Management
of funds in Local Self Governments in Kerala; A study of Kanjiramkulam
Panchayat in Trivandrum district of Kerala
RAKHI.
R
Higher Secondary School Teacher
(Commerce)
NSS Higher Secondary School,
Chathannoor, Kollam Dist., Kerala
Biju S K
Assistant Professor of Commerce
Government Arts College
Trivandrum, Kerala
Abstract
As
per the recommendations of various Finance Commissions of the State of Kerala,
the Government have devolved large quantum of funds to the Local Self
Governments in Kerala. The Gram Panchayats alone have strong revenue assignments
and they hold the commanding heights of PRI finance in the State. It is the
ripe time to assess the efficiency of the management of funds by these LSGs, as
20 years have been passed after the enactment of 73rd and 74th
Constitutional Amendments. This induced to pump large volume of funds to LSGIs.
Here an attempt is made to analyse the four pillars of financial management of
GPs, viz resource mobilisation, utilisation, budgeting and accounting. The
elected representatives are not bothered about the financial management and the
officials are not capable of giving valuable suggestions in this regard. The
budgeting, finance standing committee meeting and monitoring of expenditure are
ritual, deepens the issue.
1.
Background
The continued
failure of centralized governance and the increasing desire for good governance
prompted the policy makers the world over to pay serious attention on
decentralization for the past few decades. India too witnessed a distinct
swing of pendulum towards democratic decentralization in early nineties.( Bandhopadyaya,
D, 1997) The 73rd and 74th
Amendments to Indian Constitution gave a big shift towards local
governance through decentralization (Bijukumar, V, 2000).
In view of 73rd and
74th Amendments, state of Kerala initiated a new political process
through decentralization since 1994. The reforms on decentralization through
legal, fiscal, and administrative aspects have made a big leap towards vibrant
local governance in the state. The State had devolved functions, functionaries,
and funds to local self governments (LSGs) to function as institutions of self
governments. Nearly one third of the state exchequer to the LSGIs from the 9th
Five Year Plan .The development fund (Chathukulam Jos and Jose T Thomas, 1997).
Majority of Grama Panchayats(GPs) are collecting taxes and fees constitutes for
the own source of revenue. These funds are used for developmental activities
and for poverty alleviation, the basic aim of LSGIs (Franke, Richard W and Barbara H
Chasin 1998). The management of funds is the basis for the attainment of the
twin objectives of LSGIs.
2. Research Problem
The Grama Panchayaths are entrusted with the
functions which fall into 3 categories viz, Mandatory functions (27functions),
General functions (14functions) and sectorial functions (19 sectors); Comprising a total of 60
functions (KPRA 1994). Funds are scares and the responsibilities entrusted are
numerous. The only way to tackle this situation is to manage the funds in proper
way to meet the functions in an effective manner. Whether the Kanjiramkulam Gp
is performing a better financial management? What is the status of own fund
collection? How the utilization of funds does take place? What is the status of
accounting and budgeting activities? Are some of the pertinent questions. The management of finance is gray areas in
GPs are concerned though there is finance standing committee to look after
these things. So it is needed to measure the efficiency of management of funds
in Kanjiramkulam GP to give suggestions for improvement.
3.
Aim and Objectives
Here an attempt is made to analyse the four pillars
of financial management of LSGIs viz; the source application, accounting and
budgeting.
4.
Methodology
Secondary data is analysed in this paper. An unstructured
interview with Finance Standing Committee members, Secretary and Accountant of
the GP and Focussed Group Discussion (FGD) were conducted for finalisation of
findings and conclusion.
5.
Analysis
and Interpretation
In order to study the financial performance of Kanjiramkulam
GP, the method of data collection resorted to was a scanning of financial
statements as well as opinion survey from the officials and elected
representatives connected directly with the management of funds. In order to
get a peripheral view about the financial statements the researcher relied on
the Annual Financial statements of last five years of the GP, which shed light on the financial policies and
practices of the GP. The analysis of AFS data, observed facts and interview
with the officials and elected representatives concerned are discussed as
under.
5.1.Management
of Cash and Bank Balances
As the part of
working capital the management of cash plays a vital role in the success and
failure of policies. So as the part of analysis researches first made the trend
of cash and bank balances
Table
No 1.
Cash and
Bank balances of the Grama Panchayath
|
Trend percentage of cash in
hand
|
||||
|
Years
|
Amount
|
Percentage
|
Amount
|
Percentage
|
|
2008-09
|
37740
|
100
|
488626
|
100
|
|
2009-10
|
61913
|
164.05
|
366288
|
74.96
|
|
2010-11
|
70531
|
186.88
|
1519470
|
310.96
|
|
2011-12
|
6381
|
16.9
|
1413668
|
289.31
|
|
2012-13
|
35172
|
93.19
|
5155273
|
1055.05
|
Source: AFS of
GP
Table 1 shows the trend percentage of
closing cash balance of the GP. From the year 2008-09 to 2012-13, the cash
balance varies from 100 to 187 and then a sharp decrease to 17% and the like variation reveals the poor
management of cash position. During 2012-13 the cash balance is 93% of 2008-09.
The current year’s cash balance is very low. The officials informed that the
major reason is the counter collection is less. Bank balance is increasing in
each years but a huge increase during 2012-13 shows that dead money on bank,
and poor management of cash and bank balance. Which means the financial
position is not so stable and not profitable. The discussion with the officials
reveals that there is no policy of depositing the excess amount in profitable
means.
5.2.The increase / Decrease in Capital
Budgeting (Asset creation)
The capital budgeting is an importance decision in every organization.
But as the peculiar nature of the GPs in Kerala, the researchers made a trend
analysis of the expenditure on assets creation
Table 2.
Asset creation of the GP
|
Trend percentage of
asset creation
|
||
|
Last five years
|
Amount
|
Percentage
|
|
2008-09
|
1688257
|
100
|
|
2009-10
|
2014465
|
119.32
|
|
2010-11
|
2038536
|
120.74
|
|
2011-12
|
3702034
|
219.28
|
|
2012-13
|
5412588
|
320.6
|
Source
: AFS of GP
Table 2.
Shows that trend of asset creation in the last five years is good. It is
increasing on moderate rate for 3 years and a sudden hike in next 2 years. It
means that they are spending increased amount year to year. Comparing to the
base year in the last year it is increased by 220.6% of base year.
5.3.
Management of Source of
Funds
The main sources of funds of GP are own funds and
funds from the Government in the form of budget envelop. The relevance of
management of source of fund arises in connection with own fund management. So
the researcher is concentrated only in own sources of funds. The owned fund
includes Property tax, profession tax, entertainment tax, show tax and other
fees.
Table .3.
Own Fund of the GP
|
Trend percentage of
own fund
|
||
|
Last five years
|
Amount
|
Percentage
|
|
2008-09
|
1004134
|
100
|
|
2009-10
|
1468933
|
146.28
|
|
2010-11
|
1837704
|
183.01
|
|
2011-12
|
2295904
|
228.64
|
|
2012-13
|
2892432
|
288.05
|
Source: AFS of GP
Table. 3. Shows that there is an
increasing trend in own fund mobilisation. Owned fund includes both the tax and
nontax revenue. In the current year the trend percentage is 288.05. This is a
high growth of own fund. The main reason for the increase is increased
collection of tax revenue. Here there is a contradiction that the collection of
tax revenue and the cash balance position. If the tax revenue collection is more
the cash position will also be more. If a cross verification of cash position
in table 1 with the own tax collection table 3 reveals that though there is tax
collection the cash and bank position is not showing the same direction. It may
be due the wide fluctuation in the expenditure or payments. The figure also
gives the information that there is a clear increase in the own tax
mobilisation.
5.4.Management of application of Funds
In the case of application of funds includes
capital budgeting and revenue expenditures. In this session deals the major
expenses like establishment expenses, social welfare pensions and street light
maintenance.
Table
No 4.
Establishment
expenses
of the Gp
|
Trend percentage of
establishment expenses
|
||
|
Last five years
|
Amount
|
Percentage
|
|
2008-09
|
413269
|
100
|
|
2009-10
|
579576
|
140.24
|
|
2010-11
|
466384
|
112.85
|
|
2011-12
|
772686
|
186.96
|
|
2012-13
|
863085
|
208.84
|
Source: AFS of the GP
Table No 4. Shows that the amount used for
establishment expenses of the last five years that give a precipitous hick. The absence of effective management is the
reason for this situation.
5.5.Analysis
of Receipts and Payment of GP
The
table no. 5 (appended) shows that the cash has wide fluctuations. The cause of
this problem is the absence of good financial management. The financial
management helps to the effective utilisation of funds in their bank balance
including Treasury bill, shows a decreasing trend from the total receipt the
cash at bank cover a small portion. During the years 2012-13 there is a quick
increase in the total receipts (62101438) the reason may be innovation of SANKHYA[1](Government
of Kerala, 2010). The SANKHYA is a soft ware that helps to prepare the
Panchayath accounts in a systematic manner. Before introducing SANKHYA accounts are not maintained properly. Plan and Non-plan funds are included in
revenue and capital expenses they are not treated separately.
6.
Towards
Scientific Accounting
The
evaluation report on decentralised experience in Kerala states that Accounting
and data retrievability at the Panchayat Raj Institution(PRI) level are very
week. To rectify this, (a) PRIs accounts must be integrated with general plan
accounts in their format, contentand timeliness and (b) maintenance and flow of
information (forward and backward) including reporting of financial and
physical progress needs to be computerised forthwith (Government of India,
2006). In response to this report and recognising the importance Accrual Based Double
Entry System of Accounting(ABDESA), the Government of Kerala (GoK) implemented
the system on a computerised mode. The Information Kerala Mission (IKM)
developed software named SAANKHYA for the implementation of computerised ABDESA
in PRIs. GoK also framed Kerala Panchayt Accouts Rules (KPAR) and enforce it
w.e.f 2011-2012(Government of Kerala, 2011a). This rule provides a
comprehensive picture about the accounting system, accounting expenditure,
investments, specific grants and funds, preparation of financial statements and
formats of accounts and reports. GoK
also issued an order prescribing the accounting policies and codification
structure for the accounting of the Panchayats (Government of Kerala, 2011b).
This order mandated the PRIs to maintain their books of accounts on accrual
basis under the double entry system of accounting. This changed the financial
management scenario and it is evident in the Kanjiramkulam GP of Trivandrudm
District.
7.
Participatory Budgeting Process
7.1. Planning Process
Govt. introduced decentralized
planning in a massive scale from the year 1996-97. The preparation of five year
plans and the annual plans resulted virtually in the formation of plan budgets
of the panchayats. The annual plan document which in other words can be termed
the plan budget of the panchayat is prepared with the accuracy and exactitude
as far as estimated expenditure and estimated resources are concerned. In
short, annual planning and plan budgeting has been in existence in Kerala from
the year 1996-97. The fact that such a plan budget is formed with people’s participation
to the full extent at every level makes it unique. The internationally
acclaimed models like the Porto-Alegre Participatory budgeting, Town of Cary
budgeting and the Kerala plan formulation are distinct from other methods of
budgeting because all these three are the best examples of participatory
budgeting.
The participatory planning in
Kerala is being guided by the plan formulation guidelines issued year to year.
Consequent to the experience sharing and the improvements incorporated in the
plan formulation guidelines, the planning process in Kerala has been stabilized
and institutionalized. It has all the
ingredients of participatory budgeting. Section 214 of the KPRAct stipulates
that the budget should incorporate the estimated expenditure as per the annual
plan document prepared under Section 175 of the Act. The components in the
panchayat budget are estimated plan/non-plan expenditure and the estimated
resources.
7.2. The Components of a Model Budget
A model budget evolved through
people’s participation will have three essential components namely 1) Estimated
resources (own and other) 2) Estimated non-plan expenditure and 3) estimated
plan expenditure. Of this the estimated plan expenditure is budgeted through
peoples participation from the 9th Five Year Plan period. If we can
add to it the resource estimation and the estimated non-plan expenditure, the
budget process will be completed. In
order to have a comprehensive budgeting with people’s participation, no new
procedures are to be evolved. If the existing plans formulation process is
expanded to include estimations relating to recourses and non-plan expenditure
we will have a unique model budget.
7.3.Difference
Between Budget of the State and Panchayat
There is a basic difference between
the budget of the state government and the budget of a panchayat. The annual
financial statement presented before the legislature by the Finance Minister as
prescribed under Article 202 of the Constitution of India shows the estimated
receipts and expenditure for the next year for the entire finance of the state
consisting of consolidates fund, Contingency fund and Public Account. The
annual financial statement as such is not subjected to the vote of the
legislature. The legislative votes only on the Demands for Grants which
represents only the voted portion relating to estimated expenditure under the
consolidated fund, as per article 203 of the constitution. As against the
entire estimated income and expenditure are subjected to the vote of the
Panchayat for passing the budgets as per section 214 of the Act. In order to
appropriate money from the consolidated fund which has been allowed by the
legislature by passing the demands for grants, the legislative has to pass the
appropriation bill in terms of the Article 204 of the constitution. However S.
214 of the Act does not envisage two voting’s of the panchayat as in the case
of legislature (KPRA, 1994). Passing the budget itself conveys the approval of
the panchayat for the appropriation of money. In the budget of the panchayat,
recourse estimation and expenditure control are of equal importance.
The Kanjiramkulam GP follows a
participatory budgeting system and then onwards prepares plans for the implementation.
Because the budgeting process starts during January, stake holder discussions,
estimations, finalization and passing of budgets before 31st March,
every year is mandatory as per KPRA. The Gramasabha for plan preparation starts
during April every year. This is the
reason, according to officials, that the major hindrance for the integration of
budgeting and planning of LSGIs in Kerala.
8.
Findings
Finance is a field within economic that
deals with the allocation of assets and liability over time under condition of
certainty and uncertainty. Finance is an art of managing various available
resources like money, assets, investment, securities etc…Financial
management is properly viewed as an
integral part of overall management rather than a staff specialty concerned with
fund raising operations. It may therefore, be said that finance functions are
related to overall management of enterprises.
8.1.The
major observations are;
1.
The trend of balance of cash varies from 17% to 189% during the last five
years
2.
The trend of bank balance varies from
75% to 1055% during the analysis period
3.
As the case of asset creation, the trend
shows a uniform increase throughout these years.
4.
The owned fund collection increased
nearly three times during the five year period form 10 lakhs to 29 lakhs.
5.
The establishment expenses shows fluctuations,
and doubled during the two year period shows the increase in the salary and
perks of employees.
8.2.Poor
cash management
The management
of cash as well as bank balance is evident in its wide fluctuation. There is no
monitoring on these balances, and the financial standing committee monthly
meeting is not concentrate on the management of cash.
8.3.Strive
for Asset Creation
There is a
constant increase in asset creation. It
shows that the elected members are very much conscious about the development
work rather than the efficient management of funds.
8.4.Missing
Synergy
There is no team
work among the officials for effective performance of tax management. Also
effective coordinating between the elected representatives and officials is
generally absent. The hierarchical relation more pronouncing, weakening
teamwork and synergy.
8.5.Blame
Game
There
is a general tendancy of finding fault with elected representatives by
officials and vise versa, and also senior officials to juniors, HC to
accountant, etc .It is interesting to note that all are blaming each other .The
blame game and binds all stake holders together with shared vision and
commitment which have been missed in financial management. This helps to shirk
from responsibilities of all those concerned
8.6.Lack
of resource
Lack of adequate
finance comes in the way of effective functioning. Panchayats on this account
alone are not able to take up any programme of development of the rural area
for provision of civic amenities.
8.7.ABDESA
The Kanjiramkulam GP implemented SAAKNHYA software
for accounting purpose and the effect can be found in the increase in own
source of funds. The preparation and reporting are happening but the absence of
analysis and monitoring may be the reasons for poor financial management.
8.8.Participatory
Budgeting
The GP follow budgeting process
which is participatory but the preparation of plans is happening after
finalization of budgeting. The review of documents gives the fact that there is
no synchronization between planning and budgeting.
9.
Major
Suggestions
The following
are the suggestions of this study
- They
are keeping bank balance in Savings Account, If the excess is deposited in
Fixed deposit (FD), it may fetch income. So it is advisable to ascertain
the minimum balance required and convert the balance for FD. They can
prefer the flexi deposits accounts also if the same is not contrary to Act
and Rules.
·
The collection of property tax is weak.
It is advisable to use additional field
staff may be have hired for the collection of own tax revenue.
·
There are not keeping cash balance on the basis of MILLOR-ORR MODEL. If they fix a standard balance of cash/ bank
balance and increase or decrease beyond a certain limit be invested in outside securities to earn income.
·
Effort should be taken to increase the
own fund collection.
·
GP should try to improve team work among
the staff and elected representatives
·
Soft ware’s should be installed for
proper maintenance of accounts
·
The Annual Financial Statements should
be prepared in uniform basis for easy analysis
·
Continuous training on Management of
Funds, software’s, technological advancement, and interpersonal skill.
·
The finance standing committee meeting
should analyze the expenses, income and the cash balances and should provide
proper guidelines to the officials.
·
The performance evaluation of employees
should be made on month wise to ensure effectives of management.
·
The synchronization of planning and
budgeting should be followed.
·
Middle level management should be
strengthened.
·
To reduce workload, e-governance
activities should be streamlined.
10.
Conclusion
Finance
is the life blood of every organization, no exception to the government also.
No government can perform any activity without money. Administration and
finance are the as inseparable as a body and its shadow. All administrative
acts involve expenditure of money. Finance fuels the administrative engine.
Without it the later cannot operate rightly. Panchayath is a part of local
administration. Panchayat is closely related to the rural people .Panchayath
play an important role in our life. The financial management is used in a broad
sense to include all the processes involved in collecting, budgeting,
appropriating, expending public moneys. The performance Kanjiramkulam GP is not
up to mark due to inefficient collection and utilization of funds. The asset
creation is also go in a moderate growth. If mange properly, the GP can perform
much better, and play the role effectively.
References
1.
Bandhopadyaya, D, 1997: ‘People’s Participation in Planning:
Kerala Experiment’, Economic and Political Weekly, September 27, pp
2450-54.
2.
Bijukumar, V, 2000: ‘In Response to
Development Crisis: Decentralised Planning and Development in Kerala’, Journal
of Rural
Development, Vol 19, No 3, July-September, pp 353-69.
3.
Chathukulam Jos and Jose T Thomas, 1997: ‘Power to the
People: People’s Campaign for the Ninth Plan in Kerala’, Kuruksehtra, Vol 45,
No 9, June, pp 34-37.
4.
Franke, Richard W and Barbara H Chasin 1998: ‘Power to
the Malayalee People’
http://chss.montclair.edu/anthro/z97.html
5.
Government of India, 2006:
Evaluation Report of Decentralised Experience of Kerala, Programme Evaluation
Organisation, Planning Commission, Government of India, New Delhi.
6.
Government of Kerala, 2010: Prescribing
the Mandatory use of application Softwares SAANKHYA and Sulekha all LSGIs,
GO(MS) 308/2010/LSGD, Dated 23-12-2010
7.
Government of Kerala, 2011a: Kerala Panchayat
Raj (Accounts) Rules, GO(MS) 83/2011/LSGD dated 28.03.2011
8.
Government of Kerala, 2011b:
Prescribing Accounting Policies and Codification structure for the Accounting
of the Panchayats, GO(MS) No 152/2011/LSGD dated 26.07.2011.
9. KPRA, 1994, Kerala Panchayat Raj Act
and Rules, 6th edn., Em Tee En Publications, Kochi.
10. Rajan J.B and Biju S K, 2013: Towards
Scientific and e- Accounting in Panchayats of Kerala, KILA Journal of Local
Governance, Trissure, Vol 1. No.2.
[1] Accounting software
developed by the government agency named Information Kerala Mission (IKM) for the
accrual based double entry accounting work of Local Self Governments in Kerala.
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