Background & Statutory Framework

After 74th Amendment to the Constitution of India and launch of various schemes like Jawaharlal Nehru National Urban Renewal Mission (JNNURM), Urban Infrastructure Development Scheme for Small and Medium Towns Scheme (UIDSSMT), Integrated Houses And Slum Development Program (IHSDP), Atal Mission for Rejuvenation and Urban Transformation (AMRUT), the role of ULBs in urban infrastructure has become important and as a result need arose for better financial practices in ULBs. Also as per the recommendations of 13th Finance Commission, Accrual Based Double Entry System is needed for getting the Performance based grants.

The Chhattisgarh Municipal Corporation Amendment Act 2011 and Chhattisgarh Municipalities Amendment Act 2011 mandate the preparation of Municipal Accounting Manual (MAM) and all the ULBs to follow the double entry accrual based accounting prescribed in the MAM. The state MAM was prepared but is yet to get the consent of the State Government. The MAM has been prepared on accrual based accounting principles.

Process Followed for ABDEAS Implementation

Phase 1: FY 2007-08 to 2010-11

Initially State Government had appointed 10 field CA Firms as Financial Consultants and one Project Management Consultant (PMC) to implement Accrual Based Double Entry Accounting System (ABDEAS) in Urban Local Bodies of Chhattisgarh for the FYs 2007-08 to 2010-11. The work of ABDEAS for that period was carried on the accounting software provided by Centre for Good Governance, Hyderabad.

Phase 2: Cluster-Based Rollout (FY 2011-12 to 2018-19)

After that, to prepare Accrual Based Financial Statements of ULBs for FYs 2011-12 to 2018-19, all the ULBs of Chhattisgarh were divided into five clusters namely:

1. Raipur Cluster
2. Bilaspur Cluster
3. Ambikapur Cluster
4. Durg Cluster
5. Jagdalpur Cluster

Five CA Firms (one for each cluster) were appointed as Financial Consultants in the year 2015-16. The State Government also appointed one CA Firm as PMC to supervise all the financial consultants and ABDEAS project Implementation. PMC reviewed the report submitted by the field level financial consultants and supported to resolve the issues faced in every stage of the implementation of the project. The Financial Consultants supported the ULBs in the conversion of the accounts maintained on cash basis to accrual using ERP software for the FYs 2011-12 to 2018-19.

Brief Scope of Work of Financial Consultants

• Preparation of Opening Balance Sheet;
• Identification, verification, listing of all tangible and intangible fixed assets (including infrastructure assets) of the ULB (either owned or under title of use or both);
• Preparation / Updating of fixed assets register for ULBs and passing on the same to ULBs for approval and acceptance;
• Data feeding of transactions of ULBs, Offices and Authorities in the Cluster in Tally ERP software;
• Generation of financial statements including updating of all books of accounts & registers for the financial year along with all the schedules and sub-schedules based on the principles of double entry accounting system;
• Generation of Bank reconciliations statements and other reconciliations required, of ULBs in the cluster;
• Generation of Budget statement;
• Digitization of the Demand Register for each head of Income and Liability register & for each head of expenditure.

Brief Scope of Work of PMC (Project Management Consultant)

• Conduct theoretical and practical trainings for accountants, and other related staffs of ULBs for sustainable implementation of Double Entry Accounting System (DEAS);
• Study the documentation and archive need of every ULBs and recommend suitable suggestion for effective physical documentation and if required for e-documentation also;
• Provide necessary technical support to Financial Consultants, ULBs;
• Monitor performance of financial consultants and assure quality of their deliverables;
• Compile all needed information required for State and Central Finance Commission, Department of Urban Administration and Development (DUAD) / State Urban Development Agency (SUDA) and other stakeholders under its jurisdiction;
• Suggest and implement best practices to enable live accounting with the best use of software and e-technology so that requirement to maintain manual register and books of accounts may be dispensed with to a maximum extent.

Key Deliverables by Financial Consultants

Benefits Achieved by ULBs

1. Improved Municipal Governance: DEAS helped ULBs to improve their governance, as the financial information provided by DEAS is more accurate and transparent, and promoted accountability resulting in better decision making and better compliances of law and regulations.
2. Reliable Financial Statements: DEAS provided a higher level of accuracy and reliability in Financial reporting of ULBs.
3. Transparency and Accountability: Transactions and their accounts are being traced easily in DEAS. DEAS also helps in ensuring accountability and makes it easier for ULBs to track the flow of Funds.
4. Better Recording and Tracking of Fixed Assets: The financial consultants appointed by SUDA prepared the opening Fixed Assets Register (FAR) of ULBs and also updated the FAR year-wise with all the relevant details. FAR helped ULBs in tracking and better utilization of Fixed Assets.
5. Better Recording and Tracking of Financial Assets/Liabilities: DEAS helped ULBs to record and track Financial Assets like Trade Receivables efficiently that ultimately resulted in timely collection of taxes. Also, DEAS helped ULBs in better recording and tracking of Financial Liabilities like Trade Payables and that ultimately resulted in timely payment of dues.
6. Better Knowledge of Financial Position and Performance: By adopting DEAS, ULBs are able to determine their financial position on a particular date. Also DEAS helped ULBs to determine their financial performance for a particular period more accurately.
7. Better Decision Making: Accuracy in Information generated from DEAS and Different types of MIS, Exception Reports and other information generated from DEAS helped ULBs in better decision making.
8. Facilitate in Timely and Efficient Audit: Adoption of DEAS helped ULBs in timely and efficient Audit. Financial Statements and Information generated from DEAS was presented to various audit parties (e.g., CAG, Local Fund Audit, Internal Audit).
9. Facilitation in Getting Finance Commission Performance Grants: Financial Statements generated from DEAS are being used by ULBs for getting Finance Commission Performance Grants as submission of Financial Statements is one of the criteria for getting performance grants.
10. Helps in Prudent and Realistic Budgeting: Every ULB prepares and presents their Annual Budget every year. Information generated from DEAS is more accurate than Single Entry Accounting System. So DEAS helps ULBs in prudent and realistic planning and budgeting.
11. Rewards and Recognition for Good Financial Reporting: Chhattisgarh State received several rewards and recognition for implementation of DEAS in ULBs. Chhattisgarh State received HUDCO best practices award for FY 2017-18 in Financial Reporting.

Way Forward

The intention of Ministry of Urban Development, Government of Chhattisgarh is to implement real time Double Entry Accounting on accrual basis in all ULBs in Chhattisgarh and develop capacity in finance and accounts personnel and personnel of other departments in ULBs so that they can run DEAS on their own without any external support and for that an ERP software has been developed by a software agency appointed by SUDA.

Also, a Firm of Chartered Accountants has been engaged by SUDA as Consultant for Implementation of accounting assignments in Chhattisgarh. Initially, the financial consultant will do the work on the ERP software and after that financial consultant will provide handholding support to ULBs in relation to ABDEAS on ERP Software. The final goal is capacity building of ULBs’ accounting personnel, so that they can carry out the accounting work on double entry system independently.

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Authors may be reached at: suda.mission@gmail.com and eboard@icai.in