Annexure-E Training Manual on Financial Management & Procurement 29th FCs review meeting

Training Manual & Modules on Financial Management & Procurement GOI developed a draft comprehensive Manual and Modules through a retired C & AG officer, engaged on short term basis. Modules cover 5 days training of finance and accounts staff It contains 9 Chapters, covering introduction, planning, budgeting, accounting, fund flow arrangements, financial reporting, internal control & internal audit, auditing and procurement.

Cont’d Shared the Manual and Modules with all States through e-mail on 27th April 2011 through e-mail. Sought comments/suggestions of States by 5th May 2011. In case any amendment is considered necessary, a revised formulation of that part was sought. Except West Bengal, nobody responded till 10th May 2011. West Bengal also did not suggest any revised formulation.

Cont’d Team In order to facilitate a fruitful discussion within a short period, 3 teams are formed. Team I (Leader Shri Birkhe Ram) – 12 States Planning, fund flow and financial reporting. Team II (Leader Shri U.K. Verma) 11 States Accounting, Internal control & monitoring and auditing. Team III (Leader Shri K. Gopalan) – 12 States Introduction, Budgeting and Procurement. The leader may form 3 sub teams, so that one Chapter is examined by each sub team.

Cont’d Expectations from the Teams The Training Manual and Modules need to be in conformity with the provisions of FM & P Manual. The Teams should examine the draft Manual and Modules carefully and ensure that the basic provisions of the FM & P Manual are invariably incorporated therein. GOI recently developed a revised SSA Framework for the smooth implementation of RTE Act. Relevant provisions of the revised SSA Framework also need to be incorporated in the Manual, as some of the provisions incorporated are from the pre-revised SSA Framewark. The draft Manual also elaborates certain basic provisions on procedural matters in order to enrich the working knowledge of the participants, which if considered necessary, may be retained.

Cont’d Expectations from the Teams It should be kept in mind that the Manual and Modules are for the benefit of the finance and accounts staff of SSA at all levels and therefore it should meet their requirement. While the training needs up to Block level are identical, the same at Cluster and school level will differ due to maintenance of double entry system of accounting up to Block level and single system of accounting at Cluster and school level. All the books of accounts and Registers prescribed in the Manual may not be required to be maintained at Cluster and school level and as such the Team should look into this and suggest the books of accounts and Registers required at CRC and School level and a separate training modules.

Cont’d Expectations from the Teams Observations from IPAI review reports and JRM recommendations are extensively included in many Chapters with names of the States which is not considered appropriate. In order to understand the common mistakes generally committed by the implementing agencies in accounting, fund flow, opening of bank accounts, diversion of funds, misappropriation of funds, procurement etc, key observations brought out by the statutory auditors, IPAI, JRM, Team on post review of procurement may be included under the relevant subject with out naming the States and source.

Some examples Key Observations Accounting - Weak accounting system prevailing. - Non-maintenance of prescribed books of accounts like cash book, ledger, journal, cheque issue register, stock register, asset register etc. - Non carrying out of annual physical verification of stock and asset. - Non preparation of bank reconciliation statement. - Delay in obtaining utilization certificates.

Some examples Key Observations Advances - advances included in the expenditure. - expenditure not supported by utilization certificate/expenditure statement. - advances allowed as expenditure for reporting purpose remain as advances in the books of accounts. - not carried out adjustment of outstanding advances.

Some examples Key Observations Opening of Bank Accounts - Accounts not opened in the name of Head of Office. - Not opened joint signatory savings bank account with nationalized/scheduled bank. - Not opened separate accounts for SSA, NPEGEL and KGBV. - Opened multiple bank accounts instead of one bank account. - Not adopted e-transfer of funds even where such facilities exist.

Key observation on procurement : Some examples Key observation on procurement : need for tightening of procurement system especially on procedural lapses incomplete documentations Irregularities diversion of funds lack of monitoring the progress Procedural lapses Not issued solicitation letters to the vendors for obtaining quotations. obtained Quotations by hand by visiting the premises of the vendors. In some cases, notice inviting quotations being put on the notice boards of SSA offices. No formal agreement had been signed for procurement at State level.

Non observance of the time limit of 30 days for submission of bids. Some examples Procedural lapses Engagement of contractors for construction of additional class rooms without obtaining the prior approval of PAB. Non observance of the time limit of 30 days for submission of bids. Letter of award issued within 20 days, even though 30 days time limit was allowed for submission of bids. Not indicated Bid validity period in the bid documents. Not taken Earnest money deposit from prospective bidder. Absence of social audit at VEC level. Followed Single tender method of procurement particularly at VEC/school level in majority of cases without inviting any quotations.

Some examples Procedural lapses Not indicated validity period of the earnest money deposit in the tender documents. Not obtained Security deposit/performance guarantee from selected bidders. Not contain clauses for liquidated damages, security deposits, retention money, delivery schedule and payment schedule in Work Orders . Not published advertisement in national news paper for open tender valuing more than Rs. 20 lakh. Not clearly specified Technical specifications, delivery period, payment terms etc in the tender documents.

Expectations from the Team Check list and exercise are given at the end of each Chapter to facilitate proper evaluation of the training imparted to the participants. In case any changes are made in the text, the check list and exercise also need suitable modifications. After completing the examination the Team should share the input during the concluding session.

Accounting As per State Government procedure with the exception of cash book in double entry method. Single entry system in Cluster & VEC/School. List of Books of Accounts and Registers provided in Para 52. Ensure maintenance of essential books of accounts like cash book, journal, ledger, cheque issue register, advance register, stock register, asset register, bill register, establishment register etc. Carry out annual physical verification of Assets and Stocks.

Accounting Advances Following advances treated as expenditure for reporting purpose only: School Grant Teacher’s Grant TLE Repair and Maintenance of School building Civil Works by community Salary of locally appointed teachers EGS/AIE (Salary and Materials) Teacher’s Training Annual Grants to BRC/CRC Obtain Utilization certificates from sub-districts and districts as per the time frame prescribed

Accounting Advance Register Monitoring of Advances Account head Cash Book Journal Ledger Monthly Bank Reconciliation Indicative staffing structure of Finance and Accounts staff at SPO, DPO and enabling provision for Accountant at block level. Capacity Building of Accounts and Audit Staff- Minimum 5 days training mandatory to accounts staff in a year Control of Expenditure Re-appropriation of funds

Fund Flow Arrangements GOI and State Share Procedure for release of funds Ad-hoc release of Ist installment of GOI share in April – 50% of the expenditure incurred in the previous year less opening balance subject to subsequent adjustments. Fund flow from GOI to SIS, State to SIS, SIS to District and District to sub-district level. Opening of bank accounts – Nationalized/scheduled bank – Joint signatory SB account, Accounts in one bank – Open only one savings bank account for each scheme. Opening of multiple bank accounts needs approval of EC. e-transfer of funds at all levels subject to availability of banking facility Accounting of Interest earned.

Internal Control and Internal Audit Internal Audit – Strengthen with adequate staff/CA firm, Concurrent, pursue observations to finality, submit reports to EC. In many States not being carried out on concurrent basis. Not yet started in J&K. Not started for 2009-10 in Delhi, Haryana, Manipur, Rajasthan and Sikkim. Needs to strengthen the system on priority.

Auditing Selection of Chartered Accountant Firm – C&AG/AG’s empanelled list of CA firms Use prescribed Terms of Reference Initially one year and may be extended upto 3 years subject to satisfactory service. Ensure engagement of CA Firm by April every year. Close the annual accounts by 30th June every year. Annual Audit Report by CA Firm by September every year Submit Annual Audit Report to GOI by 1st November every year Pursuance of Audit Objections Annual audit report for 2008-09 is still awaited from J&K. Ensure submission of audit report for 2009-10 by October 2010

Procurement Procedure under SSA / NPEGEL/KGBV

PROCUREMENT Mandatory to follow Chapter IX of the Manual. Annexure-E PROCUREMENT Mandatory to follow Chapter IX of the Manual. Financial ceiling for each method as per State Government ceiling unless prescribed by MHRD. Presently ceiling prescribed by MHRD vide letter dated 17th September 2008 which applies upto 30th September 2012. Ensure the levels of procurement provided in Para 112 is strictly followed School / Community level CRC / BRC level District level State level Upload the Procurement Plan every year in SSA’s website. Financial ceiling prescribed for each method to be strictly followed.

Method of Procurement Open Tender (Para 115 of the Manual) Limited Tender (Para 118 of the Manual) Single Tender (Para 119 of the Manual) Procurement without tender / quotation (Para 120 of the Manual) Procurement through communities (Para 121 of the Manual)

Procurement Under External Funding Detailed Instructions issued to States/UTs on 17th September, 2008. No change in method of procurement. Mandatory to follow Procurement procedures prescribed in Chapter-IX of the Manual. However, follow the financial ceilings indicated below against each for all procurement of works, goods and services.

Procurement Open Tender (Para 115-117 of the Manual) Goods, excluding Information Technology Equipment, estimated to cost the equivalent of more than US $ 50,000 but not more than US $ 300,000 per contract and works estimated to cost the equivalent of more than US $ 40,000 but not more than US $ 300,000 per contract. Textbooks estimated to cost the equivalent of upto US $ 1 million per contract. Works for SIEMAT estimated to cost the equivalent of upto US$ 800,000 per contract. Information Technology Equipment estimated to cost the equivalent of more than US $ 50,000 but not more than US $ 4.00 million per contract.

2. Limited Tender (Para 118 of the Manual) Goods including Information Technology Equipment, estimated to cost the equivalent upto US $ 50,000 or less per contract. Works estimated to cost the equivalent of US $ 50,000 or less per contract.

3. Single Tender (Para 119 of the Manual) Goods estimated to cost the equivalent of less than US $ 30,000 per contract and which are specifically certified as of proprietary nature or of which only a particular firm is the manufacturer; Textbooks estimated to cost the equivalent of US $ 500,000 or less per contract. Books, teaching materials, school facility improvement, hiring of vehicles and operation and maintenance of equipment estimated to cost the equivalent of less than US $ 30,000 per contract. Works estimated to cost the equivalent of US $ 40,000 or less per contract (single tender method i.e. direct contract without competition).

5. Procurement through communities (Para 121 of the Manual) Works estimated to cost the equivalent of US $ 40,000 or less per contract. Works estimated to cost the equivalent of US $ 20,000 or less per contract may be procured under the unit/piece rate through qualified contractors or registered non-governmental organisation, other beneficiary association or Village Panchayats.

6. Procurement of goods more than the above financial ceiling not procured using the proceeds of credit Goods, other than Information Technology Equipment, estimated to cost the equivalent of more than US $ 300,000 per contract Works other than SIEMAT estimated to cost the equivalent of more than US $ 300,000 per contract Works for SIEMAT estimated to cost the equivalent of more than US $ 800,000 per contract Information Technology Equipment estimated to cost the equivalent of more than US $ 4.0 million per contract shall be procured in accordance with such methods as may be established by the Association.

7. Employment of Consultants All consulting services to be financed out of the proceeds of the Credit and estimated to cost equivalent of US$ 200,000 or less per contract shall be procured in accordance with Para 123 - 124 of Chapter IX of the Manual on Financial Management and Procurement. Consultancy services estimates to cost equivalent of more than US$ 200,000 per contract shall not be procured using the proceeds of this credit.

Key Observations of Post review of Procurement Irregularities in Procurement Selected same contractor on single source basis in two schools. Purchased Computers from agencies not on authorized DGS&D or State Government Rate contract entities. Assets procured were not available for physical verification. Absence of concerned staff during the course of review despite prior notification of the visit. Diversion of funds Used ACR fund for the construction of library Monitoring the progress of the Procurement No MIS for monitoring progress of procurement at State and district level.

Financial Management Key Issues Refund of unspent balance of DPEP. Gujarat – Rs. 3.64 crore Kerala – Rs. 4.95 crore Tamil Nadu – Rs. 1.09 crore Uttar Pradesh – DPEP-II - Rs. 4.44 crore DPEP-III – Rs. 1.36 crore West Bengal – Rs. 15.70 crore

Financial Management Key Issues Refund of unspent balance of SSA Pre-Project funds. Jammu & Kashmir Manipur West Bengal Non-refund of these balances is likely to affect future release of SSA funds.

Financial Management Key Issues Backlog of State share as on 31-3-2010 Delhi – Rs. 4.37 crore J&K – Rs. 79.51 crore Kerala – Rs. 12.85 crore Rajasthan – Rs. 245.93 crore Tamil Nadu – Rs. 0.11 crore Uttarakhand – Rs. 16.13 crore West Bengal – Rs. 43.52 crore Release of 2nd Installment from GOI is subject to release of the backlog of State share.

Financial Management Key Issues Status of finance and accounts staff and training. - Vacant posts exist in SPOs of Gujarat (1), Haryana (11), J&K (2), UP (6), Uttrakhand (1) and WB (3). - Vacant posts exist in DPOs of Delhi (27), Gujarat (13), Haryana (4), J&K, Orissa (13), Rajasthan (34), UP (47), Uttrakhand (13) and WB (22). - Fill up these posts on priority. - Also provide an Accountant at block level. - Provide minimum 5 days training in a year to all accounts staff.

Financial Management Key Issues Status of finance and accounts staff and training. - Vacant posts exist in SPOs of Chhattisgarh (2), HP (1), J&K (3), Rajasthan (1), UP (9), Uttrakhand (1) and WB (3). - Vacant posts exist in DPOs of Chhattisgarh (6), Gujarat (12), Kerala (5), Manipur (9), Rajasthan (102), Sikkim (3), Tamil Nadu, UP (62), Uttrakhand (11) and WB (16). - Fill up these posts on priority. - Also provide Accountant at block level or for a group of blocks. - Provide minimum 5 days training in a year to all accounts staff.

Financial Management Key Issues Audit of VECs/Schools - Ensure that audit of VECs/schools receiving more than Rs. 1 lakh per year is covered in a three year cycle of audits.

Financial Management Key Issues Pursuance of Audit Objections - Audit observation compliance awaited from the following States: 2005-06- Haryana and Manipur. 2006-07- Jharkhand, Haryana, Karnataka, Kerala, Manipur, Sikkim and Tamil Nadu. 2007-08- Chandigarh, J&K, Jharkhand, Haryana, Karnataka, Kerala, Manipur, Rajasthan and Tamil Nadu. Monitor the settlement of outstanding audit objections through the register prescribed in Para 110.1 of the Manual.

Remedial Measures FM Action Plan MHRD on 19-4-2010 sought State Action Plan along with monthly expenditure plans by 30th April, 2010. The revised action plan includes: expected outcomes for books of accounts closing of accounts internal audit financial monitoring including social audit capacity building procurement staffing statutory audit compliance of audit observations and concurrent financial review by IPAI

Remedial Measures Monthly Expenditure Plan Expenditure trends in the past indicate back loading of major portion in 4th Quarter To provide sufficient time for completion of activities, appropriately front load the fund flow at district and sub-district level. This will result in not only even flow of funds in all the Quarters but also completion of activities within the stipulated time frame. Release all the annual grants to the beneficiaries immediately on receipt of the ad-hoc/first instalment.

Thank You