By Ms. Gargi Kaul, IA&AS, Principal Accountant General (A&E), Odisha
The last two decades have witnessed a big change in the concepts of government's role, function and performance criteria. Governance has become the key word for any government. Anne Mette Kjaer identified legitimacy, efficiency, democracy and accountability as the core concepts of governance1. Good governance is, among other things, participatory, transparent and accountable. Good governance and accountability are thus intrinsically linked. Decentralised governance has been conceived as an instrument of local self-government for promoting healthy development. It is expected to facilitate effective people's participation, enhance degree of transparency and ensure greater accountability.
Against this background a study was attempted to compare the local governments in two countries and to understand whether size of the local government is an important element in the effective promotion of accountability, including public financial accountability. For this study, two countries were selected, India and Trinidad and Tobago both being British colonies, inheriting the West Minister model of government and both being plural societies with its pulls and pressures. For a more focused analysis, Delhi was selected from India mainly because of its urban local bodies and its similarities with Trinidad. Two bodies from Delhi namely New Delhi Municipal Council (NDMC) and Municipal Corporation of Delhi (MCD) were selected and three from Trinidad and Tobago, namely Port of Spain (POS)and Chaguanas and Tobago(Tobago House of Assembly, THA).
The study was based on the hypothesis that accountability mechanisms would be similar given the history of both the countries but would be better implemented in Trinidad and Tobago and Public Financial Management and accountability in the local government bodies in Trinidad and Tobago would be simple and more effective compared to India keeping in view the size of the local bodies.
An integral and indispensable part of accountability is public financial accountability. In simple terms public financial accountability envisages an efficient and effective financial management system through which governments can ensure the citizens that their taxes are being utilized in a prudent manner for the purpose they were intended for and the donors are satisfied that there is no waste and inappropriate use of the funds donated. The Local Government financial systems and procedures were assessed using the Public Expenditure and Financial Accountability (PEFA) performance measurement framework2 as its basis. The measurement framework has been primarily used for assessment of the Public Financial Management (PFM) of Central Governments. However, these guidelines could be applied to local government level with modifications in some criteria. Thus, with some adjustments and modifications to meet the requirements of local government financial systems in the countries under study, the issues examined were; credibility and control in execution of the budget including internal controls; comprehensiveness, transparency and orderliness and participation in the budgetary process; effectiveness and transparency in accounting, recording and reporting; external scrutiny and oversight on a scale of 0-4 with 0 being the perfect score.
Credibility and control in execution of budget includes a comparison of the actual expenditure with the budgeted expenditure, effectiveness of internal controls and effectiveness of internal audit. These 3 criteria were further analysed on 8 sub-criteria namely; comparison of actual recurrent and capital expenditure vs budget; effectiveness of expenditure commitment controls, level of understanding of internal controls rules and procedures, degree of compliance, coverage and quality of internal audit reports, frequency and distribution of reports and management response to the reports. The 8 criteria were scored for each of the five bodies on the basis scoring pattern as decided. The score obtained by the bodies were as follows:
|Aggregate Recurrent Expenditure Out-turn Compared to approved budget||4||2||1||1||4|
|Aggregate Capital Expenditure Out-turn Compared to approved budget||3||3||2||1||3|
|Effectiveness of Comprehensive expenditure commitment controls||2||2||2||2||2|
|Comprehensiveness, relevance and understanding of internal controls rules/procedures||2||2||2||2||2|
|Degree of compliance with rules||2||1||2||2||2|
|Coverage and quality of internal audit||1||1||2||4||2|
|Frequency and distribution of internal audit reports||1||1||2||2||2|
|Extent of management response||3||3||3||3||3|
Basis of scoring at Appendix 1 (413KB)
From the above it is quite clear that size has not had an impact on budgetary management and control. Delhi has a lower score more because of a better internal audit than compared to Trinidad and Tobago
Indian Audit & Accounts Department
Orderliness and participation in the annual budget process, classification of budget, documentation included in the budget documents, and public access to key fiscal information were the criteria on which the evaluation was carried out.
All the five bodies appear to follow a fixed schedule and come close to a perfect score except in the case of Chaguanas as they were not able to provide the required documents. The reason could be because the budget exercise has become a routine and the same pattern is observed year after year. A well laid out classification system is one which can track expenditure on administrative unit, economic, functional and program dimensions. In Trinidad and Tobago the GFS 2001 has been adopted by the Central Government which is followed by the Local government bodies also. NDMC and MCD have passed their Municipal Accounts Regulations and their own accounts classification. This classification also follows an administrative unit, economic and program dimension.
Budget statements usually have a certain basic documents which are common all across. More detailed the documents, more transparent is the process. The budget documentation in Delhi is more comprehensive than Trinidad and Tobago. In case of Delhi itself, the documentation in MCD is more comprehensive than NDMC.
An important element of fiscal transparency is easy availability of information on budget and its implementation to the general public. This requires that the government makes relevant information widely available in a comprehensive, understandable and timely manner. Publication of fiscal information for the public is not a legal requirement but it has become an important requirement in accountability. The basis for the scoring of each body on the criteria of comprehensiveness and transparency as given below reveals that the situation in the case of THA, POS and Chaguanas is similar, with public access being partial and limited with NDMC being the closest to the perfect score .
|Comprehensiveness, transparency orderliness and participation||1.4||1.0||1.6||1.8||1.8|
Accounting of expenditure, its recording and reporting are very important elements of financial management. As an important part of accounts is the timely and regular accounts reconciliation as an important tool for control and monitoring. Bank reconciliation is carried out regularly by both the three bodies in Trinidad and Tobago as per statement of the staff of the accounts wing. However, the requisite statements are not provided to audit which is one of the reasons for delay in audit. In NDMC, as per the statements of the officers of the Finance and Accounts wings Bank reconciliation was being carried out on a regular basis. Similarly, the Finance wing of MCD states that they have been carrying out bank reconciliation on a regular basis during the few last years. However due to the fact that there was a problem with the reconciliation in the year 2003- 04, the opening and closing balance was not certified by the Chief Auditor.
The Municipal Corporation Act of Trinidad and Tobago does not provide for the submission of any specific in- year budget reports, except that it is the responsibility of the Treasurer to submit to the Finance Committee, whenever required, a trial balance and financial reports as necessary in addition to the Annual Financial Statements3. Similarly, in the case of THA there is no provision in the Act for submission of in-year budget reports except the annual estimates. In NDMC, several reports are submitted by the Finance Department to the Council on budget and expenditure and are discussed and reviewed by the Council. The Zones in MCD submit monthly expenditure reports to the Finance wing which consolidates and monitors them. These reports are only put up to the level of the Municipal Commissioner and are not submitted to the Standing Committee. Only the annual receipt and expenditure report along with the budget is put up to the Committee. Due to various reasons, the financial statements have not been prepared within the prescribed time either by POS or Chaguanas. Regarding the quality of accounts, the Auditor General in her report on Port of Spain accounts has commented that maintenance of accounting records and incorrect postings and further also mentioned that instances of weaknesses in internal controls was also noticed. As per Section 113 (i) of the Municipal Corporation Act, the Corporations are to keep their accounts in a format approved by the Minister of Local Government. However, no format has been provided by the Ministry despite comments by the Auditor General on this issue4. No reasons for this were available with the Ministry representatives. The Annual Financial Statements of THA have been delayed over the years, however attempts are being made to complete the pending statements and bring them up to date. No specific reason for delay in preparation of the accounts could be ascertained other than the fact that the records were not complete and information was not forthcoming from the various departments.
As per the New Delhi Municipal Council(Maintenance of Accounts) Regulations, 2010 Annual Financial Statements should be prepared by 30th June each year which shall be placed for approval of the Chairperson and the Council is to approve and adopt the audited Annual Financial Statements within nine months of the close of the financial year which is being generally observed. Section 204 of the MCD Act states that the accounts shall be kept in such manner and in such form as may be prescribed by regulations. The Act or the regulations do not lay down any specific date by when the Accounts should be laid before the Committee. The annual accounts have not been reconciled since 2004-05 so they have not been audited. The unaudited figures are compiled and used for the budget and other purposes. In the absence of these statements it is not possible to comment on the quality of the accounts also.
The comparative score of the bodies was as below
|Accounting, Recording and Reporting||1.63||1.0||1.50||1.88||1.88|
Audit by an external agency is an important means of ensuring accountability. Traditionally auditing focused on the accuracy and probity of accounts which was mainly to examine whether transactions were within the budget, whether they were carried out according to regulations and for the purpose they were meant for. Section 59 of the New Delhi Municipal Council Act provides for the Chief Auditor whose responsibility it is to audit the accounts and all transactions of the Municipal fund and can make any queries and observations in this regard. It has the right to access any record in the conduct of his task. The MCD Act also provides for a Chief Auditor who shall conduct a monthly and annual examination of the municipal accounts and shall report thereon to the Standing Committee. Like NDMC, the auditor in MCD also has the right to access any record. Section 113(2) of the Municipal Corporation Act of Trinidad provides that the accounts of the Corporations shall be subject to audit by the Auditor General in all respects. Similarly as per Section 46 of the Tobago House of Assembly Act the accounts of THA are also subject to the audit by the Auditor General. In the case of the Corporations and THA, the audit is in arrears. The corrective measures undertaken are neither carried out in a systematic or timely fashion. Further, no record was maintained to monitor follow up systematically. However, auditors follow up on the progress as part of their subsequent audits. Thus this accountability mechanism is not effective as it should be.
In the case of POS, Chaguanas, while examining the budgetary schedule it is seen that there doesn't seem to be any examination by the Finance and Planning Committee. As the system stands today, the budget estimates prepared by the Council have no or little meaning as the final figures are those which the Ministry of Finance decides. Once this limit is communicated, the Corporations then rework the priorities and re-distributes the amount allocated. The whole exercise actually becomes futile. The legislative scrutiny in the local government in Trinidad is virtually non-existent.
In the case of THA, legislative scrutiny of the budget is more intense than that of the Corporations, but not much debate takes place other than the budget speech and the minority leaders response. The whole process in the Assembly takes 3-4 days. From the discussions with clerk of the Assembly and the officers of the Budget wing it appears that there is no committee stage for a detailed examination.
NDMC does not have a legislative body however, for this study the Standing Committee is being treated as a legislative body. The budget is placed before the Standing Committee where it is discussed. The budget as placed before the Council is already approved by the Chairperson and the Chairperson heads the Council also. Thus the approval of the Council is a mere formality.
In MCD, the budget proposals go through two levels of legislative scrutiny. The estimates are first placed before the Standing Committee which is the main legislative committee to review all financial matters. The Standing Committee discusses the budget in great details taking in the view of the finance department and ward committees. The recommendations of the Standing Committee form a part of the budget proposals which are put up to the Council.
The legislative wings of the local bodies except that of MCD don't seem to have a major role in the budget process.
The delay in the submission of the Annual Financial Statements and subsequent delay in audits is further aggravated by the limited scrutiny by the legislature; the Parliament in the case of Trinidad and Tobago. The reports of the Auditor General are examined by the Public Accounts Committee of the Parliament. There is a backlog in the examination of audit reports and those on local government bodies being victims of this process. During the last 5 years, only one report on Chaguanas has been examined by the PAC. There appears to be no systemic follow-up on the recommendations of the PAC and reoccurrence of the same findings in the audit reports suggests that the recommendations of the PAC are not taken seriously by the executive.
NDMC does not have a legislative body however, for this study the Council is being treated as a legislative body. The audit reports are placed before the Council and then a committee created for audit examines the reports in depth. Hearings are held with the departments. On an average this committee meets once in a quarter and has been successful in clearing/settling outstanding paras.
The legislative scrutiny of audit reports in MCD is carried out at in depth. The report is placed before the Standing Committee and then it is examined at length by the Municipal Account Committee. The Committee then gives its recommendations to the Standing Committee for settlement of the observations or the Department for corrective action. While the recommendations regarding corrective actions given by the Accounts Committee, were taken seriously by the executive, its scope was limited as the Committee has over the years considered only a small portion of the audit reports. Even today, audit observations pertaining to the years 1957-58 are being examined and discussed simultaneously with those of later years5. Importance and relevance of audit appears to have taken a back seat in the scheme of things in the local government context across the board as is evident from below:
|External Scrutiny and Audit||1.3||2.1||2.8||2.7||2.9|
The evaluation of the financial management systems and procedures on the eleven criteria brings out a comparative position of the five bodies under study. In an ideal situation the bodies would have a score of 0. However, the position is very different as seen below:
When the scores of Delhi and Trinidad and Tobago are consolidated and compared it reveals that the score of Trinidad and Tobago is 36.67 per cent higher than the Delhi score.
It was assumed at the beginning of this study that Trinidad and Tobago being a smaller country and the local government being more manageable in terms of size and expenditure, financial management would be more effective. However, the hypothesis has not proved to be correct
A sound and effective public financial management system should reflect a high degree of fiscal discipline, strategic allocation of resources and the efficient delivery of services . Budgets in Trinidad and Tobago are prepared primarily to comply with statutory requirements, are incremental and are not generally used as tools for financial control, planning and effective management decision making. A top down approach reduces public participation, transparency and accountability and can lead to insufficient attention being paid to the felt needs of the local populace. The process needs to be made more participative.
The system of funding the local bodies in Trinidad is only by way of subventions, while in Delhi they raise their own revenues which fall short of their requirement for all the activities. This makes them dependent on the Centre. If local bodies remain financially dependent on the grants from Centre, then they would be principally accountable to these governments and not to the people. Accountability to the people rather than to a centralized bureaucratic system should be the objective to achieve the goal of self-governance. In addition, the Urban Local Bodies (ULB) should be given increased authority to broaden their revenue collection so that they can meet their expenditure requirements and do not have to depend on the State/Central Government for funds.
In line with increased revenue generation by the ULB's, there will also be a need for the establishment of a detailed and comprehensive accounting and auditing system, that meets the requirements of transparency and accountability.
A good internal control framework comprises of clear policies, systems and procedures incorporating internal checks and controls, and a monitoring mechanism – generally internal audit - to identify deviations and promptly address risk areas. The legislation in both the countries does not provide for internal audit. However, where internal audit has been provided in some form, there are no detailed policy guidelines, procedures and formats for such audits. In light of the shift to modern systems of accounting, the need for an internal auditor becomes more pronounced as it allows for necessary corrective action to be taken at the time of the transaction itself.
External Audit or Statutory audit is a very important tool of accountability. As explained by the Institute of Internal Auditors, 'the credibility of the audit activity strengthens public governance by providing for accountability and protecting the core values of government, which it does by assessing whether managers and officials conduct the public's business transparently, fairly, honestly, and in accordance with laws and regulations6.' The credibility of audit comes under question if it is not carried out regularly and does not follow set standards. Audit is in arrears in all the local bodies in Trinidad and Tobago, partly due to delay in preparation of the accounts and partly due to delay by audit. Local Government it seems comes low in the priority of audit in Trinidad as the audit is conducted by the Auditor General who has to cover the entire government. In MCD the delay in audit is primarily on account of delay in preparation of accounts. Not only should audit be conducted in time, but corrective action needs to be taken on its recommendations. As compliance to audit is weak in nearly all instances the very purpose is defeated giving rise to another problem of accountability.
The above brings out the fact that size has no clear direct link with degree of financial accountability. Delhi, though bigger in size obtained a better score as procedures are more standardized and implemented, while in Trinidad and Tobago procedures existed but the implementation was weaker.