Internal Control and External Oversight

Transcription

1 Internal Control and External Oversight Presented by: Vinod Sahgal The World Bank 1

2 MY OBJECTIVES Commend GOI Budget Transparency Recognize the Role of the MOF/CGA Appreciate Actions underway at CAG Draw Attention to certain limitations of Fiscal Responsibility Legislation Suggest measures to further strengthen the System of Public Financial Management and Accountability 2

3 BACKGROUND 1998: WB Interest in Institutions of PFMA East Asian Crisis & IDA Requests 1999: Comprehensive Development Framework 2000: Upscaling from Projects to Country Systems : CFAAs/SFAAs 2004: Integration of disciplines 2005: Governance and Public Financial Accountability 3

4 THE SYSTEM Planning Project appraisal Budget Preparation Resource allocation Legislative Approval Feedback Cash Management Legislative Scrutiny Public Financial Management System Budget Execution Accountability External Audit Public Enterprises Urban Local Bodies Rural Local Bodies Control Systems External Scrutiny Financial Reporting Monitoring Accounting Fund Flow Internal Controls & Internal Audit 4

5 SYSTEM CHARACTERISTICS Internal Control Vs External Control All the components of the System are highly interlinked Strength of the chain dependent on its weakest link Good Policy is one that can be implemented effectively Professional Management becoming crucial 5

6 SYSTEM PERFORMANCE Planning Commission: Program Evaluation of CSSs CAG: Funds used for the purposes intended with due regard Fair Presentation of Information MOF/CGA: Budget Vs Actuals, Supplementaries,, PD Accounts, Suspense balances, Year end bunching, Tax collection efficiency, Non-tax revenues, Excesses and Savings, Off budget transactions etc Oversight Committees: Miniscule Coverage 6

7 ACCOUNTING FOR PUBLIC EXPENDITURE SWARNAJAYANTI GRAM SWAROZGAR YOJANA (RURAL SELF EMPLOYMENT PROGRAMME FOR POVERTY ALLEVIATION) Expenditure reported by by the State Government Rs crores Expenditure test checked Rs crore (41.53 per cent) Expenditure on programme Rs crore (37.8%) Amount diverted/ unused/advanced etc. Rs crore (62.2%) Deposits into PLA/PD/Bank/ Rs crore (31.9%) Amount lying unutilized Rs crore (21.0%) Advances treated as final expenditure Rs crore (20.1%) Misuse of funds/diversion to other activities not related to the programme Rs crore (9.9%) Expenditure on works not permissible Rs crore (3.4%) Other irregularities Rs crore (13.7%) 38 % OF FUNDS WERE SPENT WITHOUT ANY IRREGULARITY Source: CAG Report

8 PERFORMANCE INFORMATION Income Tax: 72,000 persons >Rs10 Lakhs while 1 in 18 Households in Delhi reported income of Rs.. 10 Lakhs. 2/3rds of Plan expenditure is revenue Leakages in TPDS 52%? Number of autonomous bodies under the control of GOI? How much parked in PD Accounts? Heavily Qualified Audit opinions in almost every Power Sector Company % T& D Losses PIL Filed in the Supreme Court: 1.75 Lakh crore Excess needed Regularization- $ 40 Billion Cost and time overruns poor management and corruption TI India is way down in the totem pole. 8

9 Capacity: FRBM Has the System s s capacity to support the objectives of FRBM been tested? Supply How effective is Internal Control? Management of Risk Information Systems Effective Enforcement Internal Governance Demand Are External Audit, Legislative & Public Oversight functions sufficiently robust? 9

10 INSTITUTIONAL FRAMEWORK Constitution: Provides an Overall Framework for PFMA FRBM: Addresses the Fiscal Risk RTI: Promotes Public Financial Accountability CAG Act & Rules of Procedure: Promote Parliamentary oversight of the Public Purse Notes: 1. No Primary Law for Financial Administration or for Procurement GFRs provide subordinate Legislation. 2. Responsibility for Internal Control Diffused. 10

11 GOI IS MOVING FORWARD Planning and Budgeting towards a medium term outlook and framework Financial Reporting is becoming more timely General Financial rules are being updated Accounting Standards are being debated Audit Guidelines are being revisited Disclosure Practices are being modernized Transactions recording largely computerized (IT) MIS in the making? Web sites are being modernized 11

12 FOUR CONCERNS Will macro balancing (FRBM) work without related Exchequer control nor stronger Internal Control and greater Impact of External Audit? Does India need a modern Organic law to govern Financial Management, Procurement & Reporting? Should the Administrative Secretary be directly answerable to the public for meeting performance standards - and for minimizing fraud, waste and abuse of public funds? Incentives and training for strengthening capacity at the downstream micro balancing? 12

13 MODERNIZING PFMA From Outlays to Development Outcomes: FRBM is a step forward vis a vis Planning and Macro Budgeting Timely to concurrently modernize the downstream components of the budget cycle with emphasis on Departmentalization 13

14 SUGGESTIONS FOR MODERNIZATION Legislative Approval Open hearings of the subject matter Committees Budget Execution MIS: Performance Monitoring and Evaluation Internal Control Roles of the Departmental Secretary, FA,IA, Evaluation etc Internal Audit Transactions to Systems improvement 14

15 SUGGESTIONS FOR MODERNIZATION Accounting Cash basis towards Resource based Financial Reporting Broaden to Performance Reporting External Audit Policeman role to an Agent for Change and a provider of Assurance Legislative Scrutiny Open hearings of the PAC and the PUC 15

16 CONCLUSION FRBM Necessary and Timely but not Sufficient Leadership with MOF/CGA & the CAG Crucial Agree: Time to Move from Outlays towards Development Outcomes Downstream Incentives? TFC - Silent Modernization of the Institutional Framework for Control & Accountability would be a desirable NEXT STEP 16