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Arrangements in Local Bodies Audit & Accounts

Technical Guidance and Supervision (TGS) Entrustment

In pursuance of the recommendations of the Eleventh Finance Commission, CAG has been entrusted with Technical Guidance & Supervision/Support (TGS) in a majority of the States. As of 30th April, 2009 out of 24 States where 73rd & 74th amendments are applicable, entrustment of TGS to CAG has been received in 22 states and one Union Territory.

Theoretical Framework – Documentation developed and prescribed by CAG

1.  Auditing Standard for PRIs and ULBs

2.  Guidelines for Certification audit of PRIs

3.  Manual of Instructions for Audit of Panchayati Raj Institutions

4.  Training Modules for PRI Accounts

5.  National Municipal Accounting Manual

6.  Training Module on Audit of Zilla Parishad and Panchayat Samiti

7.  Training Module on Audit of Gram Panchayat

8.  National Municipal Accounting Training Manual

9.  List of codes functions, programmes and activities for PRIs

10. Simplified Accounting System for PRIs


Administrative Structure for Local Bodies Audit

In order to provide TGS in a more effective manner, 17 new offices have been created in 16 states all over the country, headed by Sr.DAG/DAG, with staff sanctioned separately. This has placed the administrative structure of LB audit on a firm footing to strengthen local bodies audit so as meet the expectations and discharge responsibilities entrusted to CAG.

PRI & ULB Accounts and budget formats

As a major initiative, the accounts and budget formats for PRI prescribed by CAG in 2002 have been accepted and formal orders issued by 11 states. These formats and accounts codes have been simplified in 2007 to enable their easy adoption. The formats were not implemented by many of the States.  Technical Committee on Budget and Accounting Standards for PRI in the meeting held in August 2008 felt the need for further simplifying the formats of accounts considering the capacity of the Gram Panchayats staff and constituted a Sub-Committee to develop a simple but robust computerised accounting format for PRIs which should be user friendly. The Sub-committee consisted of members from the Ministry of Panchayati Raj, Govt. of India, Planning Commission, Ministry of Finance, Representative from Govt. of West Bengal, Uttar Pradesh, Andhra Pradesh, a representative from Controller General of Accounts and (CGA) and the National Informatics Centre (NIC). The Sub-committee has developed the simplified accounting formats for PRIs by changing already prescribed six-tier classification to more manageable three tier classification system. The simplified accounting formats along with list of Codes, Functions, Programmes and Activities for PRIs recommended by the Sub-committee has been accepted by the Technical Committee in January 2009. The Simplified formats along with list of Codes, function Programmes and Activities for PRIs have been circulated in May 2009 to all State Chief Secretaries by Ministry of Panchayati Raj, Govt. of India to implement on pilot basis and to give feedback.  Maintenance of accounting formats as prescribed would help in subsequent switch over to the modified accrual system of accounting. For new Simplified Accounting System click here and List of Codes for Function, Programmes and Activities of PRIs please click here.

The Accrual accounting system for the municipalities suggested by the Task Force set up by CAG and approved by the Ministry of Urban Development, has generally been agreed to be adopted by almost all the states. Based on the Task Force Report, a National Municipal Accounts Manual has been developed by the Ministry of Urban Development and the CAG.

Formats for creation of Database on Finances of PRIs/ULBs

Draft database formats for PRIs/ULBs at the district and state levels as suggested by CAG, have generally been agreed to be adopted by 16 states, out of which, 7 states have initiated action to set up the infrastructure for collection, transmission and maintenance of the database.

For the database at the central level, Ministry of Panchayati Raj has accepted the formats and NIC has been entrusted to develop input screens on the Ministry’s portal and link this to all states for uploading of state-wise data.

Audit Training Modules

Zilla Parishad(ZP), Panchayat Samities(PS) and Gram Panchayat(GP) audit training modules have been developed by RTI Kolkata, based on West Bengal Acts. This has been circulated to all the states to suitably adapt the manual and organize training programmes for IAAD staff as well as Local Fund audit staff.  The training in LB Audit for local fund audit staff has been organized in Andhra Pradesh, Goa, Karnataka, Maharashtra, Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal. Audit Training Module on Urban Local Bodies has been developed by RTI Kolkata. The training module has been circulated to all the states. Training programme on Audit of Urban Local Bodies has also been conducted in Goa, Maharashtra, Rajasthan, Tamil Nadu, Uttar Pradesh and west Bengal.

Training in PRI Accounts

We have so far organized 1st phase of the training of the training for trainers in new budget and accounts formats for PRIs, suggested by CAG in 15 states of Andhra Pradesh, Assam, Bihar, Chhattisgarh, Goa, Gujarat, Himachal Pradesh, Haryana, Karnataka, Kerala, Maharashtra, Orissa, Tamil Nadu, Uttarakhand and Uttar Pradesh. Training of the 2nd phase (by trainers of the 1st phase) was also completed in Bihar and Kerala. Phase II training programme is being conducted in Andhra Pradesh, Assam, Himachal Pradesh, Uttarakhand and Uttar Pradesh.

Local Bodies Audit Report

Five Audit Reports (Andhra Pradesh, Karnataka, Kerala, Maharashtra and Tamil Nadu) on Local Bodies finalized over CAG’s signature for placement before the State Legislatures. In addition, Annual Technical Inspection Report on PRIs and ULBs have been finalised in eight states viz. Assam, Goa, Gujarat, Himachal Pradesh, Madhya Pradesh, Orissa, Sikkim, Uttar Pradesh. Further, Report of the Examiner of Local Accounts have been finalised in Bihar, Jharkhand and West Bengal for submission to the respective State Government.

Position of Reports as of August, 2009

̃     Bond Copy of the Report of the CAG’s for the year ended 31 March 2008, Govt. of Tamil Nadu  (Local Bodies), and Kerala (LSGIs) have been approved by C&AG and final printing of the Reports are in progress.  Preparation of CAG's Audit Report on Local Bodies of Government of Maharashtra, Andhra Pradesh on Local Bodies for the year 2007-08 and CAG's Audit Report (Civil - Local Bodies), Government of Rajasthan for the year 2005-06 are in progress.

̃     Annual Technical Inspection reports for the year 2007-08 in respect of Assam, Goa, Gujarat, Himachal Pradesh, Uttar Pradesh and Tripura have been finalized.

̃ The Report of the Examiner of local Accounts for the year 2007-08, Government of Bihar (PRIs & ULBs), Jharkhand (ULBs) and West Bengal    (PRIs & ULBs) have been finalized.  The final printing of the report are in progress.

̃  Annual Technical Inspection Report for the year 2007-08 in respect of Orissa and Madhya Pradesh are in progress.

Recommendation of the Second Administrative Reforms Commission on Local Bodies

A number of recommendations of the Sixth Report of the Second Administrative Reforms Commission titled “Local Governance- An Inspiring Journey into the Future” have been accepted by Government of India. The following recommendations have been accepted by the Government of India:

̃    The accounting system for the urban local bodies (ULBs) as provided in the National Municipal Accounts Manual (NMAM) should be adopted by the State Governments

̃     The financial statements and balance sheet of the urban local bodies should be audited by an Auditor in the manner prescribed for audit of Government Companies under the Companies Act, 1956 with the difference that in the case of audit of these local bodies, the C&AG should prescribe guidelines for empanelment of the Chartered Accountants and the selection can be made by the State Governments within these guidelines. The audit to be done by the Local Fund Audit or the C&AG in discharge of their responsibilities would be in addition to such an audit

̃     The existing arrangement between the C&AG of India and the State Governments with regard to providing Technical Guidance and Supervision (TGS) over maintenance of accounts and audit of PRIs and ULBs should be institutionalized by making provisions in the State Laws governing local bodies.

̃      It should be ensured that the audit and accounting standards and formats for Panchayats are prepared in a way which is simple and comprehensible to the elected representatives of the PRIs

̃    The independence of the Director, Local Fund Audit (DLFA) or any other agency responsible for audit of accounts of local bodies should be institutionalized by making the office independent of the State administration. The head of this body should be appointed by the State Government from a panel vetted by the C&AG

̃    Audit reports on local bodies should be placed before the State Legislature and these reports should be discussed by a separate committee of the State Legislature on the same lines as the Public Accounts Committee (PAC).

̃     Access to relevant information/records to DLFA/designated authority for conducting audit or the C&AG should be ensured by incorporating provisions in the State Laws governing local bodies.

̃     Each State may ensure that the local bodies have adequate capacity to match with the standards of accounting and auditing.

̃     The system of outcome auditing should be gradually introduced. For this purpose the key indicators of performance in respect of a government scheme will need to be decided and announced in advance.

̃     To complement institutional audit arrangements, adoption and monitoring of prudent financial management practices in the local bodies should be institutionalized by the State Governments by legislating an appropriate law on Fiscal Responsibility for Local Bodies.

Comptroller and Auditor General of India has been requested by the Ministry of Urban Development to work out the methodologies for implementation of the same in consultation with the Ministries.

Comptroller and Auditor General of India, 9, Deen Dayal Upadhyay Marg, New Delhi 110124