Seminar on “Reduction/Elimination of cash in Government Transactions – The WAY FORWARD TOWARDS INTEGRATED FINANCIAL MANAGEMENT Indian Audit and Accounts

Seminar on “Reduction/Elimination of Seminar on “Reduction/Elimination of cash in Government Transactions – The cash in Government Transactions – The

WAY FORWARD TOWARDS WAY FORWARD TOWARDS INTEGRATED FINANCIAL INTEGRATED FINANCIAL

MANAGEMENTMANAGEMENT

Indian Audit and Accounts Department

INTRODUCTIONINTRODUCTION

• An important issue in the North East is using An important issue in the North East is using cash in large number of cases in government cash in large number of cases in government transactions.transactions.

• The Audit Reports reveal a number of cases The Audit Reports reveal a number of cases of misappropriation and diversion of funds of misappropriation and diversion of funds which have been facilitated by predominance which have been facilitated by predominance of cash transactions in Government Finances. of cash transactions in Government Finances. This could be controlled through transacting This could be controlled through transacting by using Electronic Clearance System (ECS).by using Electronic Clearance System (ECS).

RISKS IN SYSTEMRISKS IN SYSTEM• MISAPPROPRIATION• RETENTION IN BANK ACCOUNTS/CASH• SECURITY RISKS• DEPRIVING THE INTENDED BENEFICIARY• DELAYS IN PAYMENTS/RECEIPTS• COMPLEX PROCEDURES AND SYSTEMS• INCOMPLETE FINANCIAL INFORMATION• OTHER ISSUES

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MISAPPROPRIATION MISAPPROPRIATION

• SALARY & PERSONAL ENTITLEMENTSALARY & PERSONAL ENTITLEMENT• PENSIONPENSION• PROCUREMENTPROCUREMENT• OTHERSOTHERS


• Amount was paid in cash for construction of Amount was paid in cash for construction of roads without any roads or trail as to where roads without any roads or trail as to where money has gone.money has gone.

• Government money being drawn in cash Government money being drawn in cash and invested in insurance companies in and invested in insurance companies in names of individuals.names of individuals.


• Cashier investing government cash.Cashier investing government cash.• Land acquisition money being paid to Land acquisition money being paid to

unknown persons in cash by first putting unknown persons in cash by first putting money in bank by officials incompetent to money in bank by officials incompetent to handle land acquisition. The transaction handle land acquisition. The transaction taking place despite objection by the taking place despite objection by the Deputy Commissioner.Deputy Commissioner.

MISAPPROPRIATIONMISAPPROPRIATION

• During the period from 2005-06 to 2008-09 16 During the period from 2005-06 to 2008-09 16 instances involving 51.80 crore reported in C&AG instances involving 51.80 crore reported in C&AG Report in one StateReport in one State

• Drawal of inflated salary bills and personal Drawal of inflated salary bills and personal entitlement and payment in cash with excess being entitlement and payment in cash with excess being retained by Cashier and DDOs (Rs.25.88 crore in 9 retained by Cashier and DDOs (Rs.25.88 crore in 9 cases)cases)

• Drawl of pension / gratuity from two treasuries Drawl of pension / gratuity from two treasuries and two sub-treasury to ineligible persons – and two sub-treasury to ineligible persons – Rs.10.47 croreRs.10.47 crore


• Funds under Technology Mission for Funds under Technology Mission for integrated Development of Horticulture integrated Development of Horticulture was misappropriated / un accounted for – was misappropriated / un accounted for – Rs.21.43 croreRs.21.43 crore


• Handling cash and drawal of money led to Handling cash and drawal of money led to suspected fraud of Rs.3.49 crore.suspected fraud of Rs.3.49 crore.

• Funds released suspected to have been Funds released suspected to have been misappropriated – Rs.2.66 croremisappropriated – Rs.2.66 crore

• NABARD loan meant for implementation of NABARD loan meant for implementation of minor irrigation projects is suspected to have minor irrigation projects is suspected to have been misappropriated – Rs.0.44 crore.been misappropriated – Rs.0.44 crore.

MISAPPROPRIATIONMISAPPROPRIATION

• Suspected misappropriation of Rs.4.38 lakh Suspected misappropriation of Rs.4.38 lakh and unaccounted deposit of Rs.2.18 lakh and unaccounted deposit of Rs.2.18 lakh involving cash transaction.involving cash transaction.

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SECURITY RISKSSECURITY RISKS

• Amount meant for implementation of 64 Amount meant for implementation of 64 projects under LADP Scheme was paid in projects under LADP Scheme was paid in cash to the Personal Assistant of cash to the Personal Assistant of Parliamentary Secretary for disbursement.Parliamentary Secretary for disbursement.

• The money was looted on the wayThe money was looted on the way• Had the amount been disbursed through Had the amount been disbursed through

bank to the individual beneficiaries this bank to the individual beneficiaries this could have been avoided.could have been avoided.

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RETENTION IN BANK ACCOUNTS / CASHRETENTION IN BANK ACCOUNTS / CASH

• In a study in a State 172 DDOs retained Rs.317.87 In a study in a State 172 DDOs retained Rs.317.87 crore in various bank accounts. Information crore in various bank accounts. Information collected from bankscollected from banks

• This reduces the cash balance of the State This reduces the cash balance of the State Government held with Reserve Bank of India (RBI) Government held with Reserve Bank of India (RBI) causing loss of interest without any benefit to the causing loss of interest without any benefit to the State.State.

• Loss of any credible control of either the Treasury, Loss of any credible control of either the Treasury, Head of the Department or the Finance Head of the Department or the Finance Department on these funds.Department on these funds.


• Loan of Rs.267.97 crore taken from Rural Electrification Loan of Rs.267.97 crore taken from Rural Electrification Corporation (REC) without the knowledge of the Government Corporation (REC) without the knowledge of the Government and Rs.234.60 crore received placed in Savings Bank Account and Rs.234.60 crore received placed in Savings Bank Account in personal names. Rs.20.00 crore shifted to two other banks in personal names. Rs.20.00 crore shifted to two other banks as term deposits in personal names.as term deposits in personal names.


• The BDOs drew Rs.17.19 crore which The BDOs drew Rs.17.19 crore which remained undisbursed / unadjusted between remained undisbursed / unadjusted between four months to even more than five years in four months to even more than five years in some cases risking misuse including some cases risking misuse including misappropriation of Government money.misappropriation of Government money.

• Random disbursement of advances from the Random disbursement of advances from the undisbursed money to implementing officers undisbursed money to implementing officers has also resulted in Rs.10.36 crore remaining has also resulted in Rs.10.36 crore remaining outstanding for long period.outstanding for long period.


• An officer was detained with large amount of An officer was detained with large amount of money. The officer was carrying government money. The officer was carrying government money for payment to supplier.money for payment to supplier.

• Retention of Rs.94.07 lakh for over one yearRetention of Rs.94.07 lakh for over one year• Rs.85.76 lakh was drawn by two BDOs Rs.85.76 lakh was drawn by two BDOs

through fully vouched contingent bills in cash through fully vouched contingent bills in cash for meeting future liabilities.for meeting future liabilities.


• Several cases of retention noticedSeveral cases of retention noticed• Since money retained in bank is reflected as Since money retained in bank is reflected as

final expenditure in the Government final expenditure in the Government accounts, non-depiction in an alternative accounts, non-depiction in an alternative financial reporting process carries the risk of financial reporting process carries the risk of money being retained in bank / cash with no money being retained in bank / cash with no trail which is forgotten over time.trail which is forgotten over time.

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DEPRIVING THE INTENDED BENEFICIARYDEPRIVING THE INTENDED BENEFICIARY

• The payments due to a company was The payments due to a company was drawn in cash and paid to someone drawn in cash and paid to someone ineligible.ineligible.

• The system of payment by cash carries the The system of payment by cash carries the risk of non-payment, reduced payment to risk of non-payment, reduced payment to intended beneficiaryintended beneficiary

• It also carries the risk of payment to It also carries the risk of payment to absentee beneficiary.absentee beneficiary.

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DELAYS IN PAYMENT/RECEIPTDELAYS IN PAYMENT/RECEIPT

• Time taken in the process of payment / Time taken in the process of payment / receipt is largerreceipt is larger

• Administrative involvement in the process Administrative involvement in the process carries an inbuilt lead time in payment / carries an inbuilt lead time in payment / receipt.receipt.

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COMPLEX PROCEDURES AND SYSTEMSCOMPLEX PROCEDURES AND SYSTEMS• The DDO has to go to Treasury and Bank to collect The DDO has to go to Treasury and Bank to collect

payments and deposits receipt.payments and deposits receipt.• DDO has to reconcile physically receipts and DDO has to reconcile physically receipts and

payments with the Treasurypayments with the Treasury• Reconciliation of cash balances between RBI and Reconciliation of cash balances between RBI and

State GovernmentState Government• Reconciliation with the Banks in case of DDOs Reconciliation with the Banks in case of DDOs

having Bank Accounts.having Bank Accounts.• Multiple cheques / documents for a single payment Multiple cheques / documents for a single payment

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INCOMPLETE FINANCIAL INFORMATION INCOMPLETE FINANCIAL INFORMATION TO THE FINANCE DEPARTMENTTO THE FINANCE DEPARTMENT

• Incomplete information of cash balances with Incomplete information of cash balances with DDODDO

• Incomplete information of bank accounts with Incomplete information of bank accounts with DDODDO

• Incomplete information of the cash position of Incomplete information of the cash position of the State instrumentalitiesthe State instrumentalities

• Lack of trail of funds flow in a number of cases.Lack of trail of funds flow in a number of cases.

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OTHER ISSUESOTHER ISSUES

• Funds originating outside the State budget Funds originating outside the State budget meant to be transacted through Public meant to be transacted through Public Accounts like Deposits, Deposits for Accounts like Deposits, Deposits for acquisition of land required by entities other acquisition of land required by entities other than State Governments entities, loans from than State Governments entities, loans from Rural Electrification Corporation (REC) end up Rural Electrification Corporation (REC) end up in Bank accounts without being routed in Bank accounts without being routed through State Finances.through State Finances.

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ALTERNATE SYSTEMSALTERNATE SYSTEMS

• With the development of new banking With the development of new banking services which reduces the handling of cash, services which reduces the handling of cash, government machinery is also expected to use government machinery is also expected to use these development.these development.

• ECS has already been introduced for payment ECS has already been introduced for payment of pension in Meghalaya on pilot basis.of pension in Meghalaya on pilot basis.

• Manipur has also introduced ECS for salary Manipur has also introduced ECS for salary payments.payments.

• Mizoram is on course to implement Mizoram Mizoram is on course to implement Mizoram On-line System of Tax Receipts.On-line System of Tax Receipts.

ALTERNATE SYSTEMSALTERNATE SYSTEMS• ECS facility is utilised by the Government of India to ECS facility is utilised by the Government of India to

transfer funds/ Grants-in-aid to the State transfer funds/ Grants-in-aid to the State Governments.Governments.

• The release of funds by the REC to the State The release of funds by the REC to the State Electricity Corporations/Departments through the Electricity Corporations/Departments through the ECS facility and further payments to the ECS facility and further payments to the Contractors are also through ECS.Contractors are also through ECS.

• Eliminates / Reduces cash in Government Eliminates / Reduces cash in Government Transactions thereby reducing the risks of Transactions thereby reducing the risks of misappropriations and security threats like misappropriations and security threats like robbery, theft etc..,robbery, theft etc..,

ALTERNATE SYSTEMSALTERNATE SYSTEMS• It makes the entire process of receipts and payments It makes the entire process of receipts and payments

simpler. Work of Accounts staff and Cashier become simpler. Work of Accounts staff and Cashier become simpler.simpler.

• A trail of flow of funds will be maintained / A trail of flow of funds will be maintained / established for easy monitoring of the transactions. established for easy monitoring of the transactions. Information on cash flows will easily be available at Information on cash flows will easily be available at any level.any level.

• The Finance Department of a State will have ready The Finance Department of a State will have ready and immediate information of all cash flows and immediate information of all cash flows including funds available in any Departments, including funds available in any Departments, Directorate, Autonomous Bodies and PSUs.Directorate, Autonomous Bodies and PSUs.


• It allows for immediate depositing of It allows for immediate depositing of Government Revenues, thereby eliminating Government Revenues, thereby eliminating delays.delays.

• Financial information of the location and Financial information of the location and amount of funds would be available.amount of funds would be available.

• Ensures direct transfer to the beneficiary. Ensures direct transfer to the beneficiary. • It reduces the risk of transfer of funds to It reduces the risk of transfer of funds to

unauthorised persons.unauthorised persons.


• Reconciliation of accounts between DDO and Reconciliation of accounts between DDO and Treasury Officer and between the Finance Treasury Officer and between the Finance Department and RBI through Accountant Department and RBI through Accountant General is simplified.General is simplified.

• There would be no extra cost to any There would be no extra cost to any Government if ECS is introduced.Government if ECS is introduced.

• Administrative costs of Government Administrative costs of Government transactions is likely to come down transactions is likely to come down significantly.significantly.

ALTERNATE SYSTEMSALTERNATE SYSTEMS• Collection centres for revenue increases manifold Collection centres for revenue increases manifold

times without any cost.times without any cost.• User/Customer satisfaction increases due to faster User/Customer satisfaction increases due to faster

transfer and simpler procedurestransfer and simpler procedures• Improvement of banking sector in the region Improvement of banking sector in the region

leading to better credit creation and faster leading to better credit creation and faster economic development.economic development.

• It improves governance and leads to efficient It improves governance and leads to efficient management of public finances.management of public finances.

• Provides better service delivery, greater return to Provides better service delivery, greater return to the Governments on their cash.the Governments on their cash.

ALTERNATE SYSTEMSALTERNATE SYSTEMS• Cash position of the State Governments would be Cash position of the State Governments would be

better managed as fund flow takes place when better managed as fund flow takes place when required and not prior to it.required and not prior to it.

• ECS and its variants are single credit with multiple ECS and its variants are single credit with multiple debits and single debit with multiple credits across debits and single debit with multiple credits across the banking system. the banking system.

• Financial reporting activity largely taken over by Financial reporting activity largely taken over by sophisticated software applications now available in sophisticated software applications now available in the banking sector in India at the State Capitals with the banking sector in India at the State Capitals with sponsoring banks including that of utilities and semi-sponsoring banks including that of utilities and semi-government entities.government entities.


• Absentee beneficiary and related issues can Absentee beneficiary and related issues can be identified and addressedbe identified and addressed

• Financial benefit to Government and semi-Financial benefit to Government and semi-Government entities in terms of better Government entities in terms of better financial management due to better financial management due to better financial reporting.financial reporting.

POTENTIALPOTENTIAL

• The existing applications in banking industry The existing applications in banking industry could be leveraged to create a cascade of could be leveraged to create a cascade of banking accounts under Government banking accounts under Government category with a parent child relationship of category with a parent child relationship of State Government and the various State Government and the various functional entities under the State functional entities under the State GovernmentGovernment

IMPACT ON COMPILIATION OF ACCOUNTSIMPACT ON COMPILIATION OF ACCOUNTS

• ECS transaction number to be noted on the ECS transaction number to be noted on the voucher and captured in compilation of voucher and captured in compilation of accountsaccounts

• This links it with the payment details in ECSThis links it with the payment details in ECS• DDO-wise cash transaction reporting can be DDO-wise cash transaction reporting can be

obtainedobtained

THANK YOU

Documents

Seminar on “Reduction/Elimination of cash in Government Transactions – The WAY FORWARD TOWARDS INTEGRATED FINANCIAL MANAGEMENT Indian Audit and Accounts