ACCOUNTING MANUAL Version1.26

Transcription

1 ISLAMIC REPUBLIC OF AFGHANISTAN MINISTRY OF FINANCE TREASURY GENERAL DIRECTORATE ACCOUNTING MANUAL Version Hoot 1390

2 Islamic Republic of Afghanistan Ministry of Finance Treasury Department Treasury Accounting Manual Version_ Hoot 1390 ii

3 TABLE OF CONTENTS 1.0 INTRODUCTION PURPOSE OBJECTIVE AUTHORITY APPLICABILITY REFERENCES GOVERNANCE AND ACCOUNTING FRAMEWORK GENERAL OFFICE OF THE PRESIDENT CABINET NATIONAL ASSEMBLY MINISTRY OF FINANCE BUDGET UNITS LINE MINISTRIES AND INDEPENDENT AGENCIES LINE DIRECTORATES (PROVINCIAL LINE MINISTRIES) CENTRAL AUDIT OFFICE DA AFGHANISTAN BANK (DAB) ACCOUNTING INFORMATION SYSTEM GENERAL AFGHANISTAN FINANCIAL MANAGEMENT INFORMATION SYSTEM (AFMIS) FUND ACCOUNTING CASH BASIS OF ACCOUNTING CHART OF ACCOUNTS STANDARDS AND ETHICS BUDGET EXECUTION AND CONTROL OVERVIEW APPROPRIATIONS (APPROVED BUDGET) ALLOTMENTS FINANCIAL BUDGETING (SUBALLOTMENTS) COMMITMENTS BUDGET CONTROL LEDGERS ACCOUNTING FOR EXPENDITURES GENERAL ORDINARY AND DEVELOPMENT EXPENDITURES NON SALARY ORDINARY AND DEVELOPMENT EXPENDITURES SALARIES DEVELOPMENT BUDGET EXPENDITURES ADVANCES AND ACQUITTALS TRAVEL EXPENDITURES AND ADVANCES PETTY CASH FUND GENERAL SETTING UP A PETTY CASH FUND PETTY FUND CASHBOOK PETTY CASH ACCOUNTING AND DISBURSEMENT iii

4 6.5 PETTY CASH REPLENISHMENT AND ACQUITTAL CASH COUNTS AND MONITORING OF PETTY CASH FUNDS ACCOUNTING FOR REVENUE GENERAL REVENUE COLLECTION PRIMARY BUDGET UNITS REVENUE COLLECTION DEDUCTIONS FROM M 16 PAYMENT ORDERS REVENUE COLLECTION MUSTOFIATS ASSETS AND INVENTORY REPORTING OVERVIEW BUDGET AND EXPENDITURE REPORTS MANUAL BUDGET AND EXPENDITURE REPORTS AUTOMATED (AFMIS) FINANCIAL STATEMENTS RECONCILIATIONS AND YEAR END CLOSING OVERVIEW OFFICIAL BANK ACCOUNTS M 30 BANK LEDGER T 8 BANK RECONCILIATION STATEMENT JOURNAL VOUCHERS AND CORRECTING ENTRIES MONTHLY RECONCILIATION ANNUAL RECONCILIATIONS AND CLOSING PROCEDURES OTHER ACCOUNTING PROCEDURES LETTERS OF CREDIT DISBURSEMENT OF DISASTER FUNDS ACCOUNTING FOR GOVERNMENTAL TRADE AGENCIES INTERGOVERNMENTAL ACCOUNTING TAMINAT ACCOUNTING TAZMINAT (BID SECURITY) ACCOUNTING TRUST FUND ACCOUNTING EMERGENCY EXPENDITURES CONFIDENTIAL FUNDS APPENDIX A: ACRONYMS...A 1 APPENDIX B: DEFINITIONS... B 1 APPENDIX C: LIST OF REASONS TO REJECT M 16 PAYMENT ORDER... C 1 APPENDIX D: FORM INSTRUCTIONS... D 1 M 2 CASH PURCHASE ORDER... D 3 M 3 PURCHASE ORDER... D 6 M 7 GOODS RECEIVED NOTE... D 9 M 10 REQUEST FOR ADVANCE... D 12 M 11 MISCELLANEOUS COMMITMENT DOCUMENT... D 15 M 12 ADVANCE ACQUITTAL... D 17 M 13 TRAVEL ORDER FORM... D 20 M 16 PAYMENT ORDER... D 23 M 20 ALLOTMENT CONTROL LEDGER... D 28 M 22 MONTHLY STATUS OF ALLOTMENT REPORT... D 31 M 25 MISCELLANEOUS REVENUE COLLECTION... D 40 iv

5 M 26 REVENUE DEPOSIT FORM... D 43 M 27 REVENUE COLLECTION VOUCHER... D 45 M 29 MONTHLY REVENUE COLLECTION REPORT... D 47 M 30 BANK LEDGER... D 49 M 33 JOURNAL VOUCHER... D 51 M 38 BUDGET CONTROL LEDGER... D 53 M 40 PAYROLL LEDGER (INDIVIDUAL PAY AND DEDUCTION REPORT)... D 58 M 41 PAYROLL... D ERROR! BOOKMARK NOT DEFINED. M 50 AUTHORIZED SIGNATORY SIGNATURE SAMPLE... D 63 M 75 REQUEST FOR ESTABLISHMENT OR UPDATE OF PETTY CASH FUND... D 65 M 76 CASHBOOK... D 68 M 80 SUBALLOTMENT CONTROL LEDGER... D 70 M 90 UNAPPLIED BALANCES LEDGER... D 72 M 91 FINAL ACCOUNTING REPORT... D 74 T 8 BANK RECONCILIATION STATEMENT... D 77 APPENDIX E: GUIDING PRINCIPLES FOR FINANCIAL CONTROLLERS (NEED TO REVISE TRANSLATION)... E 1 APPENDIX F: SUBMISSION REQUIREMENTS TO TREASURY BY SELECT FORM... F 1 Table of Figures FIGURE 1: SAMPLE M 20 ALLOTMENT CONTROL LEDGER FIGURE 2: PHASE #1 ORDINARY AND DEVELOPMENT EXPENDITURE WITH POST PAYMENT FIGURE 3: PHASE #2 ORDINARY AND DEVELOPMENT EXPENDITURE WITH POST PAYMENT FIGURE 4: ORDINARY EXPENDITURE WITH POST PAYMENT AND PARTIAL PREPAYMENT FIGURE 5: SALARY EXPENDITURE PAYMENT THROUGH A BONDED TRUSTEE FIGURE 6: SALARY EXPENDITURE PAYMENT THROUGH DIRECT DEPOSIT FIGURE 7: TYPICAL ADVANCE AND ACQUITTAL PROCESS FIGURE 8: TRAVEL EXPENDITURES AND ADVANCES FIGURE 9: PETTY CASH SETUP PROCESS FIGURE 10: SAMPLE CASHBOOK FIGURE 11: PETTY CASH TRANSACTION PROCESS FIGURE 12: PETTY CASH REPLENISHMENT AND ACQUITTAL PROCESS FIGURE 13: ORDINARY REVENUE COLLECTION PRIMARY BUDGET UNITS FIGURE 14: REVENUE COLLECTION ENTRY IN AFMIS BY MUSTOFIAT FIGURE 15: LIST OF FORMS AND LEDGERS... D 2 v

6 1.0 Introduction 1.1 Purpose The Treasury Account Manual ( Accounting Manual or Manual ) sets forth the general policies, procedures and rules to be followed by state administrations and budget units in the accounting and administration of the Government of the Islamic Republic of Afghanistan ( GoIRA ), also referred to as the Government in this Manual. In addition to acting as the primary policy document of the GoIRA Treasury Department ( Treasury ) on all accounting matters, the purpose of the Accounting Manual is to provide a comprehensive set of instructions which allows accounting officers and other users of the Manual to complete the various procedures that constitute the GoIRA accounting cycle. The Manual includes step by step instructions on filling out accounting forms, process flows, descriptions of roles and responsibilities within the GoIRA governance structure, reporting and reconciliation requirements, key definitions, descriptions of IT systems, and accounting standards and principles. Supervisory and accounting personnel and other employees of the government concerned with budgeting, accounting and other fiscal operations of the government should use this manual for reference to the policies, procedures and rules directly affecting their work and the units to which they are assigned. This Manual also serves as a means of orienting accounting personnel to the general functions and objectives of financial administration and training new employees in the duties and responsibilities of their positions. 1.2 Objective The objective of the Account Manual is to provide the basis of an Accounting Information System on behalf of the GoIRA that provides transparency in financial transactions, public trust in financial management and for the effective implementation of national public policy priorities and programs through effective budget execution and reporting. 1.3 Authority This Manual is enacted in consideration of the Constitution of Afghanistan and the Public Finance and Expenditure Management Law ( PFEML ). As per Article 75 of the Constitution of the GoIRA, the Ministry of Finance has the authority to conduct the financial affairs of the Republic, protect public assets, prepare the budget, and manage the public expenditures of the state. Under Article 4 Ministry of Finance Responsibilities and Authorities of the PFEML, the Ministry of Finance is responsible for implementing the provisions of the PEFML as it relates to the setting of financial and public expenditure policies and has full authority to set financial and public expenditure policy of Afghanistan and to adopt procedures (tarzulamal) and rules (layeha), for [ensuring] better implementation of this [PEFM] law. Furthermore, under Article 90 of the Finance Regulations The MOF issues procedures mandating the forms, use, and presentation of the accounting documents, ledgers, and reports. Under Article 7 Treasury Responsibilities and Authorities the Treasury is charged with implementing the budget and performing expenditure controls in accordance with revenue and expenditure plans and providing information pertaining to funds, assets and commitments, appropriations and allotments in accordance with the provisions of this law and other Treasury instructions. GoIRA Accounting Manual 1 1

7 Completing updates and changes to the Accounting Manual are the responsibility of the Treasury. Amendments to any section of the manual are approved by the Treasury before being submitted to the Ministry of Finance for final approval. The Treasury also supervises distribution of updated versions of the Manual and amendments thereto. 1.4 Applicability General Applicability of the Accounting Manual is based on the Coverage Section of Article #1 of the Finance Regulations. Specifically, under Paragraph (3), These Financial Regulations shall apply to all units of the State and the staff involved in the financial management for the government units and are be used together with the annual budget procedures adopted by the National Assembly, the PFEML, procedures, rules, and treasury instructions issued by the MOF for the purposes of managing public finance and expenditure. As per Article #2 of the Finance Regulations, the regulations are applicable up on all governmental office (budget units) that manage their expenditures according to the allotment advice. This includes State Administrations as defined under Article 2 of the PEFML as all administrations which are established within the framework of the Executive, the Legislative or the Judiciary inside or outside Afghanistan, in accordance with law Exceptions As per Paragraph (2) of Article #2 of the Finance Regulations all other units of the state(governmental companies, enterprises and the companies that government has more than 51% share have their own documentations and thus the general guidelines and procedures in the Accounting Manual do not apply. In addition, as per Paragraph (3) of Article #2, The Ministry of Finance may establish exceptions in applying these regulations for the entities of the State other than the entities operating on for profit basis. This regulation applies to the Accounting Manual. 1.5 References Additional references and information related to accounting and financial transactions can be obtained from the following sources: The Constitution of Afghanistan, Year 1382 Public Expenditure and Financial Management Law (PEFML) Financial Regulations Developed pursuant to Public Finance and Expenditure Management Law, Gazette #893 Afghanistan Procurement Rules of Procedure, Procurement Law, revised January Chart of Accounts 1 Afghanistan Income Tax Law 2009 Afghanistan Reconstruction Trust Fund (ARTF) Manual for The Chart of Accounts is updated and approved by the Ministry of Finance on an annual basis. As of the original publication of this document, the Chart of Account was Version 3 for GoIRA Accounting Manual 1 2

8 A Handbook for Accounting and Reporting of Development Budget Transactions in the Provincial Mustofiats SDU Procedure Guidelines for Implementing Agencies Ministry of Finance Budget Manual for 1389 IFRS Cash Basis Accounting from IPSAS, 2010 Handbook Verification Payroll Program(VPP) Manual GoIRA Accounting Manual 1 3

9 2.0 Governance and Accounting Framework 2.1 General Primary responsibility for the government s financial administration is shared between the Ministry of Finance and its Mustofiats, which are the provincial departments of the Ministry of Finance. The Treasury Directorate within the Ministry of Finance administers the Accounting Information System and is responsible for making all payments for the GoIRA. The functions and responsibilities of these organizations have been assigned and defined by the PEFML and Finance Regulations in addition to subsequent administrative rules and regulations issued by the Minister of Finance and the Cabinet. In addition, several offices within State Administrations, most notably the Directorates of Finance, play an important role in the administration and management of the GoIRA Accounting Information System. 2.2 Office of the President The President has sole authority to pass decrees of an administrative nature including those that may impact or require changes to existing accounting policies and procedures. In addition, the President signs the annual budget, makes appointments within the Ministry of Finance and approves legislation presented by the National Assembly. 2.3 Cabinet The Cabinet reviews and approves the draft annual budget submitted by the Ministry of Finance. The Cabinet also has the authority to adopt regulations to be implemented by the line ministries. 2.4 National Assembly The National Assembly has the authority to ratify, modify, or abrogate laws and legislative decrees. This includes review and approval of the final annual budget law and changes to the PEFML. 2.5 Ministry of Finance The Minister for Finance is the Chief Financial Officer of the GoIRA and as such is assigned primary responsibility for the administration of the financial affairs of the government. In this responsibility, the Minster is assisted by three departments: Revenue, Treasury and Budget and its provincial Mustofiats. The Ministry of Finance is also able to delegate specific budgeting and accounting functions to State Administrations. Specifically, the Minister of Finance is responsible for completing tasks as follows: 1) Prescribes and requires the installation of uniform systems of bookkeeping, accounting and reporting for the state administrations and budget units of the government; 2) Prescribes the form of the National Budget and the methods and procedures for its preparation and execution; 3) Submits the National Budget to the Cabinet and National Assembly; 4) Determines the apportionment of appropriation and establishes contingency reserves and savings accounts at DAB 5) Provides oversight of the Revenue, Treasury and Budget General Departments 6) Formulates procurement policies and procedures within its Procurement Policy Unit (PPU) Treasury General Department The Treasury is primarily responsible for the disbursement of allotted funds and the completion of accounting functions including recording of transactions and financial reporting. It also has GoIRA Accounting Manual 2 1

10 other responsibilities related to financial, cash and debt management of GoIRA funds. Specific responsibilities and tasks to be completed by the Treasury are as follows: 1) Collects financial data and compiles the financial statements for the GoIRA 2) Processes payments for state administration expenditures in the ordinary and development budget 3) Manages the Special Disbursements Unit which is responsible for processing payments for expenditures from line ministry development projects funded by international donors appropriated in the development budget 4) Maintains official accounting records related to exchange of assets between budget units 5) Issues allotment advice authorizing primary budget units to make commitments and expenditures 6) Reviews line ministry contracts 7) Manages GoIRA cash assets and financial investments 8) Manages GoIRA debt payments and servicing 9) Acts as the GoIRA Agent for municipal borrowings 10) Provides instructions for the setup and maintenance of official bank accounts and payment procedures within the Treasury Single Account; defines the Treasury Single Account structure of accounts and sub accounts and ensures necessary cooperation from the DAB for opening and closing official bank accounts 11) Executes the budget and performs expenditure controls in accordance with revenue and expenditure plans and provides information pertaining to funds, assets and commitments, appropriations and allotments in accordance with the provisions of the PEFML and other Treasury instructions 12) Maintains the GoIRA General Ledger and records transactions according to budget classification and accounting rules 13) Provides regular reports on the implementation of the government s budget and other financial matters for the Ministry of Finance 14) Upon the confirmation of the Ministry of Finance, issues necessary instructions covering financial management and accounting policies and procedures 15) Supervises, develops and maintains the Afghanistan Financial Management Information System (AFMIS) and other accounting systems 16) Advises and assists budget unit accounting personnel with specific accounting and technical problems 17) Supervises petty cash funds and provides advances to budget units 18) Opens Letter of Credit for budget units 19) Prepares Financial Plans for the budget units to assist in the efficient allotment and disbursement of budgeted funds 20) Manages the Verification Payroll Program 21) Performs other responsibilities delegated in accordance with provisions of the PEFML. GoIRA Accounting Manual 2 2

11 2.5.2 Revenue General Department The Revenue General Department is responsible for the administration of all taxes and revenue sources other than customs duties. The Revenue General Department is responsible for the assessment and collection of taxes, developing revenue policy and procedures, formulating proposals for new revenue measures, forecasting revenue for budget formulation and management purposes and maintaining and operating revenue information systems Customs General Department Customs General Department is responsible for the collection, transfer and reporting of customs revenue at Afghanistan border crossings Budget General Department The Budget General Department is responsible for tasks as follows: 1) Manages the annual budget process 2) Issues procedures to state administrations for preparation and requesting of budget and appropriations 3) Coordinates with the Budget Committee 4) Prepares the Fiscal Strategy Report 5) Prepares the unconsolidated budget 6) Appropriates funds based on the final approved budget 7) Allots appropriations to the line ministries and other primary budget units on a quarterly basis 8) Managing changes to appropriations and allotments after the initial budget execution 9) Maintains a close working relationships with Treasury and line ministry budget and finance offices to assure the availability of financial data for budgetary purposes Mustofiats Mustofiats are the 34 provincial offices of the Ministry of Finance that provide most of the same services as the Ministry of Finance but for provincial and district offices of the line ministries including controlling, accounting for and reporting financial transactions. Each Mustofiat includes a Revenue Collection Office, Treasury financial controllers and Accounting Office. Mustofiats tasks are as follows: 1) Process payments of line directorate expenditures 2) Receive suballotments from the primary budget units for the line ministry functions in the provinces 3) Records, controls and reports financial transactions in AFMIS and other control ledger accounts 4) Process all expenditure in accordance with rules and regulations though relevant Governor s Office 5) Maintain summary accounting records for all government funds which reflect all the assets, liabilities, reserves, surpluses or deficits, revenues, receipts and expenditures 6) Record, control and report revenues to the Treasury collected by line directorates on time and on regular basis 7) Acquit advances provided to line directorates 8) Receive and process regular financial reports from district offices GoIRA Accounting Manual 2 3

12 Mustofiats are under the direct operations of the Ministry of Finance and must comply with all sections of this Manual, if appropriate Treasury Financial Controllers Finance controllers are employees of the Treasury or Mustofiats responsible for pre audit controls of all accounting transactions according to the directions issued by the Ministry of Finance and the Treasury. Financial controllers although employed directly by the Treasury are located at the line ministries and review transaction and other supporting documents prior to sending them to the Treasury or Mustofiats for payment processing. Financial Controllers play a very important role in the Accounting Information System related to managing the internal control procedures of this Manual and other policies that are key to eliminating waste, abuse and fraud in the GoIRA. Given this importance, the Treasury has developed a set of guiding principles to be used by all financial controllers. These guiding principles are displayed in Appendix E Guiding Principles for Financial Controllers Treasury Special Disbursements Units (SDU) Special Disbursement Unit (SDU) is an unit within the Treasury Department of the Ministry of Finance that is responsible for processing payment requests for donor grants/loans and accounting thereof. Apart from making the disbursement, the unit is also responsible for liaison with the donors and liaison with the Implementing Agencies in respect of donor related issues. 2.6 Budget Units General As defined by Article 7 of the Finance Regulations, budget units are state administrations with authorities and responsibilities related to the financial management of the GoIRA. Budget units are setup and created by the Ministry of Finance and the Cabinet. As defined by Chapter 2 of the Finance Regulations, they have the following tasks and authorizations: 1) Receive Advice of Allotments 2) Employ permanent and temporary civil servant staff to complete assigned tasks 3) Enter into contracts to acquire goods and services necessary for executing the delegated functions 4) Ensure safe custody and purposeful utilization of assets and cash entrusted 5) Settle commitments by working with the Treasury to disburse allotted funds 6) Execute contractual obligations 7) Ensure due diligence and independent processing of accounting transactions 8) Maintain accurate accounting records and documents, and production of timely and truthful reports compliant with procedures and directions issued by the Ministry of Finance Primary Budget Units Primary budget units are state administrations that receive allotments directly from the Ministry of Finance. Primary budget units consist of line ministries and independent agencies that are identified by the first two digits of the Organization Code in the Chart of Accounts coding block. (See 3.5 Chart of Accounts for more detailed information on the Organization Code.) Primary budget units have the authority to delegate their responsibilities as per the Finance Regulations to secondary budget units. They are also responsible for the suballotment of funds to secondary budget units. GoIRA Accounting Manual 2 4

13 2.6.3 Secondary Budget Units Secondary budget units consist of offices of primary budget units that have been delegated responsibilities for financial management. Secondary budget units most often consist of the line directorates completing the duties of the line ministries in the provinces and districts. Secondary budget units receive suballotments. In addition, rather than being assigned directly to the Treasury in receiving support in the completion of financial management duties, secondary budget units are assigned directly to Mustofiats in the provinces they are located. Secondary budget units are identified by their Organization Code and Location Code in the Chart of Accounts coding block.. (See Section 3.5 Chart of Accounts for more detailed information on the Organization and Location Code.) 2.7 Line Ministries and Independent Agencies(Primary Budget Units) General Line ministries and independent agencies are the primary budget units to which budget funds are allotted after the approval of the annual National Budget by Parliament and the Cabinet. Responsibilities of line ministries/independent agencies are hereby explained from the context of accounting and financial management. Specific responsibilities of the central line ministries are as follows: 1) Control, accounting and reporting financial transactions and events to Ministry of Finance 2) Prepare of consolidated budget for line ministry and line directorates 3) Track the payment made to vendors by installment along with its allocation 4) Receive Allotment for facilitating partner, implementing partners, vendors, salaries and other activities as per the major expenditure object codes (21, 22, 23, 24, 25) for Treasury and provincial line directorates. 5) Issuing suballotments to relevant line directorates 6) Ensure all expenditures are in accordance with donor and governmental requirements 7) Track all the commitment against the allocations received to avoid payments in excess to the allocation received 8) Receive provincial expenditure statements through relevant program office or line directorate 9) Reconcile the M 20 Allotment/Suballotments Control Ledger with AFMIS system on monthly basis. 10) Acquit the advances on monthly basis with Ministry of Finance 11) Perform regular monthly bank reconciliations 12) Process the salaries of all staff members in accordance with rules and regulations of the government 13) Report revenues on monthly basis to the Revenue Unit of Treasury and perform its reconciliation with the relevant bank statements accordingly 14) Prepare true and fair annual financial reports at the end of the fiscal year and reconcile them with Treasury Qatia section 15) Perform cut off procedure as per the accounting manual, circulars and prescribed state rules and regulation at the end of the year GoIRA Accounting Manual 2 5

14 16) Prepare and submit the draft budget to the Ministry of Finance, submit reports of the ongoing financial affairs of their area of responsibility, and to ensure that laws are applied in regard to expenditure commitments within the budget allotments, regulation for the financial system and effective controls are adhered to within their administrations. Line ministries have several program offices that have responsibilities related to the financial management and the Accounting Information System. A discussion of the roles and responsibilities of these offices follows. Note: The organization structure including delegated roles and responsibilities will vary by line ministry. Thus, the descriptions of line ministry and independent agency organizational structure and offices in this section are general and may vary by budget unit Program Offices Program offices are the front line offices that provide the goods and service and complete the necessary tasks to meet public mission of the line ministry. Their activities generate the expenditures, revenues and other economic activities for which the Accounting Information System collects information, measures and records Directorate of Finance The Directorate of Finance is responsible for line ministry accounting activities and other tasks delegated by the Ministry of Finance. Each Directorate of Finance has an Accounting Office with three departments separating accounting procedures. Bookkeeping Office Responsible for all bookkeeping and accounting tasks including maintaining control ledgers, recording expenditures including advance acquittals, completing budget execution activities, bank reconciliations and preparing financial reports. Payment Office Responsible for processing purchase orders/invoices, requesting payments from the Treasury, managing advances and acquittals, and filing of transactions documents. Payroll Office The Payroll Office is responsible for managing the monthly payroll and ensuring the payment of employee salaries. The Payroll Office manages the Verification Payroll Plan administered by the Treasury to automate payroll payments and provide for direct deposit of salaries to employees. Revenue Collection Office The Revenue Collection Office is responsible for the collection and reporting of any revenues collected by the line ministry. The Revenue Collection Office will work closely with the Program Office that generates government revenue. Budget Office The Budget Office is responsible for budget formulation by implementing the procedures and polices outlined by the Budget General Directorate as part of the annual process. GoIRA Accounting Manual 2 6

15 2.7.4 Procurement Office The Procurement Office is responsible for the procurement of goods and services for the line ministry by following the requirements of the Procurement Law and regulations issued by the Ministry of Finance Procurement Policy Unit Procurement Office Warehouse The Warehouse is responsible for the receipt, review and acceptance of goods and services procured by the line ministry. The Warehouse ensures that procured goods and services meet the requirements of the original requisition and determine if full payment should be made or if deductions should be made to the purchase order/invoice. The location and organization of the Receiving Office may vary by line ministry. The Warehouse is also responsible for inventory, asset registration, storage and maintenance of procured goods. 2.8 Line Directorates (Provincial Line Ministries) (Secondary Budget Units) Line Directorates are branch offices of line ministries providing government services at the provincial and district level. Line Directorates are secondary budget units that receive suballotments directly from their line ministry rather than the Ministry of Finance. Line Directorates are identified by a combination of the two (2) digits Organization Code and two (2) digits Location Code of the Chart of Accounts. Responsibilities of Line Directorates (Provincial Line Ministries) are hereby explained from the context of accounting and financial management. Specific responsibilities of the provincial line ministries are as follows: 1) Assists in preparation of provincial budgeting 2) Processes payment to district offices through Mustofiats 3) Acquits the advances on quarterly basis with line ministry and Mustofiat, as required 4) With Mustofiat perform regular monthly bank reconciliation and informs line ministry of any discrepancies 5) Processes the salaries of all staff members in accordance with rules and regulations of the government 6) Assists in the preparation of true and fair annual financial report at the end of the fiscal year 7) Performs cut off procedure as per the accounting manual, circulars and prescribed state rules and regulation at the end of the year Line directorate program offices are similar to those of the primary line ministry discussed in Section 2.7 Line Ministries, but with more sharing of responsibilities due to resource limitations in the provinces. 2.9 Central Audit Office The Central Audit Office is responsible for post auditing of all government financial transactions to ensure that all expenditures of the government are made in accordance with applicable laws, rules and regulations, and that all assets of the government are properly accounted for and safeguarded against unauthorized use. GoIRA Accounting Manual 2 7

16 2.10 Da Afghanistan Bank (DAB) Da Afghanistan Bank is the central bank of Afghanistan and is responsible for maintaining all official bank accounts of the GoIRA based on instructions received from the Treasury for the disbursement or transfer of funds. The DAB administers the GoIRA Treasury Single Account (TSA). GoIRA Accounting Manual 2 8

17 3.0 Accounting Information System 3.1 General The GoIRA Accounting Information System is a fund based, centralized system with overall accounting responsibilities held by the Treasury and its provincial offices in the Mustofiats. Primary budget unit accounting offices within the Directorate of Finance also play an important role in managing the accounting information system as they are the original sources of all transactions and complete the initial documentation, processing and recording of revenue and expense transactions 2. They also have budget execution responsibilities related to allocation of funds to their line directorates in the provinces. Secondary budget units have more a more limited role in accounting information system as many of their bookkeeping and payment tasks are completed by the Mustofiats. The GoIRA Accounting Information System is a hybrid system that has both automated and manual components. The system is managed and operated using a centralized financial management application called the Afghanistan Financial Management Information System ( AFMIS ) but also makes use of several paper accounting forms for transaction processing, ledgers and reports. This includes purchase orders (M 3), travel forms (M 13), goods received notes (M 7), advance requests (M 10), revenue collection forms (M 27 and M 29) payment orders (M 16) and acquittals forms (M 12). Line ministries and Mustofiats are still required to submit monthly and annual financial reports despite the existence of AFMIS. The GoIRA Accounting Information System consists of one General Ledger (managed in AFMIS by the Treasury) with no subsidiary ledgers. However, primary budget units and Mustofiats on behalf of secondary budget units maintain several budget and cash control ledgers and registers. Disbursements are processed by the Treasury or its Mustofiats using official bank accounts held at the DAB. 3.2 Afghanistan Financial Management Information System (AFMIS) AFMIS is a customized version of the Free Balance Financial Accountability application and is the financial management system used by the GoIRA to record accounting transactions for all primary and secondary budget units and is the backbone of the GoIRA Accounting Information System. The Financial Accountability application is a licensed software owned by Free Balance Inc. which uses a client/server design model. This allows users from several locations including Mustofiats and bookkeeping offices in the provinces to access the system to post transactions and run reports. The Financial Accountability application is specifically designed for the public sector with an emphasis on fund accounting. AFMIS has been configured as a cash basis accounting system that records debits and credits of advances, transfers, expenditures and revenues. It also provides a check payment functionality that debits and credits bank account information which can be used to reconcile cash with accounting records. The primary benefits of AFMIS include: Centralization of financial Information Enabling bookkeeping offices to initiate and track information request efficiently Easy access to financial Information (revenue and expenditures by province, etc.) 2 At the time of the original publication of the Accounting Manual, asset and liabilities were not being recorded in the Accounting Information System. However, the Treasury intends to develop and support an asset registration module. GoIRA Accounting Manual 3 1

18 Improvements to the manual accounting processes and procedures, by providing transparency and control AFMIS is a double entry accounting system that requires both the credit and debit of an account code for each journal entry, although the user may not be required to enter both sides of the journal entry directly. AFMIS will complete the second the debit or credit based on the configuration setup in the Controls Module. For example, since AFMIS includes functionality both for recording expenditures and making payments there is time difference between the expenditure journal entry and the payment entry. Thus, the initial expenditure is debited and a payable liability account is credited. When the disbursement is made through AFMIS, the payable liability account is debited and the bank account is credited. Thus, after the completion of both transactions payment credits equal expenditure debits and the accounts payable account balance is zero (i.e. there is no accounts payable because the expenditure has been paid). The Financial Accountability application is a module based system which allows governments to choose modules to include in their setup based on their current and future needs. The initial setup of AFMIS included the following modules: Appropriations budget execution module used to record budget transactions Control module used to configure the application by defining parameters and controls, e.g. the control module is used to create the government chart of accounts and define user roles General Ledger serves as the central repository for all transactions that have been entered in the AFMIS whether they are expenses, revenues or budget transactions. The General Ledger module also includes the ability to enter journal voucher information not posted in other modules to the General Ledger. Expenditure module used to record expenditures and cash sales which are posted to the General Ledger module. Future enhancements to AFMIS may include the Asset Accountability, Purchasing and Revenue Accountability modules. Journal entries in AFMIS are entered manually based on paper transaction forms (M 29, M 16, M 33) prepared by primary and secondary budget unit bookkeeping offices. AFMIS has been distributed in all line ministries and independent agencies as well the 34 provincial Mustofiats, but responsibility for entry of data into electronic vouchers within AFMIS varies by transaction, location and fund type. At the center, primary budget units are responsible for posting revenue and expenditure transactions for both operating and development budgets with review and approval by the Treasury. At the provincial level however, the Mustofiats have full responsibility for posting operating budget expenditure transactions, as secondary budget units do not have access to AFMIS. Mustofiats do not enter development budget expenditures. These are managed directly by the Treasury SDU. In addition, with some exceptions Mustofiats do not record revenue transactions, but forward revenue forms to the Treasury for posting into AFMIS. However, as of the issue date of this Accounting Manual there are six provinces where Mustofiats do enter revenue transaction data directly into AFMIS and then forward transaction documents to the Treasury for reconciliation and final review. Since the AFMIS General Ledger has allowed the GoIRA to centralize its accounting system and given accounting officers direct access to the main accounting system, several ledgers, reports and transaction GoIRA Accounting Manual 3 2

19 forms from the prior accounting system have replaced or superseded. This includes the A 17 General Ledger Form which was a ledger template to maintain general and subsidiary ledgers and the A 35 Daily Summary of Expenditure sand Daily Summary of Revenues sheets, which were prepared by the primary and secondary budget units and provided to the Treasury to enter into the main general ledger. Due to the direct posting of revenues and expenditures by the Mustofiats and line ministries these sheets are no long necessary. In addition, due to the new Appropriations module, forms A 1 Advice of Allotments and A 39 Agency Advice of Allotments are no longer required. 3.3 Fund Accounting The GoIRA Accounting Information System makes use of fund accounting to report and measure the financial performance of the GoIRA. A fund is a self balancing set of accounts, segregated for specific purposes in accordance with laws and regulations or special restrictions and limitations. A separate set of self balancing general ledger accounts is maintained for each fund (within the chart of accounts in AFMIS). These accounts include general ledger and other control accounts required to reflect the assets, liabilities, resources, obligations, revenues and expenditures of each fund. In case of GoIRA there are four major Fund types: 1 General Fund 2 Discretionary Development Fund (Special Fund) 3 Development Budget Grants (Special Fund) 5 Development Budget Loans (Special Fund) In general, because the GoIRA receives a large portion of both its development and operating budget from numerous international donors with their own specific reporting and use requirements, special funds need to be setup for each donor grant. General Funds are used to manage the operations of the GoIRA and is the equivalent to the operating budget, while special funds make up the development budget of GoIRA, although there exceptions to this rule as some development projects are funded from General Funds. 3.4 Cash Basis of Accounting The GoIRA uses cash basis accounting with double entry transactions managed in AFMIS. Under the cash basis of accounting revenue is recorded when cash is received by the Treasury and expenditures are recorded when payments are made by the Treasury. Asset and liabilities impacted by flow of resources must be entered separately. Since the recording of revenue and expenses under cash based accounting is directly linked with cash transactions, all accounting records of revenues and expenses should match with the statements of banks where the transactions take place. Thus, cash basis of accounting requires a strenuous reconciliation of bank statements with accounting records. If the accounting records do not match the bank statements, then an error has either occurred in the recording of a transaction or requested bank transfers have not been made. This reconciliation process is discussed in more detail in Section 9.0Reporting. 3.5 Chart of Accounts A chart of accounts is the list of all the accounts included in the general ledger and its subsidiary ledgers. Each accounting information system has its own unique chart of accounts customized to meet the GoIRA Accounting Manual 3 3

20 business requirements of the organization. The GoIRA chart of accounts is based on the guidelines outlined in the International Monetary Fund s ( IMF ) Government Financial Statistics ( GFS ) manual which is designed to support fiscal analysis and accounting in the public sector. The structure for each account is a coding block with six segments. Each of which provides relevant information. A discussion of the six segments follows: Organization Code: The Organization Code is the five (5) digit segment of the code structure that provides detailed information on the organization in which a transaction takes place. The five (5) digit code can be subdivided as follows: 2 digit code identifies the line ministry or independent agency; e.g. 50 is the code for Ministry of Justice 4 digit code identifies the suborganization within the line ministry or independent agency; e.g is the code for the Presidency of Jails within the Ministry of Justice 5 digit code identifies the unit within the line ministry or independent agency; e.g is the code for the Justice Department within the Ministry of Justice Project Code: The Project Code is the six (6) digit segment of the code structure that provides information related to donor funded projects. In case where a transaction is not related to a project the project code will be posted as The first two digits of the Project Code identify the line ministry or independent agency where the project is located. Program Code: The Program Code is the five (5) digit segment of the code structure that provides information related to the economic activity and programs within the ministry or independent agency. The five (5) digit code can be subdivided as follows: 2 digit code identifies the line ministry or independent agency; e.g. 20 is the code for the Ministry of Finance 3 digit code identifies the program within the ministry of independent agency; e.g. 201 is the code for the program Public Financial Management 4 digit code identifies the subprogram within the ministry or independent agency; e.g is the code for subprogram Treasury Operations 5 digit code identifies the specific activity within the ministry or independent agency; e.g is the code for activity Support to Treasury Operations (O) Fund Code: The Fund Code is the five (5) digit segment of the code structure that provides fund information. The five (5) digit code can be subdivided as follows: 1 digit code identifies the fund type; e.g. 1 is the code for General Fund type 2 digit code identifies the fund; e.g. 10 is the code for the fund Recurrent Budget 4 digit code identifies the sub fund; e.g is the code for sub fund Recurrent Operating 5 digit code identifies the fund component; e.g is the code for fund component operating budget Location Code: The Location Code is the four (4) digit segment of the code structure that provides geographical location of the transaction. The four (4) digit code can be subdivided as follows: 2 digit code identifies the province; e.g. 03 is the code for Parwan Province GoIRA Accounting Manual 3 4

21 4 digit code identifies the district; e.g is the code for Bagram District in the Parwan Province Object Code: The Object Code is the five (5) digit segment of the code structure that provides. The five (5) digit code can be subdivided as follows: 2 digit code identifies the major object; e.g. 21 is the code for the major object Wages and Salaries 3 digit code identifies the minor object; e.g. 214 is the code for the minor object Social Benefits In Cash 5 digit code identifies the object code; e.g is the code for the object severance payments Please refer to the following chart which summarizes the coding block for each budget execution type which can be used as a reference table when preparing documents. Coding Block Segment Allotment #1 (Appropriations) Allotment #2 (Allotment) Financial Budget (Suballotment) Commitmen (Expenditure No. of Description No. of Description No. of Description No. of Descripti Digits Digits Digits Digits Organization 2 Primary Budget 4 Suborganization 4 Suborganization 5 Unit Unit Project 6 Project 6 Project 6 Project 6 Project Program 3 Program 3 Program 3 Program 5 Activity Fund 1 Fund Type 5 Fund Component 5 Fund Component 5 Fund Com Location N/A N/A N/A N/A 2 Province 4 District Object 2 Major Object Code 3 Minor Object Code 3 Minor Object Code 5 Object Co Figure 1 Coding Blocks by Budget Execution Type The Chart of Accounts is updated on an annual basis and approved by the Treasury. As the GoIRA further develops its budgeting, reporting, and program capabilities, the Chart of Accounts is welldesigned to accommodate additional information requirements based on enhancements to AFMIS and further use of GFS manual guidelines. 3.6 Standards and Ethics The fundamental principle of any public servant is to operate within ethical guidelines and provide a level of principle in day to day operations. The accounting professional within the GoIRA is to be above reproach and does not partake in collusion or illegal activities. The accounting professionals in the GoIRA should abide by the following general principles: Integrity To be straightforward and honest in all professional relationships Objectivity To not allow bias, conflict of interest or undue influence of others to override professional judgments Professional Competence To maintain professional knowledge and skill at the level required to ensure that the public received competent and professional services Professional Behavior To comply with relevant laws and regulations and avoid actions that are against the law GoIRA Accounting Manual 3 5

22 Confidentiality To maintain confidential any government information deemed not to be for public knowledge Accounting professionals with the GoIRA should clearly abide by specific principles in any Code of Ethics published by the Treasury even if working with other line ministries or independent agencies, as well any guiding principles by any Afghanistan or international professional accounting and management organizations in which employees are members. GoIRA Accounting Manual 3 6

23 4.0 Budget Execution and Control 4.1 Overview The Budget Department of the Ministry of Finance is has the responsibility to working with the Line Ministries to develop and formulate the annual budget for Afghanistan. They manage the budget process by providing guidance to Line Ministries through Budget Circulars and other instructions. The Accounting Information System (or Treasury) is not used in the budget formulation process other than to provide historical expenditure data and other financial reports. However, the Accounting Information System is essential to budget execution after the annual budget has been approved by Parliament and the Budget. Functions associated with budget execution include: allocating funds to primary and secondary budget units through appropriations, allotments, and suballotments using commitment accounting to reserve allotted funds in order to prevent over commitment of funds establishing internal controls to review and approving expenditure monitoring and reviewing of internal processes A key tool in the budget execution process is AFMIS as it is used to record budget transactions including appropriations, allotments and suballotments. Commitment/obligations are recorded for projects in the development budget. In addition, AFMIS has several internal controls built into its design and use. Specifically, each level of budget execution (appropriation, allotment, expenditure, etc.) cannot be processed unless the previous level has been completed and recorded in AFMIS. For example, no allotments can be made unless an appropriation has been approved and recorded in AFMIS or no expenditure can be made without an allotment. In addition, total transactions of one budget execution level cannot exceed the recorded amount of the previous level, e.g. suballotments cannot exceed allotments. Each step of budget execution is processed using a budget form. They are as follows: B 3 Approved Budget (Appropriations) B 20 Suballotments B 23 Request for Budget Transfer B 27 Allotments Since AFMIS has enabled the Ministry of Finance to centralize budget execution process as per the requirements of the PEFML, much of budget execution is the responsibility of the Treasury, specifically the Allotments and Commitments Unit. Primary and secondary budget units also play an important role in budget execution. 4.2 Appropriations (Approved Budget) An Appropriation is the first step in the budget execution process and matches the final output of the budget formulation process, the published National Budget which is approved annually by Parliament and the Cabinet. Specifically, Appropriations grant the Ministry of Finance the budget authority, in accordance with the annual budget procedures, to begin processing allotments to primary budget units. An Appropriation provides budget information at the primary budget unit level, but does not include detailed budget information such as location, fund component or object code. Appropriations are coded as per the Chart of Accounts as follows: GoIRA Accounting Manual 4 1