Seminar on “Reduction/Elimination of
cash in Government Transactions – The
WAY FORWARD TOWARDS
INTEGRATED FINANCIAL
MANAGEMENT
Indian Audit and Accounts Department
INTRODUCTION
• An important issue in the North East is using
cash in large number of cases in government
transactions.
• The Audit Reports reveal a number of cases
of misappropriation and diversion of funds
which have been facilitated by predominance
of cash transactions in Government Finances.
This could be controlled through transacting
by using Electronic Clearance System (ECS).
RISKS IN SYSTEM
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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
Next
MISAPPROPRIATION
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SALARY & PERSONAL ENTITLEMENT
PENSION
PROCUREMENT
OTHERS
MISAPPROPRIATION
• Amount was paid in cash for construction of
roads without any roads or trail as to where
money has gone.
• Government money being drawn in cash
and invested in insurance companies in
names of individuals.
MISAPPROPRIATION
• Cashier investing government cash.
• Land acquisition money being paid to
unknown persons in cash by first putting
money in bank by officials incompetent to
handle land acquisition. The transaction
taking place despite objection by the
Deputy Commissioner.
MISAPPROPRIATION
• During the period from 2005-06 to 2008-09 16
instances involving 51.80 crore reported in C&AG
Report in one State
• Drawal of inflated salary bills and personal
entitlement and payment in cash with excess being
retained by Cashier and DDOs (Rs.25.88 crore in 9
cases)
• Drawl of pension / gratuity from two treasuries and
two sub-treasury to ineligible persons – Rs.10.47
crore
MISAPPROPRIATION
• Funds under Technology Mission for
integrated Development of Horticulture
was misappropriated / un accounted for –
Rs.21.43 crore
MISAPPROPRIATION
• Handling cash and drawal of money led to
suspected fraud of Rs.3.49 crore.
• Funds released suspected to have been
misappropriated – Rs.2.66 crore
• NABARD loan meant for implementation of
minor irrigation projects is suspected to have
been misappropriated – Rs.0.44 crore.
MISAPPROPRIATION
• Suspected misappropriation of Rs.4.38 lakh
and unaccounted deposit of Rs.2.18 lakh
involving cash transaction.
Back
SECURITY RISKS
• Amount meant for implementation of 64
projects under LADP Scheme was paid in
cash to the Personal Assistant of
Parliamentary Secretary for disbursement.
• The money was looted on the way
• Had the amount been disbursed through
bank to the individual beneficiaries this
could have been avoided.
Back
RETENTION IN BANK ACCOUNTS / CASH
• In a study in a State 172 DDOs retained Rs.317.87
crore in various bank accounts. Information
collected from banks
• This reduces the cash balance of the State
Government held with Reserve Bank of India (RBI)
causing loss of interest without any benefit to the
State.
• Loss of any credible control of either the Treasury,
Head of the Department or the Finance
Department on these funds.
RETENTION IN BANK ACCOUNTS / CASH
• Loan of Rs.267.97 crore taken from Rural
Electrification Corporation (REC) without
the knowledge of the Government and
Rs.234.60 crore received placed in Savings
Bank Account in personal names. Rs.20.00
crore shifted to two other banks as term
deposits in personal names.
RETENTION IN BANK ACCOUNTS / CASH
• The BDOs drew Rs.17.19 crore which
remained undisbursed / unadjusted between
four months to even more than five years in
some cases risking misuse including
misappropriation of Government money.
• Random disbursement of advances from the
undisbursed money to implementing officers
has also resulted in Rs.10.36 crore remaining
outstanding for long period.
RETENTION IN BANK ACCOUNTS / CASH
• An officer was detained with large amount of
money. The officer was carrying government
money for payment to supplier.
• Retention of Rs.94.07 lakh for over one year
• Rs.85.76 lakh was drawn by two BDOs
through fully vouched contingent bills in cash
for meeting future liabilities.
RETENTION IN BANK ACCOUNTS / CASH
• Several cases of retention noticed
• Since money retained in bank is reflected as
final expenditure in the Government accounts,
non-depiction in an alternative financial
reporting process carries the risk of money
being retained in bank / cash with no trail
which is forgotten over time.
Back
DEPRIVING THE INTENDED BENEFICIARY
• The payments due to a company was
drawn in cash and paid to someone
ineligible.
• The system of payment by cash carries the
risk of non-payment, reduced payment to
intended beneficiary
• It also carries the risk of payment to
absentee beneficiary.
Back
DELAYS IN PAYMENT/RECEIPT
• Time taken in the process of payment /
receipt is larger
• Administrative involvement in the process
carries an inbuilt lead time in payment /
receipt.
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COMPLEX PROCEDURES AND SYSTEMS
• The DDO has to go to Treasury and Bank to collect
payments and deposits receipt.
• DDO has to reconcile physically receipts and
payments with the Treasury
• Reconciliation of cash balances between RBI and
State Government
• Reconciliation with the Banks in case of DDOs
having Bank Accounts.
• Multiple cheques / documents for a single payment
Back
INCOMPLETE FINANCIAL INFORMATION
TO THE FINANCE DEPARTMENT
• Incomplete information of cash balances
with DDO
• Incomplete information of bank accounts
with DDO
• Incomplete information of the cash position
of the State instrumentalities
• Lack of trail of funds flow in a number of
cases.
Back
OTHER ISSUES
• Funds originating outside the State budget
meant to be transacted through Public
Accounts like Deposits, Deposits for
acquisition of land required by entities other
than State Governments entities, loans from
Rural Electrification Corporation (REC) end up
in Bank accounts without being routed
through State Finances.
Back
ALTERNATE SYSTEMS
• With the development of new banking
services which reduces the handling of cash,
government machinery is also expected to use
these development.
• ECS has already been introduced for payment
of pension in Meghalaya on pilot basis.
• Manipur has also introduced ECS for salary
payments.
• Mizoram is on course to implement Mizoram
On-line System of Tax Receipts.
ALTERNATE SYSTEMS
• ECS facility is utilised by the Government of India to
transfer funds/ Grants-in-aid to the State
Governments.
• The release of funds by the REC to the State
Electricity Corporations/Departments through the
ECS facility and further payments to the
Contractors are also through ECS.
• Eliminates / Reduces cash in Government
Transactions thereby reducing the risks of
misappropriations and security threats like
robbery, theft etc..,
ALTERNATE SYSTEMS
• It makes the entire process of receipts and payments
simpler. Work of Accounts staff and Cashier become
simpler.
• A trail of flow of funds will be maintained /
established for easy monitoring of the transactions.
Information on cash flows will easily be available at
any level.
• The Finance Department of a State will have ready
and immediate information of all cash flows
including funds available in any Departments,
Directorate, Autonomous Bodies and PSUs.
ALTERNATE SYSTEMS
• It allows for immediate depositing of
Government Revenues, thereby eliminating
delays.
• Financial information of the location and
amount of funds would be available.
• Ensures direct transfer to the beneficiary.
• It reduces the risk of transfer of funds to
unauthorised persons.
ALTERNATE SYSTEMS
• Reconciliation of accounts between DDO and
Treasury Officer and between the Finance
Department and RBI through Accountant
General is simplified.
• There would be no extra cost to any
Government if ECS is introduced.
• Administrative costs of
Government
transactions is likely to come down
significantly.
ALTERNATE SYSTEMS
• Collection centres for revenue increases manifold
times without any cost.
• User/Customer satisfaction increases due to faster
transfer and simpler procedures
• Improvement of banking sector in the region
leading to better credit creation and faster
economic development.
• It improves governance and leads to efficient
management of public finances.
• Provides better service delivery, greater return to
the Governments on their cash.
ALTERNATE SYSTEMS
• Cash position of the State Governments would be
better managed as fund flow takes place when
required and not prior to it.
• ECS and its variants are single credit with multiple
debits and single debit with multiple credits across
the banking system.
• Financial reporting activity largely taken over by
sophisticated software applications now available in
the banking sector in India at the State Capitals with
sponsoring banks including that of utilities and
semi-government entities.
ALTERNATE SYSTEMS
• Absentee beneficiary and related issues can
be identified and addressed
• Financial benefit to Government and semiGovernment entities in terms of better
financial management due to better
financial reporting.
POTENTIAL
• The existing applications in banking
industry could be leveraged to create a
cascade of banking accounts under
Government category with a parent child
relationship of State Government and the
various functional entities under the State
Government
IMPACT ON COMPILIATION OF ACCOUNTS
• ECS transaction number to be noted on the
voucher and captured in compilation of
accounts
• This links it with the payment details in ECS
• DDO-wise cash transaction reporting can be
obtained
THANK YOU