1. Welcome All State Finance Controllers, SSA in 34 th Quarterly Review Meeting Sharing on Accounting of 13 th FC Award and Grant-in-Aid (Capital & General)

2. This Session is intended to determine the best way of Accounting of 13 th FC Award and grant-in-Aids (Capital & General) and its reflection in Annual Accounts 2011-12 onward. We expect active participation of all FCs in the discussion for establishing uniform and consistent accounting system in conformity with Generally Accepted Accounting Principles.

3. Accounting under SSA with special reference to 13 th Finance Commission Award & Grant-in-Aid (Capital / General) By: U.K. Verma, Consultant (Financial Management) Technical Support Group – SSA EdCIL, New Delhi

4. Requirement of Accounting System under SSA - In conformity with the Provisions of :  Financial Management & Procurement Manual of SSA read with guidelines issued from time to time by MHRD; AND  Guidelines issued by The Institute of Chartered Accountants of India (ICAI) :  Uniform Accounting & Reporting Framework for NGOs;  Technical Guide on Accounting for Not for Profit Organizations  Accounting Standard -12 – Accounting of Government Grants While Statutory Audit, Chartered Accountants need presentation of Accounts in conformity with Guidelines issued by ICAI with full disclosure as required by the Accounting Standards issued.

5. Responsibility of CAs ‘... while discharging their attest function, it will be duty of the members of the Institute to: (a) to examine whether Statements relating to accounting matters are complied with in the presentation of financial statements covered by their audit. In the event of any deviations from the Statements, it will be their duty to make adequate disclosures in their audit reports so that the users of financial statements may be aware of such deviations; and (b) to ensure that the Statements relating to auditing matters are followed in the audit of financial information covered by their audit reports. If, for any reason, a member has not been able to perform an audit in accordance with such Statements, his report should draw attention to the material departures therefrom....’

6. Requirement of FMP Manual : Complete accounts in respect of the monetary transactions of the State Implementation Society in the Headquarters Office as well as in the Subordinate Offices shall be maintained in the same manner as required in a State Government Office. However, the “Double Entry” method based on mercantile system” of accounting shall be followed under SSA. (Para 51 of Financial Management & Procurement Manual- SSA ) Requirement of FMP Manual : Complete accounts in respect of the monetary transactions of the State Implementation Society in the Headquarters Office as well as in the Subordinate Offices shall be maintained in the same manner as required in a State Government Office. However, the “Double Entry” method based on mercantile system” of accounting shall be followed under SSA. (Para 51 of Financial Management & Procurement Manual- SSA )

7.  A concern was been expressed by the Ministry of Corporate Affairs,Government of India, vide their letter ref no: /1/2010/CL.V dated 2/8/2010, that the present system of accounting and financial reporting followed by NGOs does not adequately meet the accountability concerns of the donors, including government.  Study conducted by the Institute of Chartered Accountants of India (ICAI) to (a) harmonize the diverse accounting practices being followed across NGOs, (b) recommend a Uniform Accounting & Reporting Framework, (c) suggest standardized formats of Financial Statements for NGOs and (d) recommend an appropriate method of accounting to be followed by NGOs

8. The contents of this report are applicable to the following NGOs, whether community based, national or international, having their operations in India: (a)Societies registered under the Societies Registration Act 1860; (b)Public Trusts; (c) Trusts registered under State enactments ; and (d)Other NGOs set up under any other Central/State Enactments. And this is important because almost all the SISs are covered under this definition of NGO

9. The Institute of Chartered Accountants of India (ICAI) has also issued Technical Guide on Accounting for “Not for Profit Organisations (NPOs)” of ICAI which also takes care of Accounting Standards and other guidelines of the institute. The Institute had published the Technical Guide on Accounting and Auditing in Not for-Profit Organisations in 2003 which was subsequently revised by the Committee in 2006. The Technical Guide has been acclaimed as an important landmark in improving accounting in the NPO sector. The Guide was again revised in 2009 to bring about a greater focus to accounting issues in NPOs

10. FMP Para Provisions attracting Accounting System 51 Double entry method based on mercantile system of accounting shall be followed under SSA. 89.1 Funds of the State Implementing Society shall mainly consist of (i) Grants-in-aid made by the Government of India and the State Government;(ii) Income from the assets including interest ; and (iii) Other sources 91.1 Unspent balances at the end of the financial year need not be refunded to Government of India and shall be carried forward for utilization in the subsequent year with proper approval. 91.5 The interest thus accrued in a year shall be taken into account against the release of Government of India’s share and the State Government’s share respectively in the next financial year.

11. FMP Para Provisions attracting Accounting System 106.17 Funds released from Government of India and State Government during March should be accounted for in the same financial year on the basis of sanctions issued, even though these funds have actually been received in the next financial year. 108.1 The Annual Report of the working of the Society and the work undertaken by it during the year together with consolidated Annual Financial Statement in the format given in Annex-XX, Balance Sheet in Annex-XXI, Income and Expenditure Account in Annex-XXII, Receipt and Payment Account in Annex-XXIII and Audited Accounts shall be approved by the Executive Committee and furnished to Government of India and State Government and the members of the Society.

12. Letter para Provisions attracting Accounting System 3.3 FC Award for each year to be released by Government of India to the Finance Department of respective states, who in turn, will transfer entire fund to SISs for utilization under SSA 3.3 TFC Fund to be used for recurring type of expenditure, excluding expenditure on Civil Works 4.4 Opening of a distinct head of account “13 th Finance Commission Award A/c” under the parent group “Grants Received” and the amount actually released by State Government under 13 th FC Award shall be credited under this head of account at State level office. Distinct head of account (other than of Civil Works components covered under Financial Norm No. -6 of Annex – II of the FMP Manual) to be categorically identified for booking of expenditure out of 13 th Finance Commission Award funds,

13. Letter para Provisions attracting Accounting System 3.4 For the purpose of calculating the central and state share, the total financial outlay approved by PAB shall firstly be reduced by the 13 th FC Award received by the state and then the remaining balance shall be shared by GOI and the State Government in the funding pattern of 65 : 35 by all states other than North Eastern States where the funding pattern would be 90 : 10. 5.1 Separate Utilization Certificate duly countersigned by State Finance Secretary to be issued in prescribed format for utilization of 13 th Finance Commission Award.

14. Provisions attracting Accounting System During the Accounting Year 2011-12, GOI share released under two distinct heads, i.e, (a) Grant-in-Aid from GOI – Capital; and (b) Grant-in-Aid from GOI – General. Receipt of Grants from GOI to be accounted for / credited under distinct respective head of accounts Receipt of corresponding State Share to be accounted for and credited in distinct head (Capital & General) as per the sanction order issued by State Government. If not done so, may be bifurcated in the same proportion of GOI releases Grant–in-Aid (Capita) to be utilized only for the purpose of implementation of activities covered under (a) Civil Works components covered under Financial Norm No. -6 (b) BRC / CRC Construction under Norm No. 18 and construction of SIEMAT under Norm No. 12, and (d) Construction of KGBV building of Annex – II of the FMP Manual) Grant-in-Aid –general to be utilised for all interventions, as approved by PAB in AWP & B other than those mentioned above charged to Capital.

15. Provisions attracting Accounting System From the Financial Year 2012-13, Grant-in-Aid from GOI – General further bifurcated into three categories, namely,(a) Grant-in-Aid from GOI - General for Scheduled Caste; (b) Grant-in-Aid from GOI - General for Scheduled Tribe; and (c) Grant-in-Aid from GOI - General Component. Receipt of corresponding State Share also to be accounted for and credited in distinct heads as per the sanction order issued by State Government. Expenditure of all head of account (other than those chargeable to Capital) shall be eligible to be met out of Grant-in-Aid –general. Such expenditure shall also to be apportioned and shown under all three categories, i.e, SC, ST & Others. Expenditure out of Grant-in-Aid – General shall be apportioned in the ratio to be determined on the basis of No. of SC Children, No. of ST Children and Other Children as per the DISE targeted for the purpose of Planning & Budgeting in the AWP & B approved by PAB

16. Ref: Queries raised by CA S.K. Bhargava, Statutory Auditor 1.Capitalisation of Civil Works: As per the format of Consolidated Income & Expenditure A/c (Annx.XXII – Para 108.1 of FMP Manual) Civil Works (including Furniture and Major Repair) is to be charged to Income & Exp. A/c. Whether the same format will continue in 2011-12 or Exp. On Civil Works out of Capital Grants shall be booked as fixed assets and reflected directly in Balance Sheet; If civil works is to be taken directly taken in Balance Sheet what opening balance will taken and how this will be calculated as up to 2010-11 such civil works have been charged to Revenue A/c (similar clarification for KGBV)

17. Ref: Queries raised by CA S.K. Bhargava, Statutory Auditor Formats for Accounts 2011-12 : As per the MHRD letter no. F.No.1- 1/2010-EE-3 DATED 14/12/2010 THE Grant is to be bifurcated in two parts (1) Grants for creation of Capital Assets Code No.35, and (2) Grants-n-Aid General Code No. 31. Consequently, the formats of Income & Exp. A/c and Balance Sheet given in FMP Manual require modification. Whether the Accounts for 2011-12 are to be prepared in the Formats prescribed in manual or MHRD will give revised format for this purpose. Please also clarify whether any depreciation is required to be charged on fixed assets Fund of previous years refunded by BRCs/NPRCs/CRCs/VECs under different head due to non-incurrence. Clarification on where this amount will be show in current years account required. Clarification is also needed for condemnation of fixed assets

18.  How Receipt of 13 th Finance Commission Award shall be accounted for ?  How Expenditure out of 13 th FC Award shall be reflected in the Annual Financial Statements ?  How GOI Grants & State Share shall be accounted under Capital & General head ?  How Expenditure under Capital & General head shall be reflected in Annual Accounts ?  How Expenditure shall be capitalised ?  Is Depreciation is mandatory to be charged ? and  How condemnation of fixed Assets to be accounted for and reflected in the Annual Accounts?  How full Disclosure in Notes on Account to be given ?

19. Opening of a distinct head of account “13 th Finance Commission Award A/c” under the parent group “Grants Received” and the amount actually released by State Government under 13 th FC Award shall be credited under this head of account at State level office. Indentifying the distinct head of account (other than of Civil Works components covered under Financial Norm No. -6 of Annex – II of the FMP Manual) in which expenditure is proposed to be charged out of 13 th Finance Commission Award funds namely “13 th FC Award – Head of Account“, Select only one or two head of accounts under which the Budget provision and estimated total expenditure in the respective financial year is expected not to be less than amount of 13 th FC Award.

20. At SPO level, while consolidating expenditure of DPOs, transfer amount to the extent of the amount of 13 th FC award from the general head selected to distinct head opened. if total expenditure of one head is less than the amount of 13 th FC Award, select another head for charging the remaining amount For example, if you have (a) selected Teacher’s Salary and Free Text Books A/c (b) 13 th FC Award Received is Rs. 34000.00 lakh and Total Exp. In Teachers Salary is Rs. 29000.00 lakh and Free Text Book is Rs. 22060.00 lakh the entry to be taken shall be 13 th FC Award- Teachers Salary A/c Dr Rs. 29000.00 13 th FC Award- Free Text Books A/c Dr Rs. 5000.00 To, Teachers Salary A/c Rs. 29000.00 To, Free Text Book A/c Rs. 5000.00 Note : It is the SPO Management to decide exp. Of which head shall be charged against the receipt of 13 th FC Award.

21.  Credit the amount of GOI Grant under distinct head “Grant- in-Aid from GOI (Capital) A/c” and “Grant-in-Aid from GOI (General ) A/c” as per the bifurcation made in the sanction order issued.  Similarly the state share received also to be credited under distinct heads “Grant-in-Aid from State Govt.(Capital) A/c” and “Grant-in-Aid from State Govt. (General ) A/c” as per the sanction order of state government;  In case, the sanction order issued by state government, the amount is not distinctly mentioned, the total amount so received may be bifurcated in the same proportion GOI releases has been made.

22.  Releases to Districts to be made distinctly under both heads Capital & General subject to availability of funds under respective heads of account;  District Offices to keep distinct head ( Capital & General) and while releasing funds for Civil Works including advances to sub-district level / SMCs for budgetary control purposes;  All expenditure including releases of advances against the activities of Civil Works covered under Norm No.6, BRC / CRC Civil Construction and Construction of Building for SIEMAT shall be eligible to be charged against the Grants-in-Aid from GOI & State Share.  SPO to issue speaking guidelines to district/ sub-district level offices

23. SARVA SHIKSHA ABHIYAN INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31st MARCH 2012 Previous Year FiguresEXPENDITURESch Current year's figure Previous Year Figures INCOMESch Current year's figure To Programme Exp (General Grant) By, Balance of unspent GrantBalance of unspent Grant Access (as per last Account) Retention By, Grant in Aid Received :- Quality Interventions From Govt. Of India Academic Support to BRC / CRCs General Grant Annual Grants Capital Grant TEACHERS SALARY From State Government FREE TEXT BOOK General Grant Capital Grant Project Management Exp. From 13 th F.C. Award Sub- Total To SSA Capital Grant Less: Capital Exp. Out of Grant CIVIL WORKS Miscellaneous Income To SSA 13 th FC Award Interest on Bank Balance TEACHERS SALARY Other Income FREE TEXT BOOK To Excess of Income over Exp. Transferred to Unspent Balance TOTAL [ RS. ] 0.000 TOTAL [ RS. ] 0.000

24.  Assets created out of Government Grants under two categories :  Assets acquired for operation of the Project upon which the SIS enjoys full ownership and Title till completion (for example Office equipments, Vehicles, Furniture etc. for State, District or sub- district level; and  Assets created out of Grants as Programme Expenditure upon which the SIS doesn’t have ownership and title for use for operation (for example,civil works, furniture, computers and other assets) As per General Principle of Accounting of Assets created out of Government Grants : When the organisation does not hold title to property acquired with Government funds, the property should not be capitalized. (Possession does not equal ownership). However, The such property can be inventoried for tracking purposes.

25.  Assets as defined under Para 76 of Technical Guide for Accounting for NOT-for Profit Organisation (NPO) :  An asset is a resource controlled by an NPO as a result of past events and from which future economic benefits or service potential is expected to flow to the NPO. A resource should be considered to be controlled by an NPO if it is in a position to control the use of the asset, i.e., it is in a position to obtain all the rewards from the asset which means all the future economic benefits associated with it will flow to the NPO.  Para 78 of Technical Guide for Accounting : An asset should be recognised in the balance sheet when and only when it is probable that the future economic benefits embodied in the asset will be received;

26. SOCIAL ACCOUNTABILITY STANDARDS for NGOs issued by ICAI Para – 4.19 : ACCOUNTING POLICIES - CAPITAL EXPENDITURE & FIXED ASSETS  The relevant accounting standard for accounting for fixed assets is AS-10.However keeping in view the trusteeship function of NGOs, the assets procured out of restricted funds need to be distinguished. Similarly there will be no distinction between capital and revenue expenditure as far as it relates to application of funds for projects and Programmes initiated towards achievement of the objectives. However the normal accounting conventions pertaining to Capital and revenue items shall be adhered to as far as it relates to other transactions of the NGO. The variable treatment of Capital and revenue items shall necessitate the distinction between project assets and capital assets.

27.  Depreciation is always chargeable on Fixed Assets and A fixed asset as per Accounting Standard 10 issued by ICAI is defined as “an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale / transfer in the normal course of operation”.  However, since the Accounting Policies are to be decided by the Management and if the State EC has decided not to Charge depreciation on fixed assets, proper disclosure should be made in the Notes and Significant Accounting Policies.  But depreciation on the assets not held or owned by the organisation can’t be charged.

28.  Para 64 of FMP Manual says : The Society should maintain Register of Assets in the format given in Annex-V for the assets acquired wholly or substantially out of Government of India grants and Stock Register separately for capital goods, consumable and non-consumable articles and shall arrange for their physical verification at least once a year. These should be maintained at school, CRC, BRC, DPO and SPO levels as the case may be.  As per the General Financial Rules (GFR) any fixed assets acquired out of Government funds, if not further useable, may be disposed off or in case of loss or theft may be written off but as per the disposition guidelines issued by the Government. As such, in our cases, this may be done with the approval of State EC with proper disclosure in the accounts.

29. Technical Guide for Accounting for Non-for-Profit Organisations Para 38 : It is, therefore, recommended that all NPOs, irrespective of the fact that no part of the activities is commercial, industrial or business in nature, should follow Accounting Standards. This is because following the Accounting Standards laid down by ICAI would help NPOs to maintain uniformity in presentation of financial statements, proper disclosure and transparency. Accounting Standard (AS) 12, Accounting for Government Grants, prescribes accounting treatment for government grants. The accounting treatment prescribed in AS 12 is based on the nature of the grant and the purpose for which the grant is received. Accordingly, NPOs should follow the principles enunciated in AS 12 in respect of accounting for government grants as also for the grants received from non-government sources, e.g., foundations, individual donors and corporate bodies.

30. Disclosure of government grants The following must be disclosed: (a)Accounting policy adopted for grants, including method of balance sheet presentation ; (b) Nature and extent of grants recognized in the financial statements; (c) Unfulfilled conditions and contingencies attaching to recognized grants;

31. Difference between Expenditure as per UC and Financial Statement (Income & Exp. A/c and Balance Sheet) State Exp. As per UC Exp. As per FS VariationRemarks Chhattisgarh46233.5746648.16-414.59 Exp. As per UC less than Exp. As per Financial Statements of 2010-11 Meghalaya15594.8716387.71-792.84 Tripura10931.711155.41-223.71 West Bengal194677.42202634.54-7957.12 Assam85385.6785076.57309.10 Exp. As per UC less than Exp. As per Financial Statements of 2010-11 Madhya Pradesh218179.78150001.0668178.72

32. Difference between Closing Balance as per Audit Report as on 31 st March 2011 and Opening Balance as per FMR 2011-12 State Cl.Bal. as on 31- 03-11 as per Audit Report Op.Bal. as per FMR 2011-12 VariationRemarks Andman& Nikobar269.14348.95-79.81 Closing Balance as per Audit Report less than Opening Balance as per FMR Andhra Pradesh879.285879.27-4999.99 Bihar156490.37157771.37-1281.00 Chhattisgarh24509.7526468.42-1958.67 Haryana10559.9115941.39-5381.48 Kerala8693.9611698.00-3004.04 Rajasthan12933.7620314.36-7380.60 Tamil Nadu2337.385843.03-3505.65 Jharkhand72592.5656478.5016114.06 Closing Balance as per Audit Report more than Opening Balance as per FMR Manipur5647.054416.751230.30 Nagaland3178.53218.042960.49 Orissa18320.529059.029261.50 Rupees in lakh

33. Thank You …. I hope that this Endeavour will go a long way in establishing sound, uniform and consistent accounting practices under SSA