The main challenge in the NAIP is that the project will be implemented by agencies spread all over India and the number of spending units will be large (about 80-85). Therefore mere collection of financial information from the various units, consolidation of the same and making them available to the management in a timely manner for decision-making will be a challenge. In order to meet this challenge, certain key tasks need to be done: -
(a) Preparation of a accounting manual to bring uniformity in procedures and reporting.
(b) Development of a web-enabled software to account for receipts and expenditures and generation of financial reports for decision making.
(c) Identifying finance personnel at each spending unit (as and when the units are identified) and training them on the financial management procedures of the Project.
The project would be able to adequately account for project resources and expenditures by following the procedures stated in earlier chapters. The financial part of the proposal will be submitted in the format give in Appendix – 18.
Identification and Classification of Expenditure
A) Capital Expenditure Includes Cost of:
· All works including construction of buildings, laboratories, sheds etc.,
· Plant and machinery, including technology,
· Land development including nursery, ponds/tanks etc.,
· Goods, equipment and loose tools, furniture and fittings, computer hardware and bulk software etc. ,
· The consortium partners are expected to provide capital expenses and relevant infrastructures.
· Consultancy, contractual services, human capacity building, workshop/ seminar etc.,
· Salaries under the project,
· Operating and maintenance including printing, stationery, stores, consumables, telephone, local charges, electricity bills, rent & rates, internet, honorarium to resource persons, travel & conveyance costs, farm costs, seeds, fertilizers, chemicals, glassware, seedlings, feeds, water, fuel, software etc., and
· Institutional overheads.
Budgeting and Funds Flow System
Under the NAIP , the ICAR acquires the funds through DARE under its annual plan budget. These fund flow directly to the PIU.
The Budget for the entire project is approved at the central level before 31st of March every year. Budgeting involves planning for the operations and forecasting the activities and related expenditure thereto to be incurred at a later stage. The budgeting exercise starts with signing of the MoU/contract and the issue of Sanction Letters. This Letter contains the physical and financial targets over the life of the project. Thus, the details mentioned on the contract/MoU, Sanction Letter, form the basis for Budgeting and its Control. Further, to distinguish the NAIP budget from the Ministry of Agriculture (MoA) budget, a separate budget head will be assigned for the NAIP. This simplifies the identification of the NAIP budget and helps in monitoring the budget utilization from time to time.
Budget Allocation Process
The budget compiled by the Finance wing of PIU will be submitted to the DARE/ICAR. On receipt of sanctioned budget, the PIU will re-allocate the annual budget to the agencies based on their budgetary requirements.
While allocating these funds, the PIU will consider:
· Importance of the work handled by the unit.
· Priority of work based on the NAIP – ICAR/World Bank guidelines.
· Funding required for completion of pending work.
· Allocation as per EFC.
· Inter linkage of expenditure with other components which are taken up.
· Other considerations.
During the year, Finance and Accounts wing of the PIU will monitor the fund utilization status on a quarterly basis, based on expenditure statements received. On review, if felt that the funds allocated may not be utilized by the agency due to certain reasons, the same can be reallocated to an agency in need. Such re-allocation of funds is possible after following normal government procedures and obtaining the required sanctions from the competent authority.
Release of Funds
Once the competent authority approves the research sub-project, the process of flow of funds and reporting of expenditure will start. The major Governing guidelines for the Financial Management will be the following: -
Electronic Transfer of Funds
The funds under the NAIP will be transferred electronically. In NAIP an attempt is being made to approach a national Bank having a countrywide network to handle the transfer of funds. To facilitate flow of funds, it is proposed that the PIU and all other spending units open accounts with the same bank or, for areas where the selected bank does not have any branches, with any other bank, which has a tie up with the selected bank. The PIU will send an advice to its Banker listing the various spending units and the amounts to be transferred to the account of each unit. The Banker will provide a terminal at the PIU which will give the status of the account of each spending unit on a daily/weekly basis. Bank statements will be provided by the national Bank to every spending unit for its withdrawals on a monthly basis. Spending units will reconcile their withdrawals with their books and send it to the PIU on a monthly/quarterly basis.
For the projects financed by the World Bank, the Project Implementing Agency is supposed to maintain a Financial Management System including adequate accounting and financial reporting, to ensure that they can provide to the Bank and the Government accurate and timely information regarding project resources and expenditures. Besides the accounting system evolved to maintain departmental accounts of the project entity as per their Departmental Accounting Procedure, the project entity will need to maintain an independent record of transactions to show the expenditure incurred under the project separately under each category of loan proceeds as laid down under the loan/credit agreement. The accounting record will show separately the value of contract approved under each component of the category and expenditure incurred periodically under the contract and the claims submitted to Government of India against such expenditure. The project agency at periodical interval will review this accounting record to monitor that the total expenditure incurred does not go beyond the approved contract value. The PIU will take necessary timely action to revise the contract value for approval much in advance whenever the total expenditure under the contract is likely to exceed in the near future. No claims should be sent to Government of India over and above the approved contract value. A financial statement of expenditure under each category contract- wise will be prepared annually for the year ending 31st March for onward submission to the World Bank. A similar statement will also accompany the audit report on the project financial account for the year as a whole.
Basis of Accounting System
The Accounting System to be followed by each of the project implementing agencies will be on the basis of the Accrual Accounting System i.e. the double entry system of accounting to have the uniformity in the project accounting and in no situation will the ‘Cash Base Accounting System be followed.
Accounting Centres: The main accounting centres will be following units:
The PIU is responsible to release funds to the ICAR Institutes, SAUs and NGO/Partners, etc. under the approved sub-projects, activities etc. These units in turn are required to furnish Annual Accounts, Statement of Expenditure and Audit Utilization Certificates (to be submitted by other than the ICAR Institutes) to the PIU. Also, the World Bank’s Articles of Agreement require the borrower to ensure that the credit/ loan proceeds are used only for the purpose set out in the loan documents including the Project Appraisal Document and that the goods and services required for the project are procured in accordance with the Bank’s procurement procedures. Further, the records should be kept sub-project-wise, so that various Financial Statements can be sent with respect to amount of funds received for the sub-projects from the respective source i.e. consolidation shall be done sub-project-wise at various lead institutions/ funding agencies. Each implementing centre has to maintain its Cash Book, Cheque Book/ DD Register, Valuable Register, Grant Register, Project-wise Expenditure Control Register, Asset Register, Advance Register, Objection Book, Balance Sheet etc. as in case of institution funds.
Reporting of Expenditure
It is expected that:
· While incurring expenditure, the implementing agency should keep in mind that funds must be utilized strictly in accordance with the approved allocations for the sub-project as envisaged in the sanction following the WB guidelines/procedures and the term and conditions of the projects. Any over-utilization or utilization not in accordance with the sanction is not reimbursable,
· For effective execution and monitoring, an online Financial Management System (web based) will be developed. The expenditures of all the participating units will always be available to the PIU through this accounting software through a central server installed at the PIU,
· For ensuring the uniformity in the Financial Management procedure, it will be mandatory for all the partners to operate and report through the Financial Management System, the requisite training for which will be arranged by the PIU,
· Initially quarterly reports on fund utilization i.e. Statement of Expenditure (SoE) will be submitted by the implementing centres directly to the PIU/ ICAR, with a copy of the same to the lead centre of the consortium for its endorsement/authentication. Once the online system is put in use effectively, this arrangement will be reviewed and modified for reporting on a monthly basis, for which the PIU will inform implementing units separately, (the format of SoE is given in Appendix – 20)
· For reporting purposes, usages of the standards formats prescribed by the WB/ PIU will be mandatory for each implementing agency,
· The SoEs will be consolidated at the PIU. The consolidated SoE for the project as a whole will be submitted to the World Bank for claiming re-imbursement. The SoE in respect of the ICAR institutes will also be submitted to the Principal Director of Audit (Scientific Department) for arranging audit of the NAIP,
· The budget utilization will be certified annually by the competent authority i.e., the head of the organization and the head of the finance of each member institution/ organization of the consortium,
· The PIU will develop the Financial Management Manual, which will lay down financial and accounting policies and procedures, standard reporting formats etc. This will have to be followed by all the member institutions, and
· Financial reporting (expenditure statements and bank reconciliation statements) from Implementing units to the PIU will be on-line. The FMR formats will be agreed and provided in the Finance Manual. The PIU will furnish consolidated FMRs on a quarterly basis, to the Bank.
Separate Bank Account
· As per the WB requirement, a separate bank account is to be operated for monetary transactions under the NAIP. Each implementing agency is to open only one bank account for all the NAIP projects, and
· Bank statements will be provided by the nationalized Bank to every spending unit for its withdrawals on a monthly basis. Spending units will reconcile their withdrawals with their books and send it to the PIU on a monthly/quarterly basis.
The project would require intensive supervisions in the initial stages for ensuring successful implementation of the agreed financial management arrangements in the implementing units. The other focus areas during the supervision will be on meeting the training needs of the project’s finance personnel.
· Inspection at periodic intervals will be carried out by the PIU to monitor the financial management of the implementing agencies,
· Funds will be utilized for the bonafide/intended purpose using the prescribed norms and procedures of GOI/World Bank and will not be diverted to any other schemes/heads etc.
· Expenditure be kept within the approved budgetary allocation,
· All basic records such as cashbook, cheque register, counter foils of cheques, grant register, project-wise and sub-head-wise expenditure control register, assets register etc. will be maintained,
· All advances irrespective of their nature will be adjusted within the prescribed time limit but before the close of the financial year to which they pertain,
· All procurements will be made following World Bank guidelines/procedures,
Revenue/ interest generated if any,
during the project period will be refunded to the PIU and will not be utilized
for meeting any expenditure
· Incurring of the expenditure within the sanctioned budget will be ensured. Any expenditure in excess will be liable to be disallowed.
Disbursement of Funds
The total project cost is USD 250 million. Of this, the portion financed by the Bank is USD 200 million. The Bank assistance received by GoI will be passed on to the ICAR.
The funds for the project will be budgeted for in the ICAR’s budget, including counterpart funds, as an identifiable single-head budget item each year.
GOI would open a Special Account with RBI to receive the initial deposit and thereafter reimbursements from the Bank under the project and would make the funds available to the ICAR through DARE, Ministry of Agriculture & Co-operation under the Plan Budget. The ICAR will then pass on funds to the bank account of the NAIP PMU.. DEA is yet to define the arrangements for passing on bank funds to implementing agencies
Disbursements from the
would be made in the traditional system of reimbursement with full documentation
and against a statement of expenditure (SoE). Consolidated quarterly/half yearly
claims will be submitted by the PIU to the Bank for reimbursement. A uniform 80%
disbursement rate across the different cost categories and components was agreed
upon. Disbursement will be made as 80% of the allowed statements of
expenditures. Funds will be disbursed against SoEs. Expenditure as shown in the
SoEs will be certified by the GOI, as the Borrower, as representing the eligible
project expenditure. Supporting documents for SoEs will be available for
post-review by the Supervision Missions of the WB and the Auditors. These
documents will be retained by the implementing agencies/ICAR for one year after
receipt of the Audit Report by the WB for the fiscal year in which the last
withdrawal from the Credit/Loan account was made. The formats for the SoE and
the AUC will mutually be agreed on much before the project becomes effective.
Audit Requirements and Procedures
The process involves that:
Compilation of Audit Observations
Considering the large size of the operation and multiplicity of spending units, management oversight will be strengthened by quarterly internal audits. A quarterly internal audit will be conducted by a CA firm or Finance wing of the PIU. The World Bank recommends appointment of a reputed audit firm acceptable to the Bank under agreed TOR. Audit in each quarter will be done on a sample basis (selected sample of spending units and within that selected sample of transactions). The sample for audit in each quarter will be selected in consultation with the PIU based on factors such as amount of expenditure incurred, perceived risks etc. The internal auditor will assess the operation of the project’s financial management system and will review internal control mechanisms. Issues arising in the external and internal audits would need to be promptly addressed and acted upon in a timely manner by the project authorities.
Audit by the World Bank
The World Bank also conducts post-audit of the SoE-based re-imbursement on a sample basis. For this purpose the records/accounts of the implementing agencies are audited by the firm of Chartered Accountants appointed by the Bank.
It is expected that:
re-appropriation of funds from one head to other will not be normally
permissible. However in exceptional cases such re-appropriation may be allowed
with the approval of the competent authority
(to be decided),
· The mechanism for distribution and accounting of the royalty will be worked out separately,
· In case an implementing agency defaults and withdraws from the consortium in between, all the funds so received by the member will be required to be refunded to the Council, along with the highest rate of penal interest of the bank prevailing at that time,
· The assets acquired out of the project fund will be the property of the Council (to be decided),
· All the vouchers/ records/ files relating to the NAIP expenditure will have to be kept in proper condition by the partners up to 5 years after the completion of the project,
· Adequate financial staff to be provided from the very beginning so as to ensure that the project work does not suffer. As far as possible, the staff deputed for the work relating to maintaining of project accounts should be well versed with accrual accounting system and preferably acquainted with externally aided projects of the WB or some other agency,
· The staff should not be changed/transferred at frequent intervals unless and until required to be done on administrative grounds but with information to the PIU, NAIP,
· For assisting in the finance and accounts work of the NAIP, provision shall be made in project proposal for hiring of the skilled staff under contractual services (if required). The hiring of the staff will be through a service contractor who shall be selected by adopting the World Bank guidelines. It will be ensured by the implementing agencies that such hiring will not create any permanent liability on the part of the ICAR. In no case, the ICAR will be responsible for any such liability.
· The first internal audit report should be submitted to the Bank within the first 6 months of project implementation.
· The PIU and every spending unit should maintain throughout the project period staff in positions agreed for handling finance functions.
· The financial management software should be ready for implementation and staff trained within six months of the project starting incurring expenditure after effectiveness.
On-line Financial Management System
A Financial Management Software System will be selected, customized and rolled out across the ICAR system. Capacity building activities to prepare finance and administration staff for the new system will be designed and implemented.
A need is felt to have a financial and accounting system which could not only meet the present day accounting requirements but also to help the day to day monitoring both in terms of quantative and qualitative aspects from operational as well as management point of view. Therefore, a web-based Financial Management System having broader coverage of the ICAR/SAUs/NGOs/Private Bodies/Other Govt. Deptts./Foreign Aided Projects will be developed. For an early implementation of this FMS an off the self-software will be identified with the help of the project management consultant and will be customized according the needs of NAIP/ICAR. The FMS/MIS will be developed on a universally tested software platform like SAP/Oracle. This system will be an integration of an accounting system with a procurement management system. The system will enable to retain a full set of accounting data in standard accounting format. The FMS of the NAIP will be at first stage implemented at the PIU and consortia as a pilot project, after that it will be expanded to the ICAR Hqrs. and its institutes. The proposal in its second stage envisages the integration with the Pay Role Package, Inventory management, Research project management, Personal information system, Library information system, M&E system, knowledge management related modules so that package broadly can be termed as the MIS of the ICAR. A sound and updated information should serves as a base for effective managerial control and timely decision making. The FMS/MIS is expected to enable a meaningful extrapolation, forecasting and projections.
The primary objective of the FMS will be to assist in the processing and tracking of investments to projects, capacity building and institutional support. The MIS will be an important tool for management, M&E and reporting. Standard data management procedures and processes will be developed with the assistance of an MIS expert or consultant. The objectives of the FMS/MIS as a tool will be to:
· Capture the complete project cycle from the beginning, i.e. project/sub-project submission, approval process, sanction and funding.
· Track the expenditure progress of sub-projects as well as the overall progress of the NAIP.
· Manage finances, budgets and procurement.
· To evaluate the project and the NAIP sub-projects on an ongoing basis as well as at midterm and after completion.
· Provide all necessary reports.
The FMS-MIS implementation plan finally will result in capacity building and to enhance managerial skill for finance and other officials. The ultimate aim of the entire effort is to achieve a complete robust solution through this FMS to cater the overall needs of Accounting, Financial and Administration disciplines at least for the next 8-10 years. Finally it will help in strengthening & remodeling the complete system of the ICAR, and will equip it as a learning organization to meet the challenges of 21st century.
Once the software is developed, it will be mandatory for all the implementing centres to adopt the system and report through it for which adequate training will be provided by the PIU. The software will have multiple user system and will be user friendly. It will enable us to generate the following release and expenditure reports: -
1. Subject Matter Division-wise.
3. Expenditure item (head of Accounts).
6. Implementing Centre-wise.
7. Expenditure category wise (Recurring/Non-recurring).
8. Reimbursement claims – category-wise.
9. Monthly/Annual Accounts.
10. Bank Reconciliation.
11. Cash Book.
The operational manual to be developed for FMS-MIS, covering all the formats etc. will be a part of this manual.