Scrutiny of Debt, Deposit and Remittance Transactions

Indian Audit and Accounts Department

Structured Courseware on Government Accounting

Debt, Deposit and Remittance Heads of Accounts

(Chapter 10 of Comptroller and Auditor Gerneral’s Manual of Standing orders (A&E) Vol.I)

Session Overview

Transactions under Debt, Deposit and Remittances have an important impact on Government Accounts in more than one way. Transactions under the Debt Heads, where the Government is the debtor, impact not only the current year’s Government Accounts but also Government Accounts in future when the Government has to repay the debts. Similarly, in case of transactions under the Deposit Heads, where the Government acts only as a temporary custodian of funds, impact not only the current year’s Accounts but also Government Accounts in future years when the deposits are due for repayment or are withdrawn by the depositor. Remittance Heads are only adjusting heads for temporary parking of transactions till their eventual clearance, like a remittance of cash from treasury ‘A’ to treasury ‘B’ will be parked under Remittance Head ‘Cash Remittance between Treasuries’, the debit and credit of which will get adjusted when treasury accounts from both Treasury ‘A’ and ‘B’ are received and adjusted in the Accountant General’s Office.

The transactions under Debt, Deposit and Remittance Heads also impact the balances under these heads. Since balances under these heads may impact more than one year’s account, it is important for the Accounts Office to maintain running balances of these heads. For this purpose, each Accounts Office maintains a ledger for Debt, Deposit, Suspense and Remittance Heads of Accounts, i.e., those heads, balances in respect of which are carried forward from year to year (i.e. where balances close to the concerned head, unlike normal Government transactions under heads which close to Government). It is an important function of the Accounts Office to review these balances periodically, to see how far they represent moneys due to or by Government, and whether they are supported by details in the subsidiary registers known as broad sheets.

In this session we will discuss accounting of transactions under the Debt, Deposit and Remittance Heads and check exercised in Accounts Offices to ensure accuracy of balances under these heads.

Learning objective

At the end of this session, the learner will be able to define the Debt, Deposit and Remittance transactions, and their treatment and accounting procedure in Government Accounts.

Debt, Deposit and Remittance transactions

Transactions relating to Debt and Deposits comprise receipts and payments in respect of which Government becomes liable to repay the moneys received or has a claim to recover amounts paid together with repayment of the former and recoveries of the latter. Remittances embrace all transactions which are taken to merely adjusting heads of amounts, the debits or credits under which are eventually cleared by a corresponding credit or debit either within the same or in another circle of accounting.

(MSO (A&E) Vol-I Para 10.1)

Sectors in Public Account

The moneys in Public Account do not belong to the Government. They belong to public. The Government holds these moneys in its custody as a banker or as a remitter.

Appropriation Act is not required for withdrawal of money from the Public Account. The withdrawals of money from Public Account are regulated by rules framed by Government.

Sectors in Public Account are the same on both Receipts and Payment sides. These Sectors are:

Ø  I-Small Savings, Provident Funds, etc;

Ø  J-Reserve Funds;

Ø  K-Deposits and Advances;

Ø  L-Suspense and Miscellaneous;

Ø  M-Remittances;

Ø  N-Cash Balances.

For the moneys received in the Public Account and accounted for as receipts under sectors I, J and K above, Government has a liability to repay the same to whom the money belongs (i.e. investors in small savings, subscribers to provident funds and Deposits, etc.) or spend the money for specified purposes outside budgetary allocation (money in Reserve Funds), whenever necessary.

Suspense and Remittance Heads are purely adjusting heads of transitory nature.

If the correct classification of transactions is not known, when it occurs, it is temporarily put under suspense pending adjustment under the correct head after ascertaining the correct classification.

The sectors, indicated above, are divided into major heads of account. In some cases the sectors, in addition, are divided into sub-sectors before their division into major heads of account. The major heads are further divided into minor head and detailed heads, for the purpose of detailed accounting.

The major head in Public Account are assigned the code numbers from 8001 to 8999. The minor heads are also given code numbers as per the List of Major and Minor Heads of Account.

In Government Accounts, the balances under Revenue Receipt Heads, Capital Receipt Heads, Revenue Expenditure Heads, Capital Expenditure Heads, Inter-State Settlement Head, Transfers to Contingency Fund Head, Sinking Fund-Appropriation for Reduction or Avoidance of Debt, Miscellaneous Government Account Head at the end of the year are not carried forward to the next year’s account but are closed to Government Account. On the other hand, the balances under Public Debt, Loans and Advances Head in the Consolidated Fund and the balances under different heads of account in the Public Account all close to a balance and not to Government Account.

The balances under the above heads are either credit balances or debit balances. If there are credit balances, they represent liabilities of the Government (i.e. something has been received to be repaid later) and if they are debit balances they represent assets of the Government (i.e. some thing has been paid out from Government account and has to be recovered in future). In respect of credit balances under Public Debt, Provident Funds, Small Savings, Reserve Funds, Deposits, the Government has the liability to repay and in respect of debit balances under Loans and Advances, the Government has the claim to recover. The balances under Suspense and Remittances represent transactions pending adjustment, recovery or payment.

The debit signifies payment or an asset and credit signifies receipt or a liability in Government Account.

Small Savings, Provident Funds, etc

The accuracy of balances under Provident Funds and other small savings schemes is to be assured. This is done by reconciliation in stages as under:

Ø  The Total of Provident Fund deductions in each salary bill or otherwise deposited in bank/treasury should agree with the deduction schedules attached with the salary bill or treasury challans.

Ø  Individual deductions shown in the salary bill should agree with the individual amount shown in the deduction schedule.

Ø  The postings in the individual ledger account from the deduction schedules should be individually checked.

Ø  The total of the monthly postings of credits/debits in the individual ledger accounts, disbursing officer-wise, should agree with the total of credits/debits under the Provident Fund in the accounts of the month.

Ø  After the end of the year, interest is calculated for each ledger account, the total of credits of interest posted in each ledger account should agree with the total amount credited to the Provident Fund Head in the accounts of the year by debit to the interest head of account.

Ø  The total of the closing balance at the end of the year in individual ledger accounts should agree with the balances under the Provident Fund Head in the accounts of the year.

Ø  Where credits are received by cheques/demand draft from the individual subscribers along with the provident fund schedules, these are credited under the provident fund head in the accounts in the bank/treasury, and also posted in the individual ledger accounts, where credits/debits are received through inward accounts from other account circles, these are adjusted/posted in the accounts under the provident fund head as well as in the individual ledger accounts from the deduction schedules concerned. All these credits/debits are taken into account for reconciliation.

Ø  The closing balances at the year end in individual small savings or provident fund accounts are communicated to the individual account holders for their confirmation of balances or for them to indicate variations/ differences, if any.

Reserve Funds

Government can create Reserve Funds for specific purposes by setting aside certain amounts out of the Consolidated Fund for those purposes in the budget and the moneys in these funds are committed to the specified purposes and can be applied to the said purpose. There are some Reserve Funds, which bear interest, and others which do not bear interest.

Reserve Funds created out of transfers from commercial concerns of the Government (like Railways, etc.) are the ones, which bear interest. Government pays interest on the balances in Reserve Funds bearing interest. These funds are supposed to close annually with credit balances, i.e. the funds should have some balances which are payable by Government. Any debit balances in these funds are to be investigated to ascertain and rectify any misclassification in accounts or any over-adjustment of expenditure to be met on the specified purposes from the said fund.

Non-interest bearing funds are created by budgetary allocations from the service head concerned in the Consolidated Fund. They are intended to be used for the purposes for which they are created. The expenditure on such purposes is duly provided for and accounted under the relevant head of account in the Consolidated Fund and expenditure to the extent met from the Reserve Fund is shown under the same head of account as ‘deduct expenditure met from ---- Reserve Funds’. Thus, allocations from the Consolidated Fund to the Reserve Funds and also the expenditure met from these funds come under the purview of Parliamentary Control.

Reserves and Reserve Funds

There exist a number of Reserves and Reserve Funds in the Deposit Section of the Accounts of the Union and State Governments which are created for specific and well-defined purposes and are fed by contributions or grants from the Consolidated Fund of India or the Consolidated Fund of a State or from outside agencies. The functions of the Accountant General in relation to the transactions pertaining to such funds are:

(1)  It should be seen that the transactions are classified and accounted for according to rules.

(2)  It should be seen that these transactions conform to the rules or orders governing the administration of each Fund made by competent authority.

(3)  The balances at the close of the year standing in the account of each Fund should be verified.

Deposits and Advances

Deposits are also of two types, those bearing interest and those not bearing interest. Interest bearing deposits are generally those from public or from commercial organizations, like, National Defence Fund, Telephone Application Deposits, Deposits of Government Companies, etc. The interest on these deposits is charged to the Interest Head in the Consolidated Fund. The surplus balances available under the Deposits are used by Government to meet its fiscal requirements.

The balances under the deposits are payable back to the depositors’ concerned and detailed accounts (individual accounts) of deposits are maintained either by the departments themselves or by the Accounts Office. There should be credit balances under the Deposit Heads. Any debit balances under the head indicate possible misclassification of transactions or overpayments of deposits.

Non-interest bearing deposits, like Civil/Criminal Court Deposits, Security Deposits, etc., do not bear any interest. These deposits heads have credit balances. Any debit balances in the heads indicate possible misclassification of transactions or overpayments, which need to be investigated.

Advances are moneys paid by Government, which are recoverable. Advance Head close with a debit balances, any credit balance indicating possible misclassification of transactions.

Suspense and Miscellaneous

Under suspense heads are recorded all such transactions as are ultimately removed either by payment or recovery in cash or by book adjustments. Unless otherwise provided for by rules made by the Comptroller and Auditor General or with his consent the use of suspense heads for provisional adjustment of transactions ultimately adjusted under ordinary revenue and service head should be avoided as far as possible.

Transactions under suspense heads should be scrutinized to see that:

(1)  the unadjusted balances under these heads continue to represent bonafide assets or liabilities of Government capable of being realized or settled as the case may be; and

(2)  satisfactory action towards such realization or settlement is being taken by officers responsible therefor.

All balances under suspense heads must be reviewed at short intervals to ensure that no item remains unadjusted longer than is reasonably necessary to bring about its clearance in the ordinary course with due regard to the rules applicable to each case.

Instances:

(i) On receipt of account from treasuries all the transaction initially kept under 8658-111-DAA Suspense. During compilation of treasury account, if vouchers are found missing in respected bundles, are kept under 8656-102-OB Suspense. The amount kept under OB Suspense simultaneously cleared and finally transferred to relevant head of account on receipt of details of missing vouchers from concerned department/treasury through transfer entry screens, provided in VLC package as under:-

Screenshot Capturing Transfer Entry

(ii) On receipt of account from RBI all the transaction initially kept under 8658-110-Central Administrative Office (HQ) Suspense. The amount kept under abovementioned Suspense are simultaneously cleared and finally transferred to relevant head of account on receipt of detailed information/sanction orders/ GOs from concerned ministries etc. through transfer entry screens, provided in VLC package as above.

Verification of balances

Besides bringing the transaction to account in the year of their occurrence, in case of payments subject to recovery, the Accountant General should watch that the debtor regularly repays the moneys.

The accounts of the year are not complete until the balances in the ledger under the Debt and Deposit Heads and the outstandings under the Remittance Heads have been reviewed and duly verified. This review and verification of balances is conducted periodically. Cases of unreconciled discrepancies between the ledger balances and those shown in the subsidiary register or other records, (like Broadsheets, generally posted from an independent source maintained in the accounts office/departmental offices for the purpose) are indicated in the Finance Accounts of the Government concerned, where the difference is heavy and the discrepancy is outstanding for a long time. Similarly, cases where the verification and acceptance of balances by the department involving large amounts have been delayed are also pointed out in the Finance Accounts.