Kerala unhappy with Finance Commission’s view on State’s audit and account of local bodies

Shishir Sinha New Delhi | Updated on August 20, 2020

NK Singh, Chairman of Finance Commission R_V_Moorthy

Kerala has raised questions on the 15th Finance Commission’s views on the State’s audit and account mechanism for local bodies.

Viewership privileges

“It is requested that the Finance Commission, in its report, amply clarify that States that have gone ahead with their own solutions, which are ahead of the standard templates, are not forced to rework their system in the name of standardisation,” said a letter written by Sarada Muraleedharan, Principal Secretary in Local Self Government Department to the Finance Commission. BusinessLine has seen the content of the letter. It further suggested that allowing viewership privileges or developing interfaces that allow sharing of information across platforms, however, can be insisted upon.

The whole debate started with the Finance Commission’s interim report pointing out that the audited accounts at the local body, State, and all-India levels are not being available in a timely manner. The reportalso flagged addressing this issue as a critical reform agenda. It recommended the transition to an upgraded accounting code structure – PRIASoft system – for rural bodies, which is to be integrated with IFMS (Integrated Financial Management System) of the State government or with the PFMS (Public Financial Management System), so that the online generation of accounts, auditing of the same, and their consolidation at the State and Central level can be ensured.

PFMS is a platform for all plan schemes. It is a database of all recipient agencies, integration with core banking solution of banks handling plan funds, integration with State Treasuries and efficient and effective tracking of fund flow to the lowest level of implementation for plan scheme of the Central government. IFMS does similar work for States.

Federal structure

Though State government officials are in favour of the integration, they also mentioned practical difficulties for the State administration. An official with the Central government also felt such an integration is not desirable. “The Constitution has distributed areas to be dealt by the Centre and States. The Centre collects revenue through the States. Now, giving money for various schemes does not mean you need to keep eye on each rupee spent,” he said while emphasising on the need to strengthen the federal structure.

The Kerala government explained that it has three forms of audit – the local fund audit, the performance audit, and the CAG audit. These cover all local governments – rural and urban. The expenditures of panchayats are captured on Saankhya, an accounting software developed for local bodies. The annual financial statement of panchayats is generated from these accounts, and an online platform for audit called AIMS is used to conduct the financial and compliance audit of panchayats. This system is in operation since 2015.


The State has listed many complications arising out of the integration. For example, the heads under which expenditures are captured in e-gramswaraj are far more broad-based and less nuanced than the detailed heads of the Saankhya software. “There could be loss of information during integration,” said a State government official. Similarly, the State has not onboarded panchayat expenditures on to the PFMS as it already has a functional IFMS. While the Finance Commission allows for the integration of software with IFMIS for States, the template of the Panchayati Raj Ministry does not allow for such integration,” he said.

Published on August 20, 2020

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