Revised Accounting Classification Structure of Government Accounts for

Revised Accounting Classification Structure of Government Accounts for Union and States H. K. Srivastav Director (Budget) 1

Overview Evolution of Accounting Classification Existing Classification Structure Need for change Proposed structure Benefits Implementation 2

Overview. . At the Outset Proposed structure vis-à-vis use in capturing the accounting data Alignment with International system : GFS and COFOG Receipt classification to be shifted to Economic category 3

In a nut shell A multi-dimensional structure Logical coding Uniqueness/Standardisation in coding Customised to the existing framework 4

Evolution of Accounting Codes Year Committee Objective 1938 First LMMHA by Auditor General Elementary form of accounting heads to show allocation and expenditure. 1962 Second LMMHA Rationalization in classification of government transactions. 1974 Mukharjee Committee To incorporate the changes in the structure of accounts in terms of broad functions and major programmes of the Government. 1987 Ghei Committee To bring about a closer correlation between Plan Schemes and Account Heads. 2004 Lahiri Committee Recommended multi-dimension accounting classification. Issues of separate disclosure of transfers as Revenue vs Capital 5

Evolution of Accounting Codes. . 2 Year 2010 Committee Objective Sundaramurti Committee (CGA)Submitted report to Hon’ble FM on 25 -1 -2012. Ø To conduct a comprehensive review of the existing expenditure and receipt classification. Ø To suggest a revised classification structure keeping in view the critical information requirements for policy formulation, allocation of resources among sectors, Ø To monitor compliance with legislative authorisations, accountability, policy review, performance analysis and requirements of computerised data processing. Ø To Suggest a new list of accounting heads keeping in view the needs for simplification, rationalisation, Ø Standardisation across national and sub-national governments and improved reporting of transfer payments. Ø Comprehensive review of the list of object heads keeping in view the changed information requirements for better and informed decision making by the Government. 6

Existing system Three types of information are captured: (i) Functions and Sub- Functions (ii) Programmes/Schemes/Sub-schemes (iii) Objects of Expenditure - 7

Emerging requirements for new sets of Accounting Information by ‘Administrative Units’ Information by ‘Heads of Development’ Information by ‘Programmes and schemes’ Information by ‘Recipients’ Information by ‘Policy thrust areas of Government’ Information by ‘ Geographical location of Public spending’ 8

Need for ‘Multi-dimensional Classification system’ Administrative unit Function Programme cum scheme Recipient Target Economic Geographic Accounting 9

Need for Change… Effectiveness as a policy tool, control and monitoring mechanism. Lack of concordance with Plan heads of development. Major Heads do not reflect functional character of expenditures. Opaqueness in transfers to states and UTs govt. under 3601 and 3602. Lack of standardization of scheme classification: Same scheme appearing at several places with different codes. 10

Need for change…. . Schemes not captured uniformly at one level -some classified at sub-head level some other at Minor head level No distinction between a Programme and a Scheme. Difficulties in monitoring of Scheme expenditure Breakup of central transfers into constituent flows such as Finance Commission grants, Normal Central Assistance, Additional Central Assistance, Special Central Assistance etc. not available 11

Need for change…. . Incapable of handling special requirements of gender budgeting, i. e budgeting for SC/ST. NER, etc. - No direct way to capture Extremely cumbersome aggregation of information. Illustration Information spread all across DDG Revenue-Capital-Loan-3601 -2552 12

Existing Classification Major Works Loans

Existing Classification Structure Government Accounts Consolidated Fund Capital Section Revenue Section Receipts (0001 to 1999) Contingency Fund (8000) Receipts Tax Revenue Non Tax Revenue Grants in Aid & Contributions Expenditure (2000 to 3999) General Services Social Services Economic services Grants in Aid & Contributions Expenditure Public Account (8001 to 8999) Small Savings Deposits & Advances Reserve Funds Suspense & Misc. Remittances Cash Balance General Services Social Services Economic Services Grants in Aid & Contributions Public Debt Loans & Advances 14

Existing Classification Structure A 6 -tier hierarchical structure Major Head representing a major function of the government (4) Sub-Major Head representing a sub-function (2) Minor Head representing a pramme (3) Sub Head representing a scheme (2) Detailed Head representing a sub-scheme (2) Object Head representing the economic type of expenditure. (2) 15

Existing Classification Structure …. . . 4 Organisation Grant 3 3 Functions Function 4 Sub-function 2 Programme 3 Scheme Sub-scheme 2 2 13 Economic Object 2 2 16

Development of the Proposed Structure Administrative Function Ministry 2 Function 4 Department 1 Subfunction 2 Office 2 5 3 Scheme Type 1 Scheme 4 Sub-Scheme 2 10 6 Organization (Existing) Grant Programme 3 3 Recipient Type 2 Name 6 8 Function cum Programme (Existing) Function 4 Sub-Function 2 Programme 3 Scheme 2 Sub-Scheme 2 13 Economic Target code 3 Geographic Category 1 Subcategory 1 Object 1 Special area Region 2 States 2 District 2 Towns/Villag e 8 3 3 14 Economic (Existing) Object 2 2 17

Proposed Structure Table 1 Adminis trative Ministry Depart 2 1 ment Office 2 Function segment Major Head Sub. Major head 4 2 Programme-cum. Scheme segment Recipient segment Programme Recipient Type 3 Scheme Type 1 Scheme 4 Sub-scheme 2 Recipient Name Target segment 2 6 Target Code Economic segment 3 Category Geographic segment 1 Special 2 Areas/ Sub. Category 1 Region States Object 1 Districts 2 Towns/ 8 2 Villages 18

Administrative segment… Who is responsible for Public spending ? Currently Grant No. loosely captures the organisational element but not captured through accounts. Development of “Administrative Segment”. Provides for capturing the three tiers of the administrative hierarchy Ministry Department 2 1 Office 2 19

Administrative Segment The idea is to attribute each budget line to an administrative entity responsible for spending money to enforce administrative responsibility and accountability for Public expenditure The segment developed for all Civil Ministries with standard codes for each level of the segment. 20

Function segment. . Reorganisation of current ‘Functional’ segment. “For establishing concordance between Functional accounting heads and Plan heads of Development” Sectors and Sub-sectors assigned numeric codes and brought into accounting framework. The code for ‘Functions’ includes identifiers of Sectors and Sub-sectors. 21

Function segment Current system Economic Services e- Energy New system 4 - Economic Services 44 - Energy a – Agriculture and allied activities 41 – Agriculture And allied activities 22

Function Segment. . To classify functions of government Has two levels represented by Major heads and Submajor Heads Major/Sub –major Heads of Development Major Heads Sub-major Heads 4 2 23

Function Segment… 3 Reorganisation of existing heads Sub-major heads elevated to major head levels Superficial functional heads dropped logical linkage between codes for sectors/subsectors and subsequent Major Heads and concordance with Plan heads of development : Use of functional heads as an effective tool for Sectoral analysis and macro level planning which is vetted by the Planning Commission. 24

Function segment…. . 1 – General Services 2 - Defence services 3 - Social Services 4 and 5 – Economic Services 25

Examples : Major heads coding MH 3405 1 st digit ‘ 3’ 2 nd digit `4’ Next 2 digits `05’ MH 4512 1 st digit ‘ 4’ 2 nd digit `5’ Next 2 digits `12’ Social Security and Welfare Social Services (Sector) Social Welfare (Sub-sector) Social Security and Welfare (Function) Food Processing Industries Economic Services (Sector) Industries and Minerals (Subsector) Food Processing Industries (Function) 26

Examples : Major heads coding MH 1104 Administration of Justice 1 st digit ‘ 1’ General Services (Sector) 2 nd digit `1’ Organs of State (Sub-sector) Next 2 digits `04’ Administration of Justice (Function) MH 1509 Other Administrative Services 1 st digit ‘ 1’ General Services (Sector) 2 nd digit `5’ Administrative Services (Subsector) Next 2 digits `09’ Other Administrative Services 27

Programme segment Information by ‘Programmes and Schemes’. ‘Programme cum Scheme segment’. To classify all Programmes and Plan and Non-plan Schemes/Sub-schemes of the Government. 28

Programme segment… A programme could be defined as a set of activities (schemes) that are required to achieve a defined objective. Equivalent to ‘ Minor head level’ of the current system Includes Plan and Non-plan items both Shall be developed by suitable grouping of schemes to be done by Budget Division. 29

Programme cum Scheme Segment. . 2 Connotation of the term ‘scheme’. Not only the development (Plan/Non-plan) schemes of government but also the receipt and Public account transactions. Programme Scheme Type Schemes Sub-scheme 3 1 4 2 30

Programme cum scheme…. Unique 4 digit code has been assigned to each scheme. If same scheme is operated for `Receipts’, `Plan’ and `Non-plan’, etc. its 4 digit will remain same. Use of Identifiers results into uniqueness of scheme codes for various levels of governments. 31

Programme cum Scheme Segment…. Scheme Type Standardisation and uniqueness of Scheme codes. Aggregation of schemewise information Linking expenditures to Transfers Trails from Union govt to lowest levels Effective monitoring of implementation schemes by all levels of governance of 32

Scheme type 33

Scheme… All the schemes with standard codes and identifiers have been fitted under suitable Major & Sub-major heads. ‘Compendium of Accounting Classification Codes’ (New LMMHA) 34

Recipient Segment…. Who are the recipients of Public money for delivering services/ execution of programmes and scheme ? Development of ‘Recipient’ Segment’. Classifies external agencies and entities that receive public funds as instruments and channels of public delivery Recipient Type 2 digit Recipient 6 digit Name 35

Recipient Segmet Only to be used in the case of transfer payments such as subsidies, grants, contributions, investments, loans etc. Recipient Type Unique code to each recipient unit. It would be possible to compile information on allocation of resources to each such agency under different schemes and heads. 36

Target segment… Accounting information by major policy thrust of Public spending Development of ‘Target segment’ to identify expenditures targeted at special policy objectives. At present four such requirements are identified such as Women Centric Expenditure, SCs, STs and BPL population. combination of targeted expenditure can be used to indicate suitable policy thrust objectives. Target 3 37

Economic Segment The current object classification has been developed into a full-fledged 3 tier Financial classification. The existing Object head classification superimposed with 2 higher categories and sub-categories. Economic Classification Category 1 Sub-category 1 Object 1 38

Economic Segment To cover all types of transactions : Receipts, Expenditure, Public account. Revenue and Capital categories 39

Economic Segment… List of Categories & Sub Categories: Categories 1. Revenue Receipts 2. Capital Receipts Sub-categories Tax Revenue Other Revenues Current Grants in kind ……. etc 21 Capital Grants 22 Misc. Capital Receipts ……. etc 40

List of categories & sub-categories. . 3. Revenue Expenditure Employee Compensation Pension & Other Retirement Benefits Travel Expenses Goods & Services for office management Goods and services for functional use Subsidies Share of taxes/ duties Grants-in-aid Contributions Other Recurrent Expenditure ……etc 41

List of categories & sub-categories 5. Capital Expenditure Buildings Infrastructure Assets Non-produced Assets Investments Loans and Advances …. etc 42

List of categories & sub-categories 6 Liabilities 61 Debt 65 Other obligations 66 Other obligations 69 Others 43

Geographic segment…. Information by geographical location of Public spending? Development of ‘Geographical’ segment. A 4 tier classification to capture the geographic location of expenditure by classifying them as per the political divisions of the country. Geographic classification Special Area /Region 2 States Districts Towns/ Village 2 2 8 44

Report on the revision of LMMHA PART-II: ‘Compendium Classification Codes’ of Accounting Main part : Major/Sub-Major and Programme cum Scheme Annexures : All other segments along with their codes 45

Budget Presentation… Shift in parliamentary control on Budget Macro and Micro level control Flexibility to Ministries in micro management and execution of budget 46

Budget Presentation Attributes Code Length (Digits) Mandato ry Line Adminis trative Class Function Office Major & Sub Major Head 5 6 3 7 Programme-cum. Scheme Class Recipient Class Target Class Economic Class Program Scheme Recipien me t names /Sub. Scheme Target Object 3 3 6 3 47

Code Line Proposed Codes Description Ministry of Health & Family Welfare (Ministry) Department of Health & Family Welfare (Deptt) Directorate General of Health Service (Office) 17 17 1 171 14 Urban Health Services (MH) 17114 3302 Allopathy (Sub MH) 17114 330201 00081001 01 17114 0008100101 0000 17114 330201 0008100101 0000 000 17114 330201 0008100101 00000000 000 3 3 17114 330201 0008100101 0000 000 31 01 Programme 81001 Direction and Administration (Non-plan Scheme) Headquarters Establishment (Sub-scheme) Recipient Target Revenue Expenditure (Eco. Cat) 1 Employees Compensation(Sub Cat) 1 Salaries(Object) 48

31 2 Wages 000 31 3 OTA 0000 000 33 0008100101 0000 000 33 1 Domestic TE 330201 0008100101 0000 000 33 2 Foreign TE 17114 330201 0008100101 00000000 000 34 1 17114 330201 0008100101 0000 000 34 2 000 342 3 3 17114 330201 0008100101 0000 330201 0008100101 17114 330201 5 6 0008100101 10 0000 8 000 Travel Expenses (Sub-Cat) Goods & Services for Office Management (Sub-Cat) Office Equipment Office Expenses 0000000 14 = 49 49

Budget Line – DDG (Health-3) Proposed Codes Description Ministry of Health & Family Welfare (Ministry) Department of AIDS Control (Deptt) National AIDS Control Orgnisation (Office) 17 17 4 174 02 Public Health (MH) 17114 3303 (Sub MH) 17114 3302 00 17114 330201 00021628 03 21628 Programme National AIDS Control Programme (Centrally Sponsored Scheme) Grants under NACP (Gen. Comp. ) (Sub-scheme) 17114 330201 0008100101 17114 330201 0008100101 00000000 0008100101 0000 17114 330201 0008100101 21000012 0000 State AIDS Control Societies (Recipient) Target 000 43 Revenue Expenditure (Eco. Cat) 3 1 Grants-in-aid(Sub Cat) Grants to Sub-national Governments …. (Object) 50

Budget Line – DDG (Social Justice) Proposed Codes Description Ministry of Social Justice and Empowerment (Ministry) 40 40 0 Department Secretariat(Office) 400 01 40001 3401 Welfare of Scheduled Castes (MH) (Sub MH) 00 00021659 08 Programme Hostels for Scheduled Castes (Centrally Sponsored Scheme) Hostels for Boys (Sub-scheme) 40001 340100 0002165908 22 xxxxxx NGOs (Recipient) 40001 340100 0002165908 22 xxxxxx 002 40001 0002165908 22 xxxxxx 40001 340100 000 40001 340100 21659 SC (Target) 002 43 Revenue Expenditure (Eco. Cat) 3 3 Grants-in-aid(Sub Cat) Grants to other bodies…. (Object) 51

Budget Line – DDG (Social Justice)…. . Proposed Codes Description 00021659 09 Hostels for Girls (Sub-scheme) 40001 340100 0002165908 22 xxxxxx NGOs (Recipient) 40001 340100 0002165908 22 xxxxxx 005 40001 0002165908 22 xxxxxx 40001 340100 WC & SC (Target) 005 43 Revenue Expenditure (Eco. Cat) 3 3 Grants-in-aid(Sub Cat) Grants to other bodies…. (Object) 52

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Recasting DDG Existing Proposed 17 - M/o. Health & Family Welfare Demand No. 46 – Department of Health & 171 - D/o of Health & Family Welfare 17114 - DGHS (Office) 2210 Medical & Public Health (MH) 01 Allopathy (Sub. MH) 3302 Urban Health Service (MH) 01 Allopathy (Sub. MH) 001 Direction & Admn. (Minor Head) 03 DGHS (Sub head) 01 Headquarter (Detailed Head) 000 ………. (Programme) 001 Direction & Admn. (Scheme) 01 Headquarters (Sub-scheme) No provision for recipient and target segment 0000 Recipient 000 Target 54

Existing 01 Salaries 02 Wages 03 OTA 06 Medical 11 Domestic TE 13 Office Expenses No provision for geographic classification Proposed 3 Revenue Expenditure (Category) 31 Employee Compensation (Sub-cat) 311 Salaries (Object) 312 Wages 313 OTA 314 Medical 33 Travel Expenses (Sub-category) 331 Domestic TE 34 Goods & Services for office management 342 Office Expenses Geographic classification is not mandatory at budget level. It may be done at the time of sanctioning the expenditure. 55

Existing Demand No. 57 – Department of School Education and Literacy Proposed 20 Ministry of Human Resource Development 201 Department of Education and Literacy 20101 Secretariat (Office) 2202 General Education (Major Head) 01 Elementary Education (Sub MH) 3101 School Education and Literacy (Major Head) 01 Elementary Education (Sub MH) 107 Teachers Training (Minor Head) 01 Strengthening of Teachers Training Institutions (Sub head) 21481 Strengthening of Teachers Training Institutions (Scheme) 56

Existing Proposed 13 Office Expenses 34 Goods & Services for office management 342 Office Expenses 31 Grants-in-aid(General) 01 Grants-in-aid to Institutions (Sub-scheme) xxxx Institutions (Recipient) 43 Grants-in -aid (Sub-category) 433 Grants to Autonomous Bodies & other Institutions for establishment expenditure 57

Advantages of the proposed system (A) Capturing of almost the entire spectrum of data attributes on Public financial operation. Macro level information – Sector and Sub-sector Programme cum Scheme Recipient Policy thrust areas Development of special area/region Flows to sub-national entities (B) Retrieval of information from the system will be easier. More flexible reporting. 58

Advantages of the proposed system. . 2 (B) Financial reporting in a variety of ways for different stakeholders. (C) Simplified classification & presentation of budget (D) Easy aggregation of information. (E) Accounting database would be more amenable to slicing and dicing & would be more computer friendly. 59

Advantages of the proposed system. . 3 (F) Easier maintenance of code Directory due to standardization and uniformity. (G) Mutually exclusive structure would provide enough flexibility to State Governments to add or drop segments for their local information requirements. They may add more levels below those provided in the structure. 60

The implementation Way forward: Approval by Government in consultation with CAG Development of Accounting Code Directory by ITD Freezing Budget line Development of Budget and accounting formats Development of formats of Financial statements 61

Way forward… Parallel runs in all Ministries Development of crosswalk table between the existing and proposed accounting heads For smooth transition Transfer of balances Previous year balances in DDGs 62

Way forward… Training and workshops 63

Thank you Harish Srivastav Dy. CGA 64