Financial reporting in local bodies in disarray: survey

Financial reporting in the local bodies in Kerala is in a mess and does not follow even the basic tenets of accounting, says an empirical survey sponsored by the World Bank.

Conducted by eminent social scientist MA Oommen, the survey could not identify even a single instance where opening balance plus receipts has matched payment plus closing balance.

This is a basic tenet of accounting and should be true for all accounts, Oommen said. This alone can ensure consolidated accounting, which is the bedrock of an efficient financial reporting system.

There is lack of clarity, and misclassification abounds in the accounts. This has to be squarely faced and rectified, the survey said.

Conducted through the Gulati Institute of Finance and Taxation, it studied a sample of 62 grama panchayats and 16 municipalities.

The survey notes that it was only fair and proper to set the old manually accounting system in sound order in each local body before switching over to the new accrual-based, computerised system.

The old single entry system was itself in doldrums and called for significant corrections.

Switching over to a new system before effecting rectifications in the old one could make the time series data relating to earlier periods unreliable.

This would help only the corrupt especially in a system where the Department of Local Audit did not do an honest and efficient job. No existing record should be destroyed and, what is more, must be properly stored.

The survey also notes that there is no helpline to assist the smooth and correct switch-over to the new system.

A well-designed quality control programme at the entry point to ensure correctness and consistency of data is not available. Real time entry has to be the practice and not the exception.

Error free data entry is the need of the hour. It is important to introduce a data check and control mechanism to review the data provided by each local body.

All financial transactions are consolidated through annual financial statements. But budgets, although passed dutifully before March 31, are not made instruments of control and management by the local bodies.

This is a major deficiency. Unless and until this is rectified once and for all through systemic reforms, the situation is not going to improve.

It is also important to restructure receipts and payments under revenue and capital heads as is followed by the Union and State governments in India.

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