Municipal Accounting Reforms In India

1
Municipal Accounting Reforms In India

• History
• Genesis
• Pre-reform Systems
• Post-reform Systems
• Accomplishing Transition

2
Municipal Accounting Reforms In IndiaHistory

• Municipal accounting reforms initiatives
• MA reforms are only two decade old.
• 81-90Mumbai, Kolkatta Chennai WB TA
• 91-95-Six municipal bodies of Gujarat - WB
• 97-02 All municipal bodies of Tamil Nadu
• 99-02-Anand, Jaipur Tumkur - ADB TA
• 99-02-Banglore accounting reforms BATF
• 01-03-Five municipal bodies of Maharashtra
• 01-03Delhi, Hyderabad, Indore Ludhiana

3
Municipal Accounting Reforms In India History

• Technical guide on accounting and financial
  reporting by urban local bodies by ICAI
• Supreme Court direction
• 11th Finance Commission recommendation
• Covered under Urban Reforms Incentive Fund set up
  by GOI for States
• December 2002 CAG Task Force Report
• Emergence of City Managers Association
• Emergence of Consulting firms and professionals
  with sector specific expertise

4
Municipal Accounting Reforms In India Genesis

• Municipal accounting system reforms have become
  compelling necessity due to
• Changing state-citizens relationship
• Inadequacy of traditional accounting system
• Paradigm change in financing urban development
• New relationship based on three foundations
  accountability, transparency and efficiency

5
Municipal Accounting Reforms In India Pre-reform
municipal accounting system

• Cash based single entry accounting system
• Heterogeneity in every aspect
• Consolidated fund accounting system.
• Non updated municipal account codes
• Accounts pending over the years
• Non-capitalization and incompleteness.
• Absence of system documentation.
• Procedural inadequacy- no internal checks.
• Imbalance staffing

6
Municipal Accounting Reforms In India
Post-reform municipal accounting system

• Double entry
• Modified accrual base
• Fund based accounting
• Computerised
• Fully integrated with budget, uses matrix chart
  of account and budget heads
• Maintenance Disclosure of Accounts as per
  accounting standards

7
Municipal Accounting Reforms In India
Accomplishing Transition Steps/Process

• Perceived or Felt Need for Reforms
• Willingness to Reform
• Initiator or Change Agent
• Champion of Reform or Transition
• Level of Participation
• Enabling Environment
• Support of Higher Level Government
• Technical and Financial Assistance

8
Municipal Accounting Reforms In India
Accomplishing Transition Steps/Process

• Hiring of Professional Support
• Resolving Accounting Policies
• Designing System Accounting Manual
• Implementation Strategy / Approach
• Capacity Building
• Parallel Run
• Use of Computer Technology
• Post Reform Blues

9
Municipal Accounting Reforms In India
Accomplishing Transition Steps/Process

• Local Ownership - Felt Need for Reforms
• Starting point for any transition / change
• Internal higher success rate
• External reforms seen as covenants
• Willingness to Reform
• Closely associated with the first factor
• Higher Level ensures successful transition
• If found low, municipal body should create it
  through opinion building exercises

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Municipal Accounting Reforms In India
Accomplishing Transition Steps/Process

• Initiator or Change Agent
• Very crucial element for transition
• Internal high probability of completion
• External/Foreign act adversely
• Local Champion of Reform or Transition
• Desirable Element
• Level of Participation
• Higher the participation of all concerned
  higher willingness or acceptance of reforms

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Municipal Accounting Reforms In India
Accomplishing Transition Steps/Process

• Enabling Environment
• Enabling provisions in law or account code,
  system of audit, transparency needs or culture of
  sharing of information
• Support of Higher Level Government
• Municipal bodies are state subject, highly
  dependent in all respect on the State
• Technical Financial Assistance
• Must for successful transition, most of the
  municipal bodies are weak in all respects

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Municipal Accounting Reforms In
IndiaAccomplishing Transition Steps/Process

• Formal Policy Decision about Transition
• First step, essential from consensus point from
  legal point of view
• Hiring of Professional Support
• Essential and desirable, need for clear vision
  about role of consultant, unambiguous TOR
• Resolving Accounting Policies
• By involving maximum stakeholders
• Brings clarity, involvement commitment

13
Municipal Accounting Reforms In
IndiaAccomplishing Transition Steps/Process

• Designing System Accounting Manual
• Blending of field experience and professional
  knowledge yields better accomplishment
• Implementation Strategy / Approach
• Can follow any approach but hard work continuous
  supervision, handholding, participation,
  sympathetic behaviour are must
• Capacity Building
• Absolutely necessary, active involvement in
  transition and on-job training ensure success

14
Municipal Accounting Reforms In India
Accomplishing Transition Steps/Process

• Parallel Run
• Should not be too short or too long. Short run
  keeps cost down but robs on-job-training, long
  run leads to good capacity building turns costly
• Use of Computer Technology
• Can complicate transition but has usually helped
  switch over to new system
• Post Reform Blues
• Handholding or live wire support facility leads
  to sustainability of reforms

15
Municipal Accounting Reforms In India

• Thank You
• Dr. Ravikant Joshi

16
Municipal Accounting Reforms In India Issues in
Nation/State-wide Implementation

• Reform initiatives have confirmed that reforms
  are possible in municipal environment.
• But reform initiatives have raised certain
  issues.
• Individuality/Heterogeneity
• Slow pace/Incomplete Attainment
• Non-replicability of Reforms
• No reforms in financial reporting, auditing
  budgeting systems, even in the bodies adopting
  accounting reforms

17
Municipal Accounting Reforms In India Issues in
Nation/State-wide Implementation

• Contemplating a way forward is difficult.
• More than 4500 local bodies having different
  size, degree of complexities, powers resources
  and stage of development.
• Less than 5 per cent of local bodies (150) have
  carried out any sort of reforms.
• Need an accounting system having blend of
  governmental commercial accounting system.
• Commercial form of government accounting

18
Municipal Accounting Reforms In IndiaWay Forward

• Objectives of Reforms
• Improvement in accountability, transparency, and
  financial performance of municipal bodies
• Comparability and uniformity of system and data
  while allowing micro level diversity
• Simple, cost effective and scalable reforms
• Multi-level multi-dimensional efforts

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Municipal Accounting Reforms In IndiaWay Forward

• Role of Central Government
• putting in place model municipal accounting
  financial reporting system manual
• Incentive grants to States and Municipal bodies
  suitable changes in URIF, CCF guidelines
• Model budget code and matrix code.
• Setting up of government or municipal accounting
  standard board.
• Formation of Professional association of
  municipal accountants and auditors

20
Municipal Accounting Reforms In IndiaWay Forward

• Role of State Governments
• State governments to revise their municipal
  account, audit and budget codes.
• Institutional strengthening (capacity building)
  efforts for municipalities.
• opinion building efforts to change perception of
  all the related people
• Suitable changes in legislation
• Technical assistance, financial assistance for
  reforms
• Elevation of status of account audit function,
  pay scales, recruitment rules

21
Municipal Accounting Reforms In IndiaWay Forward

• Civic Education-equip NGOs/CBOs with technical
  knowledge so that they can participate in a
  meaningful way.
• Role of Urban Local Body
• Synergy between budget and account code
• Change in perception towards accounting function
  giving due importance to it.
• Induction of professionally qualified people