maintains a
Priced Vocabulary of Stores to depict the correct description of various stock items and facilitate
preparation and valuation of indents (requisition) of such items. The Priced Vocabulary is
evolved on the basis of an up-to-date classification of stores, which should be uniformly
adopted throughout the department. The Issue Rates of the items in the store should be filled
in by the Divisions concerned, who should circulate them for use by other Divisions obtaining
supply of stores from them (paragraph 7.2.3 of CPWA code).

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When Stock is purchased, the following accounting entry is made:

Debit ‘2059-80-799 Suspense I Stock’
Credit ‘8782-102-II PW Cheques’
The general directions provided in the LMMH provide that the minor head “Suspense”
(code ‘799’) can be opened under those major heads where expenditure on ‘works’ is involved.
This minor head is utilised to account for the stock maintained, advances made relating to the
works and other related expenditure. Thus, when a stock is purchased, this Minor Head is
debited. The credit is given to the head relating to Public Works Cheques. This is distinct
from the head operated for treasury cheques, which is ‘8670-104’. The head ‘8782-102-II’
is also operated similar to ‘8670-104’. This head is credited when a cheque is issued. When
the cheque is encashed by the payee, the credit under ‘8782-102-II’ is cleared through the
following accounting entry:
Debit ‘8782-102-II PW Cheques’
Credit ‘8675-106 Deposit with Reserve Bank-States’
The details of payments made against the cheques issued are received from the bank
and paired off by the Division. A Schedule of monthly settlement with treasuries (Form 51) is
sent by the Division to the AG office providing information on details of cheques issued and
encashed after reconciliation with the treasury. The AG office maintains a broadsheet for such
heads. A broadsheet has month-wise details of all transactions relating to the head. The credits
and debits are rounded off in the broadsheet. The balance so arrived in the broadsheet should
tally with the figure booked as per the account summary (LoP/CA in case of treasury accounts
and Form 80 in case of PWD Accounts). This summary figure is called the ledger figure.
To ensure that the pace of an ongoing work is not affected, stock could also be purchased
on credit, when budget is not available in the Division. A suspense called Material Purchase
Settlement Suspense (MPSSA) is used in such transactions. The accounting entry when a
stock is purchased by a Division on credit is as follows:
Debit ‘2059-80-799 I Stock’
Credit ‘8658-129 Material Purchase Settlement Suspense Account (MPSSA)’
When budget is received, payment is released through a cheque. The accounting entry
made when payment is made is as follows:
Minus Credit ‘8658-129 MPSSA’
Credit ‘8782-102 II PW Cheques’
A broadsheet is maintained for MPSSA to ensure that the Suspense is cleared promptly.
The record of detailed count or measurement or weighment of the stock so purchased
is to be kept in the Goods Received Sheet (Form 8-A). The total number or quantity of such
stock is then entered in the Bin Card (Form 8), which is maintained by the Store Keeper.

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When the stock is issued against an indent (requisition) for a particular work, the number/
quantity issued is entered in the bin card. The bin card, thus, provides the position of stock
in hand at any point of time (paragraphs 7.2.12 to 7.2.15 of CPWA code). When the stock is
used for a particular work (for example, work executed under 2059-80-051), the following
accounting entry is passed:
Debit ‘2059-80-051’
Credit ‘2059-80-799 I Stock’
A Priced Stores Ledger (Form 12) is maintained in the Divisional Office to record day to
day transactions relating to each item of stock. This will have different sections or sets of pages
for different articles of stock with columns for receipts, issues and balances for both quantities
and values. Separate ledgers are maintained for articles falling under each sub-head of stock. All
items of receipts and issues are entered in the ledger from the copies of Goods Received Sheets
and the Indents (requisitions) which are received daily from the Sub-divisions. At the end of
day’s postings, the balances under each article are worked out in respect of quantities as well as
values. The ledger is closed for both quantities and values at the end of each month. The monthly
total of receipts, issues and balances is then worked out for each sub-head and a consolidated
abstract prepared for all the sub-heads (paragraphs 7.2.31 to 7.2.33 of CPWA code).

9.1.5 Tools and Plants

A procedure similar to that of stock is followed for tools and plants. The record of
detailed count and specifications of tools and plants purchased are first entered in the Tools
and Plants Received Sheet (Form 13). They are issued for various works on the basis of Tools
and Plants Indent duly signed by the Divisional/Sub-divisional officer. Every Sub-division
maintains a Tools and Plants Ledger in form 15. Receipts and issues are entered into this
ledger from the T&P Received Sheet and Indents. This ledger is maintained in three parts
(paragraph 7.3.7 of CPWA code):
Part - 1. This includes tools and plants in hand. This is grouped under the concerned
sub-heads.
Part - 2. This includes articles temporarily lent out. Entries are made in a separate
section for each contractor or other person to whom the articles are lent.
Part - 3. This includes shortages awaiting adjustment. This is operated only when
some shortages are noticed.
When tools and plants are lent to local bodies, contractors or others, the hire and other
charges are determined by local rules and are recovered regularly. The tools and plants cost
is apportioned to various works executed by the Division by applying a percentage charge on
the Works’ expenditure (paragraphs 7.3.10 and 7.3.11 of CPWA code). The procedure of such
apportionment is detailed under ‘Percentage Charges’ below.

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9.1.6 Payment for works

For all labourers engaged departmentally for the execution of works, the details are entered
in a Muster Roll (Form 21). Their wages are drawn and paid, after due acknowledgement, on
the basis of the Muster Rolls and charged to the works on which they are employed (paragraph
10.2.3 of CPWA code). Payments for all work done otherwise than by daily labour and for
all supplies required for specific works are made on the basis of measurements recorded in
the Measurement Books in Form 23 (paragraph 10.2.7 of CPWA code). Payments for works
are made by drawing bills. There are three types of bills (paragraph 10.2.12 of CPWA code).
A. First and Final Bill (Form 24) – This bill is used for making payments for a job or
contract, when it is made as a single payment on its completion.
B. Running Account Bill (Form 26) – This bill is used when payments are to be made at
different stages of completion of the work.
C. Hand Receipt (Form 28) – This bill is used for all miscellaneous payments for which
Forms 24 and 26 are not suitable.
9.1.7 Contractors’ Ledger
A Contractors’ Ledger (Form 43) is maintained in the Divisional Office, with a separate
folio for each contractor engaged by the Division, but for those engaged for petty work and
those who are paid through a First and Final Bill (paragraph 10.7 of CPWA code). The folio is
in the nature of a personal account of the contractor with the Division. It has details of works
that the contractor is engaged in, all advance payments made, debit figures for all payments
made and credit figures for value of work or supplies creditable to the contractor. The ledger
account is closed monthly and balances settled periodically.

9.1.8 Works Abstract and Register of Works

An account of all the transactions relating to a work during a month is prepared by the
Divisional Officer in the form of a Works Abstract (Form 33). It exhibits the expenditure on
the works under three categories, viz. final charges, suspense charges (including advances) and
contingencies. The Works Abstract also shows the percentage of the progress of work compared
with the amount technically sanctioned and time allowed. It also shows the ‘rate of cost’, i.e.
cost per unit on the basis of the recorded “amount” and “progress”. This helps in monitoring
whether the work is progressing as scheduled and the costs are within the budget.
The record of expenditure incurred in the division, during a year, on each work is
the Register of Works (Form 40). Figures are posted into the Register of Works from the
Works Abstract. Only the final expenditure is posted from the Works Abstract to the Register
of Works. A separate folio is assigned to each Work, with the amount sanctioned for that
work indicated in the folio. There would be several Works under an accounting classification.
Therefore, the Works are sub divided and indexed under the prescribed classification heads of
account in the Register of Works.

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9.1.9 Inter-division transfers

Transfers of store and stock occurs between Divisions to overcome any shortages and to
ensure that the pace of various projects underway is not affected. When a borrowing Division
gets some stock on credit from a lending Division, the following accounting entry is made in
the borrowing Division:
Debit ‘2059-80-799 I Stock’
Credit ‘8782-00-102 II PW Cheques’
(or Credit 8658-00-129 MPSSA, if borrowed on credit basis. This would then be reversed
when budget is received through the accounting entry shown for credit purchase)
The accounting entry that is made in the lending division when material is supplied on credit
is as follows:
Debit ‘8658-107 Cash Settlement Suspense Account (CSSA)’
Credit ‘2059-80-799 I Stock’
When cheque from the borrowing division is received, the following entry is made in the
lending division:
Minus Debit ‘8658-00-107 CSSA’
Debit ‘8782-102 I Remittances into Treasuries (RIT)’
The cheque is then sent to the bank for encashment with the head ‘8782-102 RIT’
entered in the pay-in slip. When the cheque is encashed, the bank sends the receipt scroll to the
treasury/division with a credit appearing against ‘8782-102 I RIT’. The following accounting
entry is made on the basis of the receipt scroll
Minus Debit ‘8782-102 I Remittances into Treasuries (RIT)’
Debit ‘8675-106 Deposit with Reserve Bank-States’
The Schedule of monthly settlement with treasuries (Form 51) sent by the Division to
the AG office also has details of cheques received and encashed. The AG office maintains
a broadsheet for monitoring Remittances into Treasuries. Most States have done away
with the system of using MPSSA and CSSA for inter-division transfers of stock because of
unmanageable balances under these suspense heads and chances of misappropriation. In these
States, inter-divisional transactions are now done on cash purchase basis.

9.1.10 Deposit works

The PWD also takes up works for local bodies and other non-Government bodies.
In these cases, the local body or other party concerned should advance the gross estimated
expenditure to the PWD. The amount received is credited in the accounts to the Minor Head
‘108 – Public Works Deposits’ under the Major Head ‘8443 – Civil Deposits’. The accounting
entry when such funds are received is as follows:

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Debit ‘8782-00-102 I RIT’

Credit ‘8443-00-108 Public Works Deposit’
When work is executed, the expenditure is debited to the Public Works Deposit account. The
following accounting entry is passed when payment is made against deposit works:
Debit ‘8443-00-108 Public Works Deposit’
Credit ‘8782-00-102 II PW Cheque’
A consolidated record of the transactions of a month relating to all Deposit Works of the
Division is prepared as Schedule of Deposit Works (Form 65). When funds are not available
under Public Works Deposit, the amount is booked in ‘Miscellaneous Works Advances’ under
Minor Head ‘799 - Suspense’ in the appropriate Major Head. The accounting entry for this
transaction would be:
Debit ‘2059-799-Miscellaneous Works Advances’
Credit ‘8782-102 II PW Cheque’
These are then transferred to the Public Works Deposit head when funds become available.

9.1.11 Percentage charges (Appendix 4 of CPWA code)

Charges on account of general services like Establishment and ordinary Tools and Plant
of a division should be classified in the accounts under the appropriate Sub-Head under the
Minor Heads ‘Direction and Administration’ and ‘Machinery and Equipment’ as the case may
be, of the Major Head ‘2059 Public Works’. It should not ordinarily be included in the cost of
an individual work. Some of the exceptions to this rule are as follows:
A. If any service connected with a work is rendered by another Division or Department
or Government and the claim made by it includes charges on account of such general
services, they may be accounted as part of the cost of the work in the same way as if
the services had been rendered by a contractor.
B. Work charged establishment is to be accounted as an expense to the work concerned.
C. The cost of special tools and plant obtained to meet the special requirements of a
particular work and of a nature not usually to be found in the general stores of the
Administration should be treated as a direct charge to the work.
When the PWD manages more than one branch, like Building, Roads etc., the gross
expenditure on establishment is to be allocated between these branches on percentage basis. The
gross expenditure on the common establishments of these branches are initially recorded under
the Minor Head ‘Direction and Administration’ below the Major Head ‘2059 – Public Works’.
The allocation of the common establishment expenditure between the Capital Major Heads
of these branches is done on a monthly basis. The distribution of establishment charges from
the omnibus Public Works major head to these heads will be calculated on percentage basis,
determined by the Government in such manner as to remain current for at least three years so as

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to avoid meticulous and frequent recalculations.For example, if a portion of the establishment

expenditure booked under ‘2059-80-001 Direction and Administration’ is to be transferred to
‘4216 - Capital Outlay on Housing’, the following accounting entry is made in the Division:
Debit ‘4216-xx-xxx-xx-Detailed Head – Establishment’
Minus Debit ‘2059-80-001 Direction and Administration
Sub Head – Deduct establishment charges transferred on percentage
basis to Capital Major Heads’
In respect of establishment charges relatable to works done for other Governments,
Local funds, private parties etc. through deposit works, recoveries are made on percentage
basis and credited as revenue to the Major Head ‘0059 – Public Works – Other Receipts’ or
‘1054 – Roads and Bridges’ as the case may be.
The residuary expenditure (after notionally deducting the establishment receipts for
deposit works to arrive at the net amount) under ‘Direction and Administration’ is to be
distributed with ‘2216 Housing’ and ‘3054 Roads and Bridges’. This distribution is made
on a pro-rata basis of the expenditure booked under these heads at the end of the year by the
AG office. Distribution with other Major Heads of Revenue Section is not necessary. The
accounting entry carried out in the AG office at the end of the year is as follows:
Debit ‘2216-xx-001 Direction and Administration’
‘3054-xx-001 Direction and Administration’
Minus Debit ‘2059-80-001 Direction and Administration
Sub Head–Deduct establishment charges transferred on
percentage basis to Revenue Major Heads’
A similar procedure is adopted for distribution of ‘Tools and Plants’ charges. In addition,
certain Departmental Charges, including pensionary and audit charges, are levied on all works on
a percentage basis. The receipts are then accounted as provided in Appendix 2 of CPWA code for
the Union and as per PWD accounting provisions of the State. The pensionary charges are taken
as a receipt under ‘0071 Contribution and Recoveries towards Pension and other Retirement
Benefits’. The audit charges on work done for other departments of the Government are taken
as a reduction of expenditure under ‘2016 Audit’ and as receipts under ‘0075 Miscellaneous
Administrative Services’ if recovered from other Government and non-Government bodies.

9.1.12 Other Accounting Transactions

Paragraph 8.37 of CAG’s MSO (A&E) Vol I deals with the operation of the head ‘8782-
102-III Other Remittances’. Transactions pertaining to non-Public Works heads of account,
which occur in the Public Works Divisions are booked in the head ‘8782-102-III OR a. Items
adjustable by Civil Officers’. The details of such transactions, along with the supporting
documents are sent to the AG office, where they are transferred to the final head of account.

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When a transaction relating to PWD originates in a Civil Office, it is booked under

‘8782-102-III OR b. Items adjustable by PWD’ and the details along with the supporting
documents are sent to the AG office. These documents are sent to the concerned PWD
office for transferring to its final head of account. For example, when land is acquired by the
Government through a Special Land Acquisition Officer (SLAO), the cost is initially booked
under the revenue department head (Major Head 2053). This expenditure is then transferred to
the remittance head ‘8782-102 III b Item adjustable PWD’ through the following accounting
entry in the AG office:
Minus Debit ‘2053 District Administration’
Debit ‘8782-102 III b Item adjustable PWD’
This remittance head is then cleared by the PWD by transferring it to the final Works
head of account to which the purchase of land is to be booked.
Accounting treatment of several other charges like carriage/incidental charges, rates/
taxes on buildings, execution of works by other departments, execution of Government work
by Local Bodies etc. are governed by Sundry Rulings (paragraph 10.8 of CPWA code).

9.1.13 Accounts rendered to AG office

The Division prepares monthly account in form 80. It is a summarized statement
containing Major Head-wise figures of all transactions in the Division. The figures in the
monthly accounts are supported by Schedules. Schedule of Revenue Realized (Form 46)
gives details of all Major Heads relating to revenue realized, refund of revenue and receipts/
recoveries on Capital Account. A Classified Abstract of Expenditure in form 74 gives details
of all Major Heads relating to revenue and capital expenditure. Schedule of Credits to
Miscellaneous Heads of Accounts (Form 76) contains details of deductions made relating
to taxes, interest receipts, GPF, long term loans, group insurance etc. Schedule of Deposits
(Form 79) gives details of transactions under Public Works Deposits. The cash balance is
shown in the monthly account. A Schedule of debits/credits to Remittances (Form 77) gives
details of all cash/cheque collected and remitted into the bank. It also gives details of all
cheques issued by the divisions and paid by the bank. The details of received cheques and paid
cheques encashed in the bank are obtained from the treasury.
Paragraph 8.18 of CAG’s MSO (A&E) Vol I lists out the checks that are to be exercised
in the monthly accounts rendered by the Divisions. Internal consistency between the monthly
accounts figures and those in the schedules is checked. If there are any discrepancies, these
are taken up with the concerned Division for rectification. The monthly accounts and the
supporting schedules are fed into the VLC. As the accounts rendered by the Divisions are
compiled accounts, the Classified and Consolidated Abstracts can be directly generated after
feeding the divisional accounts into the VLC. These abstracts are sent to the Book Section for
preparation of the monthly accounts.

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Apart from the accounting classification-wise information, the divisional accounts

also include a Schedule of Works Expenditure in form 64 relating to all Government Works
and Schedules of Deposit/Takavi Works (Form 65/66) relating to Deposit and Takavi (land
development) works. This gives details of individual works carried out by the Division. Under
each detailed accounting classification-wise information relating to Government Works
contained in form 74, there could be several Works undertaken by the Division. Form 64
gives details of this information.
Similarly, all works under the detailed accounting classification relating to deposit
works contained in form 79 is shown in form 65. Each Work shown in forms 64, 65 and 66
is supported by a Schedule Docket (Form 61). The Schedule Docket is a detailed account
of each work. It includes all transactions relating to the work including receipts taken as
reduction of expenditure, expenditure items, stock transactions etc. Each of these transactions
is supported by vouchers, receipts and transfer entry details. There is a separate Schedule
Docket for Percentage Charges. These documents are used for Central Audit of PWD.
An example of preparation of Classified Abstract from Divisional Accounts is shown below:
Office of the Accountant General (A&E), Himachal Pradesh has received accounts
during July 2016 from two Public Works divisions as detailed below.
a. Monthly Account of Division ‘A’
Head of Account Receipts (`) Payments (`)
0059-Public Works 33,523
0853-Non Ferrous Mining and Metallurgical Industries 7,581
2059-Public Works (NP) 7,68,138
8782-Cash Remittances and adjustments between officers 7,68,138 41,104
rendering accounts to the same Accounts Officer
Total 8,09,242 8,09,242

b. Monthly Accounts of Division ‘B’

Head of Account Receipts (`) Payments (`)
0059-Public Works 16,781
0853-Non Ferrous Mining and Metallurgical Industries 6,832
2059-Public Works (NP) 6,65,231
3054-Roads and Bridges 2,25,351
8782-Cash Remittances and adjustments between officers 8,90,582 23,613
rendering accounts to the same Accounts Officer
Total 9,14,195 9,14,195

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Since the Divisional Accounts are compiled accounts, no further compilation is required in
the AG office. The figures can be posted directly into different parts of the Classified Abstract.
On the basis of the above information, the Classified Abstract is prepared as follows:
Part-1 : Details of Service Head Receipts
Head of Account Division-A Division-B Total
0059 33,523 16,781 50,304
0853 7,581 6,832 14,413
Total 41,104 23,613 64,717
Parts 2&3 : DDR Receipts & Deductions
Head of Account Division-A Division-B Total
8782 7,68,138 8,90,582 16,58,720
Part 4 : Details of Service Head Expenditure
Head of Account Division-A Division-B Total
2059 7,68,138 6,65,231 14,33,369
3054 - 2,25,351 2,25,351
Total 16,58,720
Part 5 : DDR Expenditure
Head of Account Division-A Division-B Total
8782 41,104 23,613 64,717
Parts 6&7 : Proof Sheet
Receipt Payment
(i) Details of Service Head receipts/payments 64,717 16,58,720
(ii) Details of DDR receipts/payments 16,58,720 64,717
Total 17,23,437 17,23,437

9.2 Forest Accounting

The Forest Department
is headed by the Secretary of
the Department. The Principal
Chief Conservator of Forest
is the Grant Controlling
Authority. She/He is assisted
by the Chief Conservators
and Conservators of Forest.

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The Forest Divisions are headed by the Divisional Conservator of Forest (DFO). She is
responsible for rendering accounts of the Division on a monthly basis to the Accountant
General of the State. The accounts rendered by the DFO is a compiled account, similar to that
of the Works accounts. In preparation of the accounts, she consolidates the accounts of the
Range Office, headed by the Assistant Conservators of Forest.
The accounting provisions relating to the forest department are contained in
Part III of Account Code Volume III. These are supplemented by the rules framed by the State
Governments. The accounting transactions in the Forest Divisions are similar to that of the
Works Divisions. For the remittances, the Divisions use the head of account ‘8782-103 Forest
Remittances’. ‘I Remittances into Treasuries’ is used when receipts are remitted into banks
and ‘II Forest Cheques’ are used when cheques are issued.
The forest divisions also operate through the LoC system of budgetary control. In many
States, the forest divisions transact their establishment expenditure also through the LoC system.
With the increase in the banking system coverage, many States are moving away from the LoC
system for their forest department as well. For example, Himachal Pradesh has moved to treasury
system for payments relating to establishment expenses in the forest divisions since 2010.
The key method of implementing forest projects is through payment of advances.
The Forest Divisions disburse advances to its employees (disbursers) and to contractors for
implementation of various projects. These are accounted under ‘8550-101 Forest Advances’.
The accounting entry passed when such advances are given is as follows:
Debit ‘8550-101 Forest Advances’
Credit ‘8782-103 II Forest Cheques’
When the expenses are incurred and supporting vouchers submitted by the disbursers
and the contractors, these are booked into the final head of account. For example, when the
expenditure is incurred on forest conservation, the accounting entry passed would be as follows:
Debit ‘2406-01-101 Forest Conservation, Development & Regeneration’
Credit ‘8550-101 Forest Advances’
Monthly accounts consist of the Cash Account, which is the Major Head-wise summary
of all transactions in the Division. This is supported by Classified Abstract of Revenue and
Expenditure and various schedules containing details for the amounts booked under the Major
Heads in the Cash Account. The Classified Abstract is supported by a detailed account, with
vouchers and receipts for each transaction. The Schedules include Schedule of Remittances into
Treasuries and Abstract of Contractors’ and Disbursers’ Ledger. The procedure for checking
and accounting the Divisional accounts received in the AG office is contained in Chapter 9
of CAG’s MSO (A&E) Vol I. The Forest Divisional accounts, being compiled accounts, are
directly posted in the VLC after exercising the prescribed checks to generate the Classified

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and Consolidated Abstracts. These are then sent to the Book Section for preparation of the
Monthly Civil Account of the State. The Forest Accounting Section also maintains broadsheets
for ‘8782 Remittances’ and ‘8550 Forest Advances’ to track their timely settlement.
An example of preparation of Classified Abstract from the accounts rendered by the Forest
Divisions is shown below:
Office of the Accountant General (A&E), Uttar Pradesh has received accounts during
June 2016 from two Forest divisions as detailed below.
a. Monthly Accounts of Division ‘A’
Head of Account Receipts (`) Payments (`)
0406-Forestry and Wild Life 19,590
2406- Forestry and Wild Life 2,70,779
8550-Civil Advances-Forest Advances 5,15,000
8782-Cash Remittances and adjustments between officers 7,85,779 19,590
rendering accounts to the same Accounts Officer
Total 8,05,369 8,05,369

b. Monthly Accounts of Division ‘B’

Head of Account Receipts (`) Payments (`)
0406-Forestry and Wild Life 34,575
2406- Forestry and Wild Life 2,23,575
2402-Soil and Water Conservation 1,05,550
8782-Cash Remittances and adjustments between officers 3,29,125 34,575
rendering accounts to the same Accounts Officer
Total 3,63,700 3,63,700

On the basis of this information, the Classified Abstract is prepared as follows:

Part-1 : Details of Service Head Receipts

Head of Account Division-A Division-B Total
0406 19,590 34,575 54,165

Parts- 2&3: Details of DDR Receipts & Deductions

Head of Account Division-A Division-B Total
8782 7,85,779 3,29,125 11,14,904

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Part-4 : Details of Service Head Expenditure

Head of Account Division-A Division-B Total
2402 1,05,550 1,05,550
2406 2,70,779 2,23,575 4,94,354
Total 5,99,904

Part-5 : Details of DDR Expenditure

Head of Account Division-A Division-B Total
8550 5,15,000 5,15,000
8782 19,590 34,575 54,165
Total 5,69,165

Part-6&7: Proof Sheet

Particulars Receipts Payments
(i) Details of Service Head receipts/payments 54,165 5,99,904
(ii) Details of DDR receipts/payments 11,14,904 5,69,165
Total 11,69,069 11,69,069

9.3 Annual Reviews of the working of the Divisions

An annual review of the working of the Public Works Divisions is prepared and sent
to the State Government. It incorporates deficiencies noticed during consolidation of the
divisional accounts and irregularities observed during Central Audit and field inspections.
The review would have the following statements elaborating the deficiencies noticed during
compilation of accounts:
Statement 1 - Statement showing delay in receipt of accounts and vouchers
Statement 2 - Statement showing Divisions from which Schedules attached to the
accounts were not received
Statement 3 - Statement showing amounts held under objection during compilation
of the accounts
Statement 4 - Amounts outstanding under ‘8782-102 III Other Remittances – b.
items adjustable by PWD’
Statement 5 - Statement showing arrears in reconciliation
Statement 6 - Statement showing defects in the preparation of Monthly Accounts

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The following three statements relating to Audit are also included in the review:
Statement 1 - Common types of irregularities noticed in Central Audit
Statement 2 - Details of Audit Notes and Inspection Reports not replied
Statement 3 - Important irregularities noticed during local inspection of PW
Divisions
A similar review is prepared for the Forest Division Accounts and submitted to the
State Government at the end of the year.

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CHAPTER-10

Account Current Section

T
he Account Current (AC) Section deals with inter-Government transactions. Rule
13 of Government Accounting Rules (GAR), 1990 deals with transactions of
other Governments, including Central Government in State Treasuries. Rule 16 of
GAR, 1990 deals with the process of accounting transactions that occur between different
Accounts Offices of the Central Government, between Centre and State and between two
State Governments. Chapter 5 of Account Code for Accountants General (ACAG) deals with
inter-Government transactions and their adjustments. There are two ways in which these
transactions are adjusted. They are as follows:

10.1 RBI Advice Procedure

In this type of adjustment, advices are sent to the Central Accounts Section (CAS)
of RBI by the concerned AG (in the case of State Government) or by the Accounts Officer
(AO) concerned (in the case of Union Departments) to increase/decrease the balances of
the Government concerned with a per contra decrease/increase of the balances of the other
Government. The vouchers, schedules and other particulars of such inter-Government
transactions are sent to the other AG/AO concerned for accounting. This procedure is adopted
for accounting of the following transactions:
A. Accounting of all transactions between States, except those with Sikkim
B. Payment of loans by Union Government to the State Governments and their repayments
by the State Governments
C. Release of Grants-in-aid by the Union Government to the State Governments
D. Payment of State share of Union taxes, like income tax, excise etc.

10.2 Cash Settlement Procedure

In this procedure, the amount to be settled is adjusted by exchange of cheques/drafts.
This procedure is adopted for all other kinds of transactions but for those where RBI procedure
is adopted. This procedure is also adopted for transactions of Sikkim with other States. This
is adopted in case of all transactions between PAOs of different departments of the Union
Government. As physical cheques/drafts are to be sent between the offices and accounted
for, control registers are maintained in the Accounts Offices. These registers include Outward
Claim Register, Inward Claim Register and Register of Valuables.

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The inter-Governmental transactions can further be classified into two types on the
basis of their impact in the accounts of the Government concerned.

10.3 Outward Account

If the transaction pertains to another Government, this is ultimately adjusted by the other
Government. When it is finally adjusted, it has no impact on the accounts of the Government
where the transaction happened. This is called Outward Account. For example, when a
pensioner of Uttar Pradesh settles in Himachal Pradesh, the pension payments are made by the
Himachal Government on the basis of Pension Payment Authorisation by the Uttar Pradesh
Government. This expenditure, initially borne by Himachal Pradesh, is finally reimbursed by
the Uttar Pradesh. Thus, it has no impact in the accounts of the Himachal Pradesh Government.
This is, therefore, an outward account for the Himachal Pradesh Government.

10.4 Inward Account

When an inter-Governmental transaction has an impact on the Governments’ account,
after final adjustments, it is an inward account for the concerned Government. In the above
example, the transaction is an inward account for the Uttar Pradesh Government. In some cases,
an inter-Government transaction could be an inward account for both Governments in the
transaction. For example, when the Central Government grants loan for a State Government,
it is accounted through an inter-Government accounting procedure. However, when the
transaction is finally accounted, it impacts the books of accounts of both the Governments.
Therefore, it is an inward account for both the Central and State Governments involved in this
transaction.
Transitory heads are operated for accounting inter-Government transactions. The
transitory head to be operated for a transaction depends on the nature of such transaction. The
transitory head to be operated for various kinds of inter-Government transactions is tabulated
below:

Outward Account Inward Account

8793 ISS 8658-110 CAO RBS
RBI Advice
8786 Adjustment between Central & State Governments
8658-101 PAO Suspense 8658-101 PAO Suspense
Cash 8658-112 TDS (Centre)
Settlement 8658-102 (Railways, Defence, Post, Telecom) 8658-109 RBS HQ Suspense
(State)

The following examples would elaborate the process adopted in accounting various
inter-Government transactions.

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10.5 RBI Advice Procedure examples

A. The account received from a treasury in Himachal Pradesh has a transaction
relating to payment of pension booked under the head of account 8793- Account
with Punjab for ` 50,000 (Dr.).
This is a case of payment of pension for a Punjab State pensioner settled in Himachal
Pradesh. This is an outward account for Himachal Pradesh and an inward account for Punjab.
Since this is about inter-State transaction, this has to be adjusted through the RBI advice
procedure. Accordingly, the treasury has booked the payments under ‘8793 Inter State
Suspense’. When the amount is paid by the treasury, the following accounting entry is made:
Debit ‘8793 ISS – Account with Punjab’
Credit ‘8675-106 Deposit with Reserve Bank-States’
The bookings under Major Head ‘8793’ appear in the LoP of the treasury account. The
CTS sends the supporting documents (SoP and vouchers) of this head to the AC Section, as
this is a head relating to inter-Governmental transactions. In the AC Section of the AG office
of Himachal Pradesh (HP), the bookings under ‘8793’ relating to Punjab are consolidated. A
Minor Head is assigned for each State to facilitate this consolidation. The net amount which
is to be adjusted with the State of Punjab is arrived at. The AC Section then sends an Inter-
Government Advice (IGA) to the CAS of RBI to debit the Consolidated Fund (CF) of Punjab
by the net amount and credit the CF of HP by an equal amount. Every IGA is assigned a
unique number. A copy of the IGA, with the supporting vouchers is sent by the AC Section of
AG office of HP to the AG office of Punjab.
The CAS RBI carries out the adjustment on the basis of the IGA of AG office of HP.
It then sends a Clearance Memo (CM) of the adjustments made to the AG offices of HP and
Punjab. The CM has reference to the IGA number. On receipt of the CM, the AC Section of
AG office at HP carries out the following accounting entry:
Debit ‘8675-106 Deposit with Reserve Bank-States’
Minus Debit ‘8793 ISS – Account with Punjab’
This is a reversal of the original entry made in the treasury. As a result, there is no impact
on the accounts of HP. The AG office of Punjab receives the CM from CAS, RBI. This is passed
on to the AC Section. This is an inward account for Punjab and is an RBI advice procedure.
Therefore, the AC Section passes the following accounting entry on the basis of the CM:
Debit ‘8658-110 Central Accounts Office – Reserve Bank Suspense (CAO RBS)’
Credit ‘8675-106 Deposit with Reserve Bank-States’
The AC Section then receives the copy of IGA with the supporting vouchers from the AG
office of HP. On the basis of the supporting vouchers, the AC Section realises that it is a pension
payment. Accordingly, the AC Section clears the suspense through the following accounting entry:

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Debit ‘8658-111-2071 Pensions’

Minus Debit ‘8658-110 CAO RBS’
For the Departmental Adjustment Account Suspense raised by the AC Section, it
generates a Suspense Slip and sends it, along with the supporting vouchers, to the DC Section
compiling pensionary payments. On receipt of the Suspense Slip and the supporting vouchers,
the DC Section clears the DAA and books the expenditure to the final head of account through
the following accounting entry:
Debit ‘2071 - Pensions’
Minus Debit ‘8658-111-2071 Pensions’
B. An assessee deposits ` 55,000 in Lucknow treasury relating to Value Added Tax
(VAT) receipts of Madhya Pradesh (MP) Government.
This is a transaction to be adjusted between two States. Therefore, RBI advice procedure
is to be adopted. It is an outward account for Uttar Pradesh (UP) and an inward account for
MP. When the Lucknow treasury accounts for the receipt, it would observe that this pertains to
MP. Therefore, it would book the amount under ‘8793 ISS – Account with MP’. The following
accounting entry is made in the treasury:
Debit ‘8675-106 Deposit with Reserve Bank-States’
Credit ‘8793 ISS – Account with MP’
This is received in the Cash Account of the treasury in the AG office. The CTS sends the
SoR and challan relating to this transaction to the AC Section. The AC Section consolidates all
the transactions relating to MP and sends an IGA to debit the CF of UP and credit the CF of
MP by the consolidated amount. A copy of the IGA, with the supporting documents are sent
to the AG office of MP. The CAS, RBI makes the adjustments and sends the CM to both the
States. On receipt of the CM in UP, the following entry is made:
Minus Credit ‘8793 ISS – Account with MP’
Credit ‘8675-106 Deposit with Reserve Bank-States’
This reverses the original entry made in the treasury. Thus, there is no impact on the
accounts of UP. On receipt of CM in the AG office of MP, the AC Section operates the Suspense
head for inward account (‘8658-110 CAO RBS’). The following accounting entry is made:
Debit ‘8675-106 Deposit with Reserve Bank-States’
Credit ‘8658-110 CAO RBS’
When the supporting challans and copy of IGA is received in the AG office of MP,
the AC Section realizes that it is a Sales Tax receipt. Accordingly, it passes the following
accounting entry:
Minus Credit ‘8658-110 CAO RBS’
Credit ‘8658-111-0040 VAT’

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The AC Section raises a Suspense Slip for the DAA Suspense and sends it, along with
the challan, to the DC Section compiling the Major Head ‘0040’. On receipt of the Suspense
Slip and Challan, the DC Section settles the DAA Suspense and books the receipt to the final
Head of Account through the following accounting entry:
Minus Credit ‘8658-111-0040 VAT’
Credit ‘0040 VAT’
C. The Government of Himachal Pradesh receives a loan of ` 50 crore from the
Central Government to cover gap in resources.
This is a transaction between the Union Government and a State Government relating
to release of loan. Therefore, it is to be adjusted through the RBI advice procedure. The
accounting books of both the Governments would be affected, because the loan amount is
to be booked as an asset (debit item) in the Union Government Accounts and as a liability
(credit item) in the State Government Accounts. Therefore, it is an inward account for both
the Governments.
When the loan to HP Government is sanctioned in the Department of Economic Affairs
(DEA), the Pay and Accounts Officer (PAO) of DEA passes the following accounting entry:
Debit ‘7601-01-101 Loan to cover gap in resources’
Credit ‘8658-110 CAO RBS’
The PAO then sends an IGA to CAS, RBI advising it to debit the CF of India and credit
the CF of HP. She also sends a copy of the IGA with a copy of the sanction order to the HP
Government and the AG office of HP. The RBI carries out the advice and sends a clearance
memo to the PAO of DEA and AG office of HP. On receipt of the CM, the PAO of DEA passes
the following accounting entry:
Minus Credit ‘8658-110 CAO RBS’
Credit ‘8675-101 RBD Central Civil’
On receipt of the CM from CAS, RBI, the AC Section in AG office of HP passes the
following accounting entry:
Debit ‘8675-106 Deposit with Reserve Bank-States’
Credit ‘8658-110 CAO RBS’
When the sanction order is received from the PAO of DEA, it becomes apparent that it
pertains to loan to cover gap in resources. Accordingly, the AC Section clears the CAO RBS
by passing the following accounting entry:
Minus Credit ‘8658-110 CAO RBS’
Credit ‘6004-01-101 Loan to cover gap in resources’
The loan details, including the sanction orders are then sent to the Loans and Advances
(LA) Section for maintenance of subsidiary accounts of the loan.

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D. AG of Haryana makes a repayment of Central loan of ` 2 crore, and interest thereon

of ` 10 lakh.
This is a transaction between the State and the Union Government relating to repayment
of loan. Therefore, it is to be adjusted through the RBI advice procedure. Since it would
impact the books of both the Union and the State Government, it is an inward account for
both. The LA Section maintains detailed accounts of the loans of the State Government. As
per the repayment schedule, it advices the AC Section to repay the principal amount and
interest thereon. On the advice of the LA Section, the AC Section sends an IGA to CAS, RBI
to debit the CF of Haryana by ` 2.10 crore. It sends a copy of the IGA and repayment details
of the principal and interest to the PAO of DEA. The accounting entry passed by the AC
Section would be as follows:
Debit ‘6004 Loans from Central Government’ ` 2 crore
‘8658-111-2049 Interest’ ` 10 lakh
Credit 8658-110 CAO RBS’ ` 2.10 crore
The AC Section generates a Suspense Slip for the interest charge and sends it to the DC
Section dealing with ‘2049’. On receipt of the Suspense Slip with supporting details, the DC
Section clears the DAA Suspense with the following accounting entry:
Minus Debit ‘8658-111-2049 Interest’ ` 10 lakh
Debit 2049 – Interest’ ` 10 lakh
The RBI carries out the advice of the AC Section of Haryana and sends the CM to both
AG office of Haryana and PAO of DEA. On receipt of the CM, the AC Section clears the CAO
RBS through the following accounting entry:
Minus Credit ‘8658-110 CAO RBS’ ` 2.10 crore
Credit ‘8675-106 Deposit with Reserve Bank-States’ ` 2.10 crore
When the PAO, DEA receives the CM, the following accounting entry is made:
Debit ‘8675-101 RBD Central Civil’
Credit ‘8658-110 CAO RBS’
On receipt of the repayment details, the PAO clears the CAO RBS through the following
accounting entry:
Minus Credit ‘8658-110 CAO RBS’ ` 2.10 crore
Credit ‘7601 Loans to State Government’ ` 2 crore
0049 Interest’ ` 10 lakh
The PAO does not operate DAA Suspense, because she prepares compiled accounts.
She, therefore, accounts the Service Heads transactions directly in the final Head of
Account.

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E. The Union Government releases ` 50 crore to Himachal Pradesh as the State’s

share of Income Tax.
When the States’ share of Income Tax is arrived at, the PAO of Central Board of Direct
Taxes (CBDT) would account for this transaction. This being a transaction between the Union
Government and State Governments relating to States’ share of Union taxes, RBI advice procedure
is adopted to make this adjustment. This impacts the books of accounts of both the Governments.
Therefore, it is an inward account for both. The share is to be adjusted as a reduction of revenue in
the Union Accounts. Accordingly, the PAO passes the following accounting entry:
Minus Credit ‘0021-901 Share of net proceeds assigned to States’
Credit ‘8658-110 CAO RBS’
The PAO sends an IGA to CAS, RBI. The copy of the IGA along with details of
the State’s share is sent to HP. The RBI acts on the advice of the PAO to debit the Union
Consolidated Fund and credit the CF of HP. It then sends the CM to the PAO and the AG office
of HP. On receipt of the CM, the PAO, CBDT carries out the following accounting entry:
Minus Credit ‘8658-110 CAO RBS’
Credit ‘8675-101 RBD Central Civil’
On receipt of the CM, the AC Section in AG office of HP carries out the following
accounting entry:
Debit ‘8675-106 Deposit with Reserve Bank-States’
Credit ‘8658-110 CAO RBS’
When the details of the credit are received from the PAO, CBDT, the AC Section clears
the CAO RBS through the following accounting entry:
Minus Credit ‘8658-110 CAO RBS’
Credit ‘8658-111-0021 Taxes on Income other than Corporation Tax’
It then generates a Suspense Slip and sends it, along with the supporting details, to the
DC Section responsible for compilation of the Major Head ‘0021’. On receipt of the Suspense
Slip with the supporting documents, the DC Section accounts it into the final Head of Account
through the following accounting entry:
Minus Credit ‘8658-111-0021 Taxes on Income other than Corporation Tax’
Credit ‘0021-901 Share of net proceeds assigned to States’

10.6 Cash Settlement Procedure examples

A. In the accounts of a Treasury in Himachal Pradesh (HP) an amount of ` 2,00,000
is booked under head of account ‘8658-112 Tax Deducted at Source (TDS)’.
This is a transaction between the State and the Union. The transaction does not relate
to those that are to be adjusted through the RBI advice procedure. Therefore, this transaction

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is to be adjusted through the Cash Settlement Procedure. TDS is a Central receipt which has
been made in the State Treasury. Therefore, it is an outward account for the State Government,
as this would have no impact on its account after it is transferred to the Union. This is an
inward account for the Union Government.
TDS is a treasury deduction that is effected in payments made in the treasury. This is
accounted under ‘8658-112 TDS’. The accounting entry in the treasury for this transaction is
as follows:
Debit ‘8675-106 Deposit with Reserve Bank-States’
Credit ‘8658-112 TDS’
This amount appears in the Cash Account of the treasury accounts. The CTS sends the
supporting details (SoR and Schedules) to the AC Section as this pertains to Union transactions.
The AC Section consolidates the bookings under ‘8658-112 TDS’ from all treasuries and enters
the total amount in the Outward Claim Register. The AC Section then sends a requisition for
demand draft from the bank for the gross bookings under ‘8658-112 TDS’. The DD requisition
to the bank has the Head of Account ‘8658-112 TDS’ marked on it. The bank issues a DD to the
AC Section. When the Section receives the DD, it enters its details in the Register of Valuables
and sends it, along with the details of receipt, to the PAO of CBDT.
The bank passes on the payment details to the Treasury in the place where the AG
office is located through the Payment Scroll with the Head of Account ‘8658-112 TDS’. The
treasury receiving the payment scroll finds a debit appearing against ‘8658-112 TDS’ and
passes the following accounting entry:
Debit ‘8658-112 TDS’
Credit ‘8675-106 Deposit with Reserve Bank-States’
This reverses the original entries made in the treasuries of the State and as a result, there
is no impact on the State Accounts.
The PAO receives the DD and the details of receipt from the AG office of HP. The
details of receipt are entered in the Inward Claim Register. The PAO enters the details of the
DD in the Register of Valuables and sends it for encashment to the Bank with the Head of
Account ‘8658-101 Pay and Accounts Office (PAO) Suspense’. She then passes the following
accounting entry for the receipt of the DD:
Debit ‘8658-101 PAO Suspense’
Credit ‘0021-103-TDS (Note 3(ii))’
When the DD is encashed, it appears in the Receipt Scroll of the bank. On the basis of
the receipt Scroll, the PAO carries out the following accounting entry:
Debit ‘8675-101 RBD Central Civil’
Minus Debit ‘8658-101 PAO Suspense’

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B ` 25,000 has been recovered towards HBA of a Central Government officer on

deputation to Haryana.
This is an adjustment between Haryana Government and Union Government. This
is not a transaction that is to be adjusted through RBI advice procedure. Therefore, Cash
Settlement Procedure needs to be adopted for this transaction. This is an outward account for
Haryana and an inward account for Union Government.
Since it is an outward account to be settled through Cash Settlement, the treasury books
the deduction under ‘8658-101 PAO Suspense’. The accounting entry in the treasury would
be as follows:
Debit ‘8675-106 Deposit with Reserve Bank-States’
Credit ‘8658-101 PAO Suspense’
The PAO Suspense appears in the Cash Account of the treasury. The details of this
transaction are sent to the AC Section by the CTS. From the details of the deduction, the AC
Section realizes that it is a repayment of House Building Advance. The AC Section sends a
requisition for a DD with the accounting classification ‘8658-101 PAO Suspense’ after noting
the details in the Outward Claim Register. The Bank issues a DD and sends the details of the
debit to the treasury where the AG office is located through the Payment Scroll.
On receipt of the DD, the AC Section makes an entry of the details of the DD in
the Register of Valuables and sends it, along with the supporting documents to the PAO
concerned. The treasury, on receipt of the Payment Scroll from the Bank, makes the
following accounting entry:
Minus Credit ‘8658-101 PAO Suspense’
Credit ‘8675-106 Deposit with Reserve Bank-States’
This reverses the original entry, when the transaction is accounted in the AC Section.
So, there is no impact on the account of Haryana. When the PAO of the Union Government
receives the DD with the supporting documents, she makes an entry of the details of the
transaction in the Inward Claim Register and the details of the DD in the Register of Valuables.
She makes the following accounting entry:
Debit ‘8658-101 PAO Suspense’
Credit ‘7601-201 HBA’
The PAO then sends the DD for encashment with the accounting classification ‘8658-
101 PAO Suspense’. The bank gives a credit to this head in the Receipt Scroll sent to the PAO.
On receipt of the Scroll, the PAO makes the following entry to clear the PAO Suspense:
Debit ‘8675-101 RBD Central Civil’
Minus Debit ‘8658-101 PAO Suspense’

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C PAO, Ministry of Industry of Government of India recovers ` 20,000 towards GPF

from the pay of an Officer of the Gujarat Government on deputation to the Ministry.
This is a transaction to be adjusted between Union Government and a State Government
and this is not covered under the RBI adjustment procedure. Therefore, this is to be adjusted
through the Cash Settlement Procedure. This is an outward account for the Union Government
and an inward account for the Gujarat Government.
Since this deduction is an outward account, the PAO books in under ‘8658-101 PAO
Suspense’ through the following accounting entry:
Debit ‘8675-101 RBD Central Civil’
Credit ‘8658-101 PAO Suspense’
He enters the details of this transaction in the Outward Claim Register and sends a
requisition to the Bank for a DD for ` 20,000 with the accounting classification ‘8658-101
PAO Suspense’. The Bank prepares a DD, sends it to the PAO and gives a debit to the PAO
Suspense in the Payment Scroll. The PAO enters the details of the DD in the Register of
Valuables and sends it, along with the details of the deduction to AG office of Gujarat. When
the Payment Scroll is received from the Bank, the PAO passes the following accounting entry:
Minus Credit ‘8658-101 PAO Suspense’
Credit ‘8675-101 RBD Central Civil’
This reverses the original entry and thereby leaving no impact on the accounts of
the Union. On receipt of the DD with the supporting documents, the AC Section in the AG
office of Gujarat makes entries in the Inward Claim Register and Register of Valuables. The
AC Section then sends the DD for encashment with the accounting classification ‘8658-109
Reserve Bank Suspense-Headquarters (RBS HQ)’, as this is an inward account. She passes
the following accounting entry:
Debit ‘8658-109 RBS HQ’
Credit ‘8009-01-101 GPF’
The supporting documents of the transaction are sent to the Funds Group of the office for
maintaining subsidiary accounts relating to the GPF subscription. On encashment of the DD,
the Bank gives a credit and enters it in the Receipt Scroll. On the basis of the Receipt Scroll,
the treasury in the place where the AG office is located will pass the following accounting
entry:
Debit ‘8675-106 Deposit with Reserve Bank-States’
Minus Debit ‘8658-109 RBS HQ’
This will settle the RBS HQ Suspense when the treasury account is accounted for in
the AC Section.

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D A PAO in the Ministry of Labour of Government of India procures certain items

worth ` 20 lakh for Kerala Government which would be finally booked to Revenue
Expenditure Head ‘2230- Labour and Employment’ in the State Account.
This is a transaction to be adjusted between Union Government and a State Government
and this is not covered under the RBI adjustment procedure. Therefore, this is to be adjusted
through the Cash Settlement Procedure. This is an outward account for the Union Government
and an inward account for the Kerala Government.
When the purchase is made, the PAO books the transaction under PAO Suspense
through the following accounting entry:
Debit ‘8658-101 PAO Suspense’
Credit ‘8675-101 RBD Central Civil’
He makes details of the transaction in the Outward Claim Register and sends the
supporting documents to the AG office of Kerala. The AC Section in AG office of Kerala
verifies the claim. The details are entered in the Inward Claim Register. The AC Section then
carries out the following accounting entry:
Debit ‘8658-111-2230 DAA Suspense’
Credit ‘8658-109 RBS HQ’
It generates a Suspense Slip and along with the supporting documents, sends it to the
DC Section compiling the Major Head ‘2230’. The DC Section checks the supporting voucher
and clears the DAA Suspense to book the expenditure in its final Head of Account through the
following accounting entry:
Debit ‘2230 Labour and Employment’
Minus Debit ‘8658-111-2230 DAA Suspense’
The AC Section sends a requisition to the Bank for DD with the accounting classification
‘8658-109 RBS HQ’. The Bank issues the DD and accounts a debit in the Payment Scroll. On
receipt of the DD, the AC Section makes an entry in the Register of Valuables and sends it
to the PAO, Ministry of Labour. On the basis of the Payment Scroll, the treasury in the place
where the AG office is located passes the following accounting entry:
Minus Credit ‘8658-109 RBS HQ’
Credit ‘8675-106 Deposit with Reserve Bank-States’
This will clear the RBS HQ Suspense when the treasury accounts are compiled in the
AC Section. On receipt of the DD, the PAO in the Ministry of Labour of Government of India
makes entry in the Register of Valuables and sends it to the Bank for encashment with the
accounting classification ‘8658-101 PAO Suspense’. The Bank will give a credit to this head
when it is encashed. This will appear in the Receipt Scroll of the Bank. On the basis of the
Receipt Scroll, the PAO clears the PAO Suspense through the following accounting entry:

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Debit ‘8675-101 RBD Central Civil’

Minus Debit ‘8658-101 PAO Suspense’
This will reverse the earlier accounting entry when the purchase was made. Thus, there
is no impact in the books of the Union Government.
E An amount of ` 125 lakh was spent by the Himachal Pradesh Government on
maintenance of National Highways. An amount of ` 50 lakh was received from
different agencies as compensation for digging the highways for various purposes.
The net amount of ` 75 lakh is to be reimbursed by the Ministry of Shipping, Road
Transport and Highways, Government of India to the Himachal Pradesh Government.
This is an outward settlement for Himachal Pradesh and an inward adjustment for
Government of India. This is not covered under the RBI adjustment procedure. Therefore, this
is to be adjusted through the Cash Settlement procedure. Since this is an outward account, the
treasury books the receipts and expenditure under ‘8658-101 PAO Suspense’. The expenditure
is booked through the following accounting entry:
Debit ‘8658-101 PAO Suspense’
Credit ‘8675-106 Deposit with Reserve Bank-States’
The AC section in the AG office of Himachal Pradesh initiates the claim by making an
entry in the Outward Claim Register and sends the details of the expenditure and the receipts.
When the DD is received from the Union Ministry against the claim, the AC Section enters the
details of the draft in the Register of Valuables and sends it to the bank for encashment with
the classification ‘8658-101 PAO Suspense’. When the draft is encashed, this is accounted by
the treasury on the basis of the scroll received from the bank. A credit appears against ‘8658-
101 PAO Suspense’ in the treasury accounts. On the basis of the treasury accounts, the AC
Section passes the following accounting entry that reverses the original debit:
Debit ‘8675-106 Deposit with Reserve Bank-States’
Credit ‘8658-101 PAO Suspense’
In the PAO of the Union Ministry, when the claim is received, it is entered in the Inward
Claim Register. The claim is checked and when found in order, the following accounting entry
is passed to book the expenditure:
Debit ‘3054-01-800 Other expenditure’
Credit ‘8658-101 PAO Suspense’
The PAO then sends a requisition for a DD with the classification ‘8658-101 PAO
Suspense’. On receipt of the draft, the details are entered in the Register of Valuables and sent
to the AG office of Himachal. On receipt of the scroll from the bank, the following accounting
entry is made by the PAO:
Debit ‘8658-101 PAO Suspense’
Credit ‘8675-101 RBD Central Civil’

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10.7 IS/CM Abstract

The AC Sections maintain broadsheets for all the transitory heads operated by it to track
their prompt settlement. For all the inward accounts transacted for the month, they prepare
an Inward Settlement/Clearance Memo (IS/CM) Abstract. This includes a Head of Account-
wise list of all the heads operated during the month relating to inward accounts. This Abstract
is sent to the Book Section at the end of the month for the preparation of the Monthly Civil
Account (MCA).
The following example shows the preparation of IS/CM Abstract:
Consider that there were two inward transactions that were accounted by the AC Section
in the AG office of a State during the month. The details of these transactions are as follows:
A. A Clearance Memo was received form RBI for receipt of ` 55 lakh into the State
Account
B. The AC Section sent an advice of ` 25 lakh to RBI for repayment of loans under Non-
Plan loans
The IS/CM Abstract would be prepared as follows:

S. No. Head of Account Debit Credit

8675 RBD 55,00,000
1
8658-110 CAO RBS 55,00,000
6004-01-800 25,00,000
2
8658-110 CAO RBS 25,00,000

The flow of information/documents and output of AC Section is summarized in the following

flow chart:

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 Pension Authorisation and Accounting
CHAPTER-11

Pension Authorisation
and Accounting

P
ension and other retirement benefits are budgeted as a separate grant in the Union
budget. The grant includes the Sub-Major Head ‘01 Civil’ under the Major Head ‘2071
Pension and other Retirement Benefits’ paid to government servants, Judges, legislators
etc. and ‘2235 Social Security and Welfare’. The Major Head ‘2235’ includes old age pension,
pension to freedom fighters etc. There is a separate Defence pension grant in the Union budget
that includes the Sub-Major Head ‘02 Defence’ under the Major Head ‘2071 Pension and
other Retirement Benefits’. In the case of State Government, pension is generally budgeted
under the Finance Department grant.

11.1 Defined Benefit Pension System

Government servants recruited till the year 2003 are covered under the defined benefit
pension system. This is governed by the Central Civil Services (Pension) Rules, 1971 for the
Central Government employees and similar rules framed by the State Governments for their
employees. The pension is payable to those employees who have put in a minimum qualifying
service, ten years in the case of Central Government employees. The amount of pension is
calculated at 50 per cent of the emoluments drawn by the employee. The pension paid is
accounted under the Minor Head ‘101 Superannuation and Retirement Allowances’ under the
Major Head ‘2071’.
The Government servant is allowed to commute her pension. Commutation of
pension is governed by the Central Civil Services (Commutation of Pension) Rules, 1981 for
Central Government employees and similar rules framed by the State Governments for their
employees. This is a purely optional facility available to the pensioner. The maximum amount
of pension that can be commuted is also fixed by the rules. If the pensioner opts to commute
her pension, she gets the commuted amount as a lump sum and the pension is reduced by the
percentage commuted for the period of commutation. After the period of commutation, the
full pension is restored.
A service gratuity is also payable on retirement to the Government servant. The amount
of service gratuity is calculated at the rate of half month’s emoluments for every completed
six monthly period of qualifying service. The service gratuity is accounted under the Minor
Head ‘104’. The Government servant is also allowed to accumulate her Earned Leave, subject
to a maximum of 300 days, and encash it at the time of retirement. This is accounted under the
Minor Head ‘115 Leave Encashment Benefits’.

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Family pension is payable to the dependent family members on death of a Government

servant while in service. The qualifying service required and amount of pension payable is
stipulated in the pension rules. If a pensioner passes away, family pension is payable to the
dependents. There are provisions for payment of enhanced family pension till a specified period
after which normal family pension is paid. The various retirement benefits are calculated,
authorized and paid by designated entities for the Central and State Government employees.

11.1.1 Pension Authorization and Accounting in States

Pension for State Government employees in 19 States are authorised by the AG
(A&E). System Automation Initiative (SAI) Pension is a workflow based IT Application
implemented in many offices to receive, process and authorise pension cases. The Service
Book of Government servant due to retire is sent by the concerned offices to the AG office.
The Service Book is scrutinized for non-qualifying periods like leave, suspension etc. and the
net qualifying service is arrived at. Pay fixation is also checked to arrive at the emoluments
based on which pensionary benefits are calculated. Pension, gratuity and commuted value
of pension (if the pensioner opts for commutation) are calculated. In case the pensioner has
opted for a Joint Pension Payment Order, family pension is also calculated.
Authorizations for pension and commutation are generated and sent to the treasury in
the area where the pensioner intends to settle. Copies of the authorizations are also sent to the
department concerned and the pensioner for information. The treasury makes the pension and
commutation payments to the pensioner on the basis of the authorization. Subsequent monthly
payments of pension are made by the agency bank of the treasury directly into the account of
the pensioner on the basis of details provided by the treasury to the bank. When a pensioner
decides to settle in a different State, the pension and commutation authorizations are sent to
the AG (A&E) of the concerned State after embossing the payment authorizations with the
Special Seal Authority (SSA).
The AG of that State then sends the authorizations with SSA to the treasury in the area
where the pensioner intends to settle. The treasury then makes the payment on the basis of
the authorizations and then instructs its agency bank to make subsequent monthly pension
payments directly into the account of the pensioner. The pension paid to such pensioners
is adjusted with the concerned State through the RBI advice procedure. A Pension Audit
Certificate (PAC) is sent to the concerned State for details of pension paid to such pensioners.
The PAC is a certificate by the AG office stating that the pension payment has been verified
and the original vouchers for such payments are retained in the office.
In the case of a Joint Pension Payment Order, details of the amount of family pension
payable and the list of dependents are also included in the order. In the event of the death of
the pensioner, the treasury can automatically initiate payment of family pension in such cases.

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In other cases, the death certificate of the pensioner and details of the dependents, along with
the Service Book, are to be sent to the AG’s office for authorization of family pension.
The Dearness Allowance paid to the pensioners is called the Dearness Relief (DR). Any
changes in the rate of DR are communicated to the banks. The DR paid to the pensioner is
revised by the banks on the basis of such communication. In the case of pensioners settled in
other States, the AG intimates such changes to the AG of those States, who in turn intimates
the treasuries concerned for increase of DR rates. Revision of pension could be necessitated
by such reasons as Pay Commission recommendations. These are carried out by the AG office
after receiving the details from the department. Fresh authorizations are issued to the treasuries
to effect payment of revised pension.
The AG office also calculates and authorizes the payment of gratuity. The gratuity is
paid by the department. Therefore, the authorization is sent to the department, with copies
to treasury and pensioner for information. Leave encashment is calculated and paid by the
department itself.
The vouchers relating to the first payment of pensions and other retirement benefits
reach the AG office through the treasury accounts and are compiled by the DC section
responsible for pension compilation. The Pension Group keeps track of timely payment of
pension and other retirement benefits. Subsequent monthly payments of pension are made
automatically by the bank and are not supported by vouchers. Instead, a statement of all the
pensioners to whom pension was paid and the details of such pensionary payment is sent to
the treasury. The treasury authenticates it and sends this statement to the AG office. The DC
Section responsible for pension compilation compiles these transactions. Details of pension
payments made in other States are received in the AC section along with the supporting PAC.
The AC section raises DAA suspense for the amount of pension payments and passes the
amount along with the supporting PAC to the DC section responsible for pension compilation
through a Suspense Slip. The DC section accounts these payments into ‘2071’ and settles
the DAA raised. It then generates the classified and consolidated abstracts for pension for its
incorporation into the monthly and annual accounts.

11.1.2 Pension Authorization and Accounting in Centre

The Central Pension Accounting Office (CPAO) is responsible for authorization and
accounting of payments to all Civil Pensioners of Central Government retiring from Civil
Ministries/Departments (except Railways, P&T and Defence), Union Territory Administrations
without Legislatures (Chandigarh, Andaman and Nicobar Islands, Daman & Diu, Dadra and
Nagar Haveli, Lakshadweep and Minicoy Islands) and Government of the National Capital
Territory of Delhi. Retired Judges of High Courts and Supreme Court are disbursed pension
through CPAO whereas the pensionary benefits disbursed to High Court Judges are reimbursed

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by the respective State Governments. It also covers All India Service pensioners, pensions to
former Members of Parliament and the payment of pension and other amenities to the former
Presidents and Vice Presidents of India and Freedom Fighters pension approved by Ministry
of Home Affairs.
The CPAO is an administrative unit of the Ministry of Finance, Department of
Expenditure under the Controller General of Accounts. The CPAO is headed by the Chief
Controller (Pensions). Consequent upon the establishment of this office, the CAG was relieved
of the work of payment and accounting of Central Government Civil Pensions and Pensions to
Freedom Fighters from the Financial Year 1990-91.
CPAO handles the Pension Grant, incorporating the Major Head ‘2071 Pension and
other Retirement Benefits’ and Major Head ‘2235 Social Security and Welfare’. The composite
grant is operated by all Civil Ministries, Defence (Civil), Departments of NCT of Delhi, Union
Territories without Legislature and by CPAO. While the former book terminal retirement
benefits like Commutation Value, Gratuity, Leave Encashment etc., CPAO accounts for the
monthly pension/family pensions and other payments disbursed by banks and reported to
CPAO through scrolls.
The CPAO functions through a software called PARAS (Pension Authorization, Retrieval
and Accounting System). PARAS Software aids in authorizing Central Civil, All India Services,
ex-MPs, ex-President & ex-Vice President, Central Freedom Fighters & Delhi Government
employees pensions through 42 Central Pension Processing Centres (CPPCs) of 26 Public
Sector Banks & 3 Private Sector Banks. It also helps in accounting and post audit of the pension
payments. Amendments to the Pension Payment Orders, including revision and commutation of
Pension is also carried out through this system. It also has an interface for grievance redressal.
Subsequent payment of pensions, including Family Pensions by banks on monthly
basis, is automatic and no bill is required to be submitted. The amount of monthly pension,
including dearness relief on pension sanctioned by Government from time to time, is credited
by the paying branch of authorized banks selected by the pensioner to his or her joint account
with his/her spouse.
The functions of CPAO include:
A. Preparation of Budget for the Pension Grant and Accounting thereof.
B. Issue of Special Seal Authority (SSA) for pension payment to Authorized Banks.
C. Reconciliation with the Banks with respect to Pension Disbursements by Bank and
conduct internal audit of pension payments by banks to check accuracy in pension
disbursement to pensioners.
The CPAO prepares Budget Estimates of the ensuing year and Revised Estimates of the
current financial year. It prepares and maps the Detailed Demand for Grants, incorporating

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figures of BE/RE and actual expenditure of the previous year. The CPAO maintains records
of all Government servants due to retire within ensuing 24 to 30 months as received from
Ministries/Departments for budget formulation. It also reviews expenditure on a monthly
basis to monitor the utilization of fund and follow up action.
Pension Payment Order (PPO) numbers are assigned to all PAOs before the start of
the year. The PAOs process the pension case and send the PPO to CPAO. The CPAO then
incorporates the SSA and issues it to the authorized bank for payment. The Central Pension
Processing Centre (CPPC) of the authorized banks receive the PPO and calculates the monthly
payments to be made to the pensioner. Changes in Pension paying parameters including
revised Dearness Relief, arrears of Dearness Relief etc. are also made by the CPPC. In the
CPPC, entire pensioner database of the concerned bank is kept, processing of pensions is
done centrally and pension is credited in the respective bank branches. CPPC functions as the
repository of entire pensioner database of the respective banks.
Electronic scrolls are sent by the banks to the CPAO having pensioner-wise details of
pension paid in the e-Scroll portal of CPAO. The CPAO checks the payments and intimates
the RBI for reimbursement of the payments to the bank. The CPAO then compiles the monthly
Account on the basis of scrolls received from different banks. It reconciles the compiled
figures with that of Monthly Statement received from CAS, RBI Nagpur.
The CPAO prepares Monthly Accounts for Grant for Pensions, operates the part
pertaining to Freedom Fighter Pensions in the Grant of Ministry of Home Affairs, settles
Inward and Outward claims against 29 AGs in respect of pension paid to Civil Pensioners,
Family Pensioners, Freedom Fighter pensioners, Burma Pensioners and High Court Judges
and deposits remittances received from different banks into Govt. A/c.
At the close of the financial year, information required for preparation of Annual accounts,
including Statement of Central Transactions, Detailed Appropriation Accounts and information
for Finance Accounts are prepared and submitted to the office of Controller General of Accounts.
Accounting information and data are also provided to the Ministry of Finance, Department of
Expenditure to facilitate effective budgetary and financial control of Grant for Pensions.
Departments, like Defence, have a separate grant for pension. They are managed by the
respective departments following a similar procedure.

11.2 National Pension Scheme

The National Pension System (NPS) is a defined-contribution pension system operated
by the Government of India. In 2004, the Government of India decided to move from a defined-
benefit pension system to a defined-contribution pension system. The Central Government
introduced the NPS with effect from January 1, 2004 (except for armed forces). Pension Fund
Regulatory and Development Authority (PFRDA), the regulatory body for NPS, has appointed

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National Securities Depository Limited (NSDL) as Central Recordkeeping Agency (CRA) for
National Pension System. CRA is the first of its kind venture in India which is carrying out
the functions of record keeping, administration and customer service for all subscribers under
NPS. CRA issues a Permanent Retirement Account Number (PRAN) to each subscriber and
maintains a database containing detailed accounting of each Permanent Retirement Account
along with recording transactions relating to each PRAN.
In NPS, a government employee contributes a monthly sum towards pension from
her salary along with a matching contribution from the employer (subject to a maximum
prescribed under the system). The employees’ contribution deducted from her salary is to be
accounted under a distinct Sub Head for employees’ contribution under the Minor Head ‘117
Defined Contribution Pension Scheme for Government Employees’ in the Major Head ‘8342
Other Deposits’. The Government contribution is debited as an expense to the Minor Head
‘117 Government Contribution for Defined Contribution Pension Scheme’ under the Major
Head ‘2071 Pensions and other Retirement Benefits’ and the amount is credited to a distinct
Sub Head for Government contribution under the Head of Account ‘8342-117’. The combined
balances of the employees’ and Government contributions are then paid to the Pension Fund
Managers through a debit to the Head of Account ‘8342-117’.
The funds are then invested in earmarked investment schemes through Pension Fund
Managers (PFMs). As per the present guidelines of PFRDA, contribution towards pension by
Central Government employees are invested in the default schemes of three PFMs, viz, LIC
Pension Fund Limited, SBI Pension Funds Pvt. Limited and UTI Retirement Solutions Limited
in a predefined proportion. Each of the PFMs will invest the funds in the proportion of 85 per
cent in fixed income instruments and 15 per cent in equity and equity linked mutual funds.
Presently, provisional pension/family pension is paid to the beneficiaries of Central
Government employees covered under the National Pension Scheme in case of death or
disability. The provisional pension is centrally disbursed by the Central Pension Accounting
Office (CPAO) on monthly basis in respect of all the Central Civil NPS subscribers directly
in the pension accounts of the beneficiaries. Based on the Provisional Pension Payment
Order (PPPO) received from the respective Ministry/Department, first time identification is
sought by CPAO from the concerned bank branch of the beneficiary and on receipt of the
same, bills are prepared by the NPS Section in CPAO and submitted to DDO, CPAO. After
necessary scrutiny, the DDO, CPAO tenders the bill to pre-check section for payment to the
beneficiaries through National Electronic Fund Transfer (NEFT) in the account of pensioner/
family pensioner.
In the case of State Governments, the status of appointment of Pension Fund Managers,
transfer of contributions to the Managers by the Government and any deficiencies relating to
the National Pension Scheme are disclosed in the Notes to Accounts of the Finance Accounts.

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 Accounting of Institutional Loans and Advances
CHAPTER-12

Accounting for Institutional Loans

and Advances
G
overnment grants loans and advances to public and quasi-public bodies, including
statutory corporations, Government companies and to individuals and private
institutions for development and other purposes. These are made under special laws,
for special reasons or as a matter of recognised policy. ‘F. Loans and Advances’ is a Sector under
the Section ‘Public Debt, Loans and Advances’ in the Division ‘Capital, Public Debt, Loans and
Advances’ in the Chart of Accounts and form a part of the Consolidated Fund of India/State. The
Heads of Account under which Loans and Advances can be granted are listed in the LMMH.
Paragraph 6 under General Directions in the LMMH deals with some of the Minor
Heads that can be opened and operated under the Loans and Advances Major Heads. For
example, the Minor Heads ‘190 Loans to Public Sector and Other Undertakings’ and ‘191
Loans to Local bodies and Municipalities/Municipal Corporations’ can be opened wherever
necessary under the Major Heads in the Loans and Advances Section. It further states that
the institution/organization to which loans are granted under each scheme should appear as
Detailed Heads under the Sub-Head concerned.
When the Union Government releases loans under ‘7601 Loans and Advances to
State Governments’ and ‘Loans and Advances to Union Territories’ Governments’, new
Minor Heads are to be opened to correspond to the programme in which the loan is intended
to be utilised. When the State/Union Territory Government receives the loan, it accounts
it under the Section ‘E. Public Debt’ in the Major Head ‘6004 Loans and Advances from
Central Government’. The loan receipts from the Central Government are also to be
accounted under new Minor Heads opened to correspond to the programme in which the
loan is intended to be utilised.
The Loans and Advances (LA) Section in the AG office maintains the subsidiary
accounts of loans, the detailed accounts of which are to be maintained by the AG. Chapter
6 of MSO (A&E) Vol I deals with the procedure for accounting of loans and advances. The
amount disbursed as loans and advances can be obtained from Statement 3 of the Union
Finance Accounts and Statement 7 of the State Finance Accounts.

12.1 Process of Accounting for Institutional Loans

The loans are sanctioned through a Sanction Order by the concerned Ministry/
Department. The Sanction Order contains the reasons for granting the loan and the conditions,
if any, attached to it. A copy of such Sanction Orders is sent to the AG office. The Sanction

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Order is scrutinized in the AG office to ensure that cases where loans are made for special
reasons or as a matter of recognized policy, the reasons for making such loans and the
conditions for which it is made are clearly stated. Any unusual conditions, like remission of
interest in an individual case would be enquired upon. The LA Section maintains a Subsidiary
Loan Register (SLR) for detailed accounting of individual loans. The release of the loan to
the institution is made through a bill drawn on the treasury. After payment, the voucher is sent
to the AG office along with the treasury accounts. The loan amount released is included in
the amount booked under the concerned Loan Head of Account in the LoP and it appears as a
debit item in the SoP supporting the LoP in the treasury account.
The CTS, on receipt of the treasury accounts, sends the LoP to the Book Section and the
SoP with the supporting vouchers relating to Loan Heads of Account to the LA Section. The
Book Section feeds the figures in the LoP into the VLC and generates the DB I. This contains
treasury-wise bookings under the various Heads of Account and their total for the month. In
the case of accounting for loans, this functions as the Ledger figure with which the LA Section
will tally after its detailed accounting.
On receipt of the SoP with the supporting vouchers, the LA Section posts each voucher
into the VLC. When all the vouchers relating to a loan head of account are posted from
the accounts rendered from all treasuries, the broadsheet for the loan head for the month is
generated. This broadsheet figure for payments should tally with the Ledger figure of the
Book Section generated through the Detail Book. Any difference between the broadsheet
and ledger figure is analysed by going into the details of each treasury in the broadsheet. If a
voucher is missing, resulting in the discrepancy between the broadsheet and ledger figure, it is
taken up with the concerned treasury, after booking the figure in Objection Book.
For each new loan released, a new folio is opened in the SLR. The details of the loan
are entered in the SLR. A unique loan ID, either generated by the AG office or assigned by
the State Government, is entered in the folio relating to that loan in the SLR. The releases of
loan are entered in the concerned folio of the SLR. If the loan is released in instalments, the
voucher of subsequent releases refer to the unique loan ID to enable its correct entry in the
concerned folio of the SLR. Thus, the SLR functions as a loan-wise account. It has details of
all releases against a loan, calculation of interest against the loan, repayments of principal and
interest made by the loanee and the balance against each loan.
The loanee repays the principal and interest thereon periodically. The repayment is
made through a challan into the Bank. The challan has details of the unique ID of the loan,
amount of principal and interest repaid distinctly. Rule 160 of R&P Rules, 1983 states that
when repaying a loan or advance to the Government, either through a challan or as a deduction
from a claim against the Government, the original date and amount of loan or advance should
be indicated to enable proper accounting. Payment of interest against the principal must be
separately specified.

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The Bank sends the details of the repayments made through the Receipt Scroll to the
treasury, along with the supporting challan. The treasury includes them in the Cash Account
and sends it to the AG office. The CTS sends the CA to the Book Section and the SoR supported
by the challans relating to the loan Heads of Account to the LA Section.
The Book Section prepared DB I of receipts by feeding the CA of all the treasuries.
The LA Section feeds all the repayment details into the VLC from the challans. After feeding
all the challans of all the treasuries, the broadsheet for the concerned loan Head of Account
is generated to tally with the ledger figure in the Book Section. Any discrepancy is analysed
treasury-wise and taken up for rectification.
The challan relating to repayment of loan has provision to enter details of the principal
amount repaid and the interest amount repaid. Since both these amounts are in the same challan,
the treasury books them as a credit under the loan Head of Account. However, the interest
component is to be booked under ‘0049 Interest’. In such cases, the LA Section passes a transfer
entry to transfer the amount from the loan Head of Account to the accounting head for interest.
For example, in the case of a loan for promotion of art and culture, the initial debit is
booked under the Head of Account ‘6202-04-102 Promotion of Art and Culture’. Consider
that an amount of ` 2 lakh of principal is repaid and an amount of ` 20,000 is repaid as
interest. The challan would be filled in for ` 2.20 lakh, with the break-up of the principal and
interest repaid. However, this entire amount would be booked by the treasury as a credit to
‘6202-04-102 Promotion of Art and Culture’. On the basis of the details in the challan, the LA
Section will pass a transfer entry to transfer ` 20,000 booked under ‘6202’ to the Major Head
‘0049 Interest’. The accounting entry would be as follows:
Credit ‘0049 Interest Receipts’
Minus Credit ‘6202-04-102 Promotion of Art and Culture’
The copy of the challan is then sent to the DC Section compiling the Major Head
‘0049 Interest Receipts’ for authorisation of this transfer entry. The SLR, however, has
details of repayments of principal and interest. Interest due on every loan is calculated
periodically in the SLR and the repayments are monitored. If there is a delay in the
repayment of a loan, the AG intimates the authority that sanctioned the loan about the
default. The loanee is informed about the default by the sanctioning authority or by
the AG office. However, omission to warn gives no claim to loanee to exemption from
consequences of such default.
At the end of the year, the balances under each loan in the SLR are to be worked out
and a confirmation obtained from the loanee by communicating the balances and getting their
acknowledgement. Periodical returns are also to be provided to the State Government by the
AG office showing details of the loans and advances as per its books of accounts.

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12.1.1 Sinking Funds

Instead of directly crediting the repayments of a loan to the concerned Loans and
Advance Major Head, they can be paid into a Sinking Fund. In such cases, interest that accrues
on the balances in the Sinking Fund is credited into the Fund by deducting from the receipt on
account of interest on the loan. When the total balance in the Sinking Fund becomes equal to
the amount of the loan, the credit under the Sinking Fund and the debit under the concerned
Loans and Advances head are written off against each other. In cases where repayment of
loan is made through a Sinking Fund, the SLR is maintained in a different form to capture
the netting of the interest payable on the loan and the interest accrued on the balances in the
Sinking Fund (Form B as per paragraph 6.4 of CAG’s MSO (A&E) Vol I).

12.2 Process of Accounting for Individual Loans/Advances

Loans and advances to individuals are categorized into Long Term Advances (LTA)
and Short Term Advances. The detailed accounting of Short Term Advances (those that are
recoverable in less than 60 instalments) are maintained by the respective DDOs. However,
Broadsheets showing department-wise/controlling officer-wise debits/credits are maintained
in the AG office for such advances to aid reconciliation of the accounts for those Heads
of Account with the departments. LTA are those which are recoverable in not less than 60
instalments. The detailed accounting of LTA are maintained by the AG office in many States.
Examples of LTA include House Building Advance (HBA) and Motor Conveyances Advance
(MCA). They are accounted under ‘7610-00-201 HBA’ and ‘7610-00-202 MCA’.
The process for accounting for these advances is similar to that of accounting for
institutional loans. The advances are sanctioned through a Sanction Order by the concerned
Department, a copy of which is sent to the AG office. The advance is then released by drawing
a bill on the treasury. This bill, after payment, is sent to the AG office as a voucher along with
the treasury accounts. The CTS sends the SoP supported by vouchers to the section handling
LTA (LA Section in many offices). The LoP are sent to the Book Section, which feeds them into
the VLC to generate the DB I. On receipt of the SoP supported by vouchers, the LA Section
posts the vouchers relating to payment of Advances. After posting all vouchers relating to
LTA received from all treasuries, the Broadsheet is generated. The Broadsheet figure should
tally with the Ledger figure booked in the DB I relating to debits under LTA. If there are any
discrepancies, treasury-wise analysis is carried out and taken up with the concerned treasury
for rectification of the discrepancy.
Individual loanee-wise accounts are also opened. A unique number is assigned to each
loanee. This number is assigned either by the State Government or generated by the AG office
when an advance is sanctioned/released. All further releases of advances and their repayments
must have a reference to this unique ID to enable posting in the loanee-wise account. Rule
165 of R&P Rules, 1983 states that when advances to Government servants are drawn, their

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names, designation and the amount drawn should be indicated in the bill. Repayment of such
advances could be made either through cash or as deduction from their pay bills. Recoveries
of principal and interest through pay bill should be supported by schedules of recoveries
of advances. Separate schedules are to be attached for different types of advances. Each
transaction posted in the Broadsheet is entered into the loanee-wise account.
Repayments against the advances are generally made through deduction from the
pay. They appear in the establishment vouchers. Since deductions relating to LTA is an AG
deduction, the treasury does not account for this. So no accounts relating to deductions made
against LTA through establishment vouchers would be available in the treasury accounts.
The establishment vouchers, along with their SoP, are sent to the concerned DC Section.
The DC Section compiles from the vouchers and accounts for the total deductions made
against LTA from each establishment voucher. The pay of employees in an office are drawn
through an establishment bill. It would have the deductions made from each of the employees.
The voucher shows the total of these deductions. The details of individual employee-wise
deductions are contained in the schedule for each such deduction attached to the voucher. The
schedules attached to the vouchers for these LTA are then detached and sent to the LA Section
for maintenance of the subsidiary accounts.
Since the repayments of LTA through deductions from establishment vouchers are
accounted after generation of DB I, it cannot function as the source of Ledger figure. After
receipt of Classified Abstract and Consolidated Abstracts from the various sections, the Book
Section generated the Detail Book part II (DB II). Therefore, the DB II figure functions as the
Ledger figure for all Heads of Account.
On receipt of the schedules, the LA Section posts them in the Broadsheet. The
Broadsheet figure is tallied with the Ledger figure in the Book Section. The individual
items of deductions listed in the schedules have reference to the loan ID of the loanees.
This enables their posting into the individual loanee-wise accounts. The repayments of
the advance could also be made in cash by the loanee by paying it into the bank through
a challan. In such cases, the challan with the SoR which would be part of the treasury
accounts, is directly received in the LA Section from the CTS. The Cash Account of the
treasury would include the receipt figure in such cases and would be fed into the VLC by
the Book Section. The LA Section would feed the challan details into the Broadsheet and
the individual loanee-wise accounts.
The individual accounts also include a calculation of the interest to be paid on the
advances. Once the principal is repaid by the loanee, the interest deduction begins. When
the principal is repaid, the deductions on account of interest are to be accounted under ‘0049
Interest Receipts’ and not under the LTA heads. In some States like Himachal Pradesh, the
AG office only maintains detailed accounting relating to repayment of the principal amount in

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LTA. The repayment of interest on such LTA are monitored by the DDO concerned. The office
communicates the completion of repayment of principal through a no-due certificate (NDC).
The DDO then begins deduction of interest on the LTA and maintains loanee-wise account of
interest deductions in such cases.
However, in some other States like Uttar Pradesh, the AG office issues the NDC
only after the principal and interest on LTA are repaid. The AG office continues to maintain
detailed accounts of interest repayments as well. In such cases, the accounting of interest
repayment is different from that of the repayment of principal. The LA Section intimates the
DDO concerned about the completion of repayment of principal by individual employees. In
such cases, the DDO reflects the deductions of such employees under the schedule for ‘0049
Interest Receipts’. These schedules are accounted for by the DC Section compiling the Major
Head ‘0049 Interest Receipts’. After accounting for the schedules, the DC Section sends a
copy of the schedule to the LA Section for posting of the interest repayments into the loanee-
wise account. The interest repayments are not fed into the broadsheet, as they are maintained
only for DDR heads and not for Service Heads.
At the end of every year, a statement of the debits/credits during the year and balances
under LTA at the end of the year is generated for individual loanees. This statement is
communicated to the loanees and their confirmation obtained.

12.2.1 Collateral Evidence

When the balances are communicated to the loanee, there would be instances where
the loanee claims to have repaid a particular instalment which has not been accounted in her
account. In such cases, detailed examination of the account for the month is to be made to
see if there are any differences between the Ledger and Broadsheet figures. There could have
been some items which were not posted into the loanee account for want of some information
like the loan ID. In such cases, the required information is obtained from the treasury and the
missing item posted in the loanee account.
However, if it is not possible to track the entry missing from the loanee account, it
could be adjusted on the basis of collateral evidence, such as certificate from the treasury
officer or the DDO about the recovery having been made. This is done to ensure that the
loanee is not put to any hardship because of the failure to account a particular transaction.
Details of the deductions made, including voucher number, date, treasury etc. are obtained.
The cases that are adjusted on the basis of collateral evidence are entered in a separate
register. Efforts are then made to trace these items before close of the accounts for the year.
If it is not possible to identify the transaction, despite concerted efforts, the outstanding
items may be written off to the head ‘8680 Miscellaneous Government Account – write off
from heads of Account closing to balance’ after following the due procedure prescribed in
rule 38 of GAR, 1990.

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12.3 Civil Advances

Major Head ‘8550 Civil Advances’ is also used to account for certain types of advances.
However, this Major Head is part of the Section ‘K. Deposits and Advances’ under the Public
Account of India/State. The amount advanced by the Union can be obtained from Statement
13 of the Union Finance Accounts and by the State from Statement 18 of the State Finance
Accounts. The important component of Civil Advances is the advance issued to forest officials
and contractors for implementation of various projects in the forest divisions. This is accounted
under the Head of Account ‘8550-101 Forest Advances’. The procedure for accounting under
this head was discussed in the chapter on ‘Public Works and Forest Divisional Accounting’.
Advances against gratuity, GPF or other balances are granted to families of deceased
Government servants for immediate relief to those families. These are accounted under the
head ‘8550-104 Other Advances’. These are adjusted against the terminal payments payable
after due procedure. Detailed accounts of these advances are to be maintained by the DDO
concerned. The AG maintains a Broadsheet for these heads.

12.4 Revenue Advances

Revenue advances include takavi advances (advances for land improvement, to recover
from agricultural losses due to natural calamities etc.), advances under the Land Improvement
Acts and any other advances which Revenue Officers make under provisions of law or special
orders of Government (Rule 161 of R&P Rules, 1983). These advances may be made either
direct to the parties concerned on their receipt or may be drawn by departmental Officers
on abstract bills for disbursing to the parties. When advances are drawn by departmental
officers, detailed accounts, including a plus and minus memorandum, are to be maintained to
account for repayment of principal and interest. Detailed bill, after disbursement of advance,
in adjustment of the abstract bill drawn, are to be forwarded to the Accounts Officer within a
month of the drawal of the advance (Rule 162 of R&P Rules, 1983).
These are accounted under ‘8550-102 Revenue Advances’. For such advances, the
Government designates a controlling officer for maintaining detailed accounts and for their
reconciliation with the AG office. In the AG office, it is ensured that the expenditure under
this head does not exceed the allotment. No Broadsheets are to be maintained in the AG office
for revenue advances.

12.5 Permanent Advances

Permanent advances are issued to departmental officers in the form of an imprest to
incur contingent expenditure. They are held in the form of cash in these offices. This amount is
accounted in the Major Head ‘8672 Permanent Cash Imprest’ under the Section ‘L. Suspense
and Miscellaneous’ of the Public Account. When contingent expenditure is incurred from
this advance, it is recouped by submitting a bill to the treasury/PAO with the classification

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relating to functional Head of Account of the department/function (for example, ‘2202

General Education’, if the expenditure is incurred on office maintenance of a school). Thus,
the expenditure is booked in the final Head of Account and not to the Imprest. The amount
drawn on the bill, however, is used to recoup the imprest.
In the AG office, a register of officers sanctioned permanent advance is maintained
district-wise. The following checks are exercised on sanction orders of permanent advances
in the AG office
A. Whether an authority competent to sanction such advance has only sanctioned it
B. Whether the amount so sanctioned is within the limits set by the AG/Government
C. Number of advances held by departmental officers are not multiplied unnecessarily
If the amount of advance so sanctioned is increased or decreased by the department, the
register is updated accordingly. A Broadsheet is maintained to compare the monthly debits/
credits with the Detail Book.
12.6 Provisions of Indian Government Accounting Standards
(IGAS) 3
This is a standard developed by the Government Accounting Standards Advisory
Board (GASAB). It applies to loans and advances given by the Government for
incorporation and presentation in the Financial Statements of the Government. The
important provisions of accounting of loans and advances as prescribed by IGAS 3 are
as follows:
A. A loan is to be recognized by the disbursing entity as an asset from the date the money
is actually disbursed and not from the date of sanction and if a loan is disbursed in
instalments, then each instalment shall be treated as a separate loan for the purpose of
repayment of principal and payment of interest, except where the competent authority
specifically allows consolidation of the instalments into a single loan at the end of the
concerned financial year.
B. If a loans is converted into equity, that amount is to be reduced from the outstanding
loan amount. The following is an example of conversion of a loan into equity:
The Himachal Pradesh Government had given a loan under the Head of Account
‘6801-00-190’ to the Himachal Pradesh State Electricity Board Ltd. (HPSEB). An
amount of ` 19.11 crore of the loan was outstanding. As part of a financial restructuring
plan, the Government decided to convert the outstanding loan as equity. Accordingly,
the Himachal Government made a budgetary provision under the head ‘4801-01-190-
09-03’. The sanction for the conversion is communicated to the AG office. On the
basis of this order, the following transfer entry is passed:
Debit ‘4801-01-190-09-03’
Credit ‘6801-00-190’

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Thus, the outstanding loan is settled and fresh investment under the Major Head
‘4801’ appears as a debit.
C. When a guarantee extended by the Government is invoked due to the default of the
entity to which the guarantee was provided leading to a liability for the Government,
that amount is to treated as disbursement of loan, unless otherwise so specified.
D. The initial measurement of loans and advances for accounting and reporting are to be
made on historical cost basis.
E. Subsequent to initial valuation, Loans and Advances are to be reflected in the Financial
Statements at carrying amount.
F. The Financial Statements of the Union and State Governments are to disclose the
carrying amount of loans and advances at the beginning and end of the accounting
period showing additional disbursements and repayments or write-offs.
G. An additional column in the relevant Financial Statements is to be included to reflect
the amount of interest in arrears and this amount is not to be added to the closing
balance of the loan which is to be in the nature of an additional disclosure.
H. The Financial Statements of the Government are to disclose the following details
under ‘Loans and Advances made by the Union Government’ in the Annual Finance
Accounts of the Government
a. The summary of Loans and Advances showing Loanee group-wise details;
b. The summary of Loans and Advances showing Sector-wise details;
c. The summary of repayments in arrears from Governments and other loanee
entities.
I. The Financial Statements of the Government are to disclose the following details
under ‘Detailed Statement of Loans and Advances made by the Government’ in the
Annual Finance Accounts of the Government
a. The detailed statement of Loans and Advances showing the Major Head and
Minor Head-wise details;
b. The detailed statement of repayments in arrears from State or Union territory
Government (in the case of Union Government);
c. The detailed statement of repayments in arrears from other Loanee entities.
J. The Financial Statements of the Government are to disclose the details of fresh Loans
and Advances made during the year under ‘Additional Disclosures’ in the Annual
Finance Accounts of the Government.
The Union and State Finance Accounts are compliant to IGAS 3. The relevant disclosure
requirements are contained in Statements 3 and 15 in the case of Union Finance Accounts.
In the case of State Finance Accounts, this information is contained in Statements 7 and 16.

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 Contingency Fund Transaction & its Recoupment
CHAPTER-13

Contingency Fund Transaction

& its Recoupment

A
rticle 267 of the Constitution prescribes that the Parliament/Legislature may establish
a Contingency Fund of India/State in the nature of an imprest through a law passed
by the Parliament/Legislature. This Fund is placed at the disposal of the President/
Governor to enable advances to be made for the purpose of meeting unforeseen expenditure
pending authorisation of such expenditure by Parliament/Legislature. Expenditure incurred
from the fund is recouped by debiting the expenditure to the concerned functional Major
Head relating to the Consolidated Fund of the India/State. The information of the corpus of
Contingency Fund of a State can be obtained from the Guide included in the initial part of the
Finance Accounts of a State.

13.1 Creation of the Fund

Creation of the Contingency Fund or any increase/decrease in the corpus of the fund
is made through the Head of Account ‘7999 Appropriation to the Contingency Fund’ in the
Section ‘H. Transfer to Contingency Fund’ under the Consolidated Fund of India/State. This
Major Head is a DDR Head. However, unlike other DDR heads, this does not close to balance.
But, this is closed to Government Account. This implies that the balances in this Head of
Account is not carried forward. Thus, when the Contingency Fund is created in a newly
formed State or if the corpus is increased in a State, the following accounting entry is passed:
Debit ‘7999 Appropriation to the Contingency Fund’
Credit ‘8000 Contingency Fund’
Transactions under the Major Head ‘7999’ appear in the Finance Accounts of the Union
or of a State only in those years when the Contingency Fund is created or its corpus is altered.
The balances are not carried forward in this account. So, in years when the corpus is not
changed, there would be no bookings under this Head of Account.

13.2 Contingency Fund Transactions

Expenditure from the Contingency Fund is incurred to meet unforeseen requirements.
These requirements could arise out of calamities, like earthquakes, floods, famines etc. These
unforeseen requirements could also be to meet certain new service/new instrument of service
of Government. A new service has been defined in Article 115(1)(a) of the Constitution. It
refers to an expenditure arising out of a new policy decision, not brought to the notice of

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Parliament/Legislature earlier, including a new activity or a new form of investment. A new

instrument of service refers to a relatively large expenditure arising out of important expansion
of an existing activity.
For the Union Government, the limits beyond which an expenditure or a re-appropriation
would be considered as a new service/new instrument of service are prescribed in the
Delegation of Financial Powers Rules. These limits are set with the approval of the Public
Accounts Committee of the Parliament/Legislature. Beyond these limits, the executive cannot
re-appropriate funds without the prior sanction of the Parliament/Legislature. However, if
funds are required for such service when the Parliament/Legislature is not in session, it could
be met out of the Contingency Fund. This is to be used only in cases of extreme urgency, when
such service cannot be postponed till the next session of the Parliament/Legislature.
Sanction to incur expenditure out of Contingency Fund is an executive decision. A
sanction order is issued for the purpose. When expenditure is incurred out of the Contingency
Fund, the functional Head of Account is shown at the Minor Head level. For example, if an
expenditure on Crop Husbandry is incurred out of the Contingency Fund, then the following
accounting entry is made:
Debit ‘8000-00-2401’
Credit ‘8675-106 RBD’
During the subsequent session of the Parliament/Legislature, expenditure out of the
Contingency Fund is recouped through a supplementary grant by following the procedure
prescribed in Articles Article 115/205 of the Constitution. Once the appropriation out of the
Consolidated Fund to recoup the expenditure out of the Contingency Fund is passed by the
Parliament/Legislature, a sanction order is issued. On the basis of this order, the transactions
from the Contingency Fund are recouped in the AG office through a transfer entry.
For example, when budgetary provision is made to recoup the expenditure incurred on
Crop Husbandry, the following accounting entry is passed
Debit ‘2401 Crop Husbandry’
Credit ‘8000-00-2401’
The cumulative sanctions to spend out of the Contingency Fund cannot exceed its
corpus at any point of time. However, if the expenditure incurred out of the Contingency Fund
is recouped during the year, further expenditure up to the limit of the corpus is allowed. Thus
during a year, the Government could spend far beyond the corpus of the Contingency Fund,
provided it recoups such expenditure periodically.

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13.3 Disclosure of Transactions

The total transactions out of the Contingency Fund, those recouped and those remaining
un-recouped are shown in Statement 13 of the Union Finance Accounts and Statement 18 of
the Finance Accounts of the State. For example, in Statement 18 of Finance Accounts of
Uttar Pradesh for the year 2013-14, there was an opening balance of ` 337 crore. During
the year, there were disbursements of ` 86 crore from the Contingency Fund. Receipts of
` 262 crore is shown for the year, which are amounts recouped into the fund during the year,
leaving a balance of ` 513 crore at the end of the year. The various line items appearing in
the Contingency Fund transactions in the Statement are Service Major Heads under which
expenditure have been incurred out of the fund and lying un-recouped. Thus, line items like
Administration of Justice pertains to Major Head ‘2014’, Police to ‘2055’, Social Security and
Welfare to ‘2235’ and Capital outlay on Police to ‘4055’.
Un-recouped transactions under the Contingency Fund tend to under-state the
expenditure under the concerned functional head. Therefore, a disclosure is made in the
Appropriation Accounts under the relevant Grant of any un-recouped transactions lying in
the Contingency Fund for the year. In Statement 18 of Finance Accounts of Uttar Pradesh
for the year 2013-14, an amount of ` 85.9 crore under ‘Social Security and Welfare’ and an
amount of ` 33 lakh under ‘Capital Outlay on Police’ have been shown as disbursed during
the year from Contingency Fund and remained un-recouped at the end of the year. Grant 26 of
the Appropriation Accounts of the State pertains to the Police. A footnote appears under this
grant in the Appropriation Accounts for the year stating that “The expenditure under Revenue
and Capital sections of the grant does not include ` 85,90,25 thousand and ` 33,76 thousand
respectively spent out of advances from the Contingency Fund sanctioned in July, September,
October 2013 and March 2014 but not recouped to the Fund till the close of the year.”
The relevant statements in the Finance Accounts also include footnotes on such un-
recouped amounts. Statement 12, which is the detailed statement of revenue expenditure has
a footnote under Major Head ‘2235 Social Security and Welfare’ stating that the expenditure
shown under the head excludes an amount of ` 85.9 crore spent out of advances from
Contingency Fund but not recouped during the year. Statement 13, which is detailed statement
of Capital expenditure, has a footnote under Major Head ‘4055 Capital Outlay on Police’
stating that the expenditure excludes an amount of ` 33.76 lakh spent out of advance from
Contingency Fund but not recouped during the year. Accordingly, the reader of the Accounts
is given the complete magnitude of expenditure under a function.

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CHAPTER-14

Debt Accounting

T
he Government raises resources through Public Debt. The Central Debt Division of the
Department of Government and Bank Accounts (DGBA) of the RBI is responsible for
management of the Public Debt of the Central and State Governments.

14.1 Department of Government and Bank Accounts

The Department of Government and Bank Accounts (DGBA) is responsible for
discharging certain core traditional central banking functions, viz., acting as bankers to the
Government and banks and managing public debt of both, central and state governments. It is
also responsible for maintenance of the Reserve Bank’s internal accounts and compilation of
its weekly and annual accounts.
The general banking business including management of public debt of the Central and
State Governments has devolved on the Reserve Bank by virtue of the provisions of Reserve
Bank of India Act, 1934 and agreements with the respective Governments. These functions are
carried out on a day-to-day basis through the Reserve Bank’s Public Accounts Departments,
Deposit Accounts Department and Public Debt Offices and the agency bank branches.

14.1.1 Organizational Set-up

At Central Office, DGBA is divided into four divisions. These divisions and their functions
are as follows:
A. Bank Accounts Division: (i) maintains internal accounts of the Bank including
preparation of weekly statement of affairs of the Bank and the annual profit and
loss account/balance sheet of the Bank as per the provisions of RBI Act and the RBI
General Regulations, and (ii) supervises and controls Deposit Accounts Departments
of the Bank.
B. Central Debt Division: (i) attends to the management of Public Debt of Central and
State Governments, (ii) oversees the work of 15 Public Debt Offices at the regional
offices of the Bank, (iii) assists the Government in formulation of special savings
schemes of the Central Government, such as, Relief Bonds, Special Deposit Scheme,
Public Provident Fund Scheme and subsequent monitoring of these schemes, and (iv)
maintains the central accounts of the public debt of the Central/State loans and loans
of the associate financial institutions.

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C. Government Accounts Division: (i) supervises and controls the working of the Public
Accounts Department and the Central Accounts Section, Nagpur, (ii) reviews, updates
and implements the procedures for reporting and accounting of transactions of
Central/State Governments, and (iii) makes banking arrangements for the government
business at all centres.
D. Central Accounts Section, Nagpur: (i) maintains principal accounts of Central
and State Governments, (ii) grants ways and means advances to Central and State
Governments, (iii) invests surplus funds of Central and State Governments, and (iv)
clears all remittance transactions for Central and State Government departments.

14.2 Public Debt

The Central Government raises resources from the market and also from external
sources. The State Governments can raise debt from the market and through loan from the
Central Government. The transactions in respect of Public Debt are accounted under the
Sector ‘E. Public Debt’. Public Debt of Central Government are accounted under Major Head
‘6001 Internal Debt of Central Government’. There are separate Minor Heads for various
kinds of Treasury Bills and Securities. Market Loans are accounted under the Minor Head
‘101 Market Loans’. This Minor Head has three Sub-heads. They are as follows:
A. Market loans suspense – The subscriptions towards market loans received initially are
credited under a distinct Detailed Head below this Sub-head. The amount of accepted
subscription for which scripts are issued by the RBI are transferred to the appropriate
Sub-head (either ‘Market loans bearing interest’ or ‘Market loans not bearing interest’
as the case may be). The over-subscribed amount are refunded by a minus credit to
this head.
B. Market loans bearing interest – Each market loans bearing interest is accounted as a
distinct Detailed Head under this Sub-head.
C. Market loans not bearing interest – The following categories of loans are accounted
under this Sub-head:
a. The amounts representing unclaimed balance of old loans (market loans
bearing interest) which have been notified for discharge and have ceased to
bear interest from the due date are transferred to this Sub-head, till they are
claimed. Unclaimed balances are retained in the Government Accounts as debt
for 20 years from the date of discharge of the loans, after which, the balances
are transferred to Revenue by credit to the head ‘0075 Miscellaneous General
Services’. Repayments of these amounts subsequently claimed will be debited to
the head ‘2075 Miscellaneous General Services’.

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b. Full nominal value of Zero Coupon Bonds are credited to this Sub-head. On
maturity of the Zero Coupon Bond, the entire amount is repaid by debiting this
Sub-head. The amount of discount on the bond is debited to the Minor Head ‘136
Discount Sinking Fund’ under the Major Head ‘8663 Accounting Adjustment
Suspense’. The amount debited to this head is written off to Revenue in equal
instalments over the currency of the loan by debiting to the Sub-major Head ’01
Interest on Internal Debt’ under the Major Head ‘2049 Interest Payments’. The
accounting entries would be as follows:
On subscription:
Debit ‘8675 RBD’ Net amount received
‘8663-136 Discount Sinking Fund’ Discount amount
Credit ‘6001/6003-101-Market loan not bearing interest’ Full nominal value
Writing off of portion of discount amount every year:
Debit ‘2049-01 Interest on Internal Debt’
Credit ‘8663-136 Discount Sinking Fund’
Repayment on maturity of loan:
Debit ‘6001/6003-101-Market loan not bearing interest’ Full nominal value
Credit ‘8675 RBD’ Full nominal value
The loans raised by the Central Government from outside the country are accounted
under Major Head ‘6002 External Debt’. There are separate Minor Heads for each international
institution and country. Each loan is accounted as a distinct Sub-head under the Minor Head
for the institution/country. Market Loans of State Governments are classified under Major
Head ‘6003 Internal Debt of the State Government’ and Minor Head ‘101 Market Loans’.
The accounting procedure under this Minor Head is similar to the procedure for the Central
Government. Ways and means advances from RBI, securities and loans from institutions like
LIC, GIC, NABARD are accounted under distinct Minor Heads under the Major Head ‘6003
Internal Debt of the State Government’.
State Governments also receive loans from the Central Government. These loans could
be to cover gap in resources for non-Plan schemes, block loans for State Plan schemes, loans
for implementation of Central Plan schemes and loans for Centrally Sponsored schemes.
These are accounted by the State Governments under the appropriate Minor Heads in the
Major Head ‘6004 Loans and Advances from the Central Government’. When the Central
Government releases such loans and advances for the State Governments, these are accounted
in the books of the Central Government under the Major Head ‘7601 Loans and Advances to
State Governments’ under the Sector ‘F. Loans and Advances’.

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14.3 Floatation of Open Market Loans

The Central Government has unlimited powers to borrow. However, when the State
Government proposes to raise an Open Market Loan for financing Capital expenditure
in connection with its development programme, the State Government seeks consent of
Government of India under Article 293 (3) of the Constitution of India. Article 293 (3) states that
a State may not raise any loan without the consent of the Union Government if there is already
a loan pending repayment or an undischarged guarantee of the Union Government to the State.
Simultaneously with the loan notification, the Government intending to borrow also publishes
a statement showing the Government’s budgetary and financial position for the information of
the lenders. This position is brought out in the form of a press communique by the Government.
The State Government sends the draft press communique to AG (A&E) office for verifying and
confirming the financial position before it is issued for publication in Press.
On floatation of an Open Market Loan, the Public Debt Offices (PDO) of the RBI
collects subscription of such market loans on behalf of Government and intimates the same
to RBI, PAD Mumbai which consolidates and sends the details of subscription to CAS, RBI,
Nagpur for accounting. The CAS, RBI, Nagpur incorporates the amount of subscription into
the cash balance of the Government concerned and forwards the clearance memo to AG Office
of the State Government concerned or to the concerned PAO in case of Central Government.
On receipt of advice from CAS, RBI, Nagpur, cash subscriptions are initially credited to
a distinct Detailed Head under the Sub-head ‘Market Loan Suspense’. On receipt of details of
subscription from PDO, RBI, Mumbai, the amount is then transferred to the Sub-head ‘Market
Loan bearing Interest’ under the Minor Head ‘101 Market loans’ under the Major Head ‘6001’
in the case of Central Government and ‘6003’ in the case of State Governments. Amount of
premium received are accounted as a revenue receipt with a credit to ‘0049 Interest Receipts’.

14.4 Repayment/Discharge of Market Loans

A Negotiated Dealing System (NDS) for electronic dealing and reporting of transactions
in Government securities has been introduced since 2002. It is mandatory for all the RBI
regulated entities to hold and transact in Government securities only in dematerialized form.
The Public Debt Office (PDO) of the RBI acts as the registry and central depository for
Government securities. Government securities are issued through auctions conducted by the
RBI. Auctions are conducted on the electronic platform called the NDS-Auction platform.
PDO-NDS members alone can participate in these auctions. The PDO-NDS members are
Scheduled Commercial Banks, Primary Dealers (PD), Scheduled Urban Co-operative Banks
(UCBs), Insurance Companies, Provident Funds and Regional Rural Banks.
The PDO-NDS members maintain fund account (Current Account) and securities
accounts (Subsidiary General Ledger Account- SGL) with PDO of RBI. When the purchases

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of securities are made by the PDO-NDS member, its fund account is debited and securities
account (SGL) is credited by the PDO and vice versa in case of repayment of the Securities.
All non-NDS members viz. individuals, HUFs, firms, companies, non-scheduled UCBs,
etc., participate in the auction through Scheduled Commercial Banks or Primary Dealers.
For this purpose, the non-NDS members need to open a securities account with a Scheduled
Commercial Bank/PD, which is called as “Gilt Account” (Demat account).
To deal with the non-NDS members, the Scheduled Commercial Banks or Primary
Dealers having a ‘Gilt Account’ are eligible to open a Constituents’ Subsidiary General
Ledger Account (CSGL) with the PDO, RBI. Under this arrangement, the bank or the PD,
as a custodian of the Gilt Account holder, would maintain the holdings of its constituents
in a CSGL account (which is also known as SGL II account) with PDO, RBI. When the
transactions take place in respect of non-NDS member, the fund account (Current Account)
of the custodian bank/PD with the PDO-RBI is debited/credited. Thereafter, the custodian
(CSGL account holder) immediately passes on the credit/debit to the Gilt Account of the non-
NDS member maintained at their end.
When a loan matures for repayment, the Government issues a press communique
announcing its intention to repay the loan on the date of maturity with all interest due. The
RBI also issues necessary instructions (Repayment Circulars) to the paying officers. When the
securities are passed and paid, the PDO, RBI reduces the loan balance from their record. Every
month the PDO, RBI communicates to the AG office/PAO concerned the details of monthly
payments and outstanding in respect of securities certified for discharge in the books of Public
Debt Office and the securities cancelled/written off and passed through the Public Debt Office
books for discharge. On the basis of this information, the AG office/PAO concerned passes
the following accounting entries:
On repayment of securities, along with interest:
Debit ‘6001/6003-101-Market loan bearing interest’
‘2049-01 Interest on Internal Debt’
Credit ‘8675 Deposit with Reserve Bank’
For securities unclaimed, the amount is initially transferred to the Sub-head ‘Market Loan not
bearing Interest’:
Debit ‘6001/6003-101-Market loan bearing interest’
Credit ‘6001/6003-101-Market loan not bearing interest’
After the stipulated 20 years, if the securities are still unclaimed, they are written off/cancelled
through the following entry:
Debit ‘6001/6003-101-Market loan not bearing interest’
Credit ‘0075 Miscellaneous General Services’

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Any subsequent repayment of securities written off is carried out with the following accounting
entry:
Debit ‘2075 Miscellaneous General Services’
Credit ‘8675 Deposit with Reserve Bank’
14.4.1 Sinking Fund
To ease the financial burden at the time of discharge of a market loan, the Government
creates a Sinking Fund and periodically credits money into such a Fund. Such Sinking Funds
are accounted under the Major Head ‘8222 Sinking Funds’ which is under the Sector ‘J. Reserve
Funds’ and under the Sub-sector ‘Reserve Funds not bearing Interest’. Yearly contributions to
the Sinking Fund are made through a budgetary allocation under the Minor Head ‘101 Sinking
Funds’ under the Major Head ‘2048 Appropriation for reduction or avoidance of Debt’. A
separate Sub-head is opened for each loan for which Sinking Fund is created under this Minor
Head. The amount so allocated through the budgetary process is transferred to the Sinking
Fund through the following accounting entry:
Debit ‘2048 Appropriation for reduction or avoidance of Debt -101 Sinking Fund’
Credit ‘8222-01 Appropriation for reduction or avoidance of debt-101 Sinking Fund’
The Twelfth Finance Commission has recommended that State Governments create
a Consolidated Sinking Fund to be administered by the RBI for amortisation of all loans. In
terms of the guidelines of the RBI for the Consolidated Sinking Fund, States are required
to contribute a minimum of 0.5 per cent of their outstanding liabilities (Internal Debit plus
Public Account liabilities) as at the end of the previous year.
The Sinking Fund so created is invested in Open Market Loans of the Central and other
State Governments as well as in the loan of the Government concerned itself. Investments are
also made in the bonds of Corporations guaranteed by Central as well as State Governments.
This is done by the RBI on advice of concerned Government. The Finance Department of the
Government concerned intimates the type of investment to be made by the PDO, RBI. The
PDO, RBI then sends an advice to CAS, RBI, Nagpur to carry out the adjustments in Account
of the concerned Government. The CAS, RBI, Nagpur incorporates the adjustment carried out
by them in the clearance memo and forwards the same to the AG Office/PAO concerned. The
PDO, RBI also sends the details of the investment to the AG Office/PAO concerned. On the
basis of this information, the following accounting entry is made:
Debit ‘8222-02-101 Sinking Fund Investment Account’
Credit ‘8675 Deposit with Reserve Bank’
At any point of time, the Sub-major Head ‘01 Appropriation for reduction or avoidance
of Debt’ under the Major Head ‘8222 Sinking Funds’ would have a credit balance and the
Sub-major Head ‘02 Sinking Fund Investment Account’ would have a debit balance. Every

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quarter, the RBI intimates the principal amount to the credit of the Sinking Fund Investment
Account and the interest earned therein. The interest amount is also credited to the Sinking
Fund through the following accounting entry:
Debit ‘8675 Deposit with Reserve Bank’
Credit ‘8222-01 Appropriation for reduction or avoidance of debt-101 Sinking Fund’
When the investments out of the Sinking Fund mature, the following accounting entry
is made:
Debit ‘8675 Deposit with Reserve Bank’
Credit ‘8222-02-101 Sinking Fund Investment Account’
This reverses the earlier entry made at the time of investment and the balance under
the Sub-major Head ‘02 Sinking Fund Investment Account’ becomes zero. When the Market
Loan for which the Sinking Fund was created is to be discharged, the credit balances lying
under the Sub-major Head ‘01 Appropriation for reduction or avoidance of debt’ is transferred
to the Major Head ‘8680 Miscellaneous Government Account – Ledger Balance adjustment
account’ through the following accounting entry:
Debit ‘8222-01 Appropriation for reduction or avoidance of debt-101 Sinking Fund’
Credit ‘8680 Miscellaneous Government Account’
Thus, the balances under the Sub-major Head ‘01 Appropriation for reduction or
avoidance of debt’ also become zero. The credit balance under the Major Head ‘8680’ closes
to Government Account at the end of the year i.e. it is adjusted to the Consolidate Fund. This
neutralises the impact on the Consolidated Fund resulting from the Public Debt head outflow
as a result of repayment of market loan.
Consider the example of repayment of a loan of ` 100 crore under the Major Head ‘6003’
by a State Government. The following accounting entries is passed when the loan is repaid:
Debit ‘6003 Internal Debit of State Government’ ` 100 crore
Credit ‘8675-106 RBD’ ` 100 crore
Simultaneously, the amount of ` 100 crore which has accumulated in the Sinking Fund
over the currency of the loan is also written-off to the following accounting entry:
Debit ‘8222-01-101 Sinking Fund’ ` 100 crore
Credit ‘8680 Miscellaneous Government Account’ ` 100 crore
Since the Major Head ‘8680’ also closes to Government account, the debit of ` 100
crore under the Major Head ‘6003’ balances out the credit of equal amount under the Major
Head ‘8680’ in the calculation of the deficits of the Government. This ensures that the deficits
of the Government are not adversely impacted during the repayment of a debt.

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 Accounting of Deposits and Reserve Funds
CHAPTER-15

Accounting of Deposits and

Reserve Funds
15.1 Reserve Funds

T
he Sector ‘J. Reserve Funds’ is part of the Public Account. Reserve Funds are generally
constituted under a statutory provision. The funds for constitution of the reserve is
allotted out of the Consolidated Fund, or by contributions by other Governments or
outside agencies. Every Reserve Fund has a specific purpose and the funds in the reserve are
utilised for that purpose. Reserve Funds are of two types, those bearing interest and those not
bearing interest. An example of an Interest bearing Reserve Funds is the Capital Reserve Fund.
This fund is constituted out of capital profits that arise other than through routine business
activities of public sector companies. These are not ordinary profits and include profit prior to
incorporation of company, profit on sale of fixed assets/investments, profit on revaluation of
assets and liabilities etc. It helps in writing-off any capital losses in future. Capital reserves are
also used for setting aside of capital for long term/large scale projects.
Paragraphs 4.15.1 to 4.15.4 of CAG’s MSO (A&E) Vol I deal with the general
instructions relating to constitution, transacting and accounting of transactions out of Reserve
Fund. Paragraph 3.4 of General Directions under LMMH deals specifically with the procedure
of accounting of expenditure out of Reserve Funds. However, detailed instructions relating
to the purpose, its constitution and the procedure of accounting of a particular fund would
be available in the statute governing that Reserve Fund. The AG office needs to keep a close
watch of the transactions relating to Reserve Funds to see that a transaction to a Reserve Fund
has not been carried out only with the purpose of preventing lapse of funds in the Service
Heads at the end of the financial year. Such transactions could lead to circumventing the
system of financial control by the Parliament/Legislature.
There are three categories of Reserve Funds on the basis of the method of their constitution.
They are as follows:
A. A Reserve Fund constituted through funds accumulated from grants made by another
government or aided by public subscriptions. An example of this type of Reserve
Fund is the fund created under ‘8225-02-101 State Road & Bridges fund’. The toll
collected on roads is credited under ‘1054-102’. This amount is then transferred to the
State Road and Bridges fund through a debit to the corresponding expenditure head
‘3054-80-797 Transfers to Reserve Fund’. Any development and maintenance work

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on ‘Roads & Bridges’ is carried out through debits to the heads ‘5054’ and ‘3054’
respectively. This expenditure is then recouped from the State Road and Bridges fund
through a debit to ‘8225’ and a minus debit to ‘5054’/‘3054’. The Central Road Fund
created through cess on customs and excise duty levied on petrol and diesel is also
operated on similar lines. The funds for development of State roads are transferred
to the State Governments. The State Governments have constituted State Road Fund
for the purpose.
B. A Reserve Fund constituted through funds set aside by the Government from the
Consolidated Fund for particular purposes. An example of this type of Reserve
Fund is the Depreciation/Renewal Reserve Fund of a commercial department/
undertaking. The Railways have a Depreciation Reserve Fund. Funds are credited
into the Depreciation Reserve Fund by charging Railway revenue on the basis of the
recommendations of Railway Convention Committee. The fund is then utilized for
replacement and renewal of assets. It is ensured that the provisions of Rule 31 of GAR
are complied with in such utilization.
C. A Reserve Fund constituted through funds accumulated from contributions by outside
agencies. An example for this type of Reserve Fund is the deposit account of grants
made by Indian Council of Agricultural Research (ICAR).

15.1.1 Reserve Fund Accounting Procedure

The principles that should govern the procedure of accounting of Reserve Funds is
provided in paragraph 4.15.2 of CAG’s MSO (A&E) Vol I. According to these principles, a
grant to the Union/State Government by another Government should be treated as ordinary
revenue of the recipient Government, irrespective of whether the grantor Government retains
control over the expenditure from the grant or not. Similarly, a grant from an outside agency to
a Government made without reserving control over the expenditure therefrom should also be
treated as ordinary revenue to the Government. When funds from the Consolidated Fund are
transferred into a Reserve Fund, either to constitute such Funds completely or to supplement
the contribution by others to the Fund, such transfers and the subsequent expenditure from such
Reserve Funds should be through an appropriation procedure of the Parliament/Legislature
(either voted or charged).
To ensure that the Parliament/Legislature retains control over transfers to Reserve
Funds and also the subsequent expenditure out of them, a specific accounting procedure
has been provided in paragraph 4.15.3 of CAG’s MSO (A&E) Vol I. This is supplemented
by the instructions contained in paragraph 3.4 of the General Directions contained in the
LMMH. According to these provisions, the grants received for Reserve Funds through the
above mentioned sources are taken as receipts into the relevant receipt head of account of the
Government. Simultaneously, the amount to be transferred to the Reserve Fund (amount of
grant received plus the contributions from the Consolidated Fund) is transferred and credited

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to the fund by a debit to the Minor Head ‘797 Transfer to Reserve Fund/Deposits Account’ to
be opened under the relevant functional expenditure Major Head concerned in the Revenue
Section, Capital Section or Loan Section depending on whether the expenditure is of a revenue,
capital or loan nature. As this is a debit to a head of account in the Consolidated Fund, it would
require Parliamentary/Legislative sanction through an Appropriation Act.
Subsequent expenditure from the Reserve Fund, constituted in the above mentioned
procedure, is initially incurred by debits to the relevant programme Minor Head under the
functional Major Head from which funds were transferred to the Reserve Fund. This ensures
that such expenditure again requires a budgetary sanction through an Appropriation Act.
Simultaneously, the Reserve Fund is debited by an equal amount and a contra debit (minus
debit) is given to the Minor Head ‘902 Deduct – Amount met from .............. (Name of the
Reserve Fund/Deposit Account)’ under the functional head where the actual expenditure
stands initially debited. Thus, the concerned functional head has three entries for expenditure
incurred through Reserve Fund – a debit to transfer the money initially to the fund, a debit
for the expenditure incurred and a deduct debit for adjusting the expenditure to the Reserve
Fund. The example of the State Disaster Response Fund discussed in detail below shows how
transactions relating to such Reserve Funds are made and accounted.
In cases where the outside agencies retain control over the expenditure met from the
grants given by them, the budgetary and accounting procedure to be followed is to be decided
by the Government in consultation with the CGA/AG concerned.

15.1.1.1 State Disaster Response Fund

The Disaster Management Act, 2005 stipulates constitution of a National Disaster Response
Fund (NDRF) at the National level and State Disaster Response Funds (SDRF) in the States for
meeting expenditure for providing relief to the victims of calamities like cyclone, earthquake,
flood etc. The Thirteenth Finance Commission has made provision of funds for the SDRF. The
Government of India has constituted the NDRF in the year 2010 and has framed guidelines for
administration of the funds at the national and State levels. The SDRF is to be opened under
the Major Head ‘8121’ under interest bearing Reserve Funds. The State is to pay interest on the
balances in the fund at the rate applicable to overdrafts under overdraft regulation guidelines of the
RBI. The accounting entry for paying interest into the SDRF on its balances would be as follows:
Debit ‘2049 Interest Payments’
Credit ‘8121 SDRF’
The year-wise share of the Union and State Government contributions to the SDRF
has been prescribed in the guidelines of the fund in lines with the recommendations of the
Thirteenth Finance Commission. The share of the Union Government towards SDRF of a
State is released as a Grant-in-aid. The accounting entry relating to the release of funds to the
State is as follows:

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Debit ‘3601-01-109 Grants towards contribution to SDRF’

Credit ‘8675-00-101 RBD Central Civil’
When these funds are received by the State Government, they are received and
accounted as a revenue. The accounting entry on receipt of this release in the books of the
State Government is as follows:
Debit ‘8675-106 Deposit with Reserve Bank-States’
Credit ‘1601-01-109 Grants towards contribution to SDRF’
To enable contribution to the SDRF, the State Government will have to make a budget
provision under Major Head ‘2245 Relief on Account of Natural Calamities’ and Sub Major
Head ‘05 SDRF’ for the total amount (Union contribution plus State contribution). After the
legislative sanction for the funds, the amount is transferred to the SDRF through the following
accounting entry:
Debit ‘2245-05-101 Transfers to SDRF’
Credit ‘8121 SDRF’
Different Sub Major Heads have been assigned for various calamities. For example
‘01’ has been assigned for drought, ‘02’ for floods, cyclones etc. When there is a calamity,
the expenditure for relief will be booked under the respective functional head. For example,
if there has been a flood during which expenditure was incurred on evacuation of people, it
would be booked through the following accounting entry:
Debit ‘2245-02-112 Evacuation of Population’
Credit ‘8675-00-106 Deposit with Reserve Bank-States’
This expenditure is then adjusted with the SDRF through the following accounting entry:
Debit ‘8121 SDRF’
Minus Debit ‘2245-05-901 Deduct amount met from SDRF’
Through this accounting entry, the balances in the SDRF are brought down to the tune
of relief provided. Thus, in the year where there has been a relief provided for calamities (for
example, cyclone), there are three entries under Major Head ‘2245’. They are as follows:
1. Debit to ‘2245-05-101 Transfers to SDRF’ for contributions made to the fund
2. Debit to ‘2245-02-112 Evacuation of Population’ for the relief expenditure incurred
3. Minus debit to ‘2245-05-901 Deduct amount met from SDRF’ for adjustment of the
expenditure to SDRF.
The first two transactions require the budgetary approval of the Legislature. These
two entries, therefore, appear in the Appropriation Accounts, which is a budget compliance
document. The third entry appears in the Appropriation Accounts as a recovery. Thus, the
expenditure out of the Reserve Fund is kept under the control of the Legislature.

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The guidelines of the SDRF provide for constitution of a State Executive Committee
(SEC) to manage the fund. This committee will invest the balances in the SDRF in instruments
like Central Government dated Securities, auctioned Treasury Bills and interest earning
deposits and certificates of deposits with Scheduled Commercial Banks. On maturity of these
instruments or when funds are required for relief, the interest earned and the investment
amount is credited back into the SDRF after deducting any incidental charges like brokerage,
commission etc.

15.2 Deposits
The Section ‘K. Deposits and Advances’ is part of the Public Account. It consists of three
Sub-sections, namely, Deposits bearing Interest, Deposits not bearing Interest and Advances.
Some of the important deposits bearing interest in the case of Union Government are those
belonging to the various pension schemes, including the Employee Family Pension Scheme,
1971. Among the deposits that do not bear interest, the most important is the Civil Deposits.
This includes the Public Works Deposits, relating to deposits made by local bodies and non-
Government bodies with the Public Works Department for carrying out various building/
infrastructure works. The Civil Deposits also include an important class of deposits called the
Personal Deposits. In addition to the Civil Deposits, commercial departments like Railways,
Telecommunications and Post maintain their deposits under the non-interest bearing category.
Under Advances, there are Civil Advances and advances relating to defence and other
commercial departments. We have seen the process of operation of an advance under Forest
Divisional Accounting, where the Forest Divisions issue advances under Civil Advances for
implementing various projects. We would be looking at the process of accounting of Deposits,
both interest bearing and non-interest bearing in this chapter.

15.2.1 Deposit Transactions

Rules 182 to 197 of the R&P Rules, 1983 deal with the process of transacting and
accounting of Deposits. As per these rules, no moneys shall be received under such Deposits
unless under statutory provisions, any general/special orders of the Government or formal
orders of a Court. No pay, pension or other allowances should be placed in deposit on the
ground of the absence of the payee or any other reasons. No fines should be placed in deposit
on the ground that appeal is pending. They should be credited at once to the Government and
refunded if necessary, on order of the Appellate Court. But compensation fines (including
costs in criminal cases) due to an injured party, and not to Government, may be kept in
deposit. No jewels, property or Government Promissory Notes are to be credited to Deposits.
Sale proceeds of unclaimed property are not to be placed in Deposits. They should be credited
into the Government Account (Rule 184 of R&P Rules, 1983).
Payments into Deposits must be made through appropriate challans, either through
departmental officers or through accredited bank (Rule 185 of R&P Rules, 1983). These

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receipts are accounted by the Bank in its receipt scroll. When these are received in the treasury,
the following accounting entry is made:
Debit ‘8675-106 Deposit with Reserve Bank-States’
Credit Concerned ‘Deposit Head of Account’ (starting from ‘8336’ to ‘8451’)
Payments out of the Deposits are made through bills prepared by the holder/administrator
of the Deposit. The treasury checks and passes the bill to make the payment. The bill becomes
a voucher and the following accounting entry is made in the treasury:
Debit Concerned ‘Deposit Head of Account’
Credit ‘8675-106 Deposit with Reserve Bank-States’
The treasury then incorporates both the receipts and payments relating to the Deposit
Heads of Account in the Cash Account and the List of Payments. This is sent to the AG office
along with SoR/SoP supported by challans and vouchers. In addition to these documents, the
treasury also prepares a ‘Plus and Minus Memoranda’ for the Deposit Heads of Account. The
memoranda has the opening balance, receipts, payments and closing balance for each class of
Deposits. This functions as a control total for the accounting of transactions out of Deposits.
On receipt of the treasury accounts in the AG office, the CTS sends the LoP/CA to
the Book Section, which prepares DB I. The SoP/SoR supported by vouchers and challans
relating to the Deposit heads of account are sent to the Deposit Section. Chapter 7 of CAG’s
MSO (A&E) Vol I deals with the process of accounting Deposit heads of account in the AG
office. The Deposit Section enters the details of individual Deposit Head transactions relating
to receipts and payments. For each repayment against the original receipt, either individually
or against the total credit in a particular account, it is checked to see that the repayments do
not exceed the amount originally received and accounted to the Government. The Broadsheet
for various Deposit Heads of Account is generated and the figure tallied with the Detail Book
figure of the Book Section.

15.2.2 Lapsed Deposits

As per Rule 189 of R&P Rules, 1983, at the close of March each year, deposits not
exceeding ` 25 unclaimed for one account year and all deposits or balances in excess of
the aforesaid amount, unclaimed for more than three account years, shall lapse and are to
be credited to the Government under the Consolidated Fund, keeping necessary note in the
Register of Deposits. In the case of deposits, the detailed accounts of which are kept by
departmental officers, the treasury prepares a Statement of Lapsed Deposits and sends it to the
AG office along with the monthly accounts. The amount of lapsed deposits is also adjusted in
the plus and minus memoranda. On receipt of the Statement of Lapsed Deposits, the Deposit
Section credits the amount into the Consolidated Fund by passing the following transfer entry:
Minus Credit Concerned ‘Deposit Head of Account’ ‘
Credit ‘0075 Miscellaneous General Services’

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A deposit register is maintained in the Deposit Section to enter details of all deposits
that lapsed and have been credited into the Consolidated Fund.

15.2.3 Refund of Lapsed Deposits

Rule 190 of R&P Rules, 1983 details the procedure to be adopted for refund of lapsed
deposits. The refund process is initiated when the person who deposited the money submits
her claim for refund, along with the documents in support of the original deposit. Lapsed
Deposits, the detailed accounts of which are kept by a departmental officer, are repaid after a
pre-check by the treasury to verify its actual credit into the Government Account. When the
detailed accounts of Deposits are maintained by the AG office, the bill for repayment of lapsed
deposit is to be sent by the departmental officer to the AG office. The lapsed deposit can be
refunded after verifying its credit into Government Account and that it has not been refunded
earlier. All repayments of lapsed deposits are to be recorded in a deposit register. The refund
is made with the following accounting entry:
Minus Credit ‘0075 Miscellaneous General Services’
Credit ‘8675-106 Deposit with Reserve Bank-States’
15.2.4 Personal Deposits
Personal Deposit Accounts (PDAs) facilitate their administrators to carry out credits/
debits directly from the account. These are mainly accounted under the Head of Account
‘8443-106 Personal Deposits’. The notes to this head of account in the List of Major and
Minor Heads of Account (LMMH) state that these are deposits of which a banking account
only is kept. The treasury/bank, where a ledger account is maintained for the PDA, needs
to ensure that the balances are never negative. The administrator of a PDA can only be a
Government servant. The PDAs form part of the Government Account and are located in the
Public Account. PDAs can be opened for the following purposes:
a. Administering moneys related to attached estates and estates under Government
management.
b. ‘Civil and Criminal Courts’ deposits in favour of the Chief Judicial authority
concerned. (‘8443-104 Civil Court Deposits’ and ‘8443-105 Criminal Court
Deposits’)
c. Funds under certain regulatory activities of the Government where expenditure
are to be incurred from the receipts under the Fund and there is no outgo from
the Consolidated Fund. For example, the Trust Interest Fund held under the
Head of Account ‘8443-107’ is intended for accommodating receipt on account
of interest on securities held by the AG & other Government officers acting as
Treasuries of charitable endowments under the Charitable Endowment Act and
also for making payment of arrears of interest etc. from out of the accretions and
balances lying at the credit of this head.

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d. Created under law/rules or when certain liabilities devolve on the Government

out of certain special enactments. (including under ‘8443-116 Deposits under
various Central and State Acts’)
e. For public funds of commanding units or regimental funds in the Defence
Department.
PDAs under categories ‘c’ and ‘d’ above can be opened only with the permission of
the Ministry/Department concerned in consultation with the CGA/AG after ensuring proper
systems for accounting and audit of such PDAs (Rule 191 of R&P Rules, 1983). Balances
of the PDAs under categories ‘a’ and ‘e’ above do not lapse. However, if such a PDA is not
operated for a considerable period and there are reasons to believe that the need for the deposit
account has ceased, the same should be closed in consultation with the officer in whose favour
the deposit account has been opened. While the balance as a whole in a PDA of the type ‘b’
above will not lapse to Government, individual items of deposits will lapse as per provisions
of Rule 189.
Balance in the PDA of type ‘c’ above will not lapse to Government until the provisions
of the relevant Act are in force. PDAs of type ‘d’ above fall under two categories depending
on the manner in which Government liability is to be discharged. It could be discharged by
transferring a lump sum from the Consolidated Fund to the PDA. In this case, the balances in
the PDA will not lapse at the end of the year. When the liability is to be discharged by transfer
of funds from Consolidated Fund in periodic instalments, any balances in the PDA at the end
of the year are to be brought to ‘nil’ by affording minus debit to the functional head under the
Consolidated Fund and the PDA may be revived in the subsequent year again, if necessary, in
the usual manner (Rule 192 of R&P Rules, 1983).

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 General Provident Fund Accounting
CHAPTER-16

General Provident Fund

Accounting

A
General Provident Fund (GPF) account is opened as per provisions of the General
Provident Fund Rules of the Union or the respective States. Government employees
under the National Pension Scheme (fixed contribution scheme) are not covered under
the GPF rules. GPF accounts are, therefore, not opened for those Government employees who
are covered under the National Pension Scheme. When a new GPF account is opened for an
employee covered under the Old Pension Scheme (fixed benefit scheme), the applicant is assigned
a GPF number. This number is entered in a General Index Register (GIR) and communicated to
the applicant. While allocating a new GPF number, it is ensured that the number of any closed
account is not allotted to the new applicant. A separate GIR is maintained for each department.
A separate Alphabetical Index Register (AIR) is also prepared where the names of the GPF
subscribers are arranged alphabetically as in a dictionary for quick reference.

16.1 Subscription to GPF

GPF subscription is compulsory for those employees covered under the GPF rules.
The range of monthly subscription (maximum and minimum subscription) is also prescribed
by the rules. Within this range, the subscriber can decide her monthly subscription. She is
permitted to alter the rate of her monthly subscription only twice a year. Subscription could
be made either as a deduction from pay or by cash through a challan in the bank. Officers on
deputation send in their GPF contribution as cheques, which are received in the AC section.
The General Provident Fund is accounted under the Major Head ‘8009 State Provident Fund’
under the Sector ‘I. Small Savings, Provident Funds etc’ in the Public Account.
When GPF subscriptions are made as a deduction from pay, they are not accounted by
the treasury as these are AG deductions. The pay voucher contains the totals of deductions
under GPF. This total deduction is supported by a schedule which details the list of all
subscribers (Government servants posted in that office whose pay are drawn through a single
voucher) whose GPF deduction has been effected in the pay voucher. The GPF schedule
consists of the name of the subscriber, her GPF number and the amount of his/her contribution.
The pay vouchers are sent department-wise to the concerned DC section by the CTS. In the
DC section, while compiling the individual vouchers, the Accountant accounts for the total
GPF deductions. These figures of the totals of GPF deduction from individual vouchers
are summarized in the Detailed Book Part II and become the ledger figure. The DC section
Accountant detaches the GPF schedules from the pay vouchers and sends them to the Funds
Group for subsidiary (subscriber-wise) accounting.

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When GPF subscriptions are made in cash through a challan in the bank, the details
are sent to the treasury through the receipt scroll by the bank. The receipt scroll is supported
by the challan. The treasury incorporates it in its accounts and sends it to the AG office. This
appears as a credit against Major Head ‘8009’ in the Cash Account sent by the treasury. The
transactions accounted under this Major Head are supported by a Schedule of Receipt (SoR).
The Central Treasury Section (CTS) books the total against the Major Head ‘8009’ which
becomes the ledger figure in the Detailed Book. It then sends the SoR to the Funds Group for
subsidiary accounting.
When an officer on deputation contributes to the GPF by sending a cheque to the AG
office, it is received by the AC section. It accounts for the receipt under Major Head ‘8009’,
sends the cheque for encashment and the details of the subscription to the Funds Group for
subsidiary accounting.

16.2 GPF Withdrawals

Withdrawals from the GPF account can be made by the account holder for specific
purposes and after specific periods of time. The withdrawals that are permitted from the GPF
account are contained in the respective GPF rules. These withdrawals can either be final
withdrawals or temporary withdrawals. Final withdrawals are made at the time of retirement,
death or after putting in a specific period of service as prescribed in the GPF rules. These
withdrawals need not be paid back into the GPF account by the account holder. Temporary
withdrawals are permitted for specific reasons and are to be repaid in instalments back into
the GPF account.
When withdrawals are to be made from the GPF account of a subscriber, the
concerned DDO checks if the subscriber has adequate balance in her account and if the
reasons specified for the withdrawal are permissible by the GPF rules. She then prepares
a bill in the prescribed form quoting the GPF number of the subscriber and submits it to
the treasury. The treasury exercises the necessary checks. It has the database of the GPF
subscribers and their account numbers, which is provided by the AG office. The details of
the subscribers’ name and account number are tallied with this database. The treasury then
passes the bill and pays the subscriber. The bill now becomes a voucher and the transaction
is incorporated under the Major Head ‘8009’ in the List of Payment (LoP) by the treasury
and sent to the AG office. The list of all transactions accounted under the Major Head are
contained in the Schedule of Payment (SoP) for ‘8009’. On receipt of the accounts by the
CTS, it books the total amount as reflected in the LoP in the VLC which becomes the ledger
figure in the Detailed Book. It then sends the SoP with the supporting vouchers to the Funds
Group for subsidiary accounting.
The sources of information in the Funds Group for subsidiary accounting of GPF are
as follows:

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16.3 GPF Subsidiary Accounting

The totals of the schedules received from all treasuries through CTS relating to cash
recovery and payment vouchers, DC section relating to deductions from payment vouchers
and AC section relating to transactions from other accounting circles are first entered in the
GPF-VLC Application, which is an Oracle-based accounting application in the AG office
for subsidiary accounting of GPF. The sum of the schedule amounts should tally with the
ledger figure as reflected in the Detailed Book. The sum of the schedule amounts reflect
the broadsheet figure. If there are any discrepancies, these are tracked as full-want (missing
schedules) and pursued with the concerned treasury.
After accounting for the totals of the schedules, the individual transactions in each
schedule is accounted for in the account of the concerned subscriber. For example, a single
schedule of a pay voucher would include the subscription details of all the employees of that
office for whom pay was drawn through that voucher. From the details of the employees,
including the name of the employee and her GPF account number contained in the schedule,
the amount is booked into the GPF account of the employee. The total of compilation from
individual transactions should tally with the total of the schedule. If there are differences
between these totals, it is called part-want and it is pursued with the concerned DDO through
the treasury.
While posting individual transactions, there would be instances where the name of
the subscriber as shown in the schedule does not match with the database, the GPF account
number does not match or some information in the schedule is not clear. As a result, these
transactions cannot be posted to the accounts of the individual subscribers. These are
called unposted items. These unposted items could be credit items or subscriptions into
the GPF and debit items or withdrawals from the GPF. Clarification is obtained from
the treasury and the DDO on these discrepancies and missing information to clear such
unposted items.

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After posting the transactions, the GPF statements of individual subscribers can be
generated. The format of individual subscriber’s GPF statement is called the ledger card. This
contains the name of the subscriber, GPF number, rate of subscription, opening balance for the year,
subscriptions during the year, temporary withdrawals that are pending repayment and withdrawals
during the year. The GPF rules provide for nomination facility, where the subscriber can nominate
the beneficiary who would receive the GPF balances in the event of death of the subscriber. The
details of such nomination are also recorded in the ledger card. Prior to computerization, the ledger
cards were maintained in a physical format. These ledger cards were stored department-wise and
GPF account number-wise. Retrieval of ledger card from the storage and its replacement after
processing into the storage were tracked through transit registers. For the pre-computerization
period of existing subscribers, some AG offices still have physical ledger cards.

16.3.1 Annual Closing

The process of annual closing begins with the calculation of interest for every GPF account.
The interest so calculated is credited into the GPF account. The total interest credited to all GPF
accounts is booked to the head ‘2049 Interest Payments’ through the following accounting entry:
Debit ‘2049 Interest Payments’
Credit ‘8009 State Provident Fund’
After booking of interest, the annual Account Statement of individual subscriber is
generated. The account statement should have 12 credits for the year, one for each month.
If there are fewer than 12 credits, the months for which no credits are available are pursued
as missing credits. Missing credits are recorded in a separate register and pursued for their
clearance. Missing credits could be because of unposted items, where the subscriber has
contributed to her GPF account but the accounting information was not complete to enable
posting into her account. When these are cleared, the missing credits are cleared with a
corresponding reduction in the unposted items. However, missing credits could also be due to
non-subscription. For example, the employee may be under suspension and, therefore, would
not have contributed to her GPF account. Such missing items are closed in the register as non-
contributed months after confirmation with the concerned DDO.
When an account shows an increase in subscription due to repayment of an advance
drawn, but no such withdrawal has been posted in the subscriber’s account, then it is taken
as a missing debit. These items are also entered in the missing items register and pursued
with the DDO for clearance. Unposted debits are checked to see if any of them relate to the
missing debit. It needs to be remembered that missing credits and debits are just gaps in
the account statements. It may be because of accounting errors or could just be because of
non-subscription (in case of missing credits) or increase in regular subscriptions (in case of
missing debits). However, unposted credits/debits and full/part want are accounting issues
arising out of communication errors.

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Some offices run a series of checks to assess the quality of accounting before generating
the annual Account Statement. These include checking for any abnormal increase/decrease in
subscription, accounts with more than 12 subscriptions in a year, a dormant account (account
not operated for a long period) getting a credit/debit during the year etc. On the basis of these
checks, exception reports are generated and manually checked if these are due to mistakes
in posting. These checks ensure improved quality of GPF accounting. The annual Account
Statements are then printed and issued to the subscribers. This communication enables
confirmation of balances by the subscribers and helps prevent accounting errors from being
carried forward.
With improvements in technology, efforts have been made to have more frequent
communication of balances to the subscribers. Some offices have implemented a SMS based
communication to the subscribers of credits/debits into their GPF account on a monthly basis.
Many offices also have an interface in the official website of the office for GPF subscribers.
The subscribers can log in to this interface to know the details of their GPF transactions during
the year. These initiatives have helped improve the quality of GPF accounting.

16.3.2 Collateral Evidence

While clearing missing credits, due care must be taken to ensure that credits are given to
the subscriber only on the basis of adequate supporting evidence of actual credit and clearance
of a corresponding unposted credit. If, however, there are no unposted credits corresponding
to a missing credit, but the subscriber gives adequate proof of her having contributed to GPF
for the month, such missing credits can be cleared on the basis of collateral evidence. The
collateral evidence could be a copy of the pay bill showing the contribution of the subscriber
to GPF duly certified by the DDO and the treasury officer.
In the case of an unposted credit, we are sure that the money has been received, but
adequate information for this transaction to be posted to the concerned subscriber’s account is
not available. When a credit is given to a subscriber’s account against a missing credit, where
there is no corresponding unposted credit, it reflects a control risk in that we are not sure if the
money was actually received as subscription. Therefore, a suspense is operated to track and
confirm the actual credit of money into GPF for every missing credit or withdrawal of money
out of GPF for every missing debit cleared without a corresponding unposted item.
When a credit is given to a subscriber against a missing credit without clearing a
corresponding unposted credit, ‘8658-113 Provident Fund Suspense’ is operated to keep track
of such clearances. For example, if 5 credits of ` 10,000 each are adjusted on collateral basis
into the account of Mr. X, the following accounting entry is passed:
Debit ‘8658-113 Provident Fund Suspense’
Credit ‘8009 State Provident Fund’

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If it is found that the original transaction is lying as an unposted credit, then the Provident
Fund suspense is cleared by reversing the above accounting entry, while correspondingly
settling the unposted credit. However, if on pursuance, it is found that the treasury had not sent
the details of this transaction to the AG office, or the Accounts Group of the AG office had
missed to account it, then the Accounts Group gives credit to Major Head ‘8009’ by getting
details of the missed item. This raises the ledger balance. It then sends the details to the Funds
Group for subsidiary accounting. On the basis of these details, the Provident Fund suspense is
cleared through the following accounting entry:
Minus Debit ‘8658-113 Provident Fund Suspense’
Minus Credit ‘8009 State Provident Fund’
Similar accounting procedures are followed when debit is provided to a subscriber’s
account against a missing debit without clearing a corresponding unposted debit. If the
unposted item could not be tracked and a dead end has been reached, then the Provident Fund
Suspense is written off through the following accounting entry:
Debit ‘8680-00-102 Write-offs from Heads of Account closing to balance’
Minus Debit ‘8658-113 Provident Fund Suspense’
16.3.3 Procedure when Subsidiary Accounting not AG’s responsibility
In some States, the detailed accounting of GPF is maintained by the State. In others,
detailed accounting of GPF for certain class of employees is maintained by the State. For
example, the GPF accounting of Multi-tasking Staff or that of teachers may be maintained by
the State. In such cases, the detailed subsidiary accounts are not maintained in the AG office.
However, certain basic checks are to be exercised in such cases. The ledger figures for such
categories of subscribers are arrived at by adopting the same procedure mentioned above.
The schedules totals are then entered into the system to arrive at the broadsheet figure. The
broadsheet has the opening balance for the month, credits and debits during the month and the
closing balance at the end of the month.
It is verified whether the broadsheet figure for the month tallies with the ledger figure
in the Detailed Book. It is also to be monitored that the broadsheet for such categories of
employees does not have negative balances, which implies that there are more withdrawals
than subscription into the account.

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CHAPTER-17

RBD Accounting
and Cash Management

C
ash Management is an important executive function. As per the agreement with the
RBI, the Union/State is required to maintain a minimum cash balance. If the balances
of the Government dip below the prescribed minimum balance for a particular day,
the Government would have to incur interest expenses in terms of interest on advances/over-
draft provided by the RBI to maintain the minimum cash balance. Excess cash balances
with the Government also indicate poor cash management. This is because the Government
has undischarged debt and persistent excess cash balances reflect excess borrowings by the
Government on which it is incurring interest expenses. To effectively discharge the function
of cash management, State Governments have devised mechanism to collect management
accounting information in terms of cash flows from their various treasuries. These are
monitored for the purpose of managing expenditure to ensure that an optimal cash balance is
maintained.

17.1 Cash Balance Components

The cash balances of the State Government comprise the following:
a. Cash Balances with Reserve Bank of India
i. Cash in Treasuries
ii. Local Remittances in transit
iii. Deposits with Reserve Bank of India.
iv. Investments of Earmarked Funds
v. Cash Balance Investments
b. Cash Balances with State Government
i. Departmental Balances
ii. Permanent Advance
The cash balance position is shown in the ‘Annexure to Statement 2- Cash balances and
investments of cash balances’ of the Finance Accounts of the States and Statement 13 of the
Union Finance Accounts. The details of these components of cash balances of Government
are as follows:

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17.1.1 Cash in Treasuries

These consist of actual notes and coins in the Cash Chest of a non-banking treasuries.
These appear under the Head of Account ‘8999-101 Cash in Treasuries’ in LoP/CA of the
treasuries.

17.1.2 Local Remittances in transit

This is accounted under the Head of Account ‘8999-102- Local Remittances in transit’.
These are also operated in non-banking treasuries to account for money which are in transit
between the Cash Chest of the treasury/sub-treasury and the Currency Chest of the RBI in the
treasury. This generally happens when cash is taken out of the Cash Chest of a sub-treasury
for deposit into the RBI Currency Chest in the treasury, but is still in transit when the accounts
are closed.

17.1.3 Deposits with Reserve Bank (RBD)

RBD is the cash held by the RBI on behalf of Government (Cash with Bank). In the
case of State Governments, this is recorded under the Head of Account ‘8675-106 Deposits
with the Reserve Bank – States’. This is further divided into three Sub-Heads viz. (a) Treasury
(b) RB-Headquarters and (c) Central Accounts Section, RBI.

17.1.3.1 Treasury
As per provisions of the Reserve Bank of India Act, 1934, the RBI acts as banker to
the Central and State Governments. The RBI provides a full range of banking services to
the Central and State Governments such as acceptance of moneys on Government account,
payment/withdrawal of funds and collection and transfer of funds throughout India. The work
of actual receipt and payment of moneys on behalf of State Governments is carried out at
offices of RBI and its Agency Banks authorized to conduct Government business on its behalf
as per provisions of RBI Act, 1934. The Treasury component of the RBD figure denotes the
net of receipts and payments reported by each Agency Bank

17.1.3.2 RB-Headquarters
This records the net of the cash transactions taking place in RBI, PAD offices. This head is
operated while buying drafts in response to an Inward claims and also while depositing cheques/
drafts towards the settlement of Outward Account. This head also records transactions relating
to the Pay & Accounts Offices of the State, including those situated in the State Capital.

17.1.3.3 Central Accounts Section (CAS), RBI, Nagpur

This records the transactions which are taking place in RBI, CAS, Nagpur. This consists
of inter-government transactions adjusted by the RBI Advice procedure, Ways & Means
Advances granted by the RBI, Investments of cash balances, Investments of Earmarked Funds

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like Sinking Fund etc., loans transactions taking place outside the State, GIA/Share of Taxes/
Loans from the Central Government, repayments of Loans to Central Government, floatation
of new Open Market Loans and repayment of same etc.

17.1.3.4 Cash Balance of the Government with RBI

The treasury/sub-treasury receives Receipt Scroll supported by challans and Payment
Scroll supported by paid cheques on a daily basis from the Agency Banks. These transactions
are classified to the concerned Heads of Account and entered in the Subsidiary Registers and
Cash Book. The pass book is also sent by the bank for reconciliation. The Agency Banks
report the treasury component of the RBD figure, denoting the net of receipts and payments,
through the Date-wise Monthly Statement to the treasury. The treasury/sub-treasury maintains
an RBD Register to reconcile the RBD figures. When this is verified by the treasury, it becomes
the Verified Date-wise Monthly Statement (VDMS). The Accounts of the Sub-Treasury are
incorporated in the Accounts in District Treasury. The treasury sends copies of this VDMS to
the Agency Bank and the AG office.
The branches of Agency Banks conducting State Government work report the
transactions effected by them (as available in the VDMS), to their Link Office on a daily
basis. The Link Branch of the concerned Agency Bank consolidates the RBD figures of all
the branches of the Bank and reports it to the Public Accounts Department (PAD) of the RBI
for accounting and settlement. The PAD, RBI maintains detailed subsidiary account for the
State Government transactions reported by Agency Banks. It prepares the RBD figure under
this Sub-Head from balances communicated by Link Branches of all Agency Banks that deal
in Government transactions. The daily RBD figures communicated by the Link Branches are
entered in the Day Book maintained by the PAD, RBI.
The PAD, RBI advises the daily balance of the State Government in their books at the
end of each day to Central Accounts Section (CAS), Nagpur to enable them to work out the
overall balance position of the State Government. The Principal Government Deposit Account
(PGDA) of State Government is maintained at CAS of RBI at Nagpur. The PAD, RBI also
receives the monthly statement of transactions from the Link Branches of the Agency Bank
by the 8th of the subsequent month. The PAD carries out an agreement of the monthly figures
with the figures posted in the Day Book.
The PAD, RBI sends an advance copy of the monthly closing statement in the format
shown in the Annexure 1 below to the AG (A&E) and the Finance Department, showing
the monthly receipt and payment transactions at PAD, RBI (RB-Headquarters) and the
Agency Banks (RBD-Treasury). It then communicates the net amount to CAS, RBI Nagpur.
CAS, RBI Nagpur maintains the PGDA of all State Governments except Sikkim and of all
departments of the Union Government. CAS, RBI arrives at the daily cash balance position of
the Government on the basis of the following figures:

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a. Opening Balance
b. Balance reported by PAD
c. Inter Government Advices
d. Adjustments of any discrepancies prior to 01-10-1987.
e. Adjustments on account of miscellaneous transactions such as Discharge value
of securities/Interest payment on State Government’s borrowings, Currency
chest transfer transactions in respect of non-banking sub-treasuries.
Thereafter, CAS, RBI takes necessary action to invest surplus balance in Government of
India (GoI) Securities (14 days Treasury Bills)/rediscounting GoI securities or grant/recovery
of Ways and Means Advances (WMA). The daily cash balance position is made available on
website of CAS, RBI, Nagpur in the format shown in Annexure 2 below, which is used by the
office of the AG (A&E) for maintenance of detailed account in respect of WMA, Overdrafts
and cash balance investment account. The Finance Department also uses this information for
their day to day management of cash balance.
On the basis of the information received from RBI, PAD (RB-Headquarters) and
Agency Banks’ Transaction reported by PAD (RBD-Treasury) and the transactions booked
in CAS, RBI, Nagpur (Inter-government transactions), a closing Balance Report (Monthly
Statement of Cash Balance) is prepared in the format shown in Annexure 3 below. This
statement is supported by PAD’s statements in respect of Agency Bank (RBD-Treasury)
and PAD’s transactions (RB-Headquarters) and list of clearance Memos issued in the month
(Inter-government transactions). This report is made available on CAS website on 15th of
next month. CAS, RBI, Nagpur submits a Monthly Statement of Cash Balance to Accountant
General of each State.
The closing balance statement prepared by CAS, RBI, Nagpur, indicates the cash
transactions of Government for all the sources affecting Cash Balances with RBI. This is
regarded as Cashier’s accounts. The closing Balances as worked out in this statement are
required to be reconciled with the Accountant’s (AG’s) Cash Balances worked out by Account
wise posting.
In the AG office, the Broadsheet figure for this Sub-Head is arrived at from the net of
receipts and payments after compiling all vouchers and receipts. The ledger figure is entered
by the Book Section on the basis of the Disburser’s Abstract furnished by the treasury, which
is the net of LoP and CA. An RBD register is maintained by the Book Section to reconcile
all the figures relating to this Sub-Head, viz. Broadsheet, Ledger, VDMS (received from the
treasuries) and the Monthly Statement figure communicated by RBI. After reconciling the
cash balances with the accounts maintained in the AG office, the balances are confirmed,
along with discrepancies, if any, and reasons thereof, to CAS, RBI within a period of one
month in the format shown in Annexure 4 below. Quarterly meetings are held between

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officials from State Government, Agency Banks and Accountant General Office to reconcile
the discrepancies. A flow chart of the system of consolidation and communication of cash
balances of the Government is shown below:

17.1.4 Investments of Earmarked Funds

These include investments made out of funds from the Sectors J. Reserve Funds and K.
Deposits and Advances. The Reserve Funds and Deposits are liabilities of the Government.
When investments are made out of these funds, they are equivalent to cash of the Government,
as and when these investments are discharged, they increase the cash balance of the State. For
example, when investments are made out of the Sinking Fund, which is part of the Reserve
Fund, the invested amount is equivalent to cash of the Government.

17.1.5 Cash Balance Investments

Cash balance investments include investments in Government of India (GoI) Treasury
Bills, Securities and other investments. In the case of State Governments, the details of such
investments are available in Annexure to Statement 2 of the Finance Account.

17.1.6 Departmental Balances

Public Works/Forest Divisions and other offices with cheque-drawing powers are
allowed to collect revenues of Government. These offices remit such receipts into Banks for
credit into Government account. However, those receipts which are yet to be remitted into

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the Banks are accounted under the Major Head ‘8671- Departmental Balances’ under Minor
Head ‘101-Civil’.

17.1.7 Permanent Advance

Permanent Advances are granted to DDOs to enable them to incur contingent expenditure
which is of an urgent nature. Therefore, Permanent Advance is government cash lying with
the DDOs. This amount is accounted in the Major Head ‘8672 Permanent Cash Imprest’.

17.2 Cash Balance Management

The cash management of the Government is assigned to the RBI. Accordingly, by virtue
of the agreement, every State Government has to maintain a minimum daily cash balance with
the RBI as prescribed by the RBI. The amount of cash balance a State is required to maintain
with the RBI is provided in the explanatory notes under Annexure to Statement 2 of the
Finance Accounts in the case of State Governments.
If on a particular day, the overall receipts of the Government are more than the payments
reported to RBI, the excess amount is invested in ad-hoc Treasury Bills by the RBI. If the cash
balance falls below the agreed minimum balance due to excess payments and less receipts,
the deficiency is made good by rediscounting their holding in ad-hoc Treasury Bills. If the
cash balance further diminishes and Treasury Bills are not available for re-discounting, the
RBI provides Ways & Means Advances and Overdrafts. The arrangement is detailed below.

17.2.1 Ways and Means Advances

As per provisions of the Reserve Bank of India Act, 1934, the RBI provides Ways &
Means Advances (WMA) to States to help them tide over temporary mismatches in the receipt
and payment cash flows. There are two types of Ways and Means Advances.
A. Special Ways and Means Advances: It is given against the pledge of investment in
Government of India (GoI) Securities (i.e. Dated Securities and Treasury Bills) out of
Consolidated Sinking Fund/Guarantee Redemption Fund. Sanction of Special WMA
is equal to Net incremental (i.e. new investments – reduction) annual investment of
State in consolidated Sinking Fund/Guarantee Redemption fund limited to overall
ceiling of normal WMA fixed by the RBI. These advances are to be availed before
availing normal WMA. Rate of interest is one per cent below Repo rate.
B. Normal Ways and Means Advances: Unlike the Special WMA, this is an unsecured
advance. This advance is provided after the Special WMA and when the minimum
cash balance is not reached even after the release of Special WMA. The limit for this
advance is fixed as a percentage of the total expenditure of the State (total revenue
and capital expenditure less repayments of loans and one time ad hoc payments). The
percentages fixed are 4.1 per cent for special category States and 3.1 per cent for other

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States on the average expenditure of the base years (3 year) rounded off to the nearest
multiple of ` 5 crore. The rate of interest on this advance up to 90 days is at the repo
rate and beyond 90 days, it is one per cent above the repo rate.
Whenever it is found that the daily receipts are less than the payments reported,
the CAS, RBI,Nagpur sells the Government Securities i.e. 14 days Treasury Bills (TB). If
despite this receipt, the minimum cash balance is not achieved, it grants ways and means
advance to help the State achieve the minimum cash balance level. This is explained with
the following example:
Minimum Balance to be maintained with the RBI ` 04 crore (Presumed)
On a particular day Receipts ` 10 crore
Payments ` 15 crore
Gaps ` 05 crore
Add: Minimum Balance ` 04 crore
WMA (presumed there are no TB) ` 09 crore
17.2.2 Overdraft
Overdraft is sanctioned after the release of normal WMA. The amount of overdraft
sanctioned is equal to the amount of normal WMA. Overdraft can be availed up to 14
consecutive working days and 36 working days in a quarter. Rate of interest on overdraft up
to 100 per cent of Normal WMA is 2 per cent above repo rate and beyond normal WMA, it
is 5 per cent above repo rate. The calculation adopted by the RBI to sanction the overdraft is
elaborated in the following example:
Minimum Balance to be maintained with the RBI ` 04 crore (Presumed)
Special WMA limit allowed by RBI ` 01 crore (Presumed)
WMA limit allowed by RBI ` 10 crore (Presumed)
On a particular day
Receipts ` 05 crore
Payments ` 22 crore
Gaps ` 17 crore
Add: Minimum Balance ` 04 crore
Cash Balance to be maintained with RBI ` 21 crore
Special WMA (presumed there are no TB) ` 01 crore
WMA ` 10 crore
Shortfall (Overdraft) ` 10 crore
The shortfall will have to be cleared within 14 days at an interest rate of 2 per cent
above repo rate. Otherwise the rate of interest would increase to 5 per cent above repo rate.
When on next day, the receipts are more than payments, first of all, the overdraft of ` 10 crore
is adjusted from the cash balance and thereafter, the WMA and Special WMA are adjusted.

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17.2.3 Accounting of WMA in the AG office

On receipt of clearance memo from RBI, CAS, Nagpur in the AG office when the
amount of WMA is released, the following accounting entry is made:
Debit ‘8675-106 Deposit with Reserve Bank-States’
Credit ‘8658-110-CAO RBS’
Thereafter, on receipt of letter from RBI, CAS, Nagpur regarding the details of the
grant of a WMA- Normal/Special advance/Overdraft, the following accounting entry is made
to clear the CAO RBS and book the amount to Major Head ‘6003 Internal debt of the State
Government’ and Minor Head ‘110 Ways and Means Advances from Reserve Bank of India’:
Minus Credit ‘8658-110-CAO RBS’
Credit ‘6003-110 WMA from RBI’
When the WMA is repaid, the principal amount is debited to the debt Head of Account
‘6003’ and the interest is accounted under Major Head ‘2049 Interest Payments’ and Minor
Head ‘115 Interest on WMA from RBI’. The following accounting entry is made after the
receipt of the clearance memo and the details of the repayment (the initial operation of CAO
RBS on receipt of clearance memo and its subsequent clearance has not been shown):
Debit ‘6003-110 WMA from RBI’ Principal amount
‘2049-115 Interest on WMA from RBI’ Interest amount
Credit ‘8675-106 Deposit with Reserve Bank-States’ Total amount
The AG office checks the correctness of the amount of WMA-Normal/Special advance/
Overdraft granted and adjusted through Clearance Memo by the RBI, CAS, Nagpur and
calculation of the interest thereon. A broadsheet is maintained in the Book section to check
the accuracy of the transactions. The information in respect of WMA- Normal, Special and
Overdraft availed by the State Government and interest paid thereon is disclosed in the
explanatory notes under Annexure to Statement 2 of the Finance Accounts.

17.2.4 Investments out of Cash Balances

If on a particular day, when amounts of receipts reported to CAS, RBI is more than the
payments, the excess amount is invested in Government of India Securities including ad-hoc
Treasury Bills. If the cash balance falls below the agreed minimum balance, the deficiency is
made good by rediscounting their holding in the GoI Securities. This is explained through the
example below:-
On a particular day, when receipts are more than payment-
Receipts ` 22 crore
Payments ` 05 crore
Excess of Receipt over Payment `17 crore

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Less Minimum Balance ` 04 crore

Excess Cash available ` 13 crore
This excess cash of ` 13 crore is invested in Government of India Treasury Bills and
State Governments gets interest on the investment. If on the next day, the payments are more
than the receipts, the Treasury Bills are encashed and an attempt is made to cover the gap
between receipts and payments. This is explained below:-
Receipts ` 02 crore
Payments ` 07 crore
Excess of Payments over Receipts ` 05 crore
Treasury Bills to the tune of ` 5 crore are encashed and the minimum balance is
maintained.

17.2.5 Accounting of Cash Balance Investments

The Book Section in the AG office maintains a broadsheet to check the correctness of
the adjustment made by the CAS, RBI, Nagpur. The details of GoI Securities are posted in
the “Treasury Bills Investment Register”. When Treasury Bills are purchased, the CAS, RBI,
Nagpur sends details of the GoI Securities purchased (i.e. date of investment, date of maturity,
cace value, discount amount, cost value and closing balance of the invested amount under GoI
securities). On the basis of this information, the amount is booked under the Head of Account
‘8673 Cash Balance Investment Account’ through the following accounting entry:
Debit ‘8673-101 Cash Balance Investment Account’
Credit ‘8675-106 Deposit with Reserve Bank-States’
When the investments are encashed on maturity or when the cash balance dips below
the minimum requirement, the entire amount (including the principal and the interest
earned) are credited into the Cash Balance Investment Account through the following
accounting entry:
Debit ‘8675-106 Deposit with Reserve Bank-States’
Credit ‘8673-101 Cash Balance Investment Account’
Then, as per detailed statement received from the RBI, the interest amount is transferred
to the interest receipt head through the following accounting entry:
Minus Credit ‘8673-101 Cash Balance Investment Account’
Credit ‘0049-110 Interest realized on investment of Cash Balances’

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Annexure 1
Advance copy of Monthly Closing Statement sent by PAD, RBI to AG (A&E) and the
Finance Department
Statement showing the monthly Receipts and Payments of -----State Government at Public
Accounts Department (PAD), Reserve Bank of India……. For the month of …..Year…..
Particulars Payments Receipts Net Balance
1. Transactions during …., at PAD
Reserve Bank of India
2. Transactions during ……at the branches of
Agency Bank branches.
(a) State Bank of India.
(b) Bank of India.
(c) Bank of Maharashtra
(d)
PAD No. Dated
Forwarded to
(i) The Accountant General……..
(ii) The Secretary to Government of …... Finance Department.
Assistant General Manager

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Annexure 2
Daily Cash Balance position communicated by CAS, RBI
Reserve Bank of India
Public Account Department/State Government Cell
Daily Position of State Government Balance as on …….. Advice No.
Date:
Sr. No. Particulars Amount
1. Previous day’s Balance Dr.
Cr.
2. Adjustment of discrepancies relating to transactions of pre- Dr.
decentralization period
Cr.
3. Receipt on State Government Account
(i) At RBI Office Cr.
(ii) At Agency Bank branches Cr.
4. Payments on State Government Accounts.
(i) At RBI Office Dr.
(ii) At Agency Bank branches Dr.
5.* Inter Government Adjustments by CAS (vide Clearance Memo No.) Dr.
Cr
6. Closing Balance Dr.
Cr
7. Treasury Bill Holding- Progressive Balance
8. Ways and Means Advances
* Adjustments include
(i) Rediscounting of Intermediate Treasury Bills `
(ii) Investment in Intermediate Treasury Bills `
(iii) Grant of Ways and Means Advances `
(iv) Repayment of Ways and Means Advances `

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Annexure 3
Closing Balance Statement and Confirmation
Reserve Bank of India
Central Accounts Section
Nagpur
The Accountant General
Government of -----

Dear Sir,
We append the monthly account statement of closing balance of your State for the month
of____. The supporting documents are also enclosed. We shall be glad if you will confirm
that the balances shown in respect of items 1 to 9 in the statement agree with the books of
your Office. Please use enclosed Form “A” for the confirmation.

Regional Director
Receipts Payments Net
Sl. No. Particulars
(`) (`) (`)
1 Inter-Government and other transactions booked
directly by CAS (as per date-wise list attached)
2 Transactions originated at RBI Offices other than that
attached to your State and booked by CAS(as per
date-wise list attached)
3 Transactions of pre 01-10-1987 period, adjusted by
CAS (as per date-wise list attached)
4 Sub Total (1+2+3)
5 Transactions at RBI Office
6 Sub Total (4+5)
7 Transactions of Agency Banks (as per summary)
8 Total (6+7)
9 Net Dr./Cr. for the month
10 Progressive total brought forward from previous month
11 Progressive total up to current month carried over
12 Net Progressive Dr./Cr.

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 RBD Accounting and Cash Management

Annexure 4
Certificate of Confirmation of Balances
The Regional Director,
Reserve Bank of India,
Central Accounts Section, Nagpur.

Dear Sir,

With reference to your monthly account statement for the month of ------ we confirm that the net
amounts shown against items 1-9 tally with our books.
Or
With reference to your monthly account statement for the month of ------ we advice that the items
shown below do not tally with our books for reasons mentioned there against.
Net Net
Reasons
Sl. amount as Amount as
Particulars for Remarks
No. per Books per AG’s
variation
of RBI (`) Books (`)
1 Inter-Government and other transactions
booked directly by CAS (as per date-wise list
attached)
2 Transactions originated at RBI Offices other
than that attached to your State and booked by
CAS(as per date-wise list attached)
3 Transactions of pre 01-10-1987 period, adjusted
by CAS (as per date-wise list attached)
4 Sub Total (1+2+3)
5 Transactions at RBI Office
6 Sub Total (4+5)
7 Transactions of Agency Banks (as per
summary)
8 Total (6+7)
9 Net Dr./Cr. for the month
10 Progressive total brought forward from previous
month
11 Progressive total up to current month carried
over
12 Net Progressive Dr./Cr.

( Signature of the authorized Official)

Accountant General

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 Review of Balances
CHAPTER-18

Review of Balances

18.1 Adverse Balances

C
hapters 10 and 11 of CAG’s MSO (A&E) Vol I deal with scrutiny of DDR transactions
and review of balances. DDR heads record transactions where the balances under
these heads of account are carried forward to the following years. As the balances
under DDR heads are carried forward year after year, errors in accounting, if not monitored
properly, could accumulate to the extent that the balances under a head of account could
become adverse i.e. a head which is normally to have a credit balance (like public debt) could
have a debit balance and vice versa. Therefore, adverse balances are not normal balances
under a particular head of account. The balances which are adverse under various heads of
account are as follows:
Normal and Adverse Balances in the Heads of Account under various Sectors
Code Sector Normal Balance Adverse Balance
E Public Debt Credit Debit
F Loans & Advances Debit Credit
I Small Savings & Provident Fund Credit Debit
Investment Account Heads under Small Savings Debit Credit
J Reserve Fund Credit Debit
K Deposits Credit Debit
Investment Account Minor Heads under Deposits Debit Credit
Advances Debit Credit
L Suspense & Miscellaneous Both Debit & Credit
Cheques & Bills Credit Debit
Departmental Balances, Permanent Cash
Debit Credit
Imprest and Cash Balance Investment Account
M Remittances Both Debit & Credit
N Cash Balance Debit Credit

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18.1.1 Reasons for Adverse Balances

The following are some of the reasons for adverse balances:
A. Non-accounting of transactions: Adverse balances could result due to non-accounting
of some transactions pertaining to that head of account. For example, when a loan is
received by the Government, a credit entry is to be made in the concerned debt head
of account. However, if the sanction of the loan and the details relating to the transfer
of the loan are not received, the accounting of the credit entry is missed out. When
the department that received the loan begins to repay it, debit entries are made in the
debt head on the basis of the repayment vouchers. As the accounting of the original
credit was missed out, the debt head would have a debit balance after accounting for
the repayments which is an adverse balance.
B. Misclassification: Misclassification of transactions could lead to adverse balances in
both the heads of accounts (the head to which the transaction actually pertains and the
head in which it has been accounted through misclassification). Misclassifications
could result due to incorrect examination of initial records or for want of detailed
classification. For example, when a loan is given by the Government to a third party,
it is accounted as a debit in the concerned loan head of account. When this loan is
repaid by the third party, the principal is to be accounted against the loan head as
a credit. The interest paid is to be accounted as a receipt under the revenue receipt
head ‘0049 Interest Receipt’. However, due to misclassification, the interest also
could be accounted as a credit under the loan head. When the principal and interest
are completely repaid, there would be a credit balance under the loan head due to
the wrong accounting of interest receipts under the loan head. This results in the
adverse balance.
C. Incorrect adjustments: Wrong adjustments and incorrect transfers from one head to
another without ascertaining the balances under the heads operated and incorrect
allocation of balances between heads of account could result in adverse balance.
For example, when a deposit account is closed, the balances are transferred to the
Consolidated Fund through an accounting entry. When the amount transferred
to the Consolidated Fund is more than the actual balances lying in the head of
account, a debit balance will appear in the deposit head of account which would
be an adverse balance.
It is, therefore, necessary that the accuracy of accounting of these transactions is
ensured periodically through appropriate procedures. The steps to be followed to ensure that
the balances under the DDR heads include maintenance of appropriate subsidiary accounts
(including broadsheets), reconciliation of balances of the subsidiary accounts with that of the
ledger figure, communication and confirmation of balances with the third party etc.

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 Review of Balances

18.2 Scrutiny of DDR Transactions and Review of Balances

DDR transactions involve third parties where the Government becomes liable to repay
the moneys received or has a claim to recover amounts paid earlier. The detailed accounts
maintained for these transactions (broadsheet and other subsidiary accounts) should agree
with the balances as per the ledger (Detail Book). The person who owes to the Government
or to whom the Government owes should admit to the correctness of such balances. These are
to be ensured through communication of balances under these heads to the concerned third
party and confirmation of the balances by those parties. Efforts must be made to ensure that
the verification of balances is completed in time for the inclusion of confirmed balances in the
Finance Accounts. If there are any discrepancies in the figures, these are to be promptly settled
to ensure that the balances are accurate.
In cases of amounts that are due to the Government, an assessment of how far such
balances are really recoverable is to be carried out for adequate disclosure to the stakeholders
through the annual accounts. It should be ensured that outstanding balances that fall due are
promptly received or paid, as the case may be.

18.2.1 Borrowings
As per article 292 of the Constitution, the Union Government can borrow upon the
security of the Consolidated Fund of India within the limits prescribed by the Parliament.
Article 293 of the Constitution states that a State can borrow within the territory of India upon
the security of the Consolidated Fund of the State within the limits prescribed by the State
Legislature. However, consent of the Union Government would be required for raising fresh
loan if a loan or a guarantee of the Union is still pending discharge by the State.
While accounting for borrowings, it is to be checked whether the limits fixed and
conditions laid down by the Parliament/Legislature have been duly complied with. In the case
of State borrowings, it needs to be verified whether the conditions imposed by the Union when
granting the loan/guarantee have been duly observed by the State. It is to be ensured that the
proceeds of the loan are properly brought to account. There has to be adequate arrangements
made for amortization of loans, especially when such loans are utilized on objects/works
which cannot be regarded as productive.
While making arrangements for repayment during the period of maturity of a loan,
chances of growth of such types of unproductive debt and the increased liability on the
Government should be factored in. It needs to be ensured that the period of repayment
ought to be short for loans if the life of asset created out of such loans is short. In any case,
the amortization period of a loan should never exceed the life of the asset created out of
it. The period of repayment of a loan is also to be kept short if the total of borrowings for

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unproductive assets is likely to increase rapidly during the period. Any inadequacies noticed
are to be brought to the notice of the stakeholders.
In the case of sinking funds created for amortization of loans, it is to be checked if
credits to these funds are in accordance with the undertakings given by the Government in
the prospectus of the loan. It is also to be checked if the accretion into the fund is eventually
utilised for the purpose for which such funds were created. The balances at the end of the year
are to be verified and confirmed.

18.2.2 Investments
In the case of investments made from sinking funds, other funds and cash balances, it needs
to be checked if those investments are in the category authorised by statutory provisions
governing such funds. When there are no such statutory provisions governing the investments,
the authority for such investments is to be called for and scrutinized. Unauthorised, irregular
or unsound investments are to be promptly taken up with the Government. Ascertained losses
or unusual depreciation on investments are to be reported to the Government with such
comments as the Accountant General may deem fit.

18.2.3 Contingent Liabilities

Contingent liabilities include guarantees given by the Government to Government
Companies, other Governments and other entities on their borrowings. They would become
the liability of the Government if the original borrower defaults in the repayment. It is to be
checked whether the limits prescribed by Parliament/Legislature as per provisions of articles
292 and 293 of the Constitution on guarantees have not been exceeded. The total amounts of
guarantees given and invoked during the year are to be disclosed in the annual accounts. This
information is included in Statement 9 of the Finance Accounts of the State Governments and
in Statement 4 of Union Finance Accounts. It is also to be ensured that levy of commission, if
any, on guarantees have duly been charged, collected and accounted for.

18.2.4 Loans and Advances

The balances as per the Subsidiary Loan Register (SLR) for individual loans should
tally with the broadsheet maintained for the loan heads of account. The broadsheet balances
are then to be tallied with the ledger balance. The balances of loans as per the SLR are to be
communicated to the debtors and confirmed before incorporation in the accounts. In the case
of long term advances where detailed accounts are not maintained by the AG office, it should
be ensured that the figures as per the departmental officers who maintain the detailed account
tally with the ledger figure. When detailed accounts are maintained by the AG office as in the
case of house building advance and motor car advance, the balances are to be communicated
and confirmed by the loanee. Promptness of repayment of such advances is also to be
monitored by the AG office.

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 Review of Balances

18.2.5 Small Savings and Provident Fund

The broadsheets maintained for these heads of account are to be tallied with the ledger
figure. When detailed subsidiary accounts are maintained for any of these heads by the AG
office, like the General Provident Fund, the balances as per such detailed accounts are to
be communicated to the subscribers individually. Confirmation of such balances are to be
obtained from the subscribers. Efforts must be made to clear unposted and missing items
before the close of the accounts for the year.

18.2.6 Reserve Funds

Reserve Funds are constituted by allotment of sums from the Consolidated Fund
or through grants/contributions by other Governments or agencies as per provisions of
statute or otherwise. These funds are constituted with the objective of expending the
resources for specific purposes. When a Reserve Fund is created through grants by other
Government/agencies and the grantor does not retain control of expenditure, it should be
ensured that such grants have been treated as revenue receipts. It is also to be ensured
that equal amounts have been transferred to the Reserve Fund through the functional
expenditure head of account after Parliamentary/Legislative sanction. The same procedure
is to be adopted when the grantor to the Reserve Fund is another Government and retains
control over expenditure. However, when the grantor is a non-Government agency and
it retains control over the expenditure out of such funds, it needs to be checked if the
accounting procedure has been duly decided by the Government in consultation with
the CAG.

18.2.7 Deposits and Advances

It is to be checked that no moneys have been credited into Deposits except as per
provisions of statute or orders of the Government. Repayments out of the Deposits should
not exceed the original receipts. It is to be ensured that the balances in the Deposit heads are
correctly carried forward from year to year. Lapsed deposits are to be duly credited as revenue
receipts. When repayments are made out of lapsed deposits, it is to be verified whether the
repayment authorisation has been issued only after due verification of the original lapse of the
deposit and proper entries have been made for the repayment of such lapsed deposit to prevent
any double repayment.
While accounting for Deposits, it is to be verified that the receipts, payments and
balances as per the Plus & Minus Memorandum have been correctly brought forward through
necessary entries in the broadsheet. When detailed accounts for any Deposit heads are
maintained by the AG office, it should be ensured that the accounting figure should tally
with the balances as per the broadsheet. For all the heads of account, including those where
the detailed accounts are maintained by the treasury or the departmental offices, it should

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Government Accounting

be ensured that the broadsheet figure tallies with the ledger (Detail Book) figure. In case of
deposits where detailed accounts are maintained by the Administrator (not by the AG office),
as in Court deposits, it is to be ensured that the Statement of Lapses have been submitted at
the end of the year to the AG office by the Administrator.
In case of Personal Deposits operated in the name of Administrators, it should
be checked that these deposits have been opened with the due sanction of the competent
authority. A certificate of verification of the figures as per the administrator of the deposit with
the balances as per the treasury is to be obtained for each of these deposits. It is to be ensured
that any balances lying unutilised in Personal Deposits created out of funds appropriated from
the Consolidated Fund are closed at the end of the year and balances brought back to the
Consolidated Fund through a minus debit of the relevant service head. It should be verified
whether the balances as per the Personal Ledger Accounts maintained for these deposits tally
with the ledger figure.
In the case of permanent advances, the amount lying unadjusted under each district is to
be verified by means of annual acknowledgement from the officers concerned. The aggregate
amount outstanding as per the permanent advance register should tally with the ledger figure.

18.2.8 Suspense Heads

It is to be checked that Suspense heads are not being operated for provisional adjustment
of transactions which are to be ultimately adjusted under service heads unless provided for by
rules made by or in consultation with the CAG. It is to be scrutinized to see that the unadjusted
balances under the Suspense heads reflect bona fide assets or liabilities of the Government
that are capable of being realised or settled. It is also to be scrutinized whether satisfactory
action is being taken towards the realisation/settlement of balances under these heads by the
officers responsible. All balances under Suspense heads must be reviewed at short intervals to
ensure that no item remains unadjusted longer than is reasonably necessary to bring about its
clearance in the ordinary course with due regard to the rules applicable to each case.

18.2.9 Remittances
Remittance transactions involve bookings under transitory heads which are to be
adjusted to the final heads of account. They involve debits/credits which are eventually to be
cleared by corresponding credits/debits within the same or a different accounting circle. The
bookings under these heads of account are to be verified by tallying the sum of individual
transactions with the broadsheet figure and then tallying the broadsheet figure with the ledger
(Detail Book) figure. Balances under these heads are to be scrutinized regularly to effect their
early clearance. Accuracy of the balances lying in these heads are to be ensured at the end of
the year. Cash remittances are operated in the case of non-banking treasuries. Balances under

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 Review of Balances

this head reflect credits unadjusted by debits & vice versa. Month-wise unadjusted items
are to be tallied with the ledger figure in this head. In the case of Public Works and Forest
remittances, broadsheet balances are to be reconciled with the ledger.

18.2.10 Cash Balances

Balances lying under the Major Head ‘8675 Reserve Bank Deposit’ are to be transferred
to the Minor Head ‘102 Deposit with Reserve Bank’ under Major Head ‘8999 Cash Balance’
after due reconciliation between the figures of the treasury, RBI and the AG office. The
Reserve Bank Deposit has three components. The first component deals with the transactions
that happen in the agency banks (payments made against bills passed by the treasury/PAO and
receipts made on behalf of the Government). This figure is reconciled through the disburser’s
account, VDMS and the monthly statement submitted by the RBI. The second component
of RBD deals with Reserve Bank Headquarters, which includes transactions of draft in the
RBI relating to the State/Principal PAO. The third component is the Central Accounts Office
– Reserve Bank, which includes transactions between different accounting entities that are
adjusted through RBI advice procedure. In the case of the second and third component, the
treasury/AC section figures are to be reconciled with the details received from the RBI.

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Government Accounting

192
 Transfer Entries
CHAPTER-19

Transfer Entries

T
ransfer Entries are the entries relating to the transfer of an item from one head of
account to another, wherever necessary. The Transfer Entries may be required for the
following illustrative cases:
A. To correct an error of classification in the original accounts. These errors are generally
identified during the process of reconciliation with the concerned DDO or during
review of balances under various Heads of Accounts.
B. In the case of State Government accounts, transfer entries are used to adjust transactions
of a particular department that have been included erroneously in the transactions
of another department. These are identified during the process of compilation in the
Departmental Compilation (DC) section on the basis of the correct classification in
the vouchers/challans. In such cases, the DC section which has received the voucher/
challan by mistake books such transactions under the suspense account ‘8658-111
Departmental Adjustment Account’ through a transfer entry and passes it to the DC
section responsible for compiling transactions of the department concerned through a
Suspense slip. On receipt of the Suspense slip and the supporting vouchers/challans,
the DC section concerned, clears the transactions from the DAA suspense and books
them into the final heads of account through another transfer entry. Please refer the
chaper on ‘Departmental Compilation’ for details.
C. To adjust any item outstanding under a Debt, Deposit or Remittance head by debit/
credit to the proper head like clearance of a transaction lying in Suspense head after
obtaining the required information to book it in the correct head of account.
D. To effect periodical adjustments like annual adjustment of interest payable on the
balances of GPF, which is done by debiting the major head ‘2049 Interest Payments’
and crediting the heads ‘8009 State Provident Fund’.
E. To adjust inter-departmental and inter-Governmental transactions like accounting for
the release of loan by Union to the State Government and its repayment by the latter.
F. To account for transactions which do not involve receipt or payment of cash
(book adjustments) like creation of a deposit or reserve fund out of funds from the
Consolidated Fund
G. To transfer transactions pertaining to more than one head of account that have been
accounted under a single head as per provisions of GAR 33 to their respective heads
of account

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19.1 General Rules

The rules relating to transfer entries are contained in Chapter 7 of the Account Code for
Accountants General (relating to the State Governments) and paragraph 5.3 of Civil Accounts
Manual (relating to the Union Government). In the case of Public Works Divisions, these rules
are contained in paragraphs 8.1.1 to 8.1.12 of the CPWA code.
Paragraph 6.15 of Account Code for Accountants General (ACAG) states that no
alteration should be made in the Detail Book, Departmental Classified Abstracts or Consolidated
Abstracts of any month after they have been closed. When errors are discovered in the same
year, involving a correction by transfer of amounts from one Minor Head to another under
the same Major Head, or from one Major Head to another, the necessary corrections are to be
made through a formal transfer entry. Corrections between Sub Heads/Detailed Heads under
the same Minor Head are not to be made through a transfer entry. Such corrections are to be
carried out through plus and minus entries against the heads affected.
On one side of every transfer entry, there should be only one Major Head, while the
other side can have multiple heads. If one side of the transfer entry has a debit to a head of
account, the other side can have credits to multiple heads and vice versa. This implies that a
single transfer entry should not contain independent corrections to two or more Major Heads.
They are to be carried out through separate transfer entries.
All particulars explaining both the nature of the adjustment and, if it is a correcting
transfer, the grounds for the correction must be clearly stated in a transfer entry. A transfer
entry is to be prepared in the following format:
Transfer Entry in the Accounts of …………….. (Month & Year)
Serial No. ……… (running serially for a year) Date ………..
Debit Amount Head of Account Credit Amount
Debit
……………………………………
……………………………………
To
……………………………………
……………………………………
Credit

Reasons for TE: ………………………………………….

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 Transfer Entries

The screen shot of the VLC application in AG office at Himachal Pradesh for effecting
transfer entries is shown below:

In order to ensure that the Transfer Entries of periodic nature are made regularly, a
list of such adjustments should be maintained. These adjustments are to be made monthly.
However, if it is found inconvenient and if it is considered that there are sufficient grounds
for postponing any adjustments, they may be made quarterly. Half-yearly and annual transfers
are to be avoided unless provided for in the manuals of the Accounts Officers concerned.
Unforeseen adjustments should, however, be made as soon as the necessity for them arises.
The error relating to an item of revenue or expenditure head wrongly classified under
another revenue or expenditure head in the accounts, can be corrected by proposing a transfer
entry at any time before the accounts of the year are closed. However, if the accounts have
been closed, such corrections are not admissible and it will be sufficient to make a suitable note
of error against the original entry. However, if the error affects the receipt and disbursement of
another Government or the transaction of any commercial department, it should be corrected
by transfer entry in every case as soon as it is discovered.
After the accounts of the year are closed, corrections or transfers affecting Capital
Major Heads, unless they affect the account of different Governments, should usually be
effected without financial adjustments by alteration of progressive figures on ‘pro forma’
basis, without passing the debit and credit entries through the accounts of the year’s financial
transactions. This would prevent unnecessary inflation of the actual expenditure in the
accounts of the year in which the misclassification etc. was detected.

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Government Accounting

The errors affecting a debt, deposit, suspense or remittance head however old or small,
must be corrected by transfer entry. If the accounts of the year in which the error takes place
are not closed, the correction should be made by removal of the item from the head it was
wrongly taken through minus entry, and taking it to the proper head of account.
For example, a debit representing house-building advance may have been wrongly
booked under ‘Motor Car Advance’ below the major head ‘7610 Loans to Government
servants’. If the accounts of the year are still open, the correction may be made by debiting the
head ‘House Building Advance’ and withdrawing the same by minus debit to the head ‘Motor
Car Advance’ below the major head ‘7610 Loans to Government servants’, in the accounts of
the same year in which the error has occurred.
If the accounts of the year in which the error takes place are closed, the following procedure
is to be adopted:
A. If an item is wrongly taken to a debt, deposit, suspense or remittance head instead of
another, the correction should be made by transfer from one to the other head of account
B. If an item is wrongly credited/debited to a debt, deposit, suspense or remittance head
instead of revenue receipt/expenditure head respectively, the correction should be
made by transfer to the head under which it should originally have appeared
C. If an item is wrongly credited to a revenue receipt head instead of to a debt, deposit,
suspense or remittance head, the correction should be carried by debiting refunds
and crediting the proper head of account. For example, if transactions relating to
‘Central Government Employees Group Insurance Scheme’ below the major head
‘8011 Insurance and Pension Funds’ have wrongly been credited to the Minor Head
‘Government Employees Insurance Schemes’ below the Major Head ‘0235 Social
Security and Welfare’, the corrections after the close of the year would be as under:
Minus Credit ‘0235-60-105 Government Employees Insurance Schemes’ Deduct refunds
Credit ‘8011-103 CGEGIS’
D. If an item is wrongly debited to revenue expenditure head instead of debt, deposit,
suspense or remittance head, correction should be made by debiting the appropriate
DDR head and crediting the relevant revenue receipt head of the concerned revenue
expenditure head. If the concerned department does not have a corresponding revenue
receipt head, it will be accounted under Minor Head ‘911- Deduct Recoveries for
Overpayment’ under the revenue expenditure head.
However, for corrections in the DDR heads having budgetary provisions like the loans
and advances heads of account, the correction/transfer will be done by affording plus
or minus credit under the head concerned, without affecting the actual expenditure
(debit side of the head) for the year. The reason for such adjustments is that if the debit
side is altered for adjusting errors of previous years in heads with budgetary outlay, it
will lead to unnecessary footnote/explanations in the Appropriation Accounts, which

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 Transfer Entries

is a budget-compliance document. Operation of the credit side will have no impact on

the Appropriation Accounts which deals only with expenditure.
Details of transfer entries carried out during the month are maintained in the Transfer
Entry Number Book. The format of the Transfer Entry Number book is as follows:
Transfer Entry Number Book of the …..Section/Department for the Month ………
Transfer Department Debited Credited Reasons Receipt No. of the

Remarks
Entry for of the Receiving
Number Head Amount Head Amount Transfer Receiving Section
Entry Section

The addition or deduction which should be posted in Departmental Abstracts or the

Detail Book on account of transfer entries should be worked out from the separate transfer
entries. These amounts are entered in the Summary/Abstract of Transfer Entries. The format
of the Abstract of Transfer Entries is as follows:
Abstract of Transfer Entries for ……………………….. (Month & Year)

As per individual Transfer Entry Transfer Head of Effect to be posted in Departmental

Entry Account Classified Abstract
Debit Credit Number Debit Credit

The total of debits and credits to be posted in the Departmental Classified Abstract
should tally. In the case of Service heads, it is the net outcome of the transfer entries i.e. the
balance of the concerned head of account that is posted in the Departmental Abstract. The
net of all debits and credits through various transfer entries for a particular head of account
is calculated and this net amount is posted in the Departmental Abstract. In the case of DDR
heads, the gross credit and the gross debit (totals of debits separately and credits separately for
all the transfer entries involving a particular DDR head) should be posted in the Departmental
Abstract, as these heads have corresponding accounts on both sides (debit and credit).
A note of correction affecting figures relating to Service heads is made against the
original entry in the Departmental Abstract of the month in which the error occurred. Transfers
affecting DDR heads are made by new entries in the month of correction and are not to be noted
against the original entry. When detailed statement of revenue/expenditure is communicated
to the controlling authorities, particulars of correcting transfers made in the month’s account
are given in the footnote.

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19.2 Examples of Transfer Entries

19.2.1 Correcting misclassifications
A. ` 75,000 being the salary for June 2016 of an Officer of the Excise Department classified
under Sales Tax Department. The mistake was detected during reconciliation. When
this error is detected in November 2016 (accounts are open), the following transfer
entry is passed:
Debit ‘2039 State Excise’ ` 75,000
Minus Debit ‘2040 Sales Tax’ ` 75,000
When the error is detected in June 2017, no transfer entry is to be made as the
accounts are already closed. A note of error is made against the original entry about
the misclassification.
B. Travelling Expenses amounting to ` 37,500 pertaining to an officer of the Animal
Husbandry department was misclassified under “Office Expenses”. The error was
detected before the accounts of the year were closed.
No transfer entry is required to rectify this error because both Travelling Expense and
Office Expense are object heads under the same detailed head. The misclassification is
rectified through a plus entry to Travelling Expense and minus entry to Office Expense.
C. ` 5 crore spent on construction of an office building has been classified under ‘2059
Public Works’. This is a capital expenditure which has been booked erroneously
as revenue expenditure. When the accounts are open, the following transfer entry is
passed to correct the misclassification:
Debit ‘4059-01-051 Construction’ ` 5 crore
Minus Debit ‘2059-01-051 Construction’ ` 5 crore
If the error is detected after the accounts are closed, no transfer entry is to be passed.
The cumulative balances under the head of account ‘4059-01-051’ is increased pro
forma to account for this capital expenditure.
D. ` 10,000 being the recovery from the pay of a State Government employee towards
General Provident Fund Account has been credited to Income Tax. Since this error is
between two DDR heads, it is rectified through the following transfer entry:
Minus Credit ‘8658-112 Tax Deducted at Source’ ` 10,000
Credit ‘8009-01-101 General Provident Fund’ ` 10,000
E. A receipt of ` 40,000 which was a recovery of Travelling Advance from an Audit
Officer was credited to GPF. This mistake is identified when the accounts are still
open. Since this transaction pertains to a revenue head which has been accounted
under a DDR head, the following transfer entry is made:

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 Transfer Entries

Minus Credit ‘8009-01-101 General Provident Fund’ ` 40,000

Minus Debit ‘2016-00-101 Audit’ ` 40,000
F. A sum of ` 1,00,000 was erroneously debited to the revenue expenditure head of Crop
Husbandry instead of General Provident Fund head. The mistake is identified after the
accounts for the year were closed. This is rectified by giving a credit to the revenue
receipt head of Crop Husbandry through the following transfer entry:
Debit ‘8009-01-101 General Provident Fund’ ` 1,00,000
Credit ‘0401 Crop Husbandry’ ` 1,00,000
G. An amount of ` 25,000 being recovery of GPF of a Government servant was credited
erroneously as recovery of House Rent. This mistake is identified after the accounts
are closed. This is rectified by a transfer entry by operating the deduct refund minor
head under the head for housing receipts as follows:
Minus Credit ‘0216-01-900 Deduct Refund’ ` 25,000
Credit ‘8009-01-101 General Provident Fund’ ` 25,000
H. ` 4 lakh paid as Motor Car Advance was misclassified as payment of House Building
Advance. If the mistake is identified before the close of the accounts, it is rectified
through the following transfer entry:
Debit ‘7610-202 Motor Car Advance’ ` 4,00,000
Minus Debit ‘7610-201 House Building Advance’ ` 4,00,000
Heads of account relating to Motor Car Advance and House Building Advance are
DDR heads with a budget outlay. Therefore, if this is to be rectified after close of the
accounts, the following transfer entry is made:
Minus Credit ‘7610-202 Motor Car Advance’ ` 4,00,000
Credit ‘7610-201 House Building Advance’ ` 4,00,000
19.2.2 Accounting of Suspense Slip Transactions
A. A voucher for ` 3 lakh pertaining to the Major Head ‘2055 Police’ is wrongly included
in the transactions relating to ‘2053 District Administration’. The Accountant in the
DC Section compiling the Major Head ‘2053’ in the AG office identifies this mistake
while accounting for the vouchers. She transfers this voucher to the DC section
compiling the Major Head ‘2055’ by removing this transaction from the Departmental
Adjusting Account (DAA) suspense relating to the Major Head ‘2053’ in which
treasury has booked it and transferring it to the DAA suspense relating to the Major
Head ‘2055’ through this accounting entry:
Minus Debit ‘8658-111-2053’ ` 3,00,000
Debit ‘8658-111-2055’ ` 3,00,000

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He then prepares a Suspense Slip and, along with the voucher, transfers it to the DC
Section compiling the Major Head ‘2055’. In the DC Section compiling the Major
Head ‘2055’, the amount is transferred from the DAA Suspense to the final head of
account through the following transfer entry:
Minus Debit ‘8658-111-2055’ ` 3,00,000
Debit ‘2055 Police’ ` 3,00,000
19.2.3 Clearance of Suspense/Remittance Balances
A. Five monthly credits of ` 10,000 each are adjusted on collateral evidence basis in the
Provident Fund Account of a subscriber belonging to the Health Department. In such
cases, credit is given to the subscriber by operating a suspense head. This is carried
out through the following transfer entry:
Debit ‘8658-113 Provident Fund Suspense’ ` 50,000
Credit ‘8009-01-101 General Provident Fund’ ` 50,000
After identifying the original credit, the suspense is cleared by reversing this
transaction.
B. The documents relating to a transaction amounting to ` 60,000 kept under OB suspense
during February 2016 are obtained in June 2016. The suspense is to be cleared and
booked under the head of account 2225-01-001. This clearance is carried out through
the following transfer entry:
Debit ‘2225-01-001 Direction & Administration’ ` 60,000
Minus Debit ‘8658-00-102 OB Suspense’ ` 60,000
19.2.4 Periodical Adjustments
A. The balance under the Head of Account ‘8009-01-101 General Provident Fund’ at
the end of the year is ` 100 crore. GPF bears an interest of 8 per cent. Therefore, an
amount of ` 8 crore is to be transferred from the Consolidated Fund to GPF. This is
carried out through a periodical adjustment at the end of the year by the following
transfer entry:
Debit ‘2049-03-104 Interest on GPF’ ` 8 crore
Credit ‘8009-01-101 GPF’ ` 8 crore
19.2.5 Adjustment of Inter-Government Transactions
A. A receipt of ` 2,50,000 on behalf of Andhra Government received by Treasury in
Chennai has been classified as a Sales Tax receipt of Tamil Nadu Government. Since this
involves another Government, the error is rectified through the following transfer entry:
Minus Credit ‘0040-00-900 Deduct Refund’ ` 2,50,000
Credit ‘8793 Inter State Settlement Suspense’ ` 2,50,000

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19.2.6 Book Adjustments

A. A candidate for Lok Sabha election, while filing her nominations, credits an
amount of ` 25,000 as security deposit. This is credited to the Head of Account
‘8443-00-121 Deposits in connection with Elections’. If she fails to secure the
minimum prescribed votes in the elections, she forfeits the deposit. The amount
lying under the head ‘8443 Civil Deposit’ in the Public Account is transferred
to the Consolidated Fund as a receipt to the head ‘0070 Other Administrative
Services’ through a book adjustment. This is carried out through the following
transfer entry:
Minus Credit ‘8443-00-121 Deposits in connection with Elections’ ` 25,000
Credit ‘0070-02-104 Fees, fines & forfeitures’ ` 25,000
B. An expenditure of ` 10 crore relating to flood relief operations was originally debited
to Contingency Fund of the State. This expenditure is to be debited to the Consolidated
Fund of the Sate on receipt of approval of Legislature for the expenditure. If the
legislative approval is obtained in the same year (when accounts are open), the
following transfer entry is made:
Debit ‘2245 Relief on account of natural calamities’ ` 10 crore
Minus Debit ‘8000 Contingency Fund’ ` 10 crore
If the legislative sanction is obtained in the subsequent years (after the close of the
accounts), the book adjustment is made through the following transfer entry:
Debit ‘2245 Relief on account of natural calamities’ ` 10 crore
Credit ‘8000 Contingency Fund’ ` 10 crore
C. Comptroller and Auditor General of India sanctions write-off of an erroneous debit
of ` 50,000 under the head ‘8443 Civil Deposits’ representing difference between
Broadsheet and Ledger. This is carried out through the following transfer entry:
Debit ‘8680-102 Write-off of Heads closing to balance’ ` 50,000
Minus Debit ‘8443 Civil Deposits’ ` 50,000
19.2.7 Adjustment of Transactions pertaining to more than one Head of
Account
A. Both Income tax and Corporation tax are administered by the Income Tax Department.
The cost of collection relating to the common establishment (pay and allowances
of officers) is initially accounted under the Minor Head ‘101 – Collection Charges
– Income Tax’ below the Major Head ‘2020 – Collection of Taxes on Income and
Expenditure’. At the end of the year, the cost of collection for Income Tax and
Corporation Tax is calculated on the basis of the formula provided in Note 1 under
Major Head 2020 in the List of Major and Minor Heads of Account (LMMH). This

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amount is transferred from ‘101 – Collection Charges – Income Tax’ to ‘102 –

Collection Charges – Corporation Tax’ through the following transfer entry:
Debit ‘2020-102 Collection Charges – Corporation Tax’
Minus Debit ‘2020-101 Collection Charges – Income Tax’
B. The establishment expenditure, relating to pay and allowances, of the Public
Works Department is booked under the Head of Account ‘2059-001 Direction and
Administration’. The officials posted in the department are also responsible for
maintaining Government Housing (Major Head ‘2216’) and Roads & Bridges (Major
Head ‘3054’). So, a part of the establishment expenditure booked under the Major
Head ‘2059’ is transferred to both these heads on a percentage basis through the
following transfer entry:
Debit ‘2216-001 Direction and Administration’
‘3054-001 Direction and Administration’
Minus Debit ‘2059-001 Direction and Administration’

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CHAPTER-20

Accounting System for Union

T
he Controller General of Accounts (CGA), who functions under the Department
of Expenditure in the Ministry of Finance, is responsible for the preparation and
compilation of accounts of the Union Government and those of Union Territories.
The CGA receives accounting information from the accounting organizations from the
Civil Ministries of the Union, Union Territories and those in the departments of Railways,
Defence, Post and Telecommunications. The CGA prepares the Accounts of the Union from
this information.

20.1 Accounting in Civil Ministries

With the introduction of the departmentalization of Accounts in 1976, the CAG has been
discharged of the responsibility of effecting payments as well as receipts and their accounting.
This has been entrusted with the respective Ministries/Departments of the Union Government.
The Civil Accounts Manual prescribes the process of maintaining the Accounts of the Union.
The administrative Ministries are entrusted with the responsibility of arranging the payments
as well as timely compilation and submission of Accounts. The Secretary of the Department is
the Chief Accounting Authority of the Department. The responsibilities of the Chief Accounting
Authority are provided in rule 64 of the General Financial Rules. As per this rule, she shall:
A. Be responsible and accountable for financial management of her Ministry/Department.
B. Ensure that the public funds appropriated to the Ministry/Department are used for the
purpose for which they were meant.
C. Be responsible for the effective, efficient, economical and transparent use of the
resources of the Ministry/Department in achieving the stated project objectives of that
Ministry/Department, whilst complying with performance standards.
D. Appear before the Committee on Public Accounts and any other Parliamentary
Committees for examination.
E. Review and monitor regularly the performance of the programmes and projects
assigned to her Ministry to determine whether stated objectives are achieved.
F. Be responsible for preparation of expenditure and other statements relating to her
Ministry/Department as required by regulations, guidelines or directives issued by
Ministry of Finance.
G. Ensure that her Ministry/Department maintains full and proper records of financial
transactions and adopts systems and procedures that will at all times afford internal
controls.

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H. Ensure that her Ministry/Department follows the Government procurement procedure

for execution of works, as well as for procurement of services and supplies, and
implements it in a fair, equitable, transparent, competitive and cost-effective manner;
I. Take effective and appropriate steps to ensure her Ministry/Department : -
a. Collects all moneys due to the Government and
b. Avoids unauthorized, irregular and wasteful expenditure.
As Chief Accounting Authority, the Secretary performs her functions with the help of
the Financial Advisor and the Chief Controller of Accounts (CCA). The CCA is the head of
the accounting organization. The functions of the CCA would include the following:
A. Advising and assisting the Ministry on all matters relating to finance, budget and
expenditure management
B. Administration of the accounting system by supervising payments through Pay &
Accounts Offices and Cheque-drawing DDOs of the Ministry in various regions of
the country
C. Monitoring of projects and schemes implemented by the Ministry
D. Compilation and consolidation of Monthly and Annual Accounts of the Ministry and
rendering them to the CGA for consolidation
E. Preparation of Detailed Appropriation Accounts and Accounts-at-a-Glance of the
Ministry for the year indicating savings and surrenders
F. Verifying and reconciling all receipts and payments made on behalf of the Ministry
through accredited bank
G. Maintaining accounts with RBI relating to the Ministry and reconciling cash balances
A Principal Accounts Office functions under a Principal Accounts Officer (Pr.PAO)
of each Ministry, which shall be responsible for compilation and consolidation of accounts
of the Ministry, preparation of Detailed Appropriation Accounts of the Demands for Grants
controlled by the Ministry and providing material for the preparation of Finance Accounts of
the Union Government to the CGA.
There are Pay and Accounts Offices (PAOs) at different locations for each Ministry
that would authorize and make payments against bills prepared and presented to them by the
Drawing and Disbursing Officers of the concerned Ministry at that location. The PAO discharges
a function similar to that of the treasury in the State. However, unlike the treasury which has
a territorial jurisdiction, the PAO has a jurisdiction over the DDOs of a particular Ministry.
Each PAO operates on a designated bank. Receipts relating to the Ministry are deposited
into the designated bank through challans. The designated bank sends details of receipts
and expenditure made on behalf of the Ministry through receipt/payment scrolls. The PAO
accounts for all the receipts and payments made. The PAO also receives details of transactions

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carried out by the Cheque-drawing

DDOs (CDDOs) of the Ministry
under her jurisdiction. She compiles
all the transactions and sends the
compiled accounts to the Pr.PAO
for consolidation and reporting.
The structure of the accounting
organization in a Union Ministry is
shown in the chart.
The RBI maintains Ministry-
wise accounts at CAS, Nagpur.
Unlike the State Governments which
have a consolidated account, every
Ministry of the Union Government
has an account with the RBI. It
receives details of transactions made
by all PAOs/Accounts Offices of the
Ministry from the agency banks. It
consolidates this information and sends monthly accounts to the Pr.PAO of the concerned
Ministry. The RBI also sends a consolidated monthly account of the Central Government to
the Controller General of Accounts.

20.1.1 CompDDO
Comprehensive DDO (CompDDO) is a SQL Server based application for carrying out end-to-
end DDO functions, including maintenance of payroll, HR functions, office contingencies etc.
The DDO prepares a bill on the CompDDO giving the entire 15 digit classification and other
details including Grant number, plan/non-plan and voted/charged. The bill is then presented
to the PAO for payment.

20.1.2 Compact
The PAO has an SQL Server based accounting application called the ‘Compact’. It is
an integrated system for payment authorization and accounting. It has electronic interface
with the applications of the banks, DDOs, the Pr.PAO and the Chief Pension Accounting
Office. As soon as the budget is received, the DDO-wise allocations are fed into the Compact
system in the PAO giving details of the Heads of Account and the allocations thereon for
each DDO. Reallocations as a result of Re-appropriations and Surrenders are also captured
in the system. The Compact application has a pre-check module that provides for carrying
out various checks to be exercised by the PAO on the bills submitted by the DDOs, including
the availability of budget. If the bill is found to be in order, the bill is passed for payment by

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the PAO and Compact can either print the cheque or authorize electronic payment through
the bank interface. When a cheque is issued against a bill, the PAO makes the following
accounting entry:
Debit Concerned 15 digit expenditure head of account
Credit ‘8670-102 PAO Cheques’
The nominated agency bank makes payments on the basis of payment authorizations/
cheques and accepts receipts on behalf of the PAO. The bank sends payment and receipt
scrolls for all payments and receipts made during the day. When the cheques are encashed
in the bank, the payment scroll records those transactions. On the basis of the encashment
details in the payment scroll, the ‘PAO cheques’ suspense raised when the cheque was issued,
is settled through the following accounting entry:
Debit ‘8670-102 PAO Cheques’
Credit ‘8658-108 Public Sector Bank Suspense’
On the basis of the receipt scroll, the PAO accounts for all the receipts through the
following accounting entry:
Debit ‘8658-108 Public Sector Bank Suspense’
Credit Concerned 13 digit receipt head of account
This Head ‘8658-108 Public Sector Bank Suspense’ is operated by Central Government’s
Pay and Accounts Offices which are banking with Public Sector Banks. On receipt of the
monthly statement of transactions from the CAS, RBI, Nagpur, credits and debits under this
minor head are cleared by the PAO by affording minus credits and minus debits to the extent
of amounts adjusted on account of these transactions in the books of the RBI. This Head of
Account helps to keep apart the total amount of transactions which have occurred at Public
Sector Banks but which are yet to be adjusted against the Central Government Account
maintained by the CAS, RBI, Nagpur.
Debt raised outside the country by the Central Government is accounted for by Controller
of Aid, Account & Audit. Adjustments of transactions pertaining to other accounting entities,
including State Governments and other Central departments are made through RBI Advice
and Cash Settlement procedures as discussed in the chapter on ‘Account Current Section’.
In addition to these procedures, in respect of the programmes/activities for which one
Ministry/Department utilises the services of another Central Ministry/Department as its agent
for executing the activity, the Financial Advisor/Chief Controller of Accounts/Controller of
Accounts of the functional Ministry/Department could directly issue annual budget allocation
letter (indicating the amount approved in the Budget for the year for the programme/activity
assigned to the agent/executing Department). This constitutes authorisation for the executing
Ministry/Department to incur expenditure up to the limits specified in the allocation. The
amount so allocated is then not be available for re-appropriation by the functional Ministry/

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Department except with the concurrence of agent Ministry/Department. The Accounts

Officer of the functional department keeps a note of this in the Expenditure Control Register
maintained by him. The functional Ministry/Department also communicates the heads of
account to the Pay and Accounts Office of the agent Ministry.
The expenditure can then be incurred by the executing Ministry/Department. The
Pay and Accounts Office of the agent Ministry books the expenditure under the relevant
expenditure head against the Demands for Grants of the functional Ministry/Department. The
Accounts Officer of the agent Department then furnishes monthly and progressive figures of
expenditure to the Accounts Officer of the functional Ministry/Department to enable the latter
to monitor the flow of expenditure on the programme/activity. The Accounts Officer of the
agent Ministry ensures that expenditure in excess over the amount authorised by functional
Department is not incurred. Annual reconciliation of expenditure is conducted for such
transactions by the Accounts Officers through the Statement of Central Transactions.
Compact has a GPF module that provides for maintaining subscriber-wise detailed
accounts. The deductions from Establishment vouchers towards GPF are accounted subscriber-
wise on the basis of details contained in the Schedule attached to such vouchers. Any credits
into GPF account through challans are also accounted into the concerned subscriber’s account
through the GPF module. All payments out of GPF account are debited to the concerned
subscriber’s account on the basis of the voucher. At the end of the year, interest is calculated
on the balances lying in each subscriber’s account and credited into the individual account.
The total interest is then calculated and charged on the Consolidated Fund of India and booked
into ‘8009-101 General Provident Fund’ through the following transfer entry by the PAO:
Debit ‘2049-03-104 Interest on State Provident Fund’
Credit ‘8009-101 General Provident Fund’
The GPF module has provisions for generation of subscriber-wise GPF statements at
the end of the year. The statements are issued to the subscribers for confirmation of balances.
When a Government servant is transferred from one area to another, the PAO sends the closing
balance under GPF to the PAO of the area to which the Government servant is transferred
for further accounting. Compact also has a module for Pension. The Pension module has
provisions to calculate pension, commuted value and gratuity. A PPO number is assigned to
each case. The calculations are then sent to the CPAO for generation and issue of payment
orders with special seal to banks.
The Compact has an Internal Controls module. It provides details of all bills pending
with the PAO and cheques pending for issue. It also lists all bills passed without availability of
budget (Budget override) that needs to be regularized. It provides a trail of all transfer entries
passed to rectify errors or clearance of Suspense. It reconciles the totals of detailed accounting
and the ledger figures. For example, it checks the GPF posting amount in individual accounts

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with that booked in the accounts of the PAO. It provides details of all pending pension cases.
It enables effective expenditure monitoring through an Expenditure Control Register, which
reflects expenditure incurred DDO-wise for every expenditure Head of Account as compared
to the budget.
There is a Compilation module in Compact which provides for generation of various
reports. The PAO generates all reports from the Compact for incorporation in the e-Lekha
application of the Pr.PAO, including the Classified Abstract, Consolidated Abstract and bank
reconciliation report through the Compilation module.

20.1.3 Revenue Accounting

Tax and non-tax revenues are accounted through dedicated IT applications. Direct
tax receipts, including Income Tax and Corporation Tax, are accounted through the RAMS
application. Indirect taxes, including Customs, Central Excise and Service tax, are accounted
through REVACT. Non-Tax Receipt Portal (NTRP) helps accounting of non-tax receipts.
These applications get information from the banks relating to total receipts pertaining to these
revenue heads on a daily basis and account them. They also interface with a Centralized
Challan Repository to reconcile the total receipts booked as compared to challan-wise details.
Detailed accounting is subsequently carried out by the respective departments in-charge of
those receipts on the basis of the challan-wise details.
For example, in the case of direct taxes, RAMS accounts for all the receipts and refunds
as reported by the banks. There are e-TDS (electronic Tax Deducted at Source) and OLTAS
(Online Tax Accounting System) applications which function as the Challan Repository.
RAMS reconciles receipt figures as per the banks with those as per e-TDS and OLTAS.
Individual tax payer-wise (detailed) accounting of receipts is then maintained through the
IRLA (Individual Running Ledger Account) application.

20.1.4 e-Lekha
e-Lekha is a SQL Server based web enabled application with the Ministries and the
CGA. Pr.PAO of each Ministry compiles the accounts of the Grants controlled by the Ministry
and consolidates the information from all PAOs required for preparation of monthly and
annual accounts by the CGA through e-Lekha. It enables online submission of accounts and

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their consolidation on a daily basis from all PAOs. It provides budgetary control to the CCA
by providing details of budget allocation and expenditure by each PAO. The Pr.PAO receives
the Monthly Statement submitted by RBI on the cash balance of the Departmental account
with RBI. She reconciles the balances as per accounts rendered by the PAOs and settles the
PSB Suspense raised by the PAOs. e-Lekha provides for generation of monthly accounts by
the Pr.PAO and its submission to the CGA through the CCA of the Ministry. It also provides
for online submission of information required for preparation of Annual Accounts to the CGA.

20.1.5 Public Financial Management System (PFMS)

The Civil Ministries implement various Plan Schemes. They also provide support to
State Plan Schemes through grants. A single Plan Scheme would be implemented through
many Heads of Account. These are to be mapped to track expenditure on a Scheme. There
are different agencies involved in the implementation of such schemes to which funds are
transferred. A manual system of release of funds to multiple agencies results in significant
float and challenges in monitoring of expenditure. To overcome these challenges, the Public
Financial Management System (PFMS) has been implemented by the CGA. PFMS is a web-
based online transaction system for payment, accounting and reconciliation of Government
transactions. It has interface with all stakeholders, including implementing agencies of the
Central Government, State Government and local bodies, non-Government implementing
agencies banks, RBI, treasuries and India Post. It has provisions to track fund disbursement
to the last level of utilization.
Plan Schemes could be implemented by directly transferring funds to implementing
agencies or by routing the funds through the State Government. PFMS allows for defining
the fund flow pattern of a particular Scheme. PFMS provides for registration of all agencies
receiving Plan funds, along with their bank account details, at all tiers of operation. PFMS
has a bank integration interface with the Core Banking Solution. Availability of bank account
details of all implementing agencies allows for near real time bank account validation, fund
transfer and access to view bank balances of implementing agencies. This helps to reduce float
in the system and allows for ‘Just in Time’ provision of funds directly into the bank accounts
of the agencies on the basis of information relating to real-time availability of funds. Payment
to ultimate beneficiary is also routed through banking channel.
PFMS also has an interface with the treasuries to track expenditure routed through the
State Government. Copies of all sanctions of grants to various Plan Schemes are available
in the system. PFMS aids in capturing component-wise expenditure on real time basis at
all tiers of implementation, including at Panchayat levels. The activities/sub-activities under
which expenditure is to be incurred is available in the PFMS. The implementing agencies
file their expenditure on the PFMS against these activities/sub-activities. On the basis of the
expenditure filed, Utilization Certificate can be generated by the implementing agencies and

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submitted digitally online. GIS-based reports are also available in PFMS. The system can
display district-wise amounts sanctioned and expenditure incurred.

20.2 Accounting in Railways

On the recommendation of the Acworth Committee (1921), the Railways Board was
reorganised leading to the appointment of a Financial Commissioner for Railways in 1923.
This was followed by Separation Convention of 1924 by which Railway finances were
separated from the General Finances of Government of India. The process of separation of
the Accounting and Auditing functions on the Railways was completed in 1929, with the
responsibility for compilation of all Accounts for the Indian Railways passing on to the
Financial Commissioner, Railways.
The Railway budget is presented to the Parliament separately from and ahead of the
General Budget. Though the Constitution does not provide for the presentation of the Budget
in parts, the Rules of Procedure of Parliament have provided that ‘nothing shall be deemed to
prevent the presentation of the Budget in parts and when such presentation takes place, each
part shall be dealt with in accordance with the rules as if it were the Budget’. However, the
figures relating to the receipts and expenditure of the Railways are also shown in the General
Budget, since the receipts and expenditure of the Railways are part of the total receipt and
expenditure of the Government.
The Financial Commissioner for Railways represents the Ministry of Finance on the
Railway Board and also functions ex officio as Secretary to Government of India in the
Ministry of Railways in financial matters. He is the head of the Accounts Department. In
his capacity of ex officio Secretary to Government of India, Ministry of Finance on the
Railways, he is vested with full powers of the Government of India to sanction Railway
expenditure subject to general control of the Finance Minister. Indian Railways is divided
into several zones each headed by a General Manager who reports to the Railway Board. The
General Manager is assisted by the Financial Advisor & Chief Accounts Officer (FA&CAO).
Each zonal railway is made up of a number of divisions headed by the Divisional Railway
Manager (DRM).
Each unit in the Railways prepares its complete set of accounts. These accounts are
consolidated at the zonal level. Accounting Information and Management System (AIMS)
is the centralized payroll application for processing financial transactions. It has modules for
budget preparation, internal check, bill passing, cheque printing, monthly/annual accounts
compilation and financial review. The transactions relating to operations of the Railways are
processed through applications like Passenger Reservation System and Freight Operations
Information System.
Rule 6 of GAR states that the forms of accounts (including appropriation accounts),
relating to Railways, Post, Telecommunications and Defence departments may be determined

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by the Departmental Accounting authorities within such range and covering such aspects as
may be prescribed by the Central Government, on the advice of the CAG. The provisions of
Article 150 of the Constitution will be deemed to have been satisfied if the forms so determined
are not questioned by the Controller General of Accounts and the Comptroller and Auditor
General of India.
With effect from 1982-83, the Ministry of Railways, Controller General of Defence
Accounts, Director General, Posts and Secretary Department of Telecommunications and
Chairman Telecommunication Commission have been delegated functions of the Central
Government under Article 150 of the Constitution in so far as such functions relate to the
opening of sub-heads and detailed heads of Accounts under various Major and Minor Heads
of Accounts pertaining to their departments subject to the conditions that (i) powers as above
shall be exercised in consultation with the accredited Audit Officer namely DAI (Railways)
Director General of Audit, Defence Services or Director General of Audit, Posts and
(ii) Orders so issued should be consistent with the instructions that are issued as envisaged in
Rule 5 of Government Accounting Rules (GAR).
Though the transactions of the Railway Ministry form part of the Consolidated Fund,
the Contingency fund and the Public Account of India, they are accounted for in the “Railway
Fund” which has been created pro forma in the books of the RBI. The accounting framework
in Railways is governed by the Indian Railways Finance Code and the Indian Railways Code
for the Accounts Department, in addition to the rules and manuals governing Government
accounting in general. The Major and Minor Heads of account of railway revenue, capital,
debt, deposits, and remittance transactions are given in Appendix IV to Indian Railways Code
for the Accounts Department.
Railways is a Departmental Commercial Enterprise. Railway accounts should,
therefore, not only secure the essential requirements of commercial accounting but also
conform to the practices of Government accounting. This objective is achieved by keeping
the accounts of the railways on a commercial basis outside the regular Government account
and by maintaining a link between the two to show how much is coming into Government
revenues through the Railways and how much is spent by the Government, whether as capital
or revenue expenditure, in carrying on the activities of the Railways.
Unlike Government accounts which record expenditure only when actually disbursed
or receipts only when actually realised, the railway accounts maintained on a commercial
basis will record the expenditure incurred or earnings accrued in a month irrespective of
whether they have actually been paid or realised. Some of the account heads in the railway
books are operated for purpose of maintaining a link between the commercial accounts of
the Railway and the Government accounts. These heads include Demands Payable, Traffic
Accounts, Labour and Pension Fund.

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On the expenditure side, the revenue liabilities of the railways for a month, which are
not payable within the same month, are brought to account as working expenses for the month
by taking contra credit to a suspense head called ‘Demands Payable’. When the railway’s
liabilities are actually discharged by payments, this suspense head is debited with the amount
of the payment so made. Thus, the balance at the end of the month in this suspense head will
represent liability of the Railways incurred, but not actually discharged, during that month.
Labour and Pension Fund are similar payables relating to wages and accrued pension.
All operational receipts are credited into the respective receipt head of account as
soon as they accrue, with a contra debit to the ‘Traffic Accounts’. When the cash is actually
received, the Traffic Accounts is credited with a contra debit to the head of account for cash.
Thus the balances under the Traffic Accounts reflect receivables of the Railways.
In addition to the classification of transactions as Revenue and Capital, Railway
transactions are further classified as ‘Commercial’ and ‘Strategic’ according to the
class of section of the railway line to which they pertain. Moreover, to give an overall
picture of the expenditure of a capital nature incurred by the Railways as distinguished
from the expenditure actually charged to Capital (Loan Account), a separate account is
compiled namely, a Block Account which exhibits the entire expenditure of a capital nature
irrespective of the head of account to which it has actually been charged (Paragraph 428 of
Indian Railway Financial Code). The Loan Account will give only the extent of expenditure
actually charged to capital.
Railways operate several funds like the Depreciation Reserve Fund, Development
Fund and Accident Compensation, Safety and Passenger Amenities Fund. These funds are
created by charging to revenue and then utilised for specific purposes. For example, funds
are credited into the Depreciation Reserve Fund by charging revenue on the basis of the
recommendations of Railway Convention Committee. The accretions to the fund are then
utilised for replacement and renewal of assets.
The accounts of the Railways are prepared by the Financial Commissioner by
consolidating the accounts from all zones. The General Books of Account are closed every
month for the compilation of the Monthly/Annual Accounts. After the General Books for
a month have been closed, a monthly Accounts Current is prepared, separately for Capital
and Revenue transactions and submitted to the Railway Board together with the prescribed
supporting schedules. At the end of the year, Appropriation Accounts are prepared for the
Railways and the information pertaining to Railways for preparing the Finance Accounts is
sent to the CGA.

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20.3 Accounting of Defence Grant

Defence Accounts Department (DAD) is responsible for payment and accounting of
all Receipts and charges pertaining to the Defence department. The organization structure of
DAD is as follows:

The Secretary, Defence Finance is the Head of the Finance Division of the Defence
Department. It deals with all matters having financial implication and performs an advisory
role. The Ministry of Defence enjoys enhanced delegated financial powers to facilitate quicker
decision making. These powers are exercised with the concurrence of the Finance Division.
Finance Division prepares and monitors Defence Services Estimates, Civil Estimates of the
Ministry of Defence and the Estimates in respect of Defence Pensions. The Secretary is assisted
by Financial Advisors. The roles and responsibilities of the Finance Division are as follows:
a. To examine all Defence matters having a financial bearing.
b. To render financial advice to the various functionaries of Ministry of Defence
and the Services Headquarters.
c. To act as integrated Finance Division of Ministry of Defence.
d. To assist in the formulation and implementation of all schemes/proposals
involving expenditure.
e. To assist in the formulation and implementation of Defence Plans.
f. To prepare Defence Budget and other estimates for the Defence Services, Civil
Estimates of Ministry of Defence, estimates in respect of Defence Pensions and
to monitor the progress of the scheme against the budget.
g. To exercise post-budget vigilance to ensure that there are neither considerable
shortfalls in expenditure nor unforeseen excesses.
h. To advise heads of branches of the Armed Forces Headquarters in the discharge
of their financial responsibility.
i. To function as the accounting authority for the Defence Services.
j. To prepare the Appropriation Accounts for the Defence Services.
k. To discharge the responsibility for payments and internal audit of Defence
expenditure through the Controller General of Defence Accounts (CGDA).

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Government Accounting

The CGDA heads the accounts department. There are separate Principal Controllers
of Defence Accounts (PCDAs) for Army, Air Force and Navy. They have field formations at
different locations. The grants managed by the DAD are the grants relating to Defence Services
(Revenue), Capital Outlay on Defence Services, Defence Pensions and Ministry of Defence
(Miscellaneous). Accounting of transactions is governed by the Defence Accounts Code. The
transactions are classified into various accounting heads as per the LMMH. However, the
last element of accounting classification in DAD is in the form of code heads. The code-
heads consist of 7 digits and are unique identification for accounting transactions. These are
contained in Classification Hand Book- Defence Services Receipts and Charges (CHB) and
code heads other than Defence budget relating to DAD, Border Roads Organisation (BRO),
Canteen Stores Department (CSD), Ministry of Defence (Secretariat) and Public Account
and Contingency Fund of India are contained in Pamphlet of Revenue, Debt and Remittance
Heads (RD & R Pamphlet).
A Punching Medium is the format used to extract data pertaining to a voucher/receipt
for the purpose of compilations of accounts. It contains information relating to the month of
the transaction, the Code of the Controller of Defence Accounts in whose jurisdiction the
transaction occurs, voucher number, classification and whether the transaction is a credit/
minus credit or debit/minus debit. Using the information contained in the punching medium,
accounts are compiled by the PCDA. They receive the monthly statement from the RBI
relating to cash balances of the concerned wing. Reconciliation of cash balances between
the bank figure and the accounts figure is carried out by the PCDA. Monthly expenditure
statements are prepared and presented to the respective wings by the concerned PCDA by
consolidating transaction details from all field formations. The CGDA compiles information
relating to all defence services and prepares monthly and annual accounts.

20.4 Accounting in Postal Department

The Secretary, Department of Posts under the Ministry of Communications is the Chief
Accounting Authority for the department. The Joint Secretary and Financial Advisor (JS &
FA) of the department advices the Chief Accounting Authority in matters relating to finance
and accounts. The Deputy Director General (Postal Accounts and Finance) (DDG, PAF) of
the Postal Services Board controls and coordinates the compiling and checking of accounts of
the Department of Posts.
The Department of Posts is divided into Circles headed by the Chief Post Master
General (CPMG). Each Circle has a Circle Postal Accounts Office, which assists the CPMG
in all matters connected with accounts and finance. It is headed by the General Manager
(Finance) or Director of Accounts. The Circle Postal Accounts Office has many sections for

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various accounting purposes, including Postal Accounts, Pension, GPF, Technical Accounts
(for money orders, postal certificates, Government securities etc.), Account Current, Book
and Remittances.
The Postal accounting is guided by the Postal Accounts Manual and the Financial Hand
Book. The important Major Heads of Account operated by the Postal department are ‘1201
Postal Receipts’ for revenue receipts, ‘3201 Postal Services’ for revenue expenditure and
‘5201 Capital Outlay on Postal Services’ for capital expenditure. The transactions relating
to the business managed by the department on behalf of the Central Government including
savings account, cash certificates etc. are recorded under various other heads included in the
Remittance and Debt Sections of the Accounts of the Central Government. The detailed list of
accounts classification heads, inclusive of debt and remittance heads used by the department
are contained in the ‘List of Account Heads of the Postal Receipts and Disbursements’ which
is Appendix 5 to the Postal Accounts Manual.
The Head Post Office is the primary accounting unit of the Department of Posts. It
maintains the initial accounts in the manner prescribed in the Financial Hand Book and renders
Cash Accounts, along with supporting vouchers and schedules to the Circle Postal Accounts
Office. The Postal Accounts Section in the Circle Postal Accounts Office is responsible for
checking classification and accuracy of accounts. It consolidates the accounts rendered by all
its account rendering units and prepares the Classified Abstract. The Circles then render their
consolidated accounts to the DDG, PAF. A General Abstract, consolidating the accounts of all
the Circles is prepared in the Directorate. The monthly accounts so generated is utilised for
monitoring budget compliance. The General Abstract is also sent to the CGA for preparation
of the monthly accounts of the Union Government.
The General Abstract for the month of March brings out the progressive figures of
the accounts of each postal accounts Circle up to the end of the financial year. The annual
Appropriation Accounts are prepared by the Directorate. The information relating to the
preparation of the consolidated Finance Accounts of the Union Government is sent to the
CGA by the DDG, PAF.

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 Preparation of Monthly Accounts
CHAPTER-21

Preparation of Monthly Accounts

21.1 Monthly Accounts in the States

S
ection 12 of the DPC Act, 1971 states that, for the accounts compiled by her/him, the
CAG shall give to the State Governments such information as may be required from time
to time. Monthly accounts are management information provided to the Government.
Paragraph 9.1 (a) of the Account Code for Accountants General (ACAG) states that each
State AG should submit to the State Government a monthly account of its transactions as
soon as the accounts for the month are closed. The format of the accounts can be decided in
consultation with the Government to suit local requirements. The Monthly Accounts consist
of the Monthly Civil Accounts and the Monthly Appropriation Accounts. The Monthly Civil
Accounts are prepared by the Book Section and the Monthly Appropriation Accounts are
prepared by the Appropriation Accounts Section. Additional information as required by the
State Government, like DDO-wise expenditure statement, are also provided in some States.
In addition to the 12 monthly accounts that are prepared for each month, there is a
supplementary accounts prepared for the month of March. After receipt of accounts from all
the Account Rendering Units for the month of March, the transactions are compiled and the
March (Preliminary) Account is prepared and presented to the Government. The Accounts of
March are then kept open for any rectification of errors identified after reconciliation, book
adjustments to be carried out after the end of the year like charging of interest on balances
under ‘8009 State Provident Fund’, inclusion of any transaction that has been left out etc.
After carrying out all these transactions, a March (Supplementary) Account is generated and
sent to the Government.

21.1.1 Preparation of Monthly Civil Accounts

The output of the DC Sections compiling Service Head transactions of Departments is
the Classified and Departmental Consolidated Abstracts. The Works and Forest Accounting
Sections consolidate the accounts of the Divisions to prepare the Classified and Consolidated
Abstracts of the Divisional Accounts. The AC Sections account for the transactions with
other Accounting Entities and their output is the IS/CM Abstract. The sections responsible
for maintaining the accounts of various DDR heads pass transfer entries for various purposes.
All transfer entries, including those made by the DC Sections and the sections consolidating
divisional accounts, are recorded in the Transfer Entry (TE) Ledger. The amounts booked
under Service Heads through transfer entries are taken into the Classified Abstract of the
concerned Service Head. The amounts booked under DDR Heads through transfer entries

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are taken into the Detail Book Part II. All these information are utilized by the Book Section
to prepare the Monthly Civil Accounts. The flow of information and the output of the Book
Section are summarized below:

The Book section prepares the Detail Book Part I (DB I) by consolidating the List of
Payments from all treasuries for disbursements and the Cash Accounts for receipts. With all
the information received from various sections, the Book section prepares the Detail Book
Part II (DB II) for the DDR Heads. The figures in the DB I, DDR Head figures in the Classified
Abstracts (Parts 2,3 and 5), IS/CM Abstract and the TE Ledger are consolidated to prepare the
DB II. In the DB II, minus figures appearing against DAA Suspense in the Classified Abstracts
from the DC sections would clear the DAA Suspense figures of DB I. The DB II shows
the final figures for the DDR Heads after various adjustments made during the compilation
process. The format of DB II is shown as Annexure 1.
DB II is generated separately for receipts and disbursements. The various heads of
account are shown as row headers. The figures for each head of account received from
individual DC Sections, Public Works and Forest Divisional Accounting Sections, IS/CM
Abstract and DB I are shown distinctly and totals for the head of account are arrived at.
The DB II figures are then used to prepare the Consolidated Abstract for the DDR Heads.
The Consolidated Abstract shows the opening progressive figures of the DDR Heads for the
month, transaction figures for the month and the closing progressive figures till the end of the
month. The format of the Consolidated Abstract is shown as an Annexure 2.

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 Preparation of Monthly Accounts

The procedure for preparation of DB II and Consolidated Abstract is contained in

Chapter 6 of the Account Code for Accountants General. The Book section then prepares the
Abstract of Major Head Totals. This is prepared by getting the Major Head-wise totals from
the Departmental Consolidated Abstracts for the Service Heads and the Consolidated Abstract
for DDR Heads. The flow of information for the preparation of DB II, Consolidated Abstract
and the Abstract of Major Head Totals is shown below:

The Abstract of Major Head Totals has information on Major Head-wise progressive
figures with break-up of Plan and Non-plan. The Abstract includes all Major Heads (Service
Heads and DDR Heads) shown under the three Parts of Government Accounts. The format of
the Abstract of Major Head Totals is shown as Annexure 3.
A Disbursers’ Account is prepared showing the total of receipts and payments booked
by various disbursers like the treasuries and the divisions. The receipts and payments must be
equal. The recoveries which are accounted as reduction of expenditure are shown distinctly in
the Disbursers’ Account. In addition, the total amount of bookings under IS/CM Abstract and
TE Ledger are also included in the Account. The format of the Disbursers’ Account is shown
as Annexure 4.
The total figures in the Disbursers’ Account are tallied with those in the Abstract of
Major Head Totals. The figures from this Abstract are used to prepare the Monthly Civil
Accounts. The amount of balances under the Head ‘8675’ is reconciled with the cash balance
as reflected in the Monthly Statement of RBI. The balances are then transferred to the Major
Head ‘8999 Cash Balance’.
The Monthly Civil Accounts show the figures for the month and progressive figures
up to the end of the month. The pro rata budget figure is calculated from the figures in the
Annual Financial Statement (net amount after accounting for reductions in expenditure) and
included in the Monthly Civil Account to present an understanding of the implementation of
the budget. The format of the Monthly Civil Accounts is shown as Annexure 5.

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The following exercise shows the process of preparation of the Monthly Civil Accounts:
DB I, Classified Abstract of a few heads, Classified Abstract of Public Works Divisions
and a few transactions of AC Section relating to a month are given below:
(i) Detail Book Part-I (Receipts)
Head of Account Treasury-A Treasury-B Total
8009-01-101 1,00,000 - 1,00,000
8443-00-106 20,00,000 20,00,000
8658-111-0202 5,00,000 7,00,000 12,00,000
8675 1,91,50,000 43,00,000 2,34,50,000
Total 1,97,50,000 70,00,000 2,67,50,000

(ii) Detail Book Part-I (Payments)

Head of Account Treasury-A Treasury-B Total
8009-01-101 10,00,000 - 10,00,000
8443-00-106 20,00,000 20,00,000
8658-111-2202 87,50,000 50,00,000 1,37,50,000
-2030 1,00,00,000 - 1,00,00,000
Total 1,97,50,000 70,00,000 2,67,50,000

(iii) Classified Abstract of Major Heads ‘0202’ and ‘2202’

Particulars 0202 2202
(i) Total Service Heads 12,00,000 1,52,50,000
(ii) Total DDR Heads 8,00,000 (-)1,32,50,000
(a) DAA (8658-111) (-)12,00,000 (-)1,37,50,000
(b) OBS (8658-102) - 5,00,000
(iii) Deductions:
(a) 8009-01-101 12,50,000 -
(b) 7610-201 7,50,000 -

(iv) Classified Abstract of Major Heads ‘0030’ and ‘2030’

Particulars 0030 2030
(i) Total Service Heads - 1,00,00,000
(ii) Total DDR Heads: - -1,00,00,000
(a) DAA (8658-111) - -1,00,00,000
(iii) Deductions: -
(a) 8009-01-101 - -
(b) 7610-201 - -

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 Preparation of Monthly Accounts

(v) Public Works Division Classified Abstract

Receipts Payments
Head of Account Amount (`) Head of Account Amount (`)
8782-102 7,50,000 2701-80-052 7,50,000

(vi) During this month clearance memo was received from RBI for receipt of
` 1,05,00,000 into the State Account.
(vii) The office of Accountant General also sent an advice to RBI for repayment of
other loans under Non-Plan loans amounting to ` 55,00,000.
On the basis of the information at (vi) and (vii) above, the IS/CM Abstract is prepared
as follows:
Preparation of IS/CM Abstract
Sr. No. Head of Account Debit Credit
(i) 8675 – RBD 1,05,00,000
8658-110-CAO RBS 1,05,00,000
(ii) 6004-01-800 55,00,000
8658-110-CAO RBS 55,00,000
Total 8658-110 1,60,00,000
From the DDR Heads in the Classified Abstract, the figures of DB I and IS/CM Abstract, the
DB II is prepared as follows:
DB-II (Receipt)
Head of DC Section PW Forest IS/CM DB-I Total
Account 0030 0202
7610-201 7,50,000 7,50,000
8009-01-101 12,50,000 1,00,000 13,50,000
8443-106 20,00,000 20,00,000
8658-110 1,60,00,000 1,60,00,000
8658-111-0202 (-)12,00,000 12,00,000 0
Total 8658 (-)12,00,000 1,60,00,000 12,00,000 1,60,00,000
8675 2,34,50,000 2,34,50,000
8782-102 7,50,000 7,50,000
Total 4,43,00,000

DB-II (Payment)
Head of DC Section PW Forest IS/CM DB-I Total
Account 2030 2202
6004-01-800 55,00,000 55,00,000

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8009-01-101 10,00,000 10,00,000

8658-102 5,00,000 20,00,000 25,00,000
8658-111-2030 (-)1,00,00,000 1,00,00,000 0
-2203 (-)1,37,50,000 1,37,50,000
Total 8658 25,00,000
8675 1,05,00,000 1,05,00,000
Total 1,95,00,000

The receipt and payment of DB II do not match because the DAA Suspense have been cleared
and taken to their final Service Heads.
From the debits and credits relating to the Major Head ‘8675’, the closing cash balance
figure is arrived at as shown below. This amount is transferred to the Major Head ‘8999’ in
the Monthly Civil Accounts.
Head of Account Dr. (Payment) Cr. (Receipt) Net
8675 RBD 1,05,00,000 2,34,50,000 Cr. 1,29,50,000

From the Service Head figures in the Classified Abstract and the DDR figures from the DB
II, the Monthly Civil Accounts are prepared as shown below: (preparation of Consolidated
Abstracts have not been shown)
Head of Account Receipts Payments
0202- Edu., Sports, Art & Culture 12,00,000
2030-Stamps & Registration 1,00,00,000
2202- Edu., Sports, Art & Culture 1,52,50,000
2701- Major & Minor Irrigation 7,50,000
6004- Loans from Centre Govt. 55,00,000
7610-Loans to Govt. Servants 7,50,000
8009-State Provident Fund 13,50,000 10,00,000
8443-Civil Deposits 20,00,000
8658-Suspense 1,60,00,000 25,00,000
8782-Cash Remittances 7,50,000
Total 2,20,50,000 3,50,00,000
8999-Cash Balance 1,29,50,000
Total 3,50,00,000 3,50,00,000

21.1.2 Preparation of Monthly Appropriation Accounts

The Appropriation Accounts Section maintains a Grant Register for each Grant. The
Grant Register captures the budgetary provisions for different Heads of Account under a

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Grant. As soon as the budget passed by the Legislature is received, the provisions under
various Heads of Account in the Grants are captured in the VLC Application. The budget
figures under the Grants are gross figures and the anticipated reductions in expenditure
are shown below each Grant separately. The Appropriation Accounts Section receives any
Supplementaries passed subsequently by the Legislature. These are also fed into the VLC.
Re-appropriations and Surrenders orders, as and when passed by the competent authority, are
also received in the Section and fed into VLC. In the case of Re-appropriations, budgetary
allocation is reduced from one or more Heads of Account and an equivalent amount increased
in others. In the case of Surrenders, the budgetary allocation is reduced from one or more
Heads of Account and kept in a Surrender pool for allocation to other Heads of Account, as
and when required.
The totals of Original budgetary provisions and Supplementaries less Surrenders are
calculated to arrive at the total budgetary allocation under each Heads of Account in a Grant.
In addition to the total budgetary allocation, pro rata budget till the month for which the
accounts are prepared is also calculated and included in the Monthly Appropriation Accounts.
The gross expenditure booked under each of these Heads of Account for the month and the
progressive expenditure till the end of the month are shown in the Accounts. The format of
the Monthly Appropriation Accounts is shown as Annexure 6. The Appropriation Accounts
Section monitors the implementation of budget. If excess expenditure is incurred by a
department as compared to the pro rata budget till the month, warning slips are issued to
the concerned department. Thus, the Monthly Appropriation Accounts function as a budget
implementation monitoring report.
The following example shows the process of preparation of the Monthly Appropriation
Accounts:
Given below is the information of budgetary provisions and compiled accounts of the expenditure
incurred in a State:
Consolidated abstract prepared on closure of March (S) account for year___
Classifications Grant Original Supplementary Reappropriation (+) Expenditure
number Surrender (-) (Amount in `)
Revenue
2215-01-001-20 (NP) 13 79,82,40,000 5,48,00,000 (-) 9,29,20,000 82,37,08,870
2215-01-052 (SP) 13 18,21,70,000 10,000 (-) 47,20,000 22,34,68,860
2215-01-101-90 (NP) 13 5,76,90,90,000 1,00,00,00,000 7,11,30,10,170
Capital
4215-01-101 (SP) 13 87,92,70,000 9,10,80,000 (-) 41,47,50,000 56,26,06,140
4215-01-101-796 (SP) 13 25,66,60,000 10,000 (-) 9,18,90,000 16,60,15,280
4215-02-102 (SP) 13 25,00,00,000 30,00,000 (-) 1,28,10,000 24,02,58,940

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After the grant statement was sent to the State Government for comments, the
Department sent an alteration proposal for debit of ` 3,00,000 to 2215-01-001 (NP) instead
of to 2215-01-052 (SP). This was accompanied by the detailed documents.
On the basis of this information, the detailed grant statement for Grant No. 13 upto sub-
head with sub-total upto minor heads, which is to be included in the detailed appropriation
accounts is prepared as shown below:
Grant No. 13 (All Voted) Amount in `

Reappropriation Actual Total Excess (+)/

Head of Account Original Supplementary Total Grant Adjustment
(+)/Surplus (-) Expenditure Expenditure Saving (-)

Revenue Section

2215-01-001 NP 79,82,40,000 5,48,00,000 (-)9,29,20,000 76,01,20,000 82,37,08,870 (+)3,00,000 82,40,08,870 (+)6,38,88,870

Total 2215-01-001 79,82,40,000 5,48,00,000 (-)9,29,20,000 76,01,20,000 82,37,08,870 (+)3,00,000 82,40,08,870 (+)6,38,88,870

2215-01-052 SP 18,21,70,000 10,000 (-)47,20,000 17,74,60,000 22,34,68,860 (-)3,00,000 22,31,68,860 (+)4,57,08,860

Total 2215-01-052 18,21,70,000 10,000 (-)47,20,000 17,74,60,000 22,34,68,860 (-)3,00,000 22,31,68,860 (+)4,57,08,860

2215-01-101 NP 5,76,90,90,000 1,00,00,00,000 0 6,76,90,90,000 7,11,30,10,170 0 7,11,30,10,170 (+)34,39,20,170

Total 2215-01-101 5,76,90,90,000 1,00,00,00,000 0 6,76,90,90,000 7,11,30,10,170 0 7,11,30,10,170 (+)34,39,20,170

Total 2215 6,74,95,00,000 1,05,48,10,000 (-)9,76,40,000 7,70,66,70,000 8,16,01,87,900 0 8,16,01,87,900 (+)45,35,17,900

Total Revenue 6,74,95,00,000 1,05,48,10,000 (-)9,76,40,000 7,70,66,70,000 8,16,01,87,900 0 8,16,01,87,900 (+)45,35,17,900

Capital Section

4215-01-101-SP 87,92,70,000 9,10,80,000 (-)41,47,50,000 55,56,00,000 56,26,06,140 0 56,26,06,140 (+)70,06,140

4215-01-101 SP 25,66,60,000 10,000 (-)9,18,90,000 16,47,80,000 16,60,15,280 0 16,60,15,280 (+)12,35,280

Total 4215-01-101 1,13,59,30,000 9,10,90,000 (-)50,66,40,000 72,03,80,000 72,86,21,420 0 72,86,21,420 (+)82,41,420

4215-02-102 SP 25,00,00,000 30,00,000 (-)1,28,10,000 24,01,90,000 24,02,58,940 0 24,02,58,940 (+)68,940

Total 4215-02-102 25,00,00,000 30,00,000 (-)1,28,10,000 24,01,90,000 24,02,58,940 0 24,02,58,940 (+)68,940

Total 4215 1,38,59,30,000 9,40,90,000 (-)51,94,50,000 96,05,70,000 96,88,80,360 0 96,88,80,360 (+)83,10,360

Total Capital 1,38,59,30,000 9,40,90,000 (-)51,94,50,000 96,05,70,000 96,88,80,360 0 96,88,80,360 (+)83,10,360

Grant Total 8,13,54,30,000 1,14,89,00,000 (-)61,70,90,000 8,66,72,40,000 9,12,90,68,260 0 9,12,90,68,260 (+)46,18,28,260

21.2 Monthly Accounts in the Centre

In the case of Civil Ministries of the Union, the respective Pr.PAO consolidates the
accounts of all the PAOs of the Ministry in the e-Lekha application. A consolidated monthly
accounts is prepared by the CGA for the Union by obtaining information from the Chief
Controllers of Accounts of various Ministries.
The Pr.PAO receives the Monthly Statement submitted by RBI on the cash balance of
the Departmental account with RBI. She reconciles the balances as per accounts rendered
by the PAOs and settles the PSB Suspense raised by the PAOs. The balances outstanding

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on credit and debit sides under the PSB Suspense represent respectively the payments and
receipts of the Ministry/Department handled by its accredited Public Sector Bank for which
either settlement remains to be effected between the Public Sector Bank and the Reserve Bank
of India or non-clearances therefrom by the PAOs due to non-receipt of monthly statement (s)
of transactions from the RBI CAS, Nagpur before the close of the monthly accounts.
Causes for non-settlement of PSB Suspense generally include (i) delay in receipt of
memorandum of transactions by link bank from branch banks, (ii) delay or omission on the
part of link banks in including the amount of branch bank memorandum in their daily advice to
RBI, (iii) difference between amounts indicated in branch bank memo (which gets reflected in
link bank advice) and the correct amounts of cheques paid/receipt challans and (iv) erroneous
classification of transactions of a Ministry/Department against another Ministry/Department
in its advice by a branch or link bank of a Public Sector Bank which handles transactions
of more than one Ministry/Department. The monthly accounts prepared by the Pr.PAO are
submitted to the department concerned.
After consolidation of the monthly accounts of Civil Ministries, the CGA reconciles the
cash balance with the monthly statement rendered by the RBI. Similarly, in the monthly Civil
Accounts of the Government of India consolidated by the CGA, progressive figures of credit
and debit balances outstanding under the head “Public Sector Bank Suspense” will give a total
picture thereof relating to all Civil Ministries/Departments put together. The monthly accounts
are then rendered to the Government. In the case of departments of Defence, Railways and
Post, monthly accounts are compiled by the respective accounting entities and rendered to the
concerned Department/Ministry.

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Annexure 1
Detail Book II (Receipt/Payment)
Head of DC DC -- PW Forest IS/CM DB-I Total
Account Section-1 Section-2 Account Account Abstract figures
6003-xx-xxx
xxxx-xx-xxx
xxxx-xx-xxx

Annexure 2
Consolidated Abstract for the month - (Receipt/Payment)
Head of Account Actuals up to previous month This month Progressive up to this month
6003-00-101-01
xxxx-xx-xxx-xx
xxxx-xx-xxx-xx

Annexure 3
Abstract of Major Head Totals (Receipt/Disbursements)
Actuals up to previous month This month Progressive up to this month
Head of Account
Non-Plan Plan Total Non-Plan Plan Total Non-Plan Plan Total
Consolidated Fund
Revenue Expenditure
2011
xxxx
Public Account
8009
xxxx
Total

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Annexure 4
Disbursers’ Account for the month-
Treasuries Opening Receipts during Total Payments during Closing
Balance the month the month Balance
Bilaspur Treasury
Chamba Treasury
Shimla Treasury
xxxxxxx
DAA (Treasury Recoveries)
Forest Section
Works Section
IS/CM Abstract
Transfer Entries
Grand Total

Annexure 5
Monthly Account for the month ended -
Heads of Account Current (`) Progressive (`) Budget (`)
Part I-Consolidated Fund (Net)
Revenue Receipts
XXXX
Capital Receipts
XXXX
Revenue Expenditure
XXXX
Capital Expenditure
XXXX
Public Debt (Net)
XXXX
Loans and Advances
XXXX
Inter-State Settlement (Net)
XXXX
Transfer to Contingency Fund
XXXX
PART II-CONTINGENCY FUND(NET)
XXXX
PART III-PUBLIC ACCOUNT(NET)
XXXX
Total Transactions
Opening Balance
Closing Balance

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Government Accounting

Annexure 6
Appropriation Account of Grant No. For the month of:
Reappro- Proportionate Expenditure Expenditure
Head of Supple- Excess (+)/
Original priation Total Grant Grant up to for the up to the
Account mentary Saving (-)
(+)/(-) the month month month

Revenue Section

2011-02-101-01

xxxx-xx-xxx-xx

Total Revenue

Capital Section

xxxx-xx-xxx-xx

Total Capital

Loan Section

xxxx-xx-xxx-xx

Total Loan

Grant Total

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 Preparation of Annual Accounts
CHAPTER-22

Preparation of Annual Accounts

T
he Annual Accounts of a Government consist of the Appropriation Accounts and the
Finance Accounts. The procedure for preparation of the Annual Accounts is contained
in MSO (A&E) Volume I for the State Governments and Civil Accounts Manual in
the case of the Union Government. After audit of the Annual Accounts, they are laid in the
Parliament/Legislature, along with its audit report.

22.1 Appropriation Accounts

Appropriation Accounts are the accounts of expenditure (both voted and charged)
of the Government for each financial year compared with the accounts of voted grants and
charged appropriations for the different purposes as specified in the schedules appended to
the Appropriation Acts passed by the Parliament/Legislature. The authorities responsible for
preparation of Appropriation Accounts for Governments/Departments are as follows:

Government/Department Entity responsible for preparation of Appropriation Accounts

State Governments Accountant General (Accounts & Entitlement)
Union Civil Ministries Controller General of Accounts (CGA)
Defence Controller General of Defence Accounts (CGDA)
Railways Financial Commissioner, Railway Board
Post Deputy Director General, Postal Accounts and Finance
The Appropriation Accounts of the Government include Appropriation Accounts of each
grant/appropriation, indicating original grant/appropriation, additional funds provided during
the year by supplementary grant/appropriation, total grant/appropriation, actual expenditure,
saving or excess in the grant/appropriation as a whole and the amount surrendered during the
year. In the case of State Government Accounts, the expenditure details are generated from
the VLC. For the Union Civil Ministries, Appropriation Accounts is prepared by consolidating
the expenditure details furnished by the Pr.PAOs of all the Ministries. In the case of Defence,
Railways and Post, the Accounts are prepared by consolidating the expenditure details from
their respective field formations.
The Appropriation Account of each grant contains “Notes and Comments” wherever
necessary. This brings to the notice of the Parliament/Legislature (giving relevant particulars
of the group heads) excesses over grants/appropriations requiring regularisation, expenditure
booked against the grant/appropriation but not really debitable to it, expenditure incurred on a

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Government Accounting

‘New Service’ without specific authority of the Parliament/Legislature, unjustified or excessive

provision of funds leading to large savings and lapses and also cases of defective control over
expenditure, e.g., excessive, irregular or unjustified re-appropriations or surrenders within the
grant/appropriation.
The Appropriation Accounts include a summary showing the total amount of
funds (original and supplementary) provided by the Parliament/Legislature under each
voted grant and charged appropriation, the actual expenditure incurred against each and
the saving or excess under each grant or appropriation. It draws attention to cases of
excesses over grants/appropriations requiring regularisation. The summary statement
provides information on any expenditure met out of advances from the Contingency Fund
which were not recouped to the Fund before the close of the year by authorisation of the
Parliament/Legislature.
The Appropriation Accounts also have a statement reconciling the total expenditure
according to Appropriation Accounts with that shown in the Finance Accounts after taking
into account recoveries of expenditure. The grant/appropriation is voted/authorised for the
gross expenditure required for each service. The expenditure shown against each grant/
appropriation in the Appropriation Accounts will, thus, exclude recoveries adjusted in the
accounts as reduction of expenditure in the respective grants/appropriations. The Finance
Accounts, on the other hand, shows the net expenditure after taking into account the recoveries.
The reconciliation statement shows:
A. Total gross expenditure according to Appropriation Accounts
B. Total of recoveries, and
C. Net total expenditure as shown in the Finance Accounts
A detailed statement showing recoveries relating to each grant/appropriation is included
as an appendix to the Appropriation Accounts. The audit certificate of the CAG is recorded
below the summary statement.

22.1.1 Quality Control Checks

Some of the checks exercised to ensure quality of the Appropriation Accounts are as follows:
a. The figures of Provision, Expenditure, Excess, Saving and Surrender as given
under ‘Summary of Appropriation Accounts’ tally with those given under
individual ‘Grant/Appropriation-wise Accounts’
b. The classification should follow the budget and no unauthorised head should be
opened
c. All re-appropriation orders are obtained from the Government and included in
the Accounts

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 Preparation of Annual Accounts

d. Comments on defective budgeting are made if the provision is not made under
the correct heads of account
e. The reasons for excess or saving incorporated in relevant grants, after obtaining
them from the Government, should not be generic and ambiguous. It should be
specific and understandable
f. An excess over a grant appropriation due to rectification of misclassifications
of previous years is not generally required to be regularized by the Parliament/
Legislature. In such cases, comments are to be made explaining the position why
the excess does not require regularisation
g. Reconciliation of figures in the draft Finance Accounts and the draft Appropriation
Accounts is carried out

22.2 Finance Accounts

The Finance Accounts consist of details of receipts and payments relating to all 3 parts
of Government Accounts, namely, Consolidated Fund, Contingency Fund and Public Account.
The Finance Accounts are prepared in 2 parts, Part – 1 consisting of Summarised Statements
and Part – 2 consisting of Detailed Statements. The AG (A&E) prepares the Finance Accounts
for the State Governments, whereas the CGA prepares it for the Union Government. The
Union Finance Accounts include accounts of Defence, Railways and Post. These departments
render the information required for preparation of Finance Accounts to the CGA. The CGA
consolidates this information, along with the information relating to the Civil Ministries, to
prepare the Union Finance Accounts.
For some statements like Statement of Progressive Capital Expenditure and Statement
of Loans and Advances given by the Government, the closing balances of the previous year
are to be incorporated as the opening balances for the current year. It is ensured that these
balances are correctly carried forward. Some information, like the guarantees given during
the year are obtained from the Government. It is ensured that such information are obtained
promptly to ensure timely preparation of the Finance Accounts. The figures of expenditure
shown in the Finance Accounts are net of any reduction of expenditure. This is reconciled
with the amount reflected in the Appropriation Accounts which are gross figures.
In the case of Finance Accounts of the State Governments, a ‘Notes to Accounts’ is
included which discloses several qualitative issues relating to the Accounts. Some of these
issues are incorrect booking of Capital expenditure as Revenue and vice versa, excessive
booking under the Minor Head ‘800 Other Receipts/Expenditure’, status of reconciliation
of accounts, book adjustments involving transfers between Consolidated Fund and Public
Account, quantum of unadjusted AC bills, Grants-in aid expenditure for which Utilisation
Certificates are pending and outstanding balances under Suspense/Remittance Heads.

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Government Accounting

22.2.1 Quality Control Checks

Some of the checks exercised to ensure quality of the Finance Accounts are as follows:
a. It is ensured that no unauthorised Head of Account is exhibited in the Accounts
and the nomenclature conforms with those given in the LMMH
b. Reconciliation of figures in the draft Finance Accounts and the draft Appropriation
Accounts is carefully done
c. Figures exhibited in the summarised statements must tally with those given in
the detailed statements
d. Minus balances and adverse balances, wherever occurring in the Finance
Accounts, should be suitably explained by means of a footnote and should be
investigated for reconciliation/rectification as they may throw up misclassification
of transactions in Accounts
e. Opening balances in the Finance Accounts should invariably agree with closing
balances of the previous years’ accounts and any difference should be suitably
explained by means of a footnote
f. Ensure that the entire balance under the Major Head ‘8675-Reserve Bank Deposits’
is transferred to Major Head ‘8999-Cash Balance-Deposits with Reserve Bank’
and discrepancies in the cash balance position, as per the Accounts and those
communicated by the RBI, are explained through a footnote

22.3 Combined Finance and Revenue Accounts (CFRA)

The CAG prepares a Combined Finance and Revenue Accounts of the Union and
State Governments (CFRA) by consolidating the accounting information contained in
the Finance Accounts of the Union and the State Governments. The CFRA consists of an
Overview and 3 volumes. Volume 1 presents Major Head-wise comparison of receipts and
payments across Union and the States. Volumes 2 and 3 contain detailed statements. These
statements give information up to Minor Head level for the Union and various States. These
statements are in sets of four – the first giving the revenue receipts of a function, the second
its revenue expenditure, the third giving the capital expenditure of that function and the
fourth its loan disbursements. In functions where separate Major Heads are not available
for any of these Sections, that statement is omitted in the set of 4 statements. All accounting
entities send the Finance Accounts of the Government concerned to the CAG’s office for
preparation of the CFRA.

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 Plan-Budget Link Document
CHAPTER-23

Budget-Plan Link Document

P
lan funds were allocated through the Planning Commission. With the constitution
of the National Institution for Transforming India (NITI) Aayog, the focus is more
on standardizing templates for schemes to make it more effective. The Plan schemes
consist of Central Plan Schemes which are schemes relating to the areas in the Union List.
These are implemented by the institutions of the Central Government. They could also be
implemented by State agencies through a direct transfer of funds to them by the Union
Government. State Plan Schemes are those schemes that relate to the areas of responsibility
of the State Governments that are included in the State List. The Union Government allocates
Plan resources in certain priority areas in the State List. Such schemes where the Union
supports the States in implementing welfare measures on areas in the State List are called
Centrally Sponsored Schemes. Plan resources are allocated by the Centre and the State in a
pre-decided percentage.
The Central allocation of Plan resources for Centrally Sponsored Schemes is in the
form of tied grants in that these are to be utilized for the specific schemes. So there is limited
fiscal flexibility with the State Governments in terms of these funds. Block grants, which
were not linked to any specific scheme, were also released by the Central Government to
supplement the Plan resources of the States. These were called untied grants. These Block
grants included Normal Central Assistance (NCA) to all States, Additional Central Assistance
to General Category States; Special Central Assistance and Special Plan Assistance (SPA) to
Special Category States etc.
The 14th Finance Commission has taken a holistic view of Revenue Expenditure
of States, without making any distinction between Plan and Non-Plan expenditure. Its
recommendations significantly increased States’ share in the divisible pool of taxes from 32
per cent to 42 per cent. As a result, the Block (untied) grants have been subsumed in the
Finance Commission transfers. The vision is to gradually reduce the number of Centrally
Sponsored Schemes and thereby the transfer of tied grants to the States. This is expected to
increase the flexibility of the State Governments to plan the schemes as per their requirement
and allowing them to utilize resources as per their needs. The NITI Aayog would help the
States in devising effective schemes through standardization. These initiatives are envisaged
to eventually strengthen fiscal federalism in the country.
However, the Union Budget continues to reflect public expenditure under Plan and
Non-Plan categorization. This distinction is expected to continue for the present at least till

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Government Accounting

the end of 12th Plan. The Plan resources released to the States are booked as expenditure in the
Union Accounts when they are transferred. There is a mechanism required to verify that these
resources have actually been utilized for the purpose for which they were transferred. Chapter
17 of the MSO (A&E) Volume I prescribes that it shall be the duty of the AG (A&E) to furnish
a statement of plan expenditure figures for each year duly reconciled with those of the State
Government to Accountant General (Audit) for audit and certification.
The expenditure statement is prepared in three parts, namely Part A consisting of
Central Plan Schemes (CPS), Part B that of Centrally Sponsored Schemes (CSS) and Part C
having the State Plan figures. When the funds are released to the State Government for CPS
and CSS, they are taken as receipts under the Major Head ‘1601’ if it is a grant and as a credit
under ‘6004’ if it is a loan. Budgetary provisions are made under various heads of account
for implementation of the scheme. The challenges in tracking expenditure under a scheme
implemented by the State Government, where the Union Government has released funds,
include verifying whether the share of funds to be released by the State Government (in the
case of CSS) has actually been released by the State and included in the budgetary provision
for the scheme and whether the funds are being utilized for the purpose for which they were
released.
The first step in monitoring the expenditure of plan schemes is the preparation of the
concordant table. This is a table that helps to map the name of the Central scheme under which
money was released to the State with that of the State scheme. The challenges in mapping the
names are that in many cases the names of the Central and the corresponding State schemes
are different and these names could be changed from one year to another. It is essential that
the State Governments are associated in the preparation of the linking of the schemes to
prevent any subjective mapping on the basis of similarity of names of the Central and State
schemes. The source of scheme funds is to be obtained from the State Governments in the
case of Central Plan and Centrally Sponsored Schemes to ensure that the concordant table is
prepared accurately.
After mapping the name of the Central scheme with that of the State scheme, the
budgetary provisions are to be linked to the scheme. A State scheme would have budgetary
provisions under different heads of account in different Grants. These heads of account are
also brought together at one place against the State scheme name in the concordant table.
The scheme-wise releases by the Centre can be obtained by the AG office from the Public
Financial Management System (PFMS) portal of the CGA. This can be verified in the AC
section of the AG office from the CMs received from the RBI and the sanction orders from
the respective Central Ministries for such releases. The format of a concordant table is shown
as Annexure 1.

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 Plan-Budget Link Document

On the basis of the concordant table, a Budget-Plan Link Document (BPLD) is prepared.
The BPLD includes the budgetary provisions under the different heads of account for the year
as shown in the concordant table under various schemes. Using the BPLD, a Statement of
Expenditure (SOE) is generated from the VLC by mapping the budgetary provision to the
actual expenditure under various schemes. A format of Statement of Expenditure is shown
in Annexure 2. In preparing the SOE, it needs to be ensured that advances drawn for which
Detailed Contingent (DC) bills are still pending and grants given for which Utilization
Certificates (UCs) are pending are to be excluded from the expenditure figure. If the details
of the scheme to which such advances/grants pertain are not known, the SOE is qualified to
indicate that scheme-wise break-down of amounts held under objection was not available.
In some Central schemes, the funds are released directly to implementing agencies
in the State by the concerned Central Ministries. In such cases, these releases are not taken
as a receipt in the State budget. The details of these releases are also available in the PFMS
portal. Expenditure against these releases is to be tracked by the AG office directly with the
implementing agencies. The challenges in tracking expenditure under schemes where funds are
directly released to implementing agencies are a lack of ownership by the State Government,
though the implementing agencies are State agencies, a reluctance of implementing agencies
in providing expenditure figures and absence of an authenticating mechanism to validate
the expenditure figures provided by the implementing agencies. Finance department or the
respective administrative departments are to be requested to prepare the expenditure details
incurred by the Government implementing agencies, including those by District Rural
Development Agency (DRDA) and Societies. Involvement of the Government department
would enforce timely furnishing of information by the implementing agencies and would
ensure its reliability.
The SOE prepared by the AG (A&E) office is duly reconciled with the State
Government and is provided to the Accountant General (Audit) at the end of the year for audit
and certification.

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Government Accounting

Annexure-1
GoI Vs Orissa State Scheme Concordant Table
Financial Year______
GoI Scheme Orissa Scheme

Code Name Scheme Classification

Code Name Plan Grant MH SMH MIH SBH DTH

0001 Agriculture Census- 16001 Agricultural Census- CP 16 2401 00 111 00 28

Improvement Establishment

0002 Agricultural Statistics- 16002 Agency for Reporting CP 16 2401 00 111 03 96

Jute Technology Agricultural Statistics in
Orissa-Jute

0003 Jute Techonology 23001 Technology Mission-Mini CSP 23 2401 00 108 19 62

Mission Mini Mission II Mission-II
CSP 23 2401 00 789 19 62
CSP 23 2401 00 796 19 62

SP 23 2401 00 108 19 62
SP 23 2401 00 789 19 62
SP 23 2401 00 796 19 62
0006 Coconut Development 23002 Technology Mission on CSP 23 2401 00 108 04 19
Board Including Coconut-Establishment of
Technology Mission on Regional Coconut Nursery SP 23 2401 00 108 04 19
Coconut
23029 Production and Distribution CSP 23 2401 00 108 11 05
of TXD Hybrid Coconut
Seedings CSP 23 2401 00 789 11 05
SP 23 2401 00 108 11 05
SP 23 2401 00 789 11 05
23030 Integrated Farming in CP 23 2401 00 108 17 54
Coconut Holding for
Productivity Improvement CP 23 2401 00 789 17 54

0008 Strengthening of Central 23003 National Project on CP 23 2401 00 105 19 64

Fertilizer Quality Control Fertilizer Quality Control
and Training Institute and Programme
Regional Fertilizer Center
Centre

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 Plan-Budget Link Document

Annexure-2
Budget-Plan link of Orissa State with GoI Schemes
Financial Year______
GoI Scheme Orissa Scheme Budget Progressive
(in lakh) Expenditure
Code Name Scheme Classification (in Lakh)

Code Name Plan Grant MH SMH MIH SBH DTH

0001 Agriculture Census- 16001 Agricultural Census- CP 16 2401 00 111 00 28 1,44,97 35,03
Improvement Establishment

0002 Agricultural 16002 Agency for Reporting CP 16 2401 00 111 03 96 31,09,70 20,94,32
Statistics-Jute Agricultural Statistics
Technology in Orissa-Jute

0003 Jute Techonology 23001 Technology Mission- CSP 23 2401 00 108 19 62 1,21,26 34,08
Mission Mini Mini Mission-II
Mission II CSP 23 2401 00 789 19 62 42,35 5,79
CSP 23 2401 00 796 19 62 20,69 5,80

SP 23 2401 00 108 19 62 8,44 0

SP 23 2401 00 789 19 62 2,15 0
SP 23 2401 00 796 19 62 1,41 0
0006 Coconut 23002 Technology Mission CSP 23 2401 00 108 04 19 25,00 11,25
Development on Coconut-
Board Including Establishment of SP 23 2401 00 108 04 19 25,00 0
Technology Mission Regional Coconut
on Coconut Nursery
23029 Production and CSP 23 2401 00 108 11 05 2,49 0
Distribution of TXD
Hybrid Coconut CSP 23 2401 00 789 11 05 50 0
Seedings
SP 23 2401 00 108 11 05 2,49 0
SP 23 2401 00 789 11 05 50 0
23030 Integrated Farming CP 23 2401 00 108 17 54 1,54,78 41,46
in Coconut Holding
for Productivity CP 23 2401 00 789 17 54 29,31 13,39
Improvement
0008 Strengthening of 23003 National Project on CP 23 2401 00 105 19 64 1 0
Central Fertilizer Fertilizer Quality
Quality Control and Control Programme
Training Institute
and Regional
Fertilizer Center
Centre

237
Government Accounting

238
 Internal Controls in Accounts
CHAPTER-24

Internal Controls in Accounts

T
he important components of internal controls are the system of checks and balances in
place and their constant monitoring. The treasury/PAO system followed in Government
accounting is characterized by its simplicity and strong internal controls. The authority
that prepares the bill for every transaction and the one that authorizes it are two completely
different entities (belonging to different offices). The office where the transaction occurs
does not hold the authenticated records of such transactions. The entity that prepares the final
accounts is an independent entity. This provides a robust framework of internal controls and
renders the system fool-proof. The different authorities performing various responsibilities in
the scheme of Government accounting are as follows:

Responsibility Treasury system PAO system

Preparation of Bill for every transaction DDO DDO

Checking and passing of Bill Treasury PAO

Preparation of initial accounts Treasury PAO
Record keeping of authenticated transaction Treasury & AG PAO
Maintenance of Subsidiary accounts DDO & AG DDO & PAO
Compiling of Accounts AG Pr.PAO
Reconciliation with the Banker (RBI) AG Pr.PAO & CGA
Preparation of final accounts AG CGA

The treasury/PAO system can be compared with other systems, like the system of
implementation of Plan schemes through Societies, where control weaknesses are a major
issue and the level of accountability is poor. In Plan schemes implemented through Societies,
funds are directly transferred to the bank accounts of these Societies. These Societies are
managed by Government officials. They prepare bills for transactions, which are then passed
by a different official in their own office and they themselves maintain the records of such
transactions. Initially, implementation through Societies was started for small Plan schemes.
Later, this was extended to major schemes. The Public Financial Management System (PFMS)
was developed to keep track of releases of funds to these implementing agencies and obtaining
utilization certificates from them. However, the significant control weaknesses that existed in
implementation remain unaddressed. A robust accounting system is, therefore, an essential
prerequisite for effective service delivery.

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Government Accounting

Accounting is a powerful tool that aids its stakeholders take informed decisions.
Government accounting has a significant role as it empowers its stakeholders, including the
public at large, to understand the priorities of the Government and hold it accountable for the
resources spent on various activities. To fulfil this function, Government accounting should be
reliable and of good quality. Constant monitoring of accounting is essential to ensure quality
of the accounts delivered to the stakeholders. The executive has to put in place an effective
internal control mechanism to ensure that the accounts prepared reflect the actual position of
the Government. In the Finance Accounts of the State Government, issues relating to quality
are reflected in the ‘Notes to Accounts’. The quality of accounts has 3 aspects. They are
timeliness, completeness and accuracy.

24.1 Timeliness
Utility of the accounts is dependent on its timeliness. The stakeholders should be able
to expect the accounts to be made available to them by a scheduled date. The accounts of a
year presented after considerable delay renders them useless. To ensure that the accounts are
ready on time every year, due dates have been fixed for completion of accounts preparation.
To enforce timeliness, the accounting agencies have fixed due dates for the account rendering
units (ARUs) to submit their monthly accounts. Thus, the treasuries have due dates for
submission of their monthly accounts to the AG office. The Works and Forest Divisions have
their due dates. Similarly, the PAO has a due date by which her accounts are to be rendered to
the Pr.PAO. These due dates are to be scrupulously followed by the ARUs.
Any delay in the rendition of accounts could hinder the timely compilation of accounts
by the accounting agency. The accounting agencies have a system to follow-up on delays in
rendering of accounts by the ARUs. If for some particular reason, an ARU is not able to submit
its accounts on time, the accounting agency may consider the option of excluding the accounts
of that ARU to ensure that the accounts of the Government as a whole are not delayed. In the
case of State Governments, the information relating to the number of ARUs and the status
of the inclusion of their accounts into the accounts of the Government are contained in the
‘Notes to Accounts’. For example, in the case of Finance Accounts of Andhra Pradesh for the
year 2011-12, there were certain Accounts pertaining to Treasuries, Public Works and Forest
divisions that were excluded from the monthly accounts due to their late receipts, the list of
which are provided in the Notes to Accounts.

24.2 Completeness
Completeness is an important quality parameter of accounts. It involves inclusion of
accounts from all ARUs and incorporation of all transactions of each ARU into the accounts of
the Government. If the accounts of any ARU are excluded, it compromises the completeness
of the accounts. The financial position and performance of the Government would be
understated to the extent of the performance of the unit whose accounts were excluded. The

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 Internal Controls in Accounts

accounting agency, therefore, has to balance between the two quality parameters of timeliness
and completeness. Exclusion of the accounts of an ARU would adversely impact the quality of
accounts. But, waiting too long for all the accounts to be received could impact the timeliness
of accounts. There has to be a proper system put in place to ensure that all the accounts of the
ARUs are received on time.
All transactions that occurred during the period of accounting have to be included
into the accounts of the Government. Any exclusion of individual transactions would also
compromise on the completeness of the accounts. If all the required information for compiling
a transaction are not available, such a transaction should not be omitted. It should be included
in the Suspense head. Efforts must be made to get the required information to clear the
Suspense and book the transaction in its appropriate head before the close of accounts.
To ensure that all transactions are duly accounted, a system of tallying the summarized
accounting figures with that of the totals of detailed accounting from individual documents
is put in place. In the case of Service Heads, the LoP/CA figures should tally with the total
amount arrived at by compiling individual vouchers/challans. In the case of DDR Heads, the
LoP/CA figure should tally with the broadsheet figure. The broadsheet figure, in turn, should
tally with the total amount arrived at from compiling individual vouchers/challans, if detailed
accounts for those heads are maintained by the AG in the case of State Accounts. If any
differences exist between the summarized and detailed accounting figures, these are analyzed
and reconciled to ensure that all transactions have been accounted.

24.3 Accuracy
There are several factors that impact the accuracy of accounts and require proper
monitoring. The figures booked against various Heads of Accounts should be an accurate
reflection of the receipts, expenditure, assets or liabilities of the Government as the case may be.

24.3.1 Reconciliation
To ensure that the figures depicted in the accounts are accurate, a system of reconciliation
of the figures with the Account Rendering Units (ARUs) is put in place. This ensures that any
accounting errors are identified and corrected through transfer entries. In the case of State
Government Accounts, any shortfall in the process of reconciliation is disclosed in the ‘Notes to
Accounts’. For example, in the case of Tamil Nadu accounts for the year 2013-14, 88.35 per cent
of total expenditure and 82.21 per cent of total revenue receipts were reconciled with the ARUs.
Reconciliation of cash balances with the banker of the Government also ensures that
the accounting has been carried out accurately. The cash balances of the Government as per
the accounting figure are reconciled with the balances as per the RBI. Any discrepancy in
these figures is analyzed and rectified. Unreconciled balances are disclosed in the accounts of
the Government. In the case of State Government accounts, the unreconciled differences are

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Government Accounting

disclosed in the ‘Notes to Accounts’. The ‘Notes to Accounts’ of Haryana Finance Accounts
for the year 2013-14 state that there was a difference of ` 35 crore between the cash balance
of the Government as worked out by the AG office and as reported by the RBI, which was
under reconciliation.

24.3.2 Confirmation of Balances

In the case of DDR Heads, in addition to reconciliation of figures with the ARUs,
the balances are also communicated and confirmed with the third party. For example, in the
case of loans given to other agencies by the Government, the balances of loans payable by
these agencies to the Government are communicated to them at the end of the year. These
agencies confirm the balances and the figures are then incorporated into the accounts of the
Government. Similarly, in the case of GPF accounting, individual subscriber-wise balances
are communicated to the subscribers and confirmed to ensure that the figures are accurate.

24.3.3 Reliability of expenditure figures

24.3.3.1 Monitoring of Advances
Advances are drawn for various reasons. These are drawn through Abstract Contingent
(AC) Bills. However, under the cash based accounting system followed by the Government,
these advances are booked as final expenditure when they are drawn. After incurring
expenditure against the advances drawn, a Detailed Contingent (DC) Bill is to be submitted
by the drawer of the advance. The DC Bill is a nil-payment voucher, as no payment is made
against it and is only an adjustment for the advance drawn. The DC Bill provides an assurance
that the advance has actually been incurred and has been incurred for the purpose for which
it was drawn. A system is put in place to ensure that DC Bills are promptly submitted for
every AC Bill drawn. This is necessary to ensure that the figures booked as expenditure are
actually amounts spent during the period. Advances drawn for which DC bills are pending are
disclosed in the ‘Notes to Accounts’ of the State Finance Accounts. For example, in the case
of Andhra Pradesh accounts for the year 2013-14, a total of 92,701 DC Bills, amounting to
` 1,147.45 crore were outstanding.

24.3.3.2 Monitoring of Grants-in-aid

Grants-in-aid (GiA) are payments in the nature of assistance, donations or contributions
made by one Government to another Government, body, institution or individual. One
department of the Government cannot give a grant to another department of the same
Government. GiA are given for specified purpose of supporting an institution, including
construction of assets. The general principle of GiA is that it can be given to a person or a
public body or an institution having a legal status of its own. Such GiA could be given in cash
or in kind used by the recipient agencies towards meeting their operating as well as capital
expenditure requirements.

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 Internal Controls in Accounts

GiA are given by the Union Government to State Governments and by State Governments
to Local Bodies discharging functions of local government under the Constitution. GiA released
by the Union Government to State Governments are paid out of the Consolidated Fund of
India as per Articles 275 and 282 of the Constitution. The Union Government releases GiA
to State/Union Territory Governments under Central Plan Schemes and Centrally Sponsored
Schemes. Sometimes, the Union Government disburses funds to the State Governments in
the nature of Pass-through Grants that are to be passed on to the Local Bodies. Funds are also
released directly by the Union Government to District Rural Development Agencies (DRDAs)
and other specialized agencies including Special Purpose Vehicles (SPVs) for carrying out
rural development, rural employment, rural housing, other welfare schemes and other capital
works schemes like construction of roads etc. Similarly, State Governments also disburse GiA
to agencies, bodies and institutions such as Universities, hospitals, cooperative institutions
and others. The Constitution also authorizes the State Governments to provide for making
such GiA to the Panchayats and Municipalities as may be specified by law.
These grants are also booked as expenditure when they are given to the grantees. An
elaborate monitoring mechanism is required to ensure that the grants issued are utilized for
the purpose for which they were given. Grants could be unconditional (could be utilized for
any purpose by the grantee) or could be issued with conditions (like purpose for which the
amount is to be utilized, time limit within which it is to be spent etc.) attached to it. When a
grant is released, the sanction order should state whether the grant is recurring (for example,
grant for payment of salaries to aided school teachers) or non-recurring (for example, grant
for construction of a building).
The sanction order should also state the conditions, if any, attached to the grant and the
time limit within which the amount is to be spent. If the time limit is not specified, it is implied
that the amount is to be spent within reasonable time (normally one year from the issue of
sanction). Any portion of the grant not required for the object for which it was released is to
be surrendered. The quantum of grant released should be for the net amount of expenditure,
after reducing the gross amount by estimated receipts anticipated during implementation.
For example, when a new building is to be constructed after demolition of an existing one,
the receipts that would be realized due to selling of scrap/equipment from the old building
should be reduced from the gross amount required for the construction and the grant should
be released for the net amount.
A Grants-in Aid register is maintained (department-wise by the AG office in the State)
to monitor fulfilment of the conditions attached to the grant. The authority sanctioning the
grant is responsible for certifying the fulfilment of the conditions. A Utilization Certificate
(UC) is submitted after proper utilization of the grant in the case of conditional grants. Grants
for which UCs are due, but not received till the end of the year are to be disclosed in the
Accounts. Thus, as per the Notes to Accounts of Bihar for the year 2013-14, 2,128 UCs that

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were due for an amount of ` 59,113 crore were not received. UCs are, however, not required
in the following cases:
a. When GiA sanctioned subject to fulfilment of certain pre-requisite conditions &
are in the nature of reimbursement of expenditure. In such cases, the sanction
order should clearly state that UCs are not necessary.
b. When Centre gives grants to the States and the expenditure is incurred directly
by the States. However, UC is to be furnished if such grants are spent through
local bodies or private institutions. In such cases, UC is to be furnished by the
State Government to the Centre after spending the grant.
When assets are created out of GiA given by Government to other agencies, the
ownership of these assets are with the grantee agencies. So the GiA cannot be categorised as
Capital expenditure of the Government, though they might result in creation of capital assets.
Care is taken during budget review to ensure that these are not budgeted under Capital Heads
of Account. However, if the Government accounts them under Capital heads, a disclosure is
made in the ‘Notes to Accounts’ in the case of State Government accounts. Thus, the ‘Notes
to Accounts of Assam Finance Accounts for the year 2013-14 states that the Government
made budget provision and classified GiA of ` 504 crore under Capital Major Heads instead
of Revenue Heads. Consequently, revenue surplus of the State was overstated to that extent.
Indian Government Accounting Standards (IGAS) 2 developed by Government
Accounting Standards Advisory Board (GASAB) for cash-based accounting deals with
accounting and classification of GiA. The important provisions of this standard are as follows:
A. GiA is to be recognised in the books of the grantor and the grantee at the time of
disbursement of the grant, either in cash or kind.
B. The GiA should be classified as a revenue expenditure in the books of the grantor,
irrespective of the purpose for which the grant is disbursed. Only in cases specifically
authorized by the President on the advice of the CAG, can the grant be debited to a
capital head of account.
C. Pass-through grants from the Union Government to the State Governments to be
disbursed to the ultimate grantee are to be classified as revenue expenditure in the
books of both the Union and State Government concerned.
D. GiA is to be classified as a revenue receipt by the grantee.
E. The quantum of grants released to the grantees and the grants given for creation of
capital assets are to be disclosed in the financial statements of the grantor. GiA given
in kind should also be disclosed in quantitative terms
It needs to be ensured that the provisions of IGAS 2 are duly followed in classification,
accounting and reporting.

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24.3.3.3 Transfers between Consolidated Fund and Public Account

Transfer of funds is made between the Consolidated Fund of the Government and its
Public Account for various reasons. Though these transactions are booked as expenditure/
receipt in the relevant heads, these are mere book adjustments. These transactions are to be
closely monitored and due disclosures made, where necessary, in the accounts because they
tend to inflate the expenditure/receipt. For example, some Reserve Funds are created out
of funds from the Consolidated Fund. When such Reserve Funds are created, the Revenue
expenditure head in the Consolidated Fund is debited and the Head of Account relating to
the Reserve Fund in the Public Account is credited. This transaction gives an impression to
the reader of the Accounts that revenue expenditure, to the tune of the transfer to the Reserve
Fund, has been incurred during the year. However, this is not the case. The amount has actually
not been spent but only transferred to the Public Account. In the case of State Accounts, a
disclosure of such transfers is made in the ‘Notes to Accounts’ to make this fact clear to the
reader of the Accounts.
Transfer of funds from Public Account to Consolidated Fund could change the deficit
figures. When certain Reserve Funds are closed and the balances taken as miscellaneous
receipts in the Consolidated Fund, the revenue deficit of the Government goes down. Though
these are not actual receipts, but mere book adjustments, they could give an impression of
better fiscal position of the Government. It is, therefore, necessary to disclose such transactions
to the reader of the accounts. Annexure I-A to the Notes to Accounts gives details of all such
book adjustments carried out between the Consolidated Fund and the Public Account.
Transfer of funds from the Consolidated Fund to the Public Account could also result
in circumvention of budgetary controls. For example, funds could be transferred from the
Consolidated Fund to the Personal Deposit (PD) accounts in the Public Account for specific
purposes. These are to be spent before the end of the year. If any balances remain unspent,
they are to be transferred back to the Consolidated Fund. Transfers to PD accounts could be
made to prevent lapse of budgetary funds at the end of the year. Such transfers have to be
monitored to ensure that these are not used to circumvent budgetary controls. The ‘Notes to
Accounts’ of State Government accounts have a disclosure of transfers to PD accounts. For
example, the ‘Notes to Accounts’ of Rajasthan for the year 2013-14 state that an amount of
` 14,229 crore was transferred to PD accounts during the year, out of which ` 1,309 crore
were transferred in the month of March.

24.3.3.4 Amounts in transitory Heads

Suspense and Remittance heads are transitory heads of account. The balances lying
under them are to be cleared as quickly as possible. Transactions are booked under Suspense
heads when all the information that are required for accounting them under the final head
of account are not available. Remittances involve debits/credits which are eventually to be

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cleared by corresponding credits/debits within the same or a different accounting circle. Any
transaction lying booked in these transitory heads indicates that expenditure/receipt in the
relevant final head to which such transaction actually pertains has been understated to that
extent. System is put in place to ensure periodic analysis of balances under Suspense and
Remittance heads. Pursuance is made to get the required information to clear balances under
these transitory heads. In the case of State Government accounts, a separate disclosure is also
made in the ‘Notes to Accounts’ of the balances under these heads, along with an age analysis.

24.3.4 Contingent Liabilities

Information should also be provided to the readers of the accounts about the contingent
liabilities of the Government, like Guarantees, and the implications of various policy
decisions. These tend to have a future implication on the state of affairs of the financial health
of the Government. The Union and State Governments give guarantees within such limits as
may be fixed upon the security of their Consolidated Funds in terms of Articles 292 and 293
of the Constitution. The Union Government gives guarantees for repayment of borrowings,
payment of interest, repayment of share capital, payment of minimum annual dividend and
payment against agreements for supplies of materials/equipment on credit basis on behalf of
the State Governments, Union Territories, local bodies, railways, Government companies/
corporations, joint stock companies, financial institutions, port trusts, electricity boards and
cooperative institutions.
Guarantees are also given by the Union Government in pursuance of agreements
entered into by the Union Government with international financial institutions, foreign lending
agencies, foreign Governments, contractors and consultants. The Union Government gives
guarantees for fulfilment of contracts or projects awarded to Indian companies in foreign
countries. Counter-guarantees are given to banks in consideration of the banks having issued
letters of credit to foreign suppliers for supplies/services rendered on credit basis to Indian
companies. Similarly, guarantees are also given by State Governments and Union Territory
Governments with Legislature.
As the statutory corporations, Government companies, cooperative institutions,
financial institutions, autonomous bodies and authorities are distinct legal entities, they are
responsible for their debts. When these entities borrow directly from the market, it reduces
the Government’s budgetary support to them and the magnitude of Government borrowings.
However, their financial obligations are guaranteed by the Government and any default will
shift the liability to the Government. Therefore, this is a contingent liability for the Government.
Statement 4 of the Finance Accounts of the Union and Statement 9 in the case of States
disclose the Guarantees given by the Government. The Indian Government Accounting
Standard (IGAS) 1 deals with the disclosure requirements for guarantees given by the

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Government. According to this Standard, the financial statements of the Government should
disclose the following details:
A. Guarantees outstanding at the beginning of the year, amount of guarantees given
during the year, deletions of guarantees during the year and the guarantees outstanding
at the end of the year
B. Amount of guarantees invoked and discharged during the year
C. Details of guarantee commission/fee and its realization
In the Notes to the financial statements of the Government, the following details are to be
disclosed:
1. Limit, if any, fixed within which the Government may give guarantees
2. Whether a Guarantee Redemption Fund exits and its details including balances in
such fund
3. Details of foreign currency guarantees
4. Whether the budget documents of the Government contain details of guarantees
5. Details of tracking unit or designated authority for Guarantees in the Government
Guarantees are to be disclosed in the financial statement class-wise or sector-wise. The
classes and sectors against which disclosures are to be made are provided in the Standard.
When guarantees are invoked and payments made by the Government, the payments are to be
treated as a loan to the beneficiary on whose behalf guarantees were given. Recoveries of such
loans are to be monitored. Such loans and their recoveries are to be distinctly classified in the
financial statements. If such loan becomes irrecoverable, it is to be adjusted in the Guarantee
Redemption Fund. If such fund does not exist, it should be debited to ‘Irrecoverable loan
written off’ under the function for which the guarantee was given. If the purpose cannot be
identified, it is to be written off through a debit to ‘2075 Miscellaneous General Services’.

24.3.5 Transparency in reporting

Accuracy in accounting also includes transparency in reporting. The purpose for which
public resources have been spent should be clear from the accounts. If the expenditure is
lumped into a single head of account, it compromises the transparency in reporting. Minor
Head 800 is used for booking miscellaneous receipts and payments under various Major
Heads. However, if a significant portion of the expenditure/receipt is booked under this
Minor Head, it renders the accounts opaque. It is checked during budget review to ensure
that significant amounts are not allotted under this Minor Head. Bookings under this Minor
Head, if significant, are also disclosed to the stakeholders through the ‘Notes to Accounts’ in
the State accounts.

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For example, the Finance Accounts of Chhattisgarh for the year 2013-14 states that
` 322 crore under 52 Revenue, Capital and Loan Major Heads of Accounts on the expenditure
side, constituting 10.68 per cent of the total expenditure was recorded under the Minor Head
‘800 Other Expenditure’ below the concerned Major Heads. The ‘Notes to Accounts’ also
disclose instances where 50 per cent or more of the expenditure or receipts were classified
under the Minor Head ‘800 Other Expenditure/Receipts’.

24.3.6 Other issues

Other issues that impact the accuracy of accounts are also to be properly monitored
and controlled. Booking of Capital account transactions into Revenue account and vice versa
compromises the accuracy by impacting the deficits, in addition to incorrect figures under the
Capital and Revenue heads of account. Such errors are to be scrutinized and rectified during
the budget review. However, if it is not rectified, such wrong classifications are to be disclosed
to the reader of the accounts. The ‘Notes to Accounts’ of Assam for the year 2013-14 state that
an amount of ` 404 crore on Major Works, which is a Capital expenditure, was budgeted and
spent under Revenue Section. An amount of ` 97 crore on Minor Works, which is a Revenue
expenditure, was accounted under Capital Section. Thus, the net revenue surplus of the State
was understated by ` 307 crore.
Non-payment of amounts due by the Government could understate the expenditure. If
there are such instances, these are to be disclosed to the reader of the accounts. Some of the
examples of non-payment include non-contribution of the Government’s share to retirement
benefits of its employees, non-payment of interest on interest-bearing Deposits and Reserve
Funds in the Public Account, not transferring the amounts due for the year to Sinking Funds
for amortization of loans of the Government and shortfalls in providing for the Government’s
share for implementing Plan Schemes. These tend to understate the expenditure of the
Government and, as a result, present a better fiscal position of the State. The reader of the
accounts has to be aware of these under-payments to have a correct understanding of the fiscal
position of the State.
Wrong accounting procedures followed by the Government are to be taken up for
correction. If the deficiency persists, it is to be disclosed in the accounts. For example,
the ‘Notes to Accounts’ of Rajasthan for the year 2013-14 state that in terms of paragraph
3.4 of LMMH, the actual expenditure relating to the State Road Fund is first to be debited
to the relevant Service Major Head and thereafter to be recouped from the Fund. This is
necessary to ensure Legislative control over such expenditure out of funds transferred from

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Consolidated Fund to Public Account for specific purposes. However, Rajasthan Government
had transferred an amount of ` 41 crore directly from its State Road Fund to the implementing
agency for incurring expenditure. This discloses to the reader of the accounts that this amount
has been spent without the proper legislative approval.
In case of State Government accounts, the ‘Notes to Accounts’ disclose the implications
of major policy decisions. These include whether the policy decision would result in receipts
or expenditure or both, whether it would be one time or recurring and the implication on the
finances in terms of cash flows.
Through these control measures, the quality of accounts is ensured. In cases where
control weaknesses could not be mitigated, a disclosure is made in the accounts to ensure that
the reader is aware of its implications on the figures depicted in the accounts.

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CHAPTER-25

Way Forward

25.1 Rules-based to Standards-based Accounting

G
overnment accounting is based on rules. Rules-based accounting is basically a list
of detailed rules that must be followed while recognising and recording transactions
and when preparing financial statements. Rules govern the form of accounts.
They prescribe the principles governing the recognition, measurement and classification
of individual transactions and their disclosure. The basis of accounting, classification of
transactions and format of financial reporting are all governed by rules. The advantage of
a rules-based accounting system is that it is simple. There is no discretion involved in the
accounting process. The roles and responsibilities of various entities involved in the process
are clearly defined. Having a set of rules increases accuracy and reduces the ambiguity that
can necessitate significant reporting decisions by the management.
In a manual system of accounting that is spread across the length and breadth of this
vast country, the level of accounting skill among the different entities involved could be
highly variable. It was, therefore, necessary that a rules-based accounting process was put in
place to ensure uniform quality of accounting across the country. This was essential to ensure
consolidation of transactions occurring in different parts of the country to prepare the accounts
of the Government and to compare accounting figures across reporting periods and between
entities across the different tiers of the Government.
The weakness of a rules-based accounting system is that it is difficult to envisage
all situations that could occur in the field and prescribe rules for each of them. Absence of
rules governing a particular transaction in a rules-based system could lead to confusion. An
attempt to prescribe rules for all situations results in making the rules extremely complex. The
complexity of rules causes unnecessary complexity in the preparation of financial statements.
Under a standards-based accounting system, a simple set of key objectives are set out
to ensure quality accounting and good reporting. Common examples are provided as guidance
and explain the objectives. Although some rules are unavoidable, the guidelines or rules set
are not meant to be used for every situation. The fundamental advantage of standards-based
accounting is that its broad guidelines can be practical for a variety of circumstances. It
provides adequate flexibility to account for the precise requirements of individual transactions.
The computerization of accounting happening across the country provides an opportunity
to overcome the gap in skills required for implementing a standards-based accounting. The
professional judgements that would have to be exercised to account for certain transactions

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in this system could be centralized in a computerized accounting system, thereby doing away
with the requirements for higher accounting skills across the country.

25.2 Cash-based to Accrual-based Accounting

Traditionally, Government accounting aims at ensuring compliance with budget and
proper utilization of public moneys. The main concern of Government financial managers has
been to find sufficient cash to fund public schemes. Cash-based accounting has served this
purpose well. Accordingly, GAR 21 and GFR 68 prescribe that with the exception of certain
book adjustments, the transactions in the Government accounts shall represent the actual cash
receipts and disbursements during the financial year as distinguished from amounts due to
or by Government during the same period. Under cash-based accounting, transactions are
recognised only when cash is received or paid. Undischarged receivables and payables are
not recognised under this system. Some of the undischarged receivables/payables that are not
recognised and accounted for under the cash-based accounting system are as follows:
A. Bills prepared to make payment for goods/services received by the Government, but
not passed and paid (payable).
B. Other payments that are due but not paid, like interest due but not paid (payable).
C. Leave salary earned by the employees for the period they have worked for the
Government, but not encashed (payable).
D. Pensionary benefits accrued to the employees for the period of service rendered to the
Government which would be payable to them when they retire (payable).
E. Tax due to be paid by the tax payer, but not paid to the Government. Similarly, non-tax
receipts like license fee, due to the Government but not paid (receivable).
Under accrual-based accounting, all transactions are recognised and accounted for when
the transaction takes place irrespective of the actual payment or receipt of the consideration.
All assets and liabilities that have been created or have arisen in the usual course are also
accounted, irrespective of the payments and receipts of cash. Accrual system recognizes
financial flows at the time economic value is created, transformed, exchanged, transferred
or extinguished, whether or not cash is exchanged at that time. It records consumption of
resources during a period whereas cash accounting records payments.
Under the accrual system, the concept of matching is followed, wherein all revenues,
irrespective of whether they are realised or not, are reported along with the expenses that
brought them in the same period, irrespective of whether they are paid or not. The revenue
flows from an output are matched with the consumption of resources that produced the output.
The matching concept is not followed under the cash-based accounting system. The revenues
realised during the period could have accrued during an earlier period. They could also be
an advance received for a future period. But these revenues are reported as revenues for the
period under cash basis. Similarly, all expenses paid during period are reported as expenditure

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for the period, though some of them could be payments made during the period for goods/
services received for a prior period or advance payments for benefits to be realised in future.
Certain non-cash transactions, like depreciation and provision for bad debt, are not
recognised in cash-based accounting. The assets that are procured are reflected in the financial
statements as a cumulative capital expense incurred by the Government. The reduction in
the value of such assets due to its wear and tear on usage is not accounted for. Similarly, the
recoverability of a loan may be doubtful. But a provision for such bad debt is not made as this
does not involve any cash flow. However, these non-cash transactions are accounted under
accrual accounting. Thus, accounting under accrual system gives a more accurate picture of
the state of affairs of the entity.
The method of book keeping in cash based accounting is called single entry book
keeping. Under this system of book keeping, not all ledgers are maintained. Thus, under the
single entry book keeping followed for the Government, we do not have ledgers for certain
real accounts like assets and some nominal accounts like depreciation. Whereas under the
double entry book keeping followed for accrual-based accounting, all ledgers are maintained.
Double entry book keeping ensures completeness of the accounts which can then be tested
through a trial balance. The information relating to items for which ledgers are not maintained
under the single entry book keeping can still be maintained through separate registers. For
example, asset registers are maintained separately by Government departments. However,
their completeness cannot be ensured through the trial balance.
Cash and accrual accounting are not two water-tight types of systems. An accounting
system may have different degrees of both accrual and cash accounting features. There
could be modified cash basis of accounting, where the basis for recognition of income and
expenditure continues to be cash. However, the books of accounts are kept open for a specified
period after the end of the year for adjustments of certain cash flows that relate to the reporting
period but occur after the end of the year. There is also some disclosure on the lines of accrual
accounting. Government accounting in India is a modified cash based accounting. There is
also the modified accrual basis of accounting, where the criteria for recognition of income and
expenditure are the same as accrual accounting, but with some exceptions. Certain types of
assets and liabilities may not be recognised.

25.2.1 Weaknesses of Cash-based Accounting

Though cash-based accounting system is simple to follow and serves the purpose of
cash management, it has several weaknesses. Cash transactions do not capture the timing of
action or its impact on the economy. This provides room for fiscal opportunism. For example,
tax revenues can be collected in excess during a particular period followed by high incidence
of refunds together with interest in the subsequent period. Since advance tax collected are
not shown liability, but as a receipt under cash system, this tends to overstate the receipts and

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presents a better fiscal position. Similarly, payments due to be made can be easily deferred and
passed on to the next financial year. Since liabilities are not shown in the financial statement,
the extent of such unpaid liabilities are not disclosed.
Unit cost and total cost of services provided by Government departments like health,
education, water supply, transportation etc., are not ascertainable under the cash-based
accounting system. All costs associated with a service provided by the Government are to be
accumulated to arrive at its total cost. However, all costs associated with a particular service
are not available under cash-based accounting. These include charges like depreciation which
is the asset consumed in the process of rendering service and other payables, like interest due
but not paid and goods received but payment not made. In addition, the concept of matching
is not followed in cash-based accounting. Therefore, the receipts for a particular period are
not matched with the expenses for the period. As a result of these deficiencies, performance
evaluation of the service provided by Government is not possible.
Absence of information required for performance evaluation renders the cash-based
accounting system inadequate for control and comparison purposes. Cost recovery to be
fixed for services rendered by the Government cannot be done on an objective basis in the
absence of complete information. The amount of subsidy provided by the Government in
rendering various services are also not ascertainable. Efficiency of Government activities is
not measurable leading to opaqueness in performance reporting under cash-basis.
Cost consequences of policy decisions cannot be assessed under cash-based accounting.
This is because the liabilities created out of a policy decision are not assessed and reported.
Therefore, a proper assessment of a policy decision and its objective comparison with
alternative policy solutions is not possible. Cash-based accounting encourages short-term
solutions. For example, revenue due in the future could be compromised by providing for
one time smaller payments. As the revenue due is not captured in the accounts as an asset,
the Government can allow the debtor to get away by making a smaller payment. The loss of
revenue due to the Government as a result of such decisions would not be reflected in the
accounts. Instead, the accounts would show a better fiscal performance as it only tracks the
actual cash received as a result of such decisions.
Reporting under cash-based accounting systems typically takes the form of a cash flow
statement which details the sources and applications of Government cash during the period and
its cash balance at a given point in time. In recent times, there has been a paradigm shift in the
priorities of public finance management from identifying resources for public scheme funding
to fiscal prudence, efficiency & transparency in public spending. These shifts in priorities
have been reflected in initiatives like the Fiscal Responsibility and Budget Management Act
and Outcome Budget. Issues like operational efficiency, results, effectiveness of the delivery
system, cost of service delivery, ability to support welfare programs, good governance
etc., have been actively debated and considered. Public demand that the Government be

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fully accountable. There has also been an active involvement of private sector in delivery
of public services. Computerization of Government functioning has brought in changes in
the management requirements. All these have necessitated a shift towards accrual-based
accounting.

25.2.2 Accrual-based Accounting

The various steps involved in a transaction are as follows:
A. Appropriation - The legislature approves the spending of money.
B. Commitment - The government and its agencies make commitments to third parties to
spend moneys or to provide services.
C. Rendering of services - The government and its agencies provide or receive service.
D. Verification of delivery of services - The services provided or received are verified to
ensure that these are in accordance with the terms of the contract.
E. Preparation of payment order - The authorisation for the payment is made as per the
laid down process.
F. Release of payment - The payment is effected.
In a cash system of accounting, only transactions ‘A’ and ‘F’ mentioned above are
recorded. Under accrual accounting, a transaction is accounted as soon as an income is earned
or an expense is incurred, irrespective of whether cash has been paid/received. Thus, under
this system, transactions like tax assessed but not received, license fee/royalty due but not
received and liabilities accrued but not paid will be accounted for. Accrual accounting reflects
assets and liabilities adequately. For example, short term and long term liabilities, pensionary
liabilities and depreciation cost are all accounted for. Commitments are also disclosed in the
financial statements. This helps in bringing out the operating performance of the entity. It helps
in better management of receivables and payables, better assets and liabilities management. It
aids in the assessment of cost of service delivery and helps in fiscal sustainability of operations.
Accounting on accrual basis would require certain heads of accounts to capture
liabilities and assets. Budgeting in India is currently on cash basis. The heads of accounts
in the budget relate only to cash transactions. Budgeting and accounting systems are closely
linked to each other. In the long run, it is desirable to have concomitant reforms in the
budgeting and accounting systems, if government were seeking the full benefit of reforms in
its accounting system. However, implementing reforms simultaneously in both accounting
and budgeting systems is very complex, and the task of managing the change is extremely
difficult. Most countries that embarked on reforms first undertook accounting reforms,
followed by budgetary reforms within a few years. In the initial stages, the accounts should
include additional disclosures on heads relating to assets and liabilities, in addition to the
budgetary heads for receipts and payments.

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The countries that have moved over to accrual accounting and accrual budgeting
include Australia and New Zealand. Netherlands, Sweden and Switzerland were in the
process of introducing full accrual budgeting. The countries that have adopted full accrual
accounting but follow cash based budgeting are Canada, United States, United Kingdom,
Japan, Italy, Portugal, Azerbaijan and Uzbekistan. France, China, Sri Lanka, Republic of
Korea, Philippines, Indonesia are some countries that have set in motion the process of moving
over to an accrual-based accounting system. Members of the European Union are required to
prepare their budgets in accordance with the European system of Accounts. It is not a full-
fledged accrual system but is predominantly based on accrual concepts.
Countries that have implemented accrual accounting have gained from improved
governance, better control over assets, increasing the confidence of all stakeholders, and
quite simply from availability of more accurate information for decision-making with all
stakeholders. There is authentic and accurate information on government position, resulting
in better flow of resources in the economy and generally better economic performance riding
on more certainty. New Zealand had been able to quantify the extent of fines and other charges
levied by various departments of the government and follow-up on their collection (the
cash-based system of accounting will not be in a position to provide the amount of receivables).
Most of the countries, which have moved to accrual accounting, have taken a time period
of 7-10 years for the transition. New Zealand, which has the most well developed and documented
transition process, took nearly 7 years to come to a full accrual accounting stage. Canada is a
country similar to India in terms of the federal structure and complexity and it took about 8
years for completing the transition. Considering the size and complexity in India, it is estimated
that the transition process may take about 10-12 years. India also has the advantage of learning
from the experiences of other countries such as New Zealand, UK, USA and Canada. Before
accrual accounting is implemented, accounting policies that determine principles of recognition,
measurement and disclosure need to be defined. These policies will entail that discretion is
not applied indiscriminately. There is also a need to clearly spell out principles and criteria of
recognition, measurement and classification applicable in the accrual accounting system in the
new Accounting Manual and also policy on depreciation of physical assets.

25.3 Government Accounting Standards Advisory Board (GASAB)

Government of India have supported the proposal for establishment of a Government
Accounting Standards Advisory Board for the Union and the States by the CAG in order
to establish and improve standards of governmental accounting and financial reporting and
enhance accountability mechanisms. Accordingly, the CAG has constituted a Government
Accounting Standards Advisory Board (GASAB) consisting of the following officers:
• Deputy Comptroller and Auditor General (Accounts) as Chairperson
• Controller General of Accounts

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• Financial Commissioner, Railways

• Controller General of Defence Accounts
• Additional Secretary (Budget), Ministry of Finance, Government of India
• Deputy Governor, Reserve Bank of India or her/his nominee
• Director General, National Council of Applied Economic Research (NCAER),
New Delhi
• President, Institute of Chartered Accountants of India (ICAI), or her/his Nominee
• Principal Secretary (Finance) of four States by annual rotation
• Principal Director (Accounts), office of the CAG as Member Secretary
The responsibilities of GASAB are (i) to formulate and propose standards that improve
the usefulness of financial reports based on the needs of the financial report users (ii) to
keep standards current and reflect changes in the governmental environment (iii) to provide
guidance on implementation of standards (iv) to consider significant areas of accounting
and financial reporting that can be improved through the standard setting process and (v) to
improve the common understanding of the nature and purpose of information contained in
financial reports. GASAB has been working on setting standards for cash-based and accrual-
based accounting. It has also been working on the migration to accrual based accounting.

25.3.1 Indian Government Accounting Standards (IGAS)

IGAS formulated by GASAB are for cash system of accounting and become mandatory
from the effective date after their notification by Ministry of Finance, Government of India.
IGAS notified by Government include Guarantees given by the Government (IGAS 1),
Accounting and Classification of Grants-in Aid (IGAS 2) and Loans and Advances made by
Government (IGAS 3). The provisions of IGAS 1 and 2 have been discussed in the chapter on
‘Internal Controls’ and IGAS 3 was discussed in the chapter on ‘Accounting of Institutional
Loans and Advances’. IGAS approved by GASAB and under consideration of Government of
India are Foreign Currency Transactions & loss or gain by Exchange Rate Variations (IGAS
7), Government Investments in Equity (IGAS 9) and Public Debt & Other Liabilities of
Government – Disclosure Requirements (IGAS 10)

25.3.2 Indian Government Financial Reporting Standards (IGFRS)

Any decision to change the basis of accounting from cash to accrual would be based on
a decision of the President of India on the advice of the CAG under Constitutional provisions.
However, GASAB has been involved in the facilitation of pilot studies and research efforts
on migration to accrual accounting at Union and State level. To facilitate pilot studies and
for scale up of activities, GASAB has taken a decision to develop accrual basis accounting
standards alongside cash basis standards. The accrual basis standards are issued under the title
‘Indian Government Financial Reporting Standards (IGFRSs)’. The accrual basis standards

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are issued initially as recommendatory for pilot studies on accrual accounting and will be
mandatory with effect from the date of notification by Government of India.
IGFRS approved by GASAB and under consideration of Government of India are
Presentation of Financial Statements (IGFRS 1), Property, Plant & Equipment (IGFRS
2), Revenue from Government Exchange Transactions (IGFRS 3), Inventories (IGFRS
4) and Contingent Liabilities (other than Guarantees) and Contingent Assets – Disclosure
Requirements (IGFRS 5).

25.3.3 Roadmap to Accrual Accounting

The 12th Finance Commission (2004) recommended adoption of accrual accounting for
the Union and the State Governments. The Central Government and 18 State Governments
had accepted the recommendation in principle by 2007. The Commission also recommended
standardization of accounting classification up to the object head level for all States to improve
fiscal management, introduction of additional eight statements in the Finance Accounts
(relating to subsidies, expenditure on salaries, expenditure on pensions, committed liabilities,
maintenance expenditure, segregation of salary and non-salary portions and liabilities and
repayment schedule on outstanding debts) and standardization of the definition of revenue and
fiscal deficits. The Government entrusted the GASAB to steer the accounting reforms.
GASAB prepared the “Road Map and Transition Path for Accrual Accounting”. It
was felt that the user departments namely, Civil Ministries/Departments (Controller General
of Accounts), Ministry of Defence (Controller General of Defence Accounts), Ministry of
Railways (Financial Commissioner, Railways), Department of Posts and the State Governments
are best placed to draw up the detailed road map for their respective jurisdictions. This
recommendation stems from taking note of different nature of functions in the departments
and the fact that the different departments are at different stages of preparedness/readiness in
terms of their data availability etc. For example, in the Central Government, Railways are far
ahead in their readiness to switch over to accrual accounting system.
This document identified the steps to be taken for the transition and prepared a task
schedule. It opined that a period of 10-12 years may be a reasonable and feasible time frame
for the transition road map, given that different user departments are at different stages of
preparedness. It suggested that the user departments may use the following activities/items of
work, which constitute prerequisites of a road map for transition:
A. Setting up a task force for the transition
B. Building adequate database essential for implementation of accrual accounting,
including assets identification, creating Assets Registers for physical assets and
identification of liabilities
C. Carrying out pilot studies

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D. Process mapping of various activities and accounting practises in terms of principles

and points of recognition, measurement and classification of different types of
transactions and their disclosures
E. Preparing a detailed framework of accounting
F. Laying down accounting policies
G. Preparing Chart of Accounts
H. Devising documentation system and subsidiary ledgers
I. Developing the organizational arrangements for data/information flow
J. Developing and implementing the IT system for accounting
K. Capacity building in terms of training
L. Carrying out pilot implementation
M. Full implementation
GASAB came out with an “Operational Framework of accrual basis of accounting in
Governments in India” in 2007. This included a broad framework for transition of different
categories of transactions to accrual accounting. This transition was envisaged in 5 stages.
These are listed in the table below.
The 13th Finance Commission (2009) expressed its satisfaction with the attention
accorded to the issue of transition to accrual accounting by the relevant authorities, and the
actions taken by the Central, State and local governments facilitating a ‘bubble up’ approach.
Under such an approach, local bodies (and within local bodies – large municipal bodies and
Panchayati Raj institutions) would adopt accrual accounting first, given that the National
Municipal Accounting Manual incorporates the principles of accrual accounting.
The 14th report of the Second Administrative Reforms Commission recommended that
a task force should be set up to examine the costs and benefits of introducing the accrual
system of accounting. The Task Force should also examine its applicability in case of the
Appropriation Accounts and Finance Accounts. It suggested that initially, a few departments/
organizations may be identified where tangible benefits could be shown to be derived within
2-3 years by implementing the accrual system of accounting, especially departmental
‘commercial undertakings’. The result of this initial implementation may be studied by a
committee of experts which would recommend on its further implementation in all departments/
organizations at the Union/State level along with exclusions, if any. This may proceed in
a phased manner. It stated that prior to its implementation, training and capacity building
needs of the accounting personnel and all stake holders in the decision making process would
have to be addressed and a meticulous schedule worked out in line with the road map of
implementation. Before the new system is adopted, the report stated that alignment of the
Plan, budget and accounts needs to be achieved and a viable financial information system
needs to be put in place.

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The GASAB prepared an “Operational Guidelines for Accrual based Financial Reporting
in Government” in 2011 which envisaged transition to accrual accounting in 3 phases.
Phase 1: An apex body at Ministry of Finance level would be constituted with
representation from key stakeholders at Union and State level for coordination, monitoring,
decision making and overseeing implementation issues. Task based groups would be formed
in each entity to initiate the transition process in a time bound manner. The Chart of Accounts
would be revised to integrate accrual accounting needs. IT enabled Integrated Financial
Management System would be developed and implemented. Capacity building in terms of
human resources would be taken up. Identification and consolidation of assets category wise

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at DDO level, valuation of all assets except historical assets and identification of liability and
their valuation would also be taken up during this phase.
Phase 2: Valuation of historical assets, provision of depreciation, recognition of all
expenses and payables and recognition of revenues and receivables would be taken up during
this phase.
Phase 3: During this phase, preparation of Statements of General Purpose Financial
reporting (GPFS) would be taken up, which would include the following:
A. Statement of Financial Position – This exhibits the balance of assets (all physical and
financial assets, cash and cash equivalents, investment, inventories, receivables from
exchange and non-exchange transactions, capital work in progress) and liabilities (all
debts and borrowings of the government, payables, benefits payable to employees)
as on a particular date. The assets and liabilities may be further classified into current
and non-current categories. The progressive total of capital expenditure available in
Finance Accounts should reconcile with lump sum figure in the Statement of Financial
Position after making adjustment for valuation of historical assets
B. Statement of Financial Performance – This would exhibit the revenue and expenses for
an accounting period and the excess/deficit of revenue over expenses. The Statement
of Financial Performance must include revenue from exchange transactions, revenue
from non-exchange transactions, expenditure by function and nature, surplus/deficit,
appropriation to earmarked funds and cost of borrowings
C. Statement of Changes in Assets/Liabilities – This would represent the changes
between two reporting dates reflecting the increase or decrease in its net assets during
the period
D. Cash Flow Statements – This would provide cash flows during the period classifying
them into operating (derived from the principal cash-generating activities including
cash receipts from taxes, from non-tax revenues, cash payments to suppliers/
contractors, grants in aid received or given), investing (derived from acquisition and
disposal of long term assets and other investments not included in cash equivalents.
This includes cash payments to acquire or construct property, cash advances and loans
made etc.) and financing (represents the changes in the size and composition of the
contributed capital and borrowings) activities
E. Appropriation Accounts – This would continue to reflect comparison of budget with
actual expenditure
F. Accounting Policies and Notes to the Financial Statements – This would include the
accounting policies followed in the preparation of the statement, any deviations from
the policies and any other significant disclosures to be made to the readers of the
statements

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G. Management and Discussion Analysis – This would be a management report

commenting on financial statements highlighting key performance indicators. This
would be signed by the Chief Accounting Authority as prescribed in GFR 64.

25.4 Changes proposed in the Chart of Accounts

A committee under the chairmanship of Shri C.R. Sundaramurti, Controller General of
Accounts was constituted to review the present accounting classification system and to develop
a system better suited to display the nature and objective of Government expenditure. The
committee recommended changes in the classification structure to accommodate the emerging
requirements for more effective Management Information System to be used for better planning
and resource allocation process, more effective monitoring of application of resources in
Government Schemes and a more robust Public Financial Management by Government.
The present classification system poses a few limitations. Some of the main weaknesses/
issues identified are as follows:
• There is opaqueness in data on transfers to states. The State-wise details of
transfers, information on releases to States under the various functional heads are
not captured.
• There is lack of standardization of scheme classification. Plan schemes are not
captured uniformly at one level.
• Major Heads, which are supposed to represent government functions do not
reflect true functional character of expenditures and do not correspond to Heads of
development used in the planning and resource allocation process.
• There are emerging special requirements such as gender budgeting, budgeting
for SC/ST, North Eastern Region (NER), that are not very well catered to by the
existing system.
The proposed classification structure is a multi-segment structure developed mainly
by rationalizing and reorganizing the information content of the existing six tier hierarchical
structure into separate logical dimensions. It has following seven mutually exclusive segments
with their own individual hierarchical structures.
1. Administrative Segment: This segment is intended to identify the administrative
authority responsibility for the expenditure. It would strengthen the accountability
arrangements for public spending by attributing each budget line to an
administrative authority.
2. Function Segment: This segment is meant to classify functions of Government.
The existing functional classification structure would be realigned to Heads of
Development used for planning. This will enable the Functional heads to be used as
a very effective tool for macro level planning and sectoral analysis.

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3. Programme cum Scheme Segment: This Segment is meant for classifying all
Programmes and Plan and Non-plan Schemes/ Subschemes of Government with
standard codes for each of them. A programme could be defined as a set of activities
that are required to achieve a defined objective. They are important tools for policy
and political intervention and are, therefore, of great importance to the legislature,
the executive and the beneficiaries. Classification of expenditure by programs is also
necessary for development of an Outcome oriented budget. This standardization
would facilitate linking expenditure under a programme and scheme across different
levels of administration and establishing trails from the Union Government to the
lowest level, which would be particularly useful in case of multi-layered transfers. The
Schemes and Sub-schemes would be grouped into suitable categories of programmes.
4. Recipient Segment: This segment is proposed to recognize the external agencies
and entities that are recipients of public funds as instruments and channels of public
policy delivery. Such entities would include sub-national governments and other
public and private agencies. The main benefit of using this segment is that it would
make it possible to assign unique codes to each such entity. With the standardization
of coding, it would be possible to extract and compile information on allocations/
transfer of resources to each such agency under different government schemes and
heads. It would also facilitate tracking of flow of funds under a scheme from one
level to another.
5. Target segment: This segment would be used to identify expenditures targeted at
special policy objectives. At present at least five such requirements are identified, viz.
Women Centric (WC) expenditures, expenditures targeted at development of hill areas,
expenditures targeted at development of Schedule Castes (SC), expenditures targeted
at development of Schedule Tribes (ST), and expenditure targeted at Below Poverty
Line (BPL) population. This would enable the capturing of Budget and accounting
data pertaining to emerging special requirements such as gender budgeting, budgeting
for SC/ST, that are not very well catered to by the existing system.
6. Economic Segment: This segment covers the list of object heads being used in
the existing system of Budget and accounts to capture the economic nature of
expenditure. The object classification is currently applied only to expenditure
transactions. Receipt and Public Account heads do not use object codes. Current
Object list would be developed into a full-fledged financial classification indicated
by the proposed ‘Economic Segment’, which could be applied to all transactions.
7. Geographic Segment: The Geographic segment would identify the physical location
of the transaction and allow for inter-regional comparisons of public spending. This
classification identifies such politico-geographical divisions as states, districts and
towns/villages.

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The mutually exclusive nature of the segments means that the various constituents of
the system are standardized. Each item is classified only once in the system and is identifiable
with a unique code. In brief, the main benefits perceived from the new Classification structure
proposed by the Committee are as under:
• It would allow capturing of almost the entire spectrum of data attributes on public
financial operations
• It would facilitate financial reporting in a variety of ways for meeting information
requirements of different stakeholders.
• It would greatly simplify classification and presentation of budget.
• It would be computer friendly and open the accounting database to complete slicing
and dicing. The retrieval of information from the system will be easier and reporting
will be more flexible.
• Maintenance of the Code directory would be far more easier.
The proposed classification reforms would also necessitate changes in the way Budget
is prepared and presented. The budgetary provisions would have to be attributed directly to
the schemes and administrative units responsible for implementing/executing those schemes.
The recommendations of the committee are under consideration by the Government.

25.5 Efficient Management of Public Expenditure

The role of institutional arrangements in improving public expenditure management
and influencing budget outcomes in the areas of aggregate fiscal discipline, strategic
allocation of resources and operational efficiency is significant. The essential requirements
for public expenditure management include performance-focus, link between policy making,
planning and budgeting, well-functioning accounting and financial management systems and
appropriate links between budgeting and other systems of the Government. A high level expert
committee was set up under the chairmanship of Shri C. Rangarajan on efficient management
of public expenditure. The committee submitted its report in July 2011.
The committee recognized that there were several limitations that impeded widespread
practical use of the outcome-based budgeting. These include segmentation of expenditure
between Plan and Non-Plan, absence of a hard budget constraint, lack of incentives to
Ministries to reallocate resources, non-availability of information on costing of services,
problems in budget and accounting classification, inadequate information systems on transfers
of resources to States and absence of robust financial management information systems. Some
of the important recommendations of the committee are summarized below.

25.5.1 Plan/Non-Plan Distinction

The classification of expenditure has an important bearing on the overall expenditure
management. The distinction of expenditure into Plan and Non-Plan categories has significant

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implications for efficient management of public expenditure. The classification of expenditure

into Plan and Non-Plan, although not rooted in the Constitution, has evolved with planning
process. In the initial years of planning, the emphasis was to direct capital investment in sectors
according to priorities of each Plan. The bulk of Plan expenditure was capital expenditure
and the aim was to increase the productive capacity of the economy. Over a period of time,
several issues have cropped up from the distinction between plan and non-plan, making it
dysfunctional and an obstacle in outcome based budgeting. The bulk of the plan expenditure
is now revenue expenditure.
Due to the complex nature of Government, the policy regarding what should get
classified as Plan expenditure and what should get classified as Non-Plan expenditure has
been losing clarity. Besides, a notion has widely gained ground among the policy makers
and officials across all levels that plan expenditure is good and Non-Plan is bad. This bias in
favour of Plan expenditure and against Non-Plan expenditure has led to a situation in which
essential Non-Plan expenditure like maintenance of assets is neglected. This has also led
to a motivation for showing higher plan expenditure and higher plan sizes both at Central
and State levels. Further, several factors such as shift of plan focus from capital to revenue
expenditure and the process of transferring expenditure of old schemes to Non-Plan at the
end of each Five Year Plan mean that correspondence cannot be drawn between plan and
development expenditure.
The six tier classification structure forms a two dimensional classification where the
expenditure is classified into object heads for each functional head. The division provided
by Plan/Non-Plan classification is laid over the functional and object classification. This
division cuts across the entire classification hierarchy into two columns. The Plan/Non-Plan
bifurcation of expenditure has contributed to a fragmented view of resource allocation to
various programmes/schemes. With fragmented view, it is difficult not only to ascertain
cost of delivering a service but also to link outlays to outcomes. Outcomes and outputs of
programmes depend on total expenditure, Plan and Non-Plan put together and not merely on
Plan expenditure which constitutes about 30 per cent of the total expenditure only.
The committee concluded that Plan and Non-Plan distinction in the budget was
neither able to provide a satisfactory classification of developmental and non-developmental
dimensions of Government expenditure nor an appropriate budgetary framework. It had,
therefore, become dysfunctional. The Committee, therefore, recommended that Plan and
Non-Plan distinction in the budget should be removed. At the Central Government level,
Planning Commission (now NITI Aayog) may be responsible, for the sake of convenience
and domain knowledge, for guiding the overall development priorities of the Government,
setting of outcome targets and review of performance of Ministries/Departments. Ministry of
Finance may be responsible for guiding the fiscal policy, preparation of budget and financial
decisions. Planning Commission may be responsible for consolidation of the Five Year Plan

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covering all Services based on the inputs from the Ministry of Finance. The annual budgeting
process may need to be revised to facilitate output and outcome-based budgeting within a
multi-year framework.

25.5.2 Direct transfer of Funds

The transfer of Central resources to States includes Non-Plan and Plan transfers. The
Non-Plan transfers comprise Finance Commission (FC) grants and other Non-Plan grants.
The important Plan grants that are transferred from Centre to the States are of four types:
(1) State Plan Schemes that include Normal Central Assistance (NCA) and other Scheme
based Central Assistance (CA)- which are also known as ACA Schemes; (2) Centrally
Sponsored Schemes (CSS) for which funds are routed through Consolidated Fund of States
and (3) Centrally Sponsored Schemes (CSS) for which funds are transferred directly to
State/District Level Autonomous Bodies/Implementing Agencies and (4) A small portion of
FC grants treated as Plan grants.
The Non-Plan transfers such as Finance Commission grants and other Non-Plan grants
are transferred to the States through treasury route. As regards Plan schemes, resources are
transferred through treasury route or through direct transfers/society route. The transfers from
the Centre to States through various types of schemes and multiple modes of transfer have
posed problems in obtaining a comprehensive overview of transfers to States as well as in
effective monitoring of expenditure. There are also issues concerning accountability of funds
directly transferred to implementing agencies in States.
The quantum of direct transfers (society mode) of plan funds by the Government of
India had increased rapidly in the last few years and amounted to 31 per cent of the total
Plan expenditure of GoI in 2010-11. The Committee recommended the treasury mode of
transfer of Central Plan funds. For existing schemes, a short transition period was required
to allow for necessary adjustment. However, till complete switchover to treasury mode is
done, accounting, and submission of Utilisation Certificates under society mode needed to be
rationalized and auditing strengthened through several measures.

25.5.3 Scope of Public Sector Plan

As per practice, Annual Plan is the Plan component of the budget as well as Internal
and Extra Budgetary Resources (IEBR) of Public Sector Enterprises (PSEs) which is
prepared by Planning Commission in consultation with Central Ministries concerned.
The Balance from Current Revenue (BCR), Miscellaneous Capital Receipts (MCR) and
the fiscal deficit put together determine the size of Gross Budgetary Support (GBS) for
Plan. Out of total GBS, a portion is provided to States as central assistance for State Plan.
The PSEs also mobilize some resources in the form of Internal Resources (IR) and Extra

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Budgetary Resources (EBR), commonly known as IEBR. The GBS (net of assistance to
State Plan) and the IEBR constitute the Plan resources of the Centre.
Annual Plan of States is Plan outlay in the State Budget and includes IEBR of State
PSEs and resources of local bodies. The budgetary resources for the Plan include State’s own
resources (including BCR and MCR), net budgetary borrowings and central assistance to
State Plan. The resources transferred from Central Plan are not treated part of the State Plan
to avoid double counting.
The Centre has consistently followed the practice of including the investment plans
of a large number of Central Public Sector Enterprises (CPSEs) as Central Plan outlay in the
annual budgets. At the State Level, the practice of including the State Public Sector Enterprise
(SPSE) plans in the Annual Plans of the States has not been followed uniformly by different
States. While some States include the SPSE plans in their Annual Plans, quite a few States are
keeping them outside their Annual Plans.
The committee recommended that Central or State Plan should continue to include
investment outlays (funded by IEBRs) of CPSEs and SPSEs respectively. All States/UTs
must include information about investment outlays of SPSEs (funded out of IEBRs) in their
budgets as a separate annexure. The resources of the rural and urban local bodies should
also be included as part of the State/UT Plans. As regards Public Private Partnership (PPP)
projects, since both annuity payments and viability gap funding (VGF) are provided from the
budgetary support, these will form part of Plan of the Centre or the State. It is important to have
regular information on the investment crystallized through PPPs. Therefore, the committee
recommended that there should be supplement to the Central/State Budgets providing Project-
wise, Ministry-wise and Sector-wise information on PPPs.

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Epilogue

A
“ good decision is based on knowledge and not on numbers”. In our context, we are
sometimes eluded into believing that if we know the rules of accounting, we can
claim an understanding of Government Accounts. The objective of our training in
the subject of Government Accounts cannot just be familiarity with the accounting rules and
principles, but an overall understanding of the context in which the Government financial
transactions take place, their interpretation, their implications, their complexity.
As officer trainees, we need to appreciate our role in preparing the accounts in our
A&E offices to include a much needed emphasis on quality of accounts. The demand on
Government accounts to be more comprehensive and complete on the one hand and readable
and understandable on the other hand, has also increased. The basics that we are introduced
to at the Academy and the field exposure during the OJT, should be approached by an officer
trainee a view not just to understand which heads of account are operated but to understand
the flow of public money through the various tiers of Government, its interactions with outside
bodies and institutions and the accountability checks and balances within. We need to study
Government accounts to enable us to prepare qualitatively robust accounts and on the audit
side, to understand the domain better for qualitatively superior financial and other audits.
Our role has become more challenging, both on the accounts and audit side, with the
adoption of the Integrated Financial Management System by the States to link all financial
stakeholders, the Public Financial Management System of the GoI now being adopted by
States to record flow of funds from GoI to State implementing agencies and record expenditure
against such transfers and direct benefit transfers at the last mile. The quality of our accounts,
the interface of our accounting application with these new systems, our understanding of the
new dynamics and partnering with the players in this new funds flow macrocosm is imperative
for us to fulfill our mandate.
This book has been written with the perspective to inform and educate the officer
trainee and interested reader about the Government finances and processes, collating relevant
information in one place, as not just an end in itself but a means to appreciating the domain.
I hope the book generates sufficient interest in the subject matter and equips and encourages
the reader to go beyond and innovate.
Vidhu Sood
Director
National Academy of Audit and Accounts
Shimla

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