Draft Para & Provisional Para - Audit

 

DP - Draft Para

Sources: 

1. Chapter 9 of Finance Code

2. 113A to 116A 

3. Appendix I to Accounts Code

• All important cases noticed in audit, which merit inclusion in the Report of the C&AGI are brought to the notice of the Railway Administrations through special letters, notes of objection etc., issued to the PHoD and PFA by the PDA of the Railways.

• Draft Paragraph is the first stage of presenting an audit view point for inclusion in the Audit Report as Audit para. 

Sequence of events: 

1. The PDA - Principal Director of Audit of Zonal Railway sends the DP to the GM.

2. Also simultaneously send copies of the DP with connected correspondence, to the PFA, the PHOD concerned

3. 6 Weeks - Time limit to reply by PFA.

4. The reply should have the approval of PHOD as well as Personal approval of the GM. 

5. Accounts should verify the facts and the line of reply is to the point. It should be a statement of authoritative facts.

6. The reply should be total and comprehensive, leaving no point left uncovered.

7. The reply should be sentence-wise in juxtaposition to the Draft para contents.

Accompanied by: 

• A brief  history of the case

• Audit contention

• Railway defense

• A chronological summary

• Remedial action called for or taken to avoid similar cases in future.

• Disciplinary aspects, if any where individual lapses have been brought to light.

If Audit is convinced, the DP should be dropped.  Otherwise PDA decides to include in the Audit Report and sent PP - Provisional Para to Railway Board

PP - Provisional Para

• Time limit: 2 weeks to furnish reply by Zonal Railways to Railway Board

• With the approval of GM

• Reply should be sentence-wise remarks.

• Audit will consider the reply received from the respective Directorate in the Railway Board.

• If Audit is convinced, the PP will be dropped.  Otherwise it is incorporated in the Audit Report as Audit Para.

Link Heads - Connecting Government Accounts with Commercial Accounts

Link Heads between Govt Accounts & Commercial Accounts

First, let us discuss, the differences between Govt Accounts & Commercial Accounts

GOVERNMENT ACCOUNTS	COMMERCIAL ACCOUNTS
1.    Maintained on CASH basis.  It accounts Actual cash receipts and actual cash payments during the financial year.	1.    Maintained on ACCRUAL basis.   That means Accrued earnings, whether realised or not, and the liabilities incurred, whether actually disbursed or not.
2. Technically known as "FINANCIAL ACCOUNTS"    Maintained in accordance with the requirements of Government Accounts.  These accounts compiled annually for the purpose of representing a Consolidated Fund duly classified under the heads of accounts prescribed for Government accounting system.	2.  Technically knows as "CAPITAL AND REVENUE ACCOUNTS".      Facilitate a review of finances of the Railway as Commercial undertaking.  These are compiled every and included in the Annual Report of the Railway.
3. Mostly Government Accounts are maintained on Single entry system.   Note: At present, it is not in operation. All Govt organisations are maintained their accounts under Double Entry System only	3. Commercial Accounts are maintained on Double entry system. (For every Debit, there is equivalent Credit existed)
4. Government prepares Accounts of its incomings and outgoings only. (Not Profit & Loss A/c and Balance Sheet, since it is not commercial oriented)	4. Commercial firms prepares Profit & Loss A/c and Balance Sheet to know how much profit they earned during the year and what is their position (Assets and Liabilities) at the end of the year.
5. Government Accounts are designed "How little money it (Govt) need to take out of the pocket of the tax payer (citizen) in order to maintain its necessary activities i.e., welfare of the people, defence of the country etc".	5. Commercial Accounts are designed to show how much money the firm can put into the pockets of the owner/business in the form of Profit.

 

 

 

 

 

The Link Heads are Four.  They are 1. Demands Payable 2. Demands Recoverable 3. Traffic & 4 . Labour 

Demands Payable	Demands Recoverable	Traffic		Labour
Revenue	Revenue	Revenue		Capital

 

		Demands Payable	Labour		Traffic	Demands Recoverable
Operated on		Expenditure side	Expenditure side		Earnings side	Earnings side
Always having		Credit balance	Credit balance		Debit balance	Debit balance

How link is established between Govt & Commercial Accounts

SN		Receipts	Amount (Rs. )		SN	Expenditure	Amount (Rs. )
1	Commercial A/cs	Coaching Earnings	30		1	Ordinary Working Expenses	70	Commercial A/cs
2		Goods Earnings	60		2	Appropriation to DRF	15
3		Sundry Earnings	10		3	Appropriation to Pension Fund	10
4		Gross Earnings (1+2+3)	100		4	Gross Working Expenses (1+2+3)	95
5		Suspense (Traffic & DR)	- 10		5	Suspense (DP)	+ 5
6	Govt  A/cs	Gross Receipts (4+5)	90		6	Gross Expenditure (4+5)	100	Govt.  A/cs
7		Misc Receipts	25		7	Misc. Expenditure	5
8		Total Revenue Receipts (6+7)	115		8	Total Revenue Expenditure	105

Net Receipts/Net Revenue/Surplus  = 115 -105 = 10.

The above surplus will be distributed/appropriated among various funds such as Development Fund, RRSK, Capital Fund, Debt Service Fund etc.

 

 

 

 

DEMANDS PAYABLE

·         One of the Link Heads connecting Government Accounts with Commercial Accounts

 

·         This is a suspense head operated under Demand No.12 N (Working expenses side)

 

·          It is in nature of "Sundry Creditors A/c" in commercial accounts

 

·         First, It records all the revenue liabilities of the month without taking into whether these are liquidated(settled) or not. Hence this Head is credited at this stage.

 

·         The payments towards the liquidation of above liabilities are debited to the Head "Demands Payable" and the balance represents the outstanding liabilities.

 

·         It is always having a Credit balance.

 

·         A separate account is kept for each month.  However on the recommendations of "Simplification committee on procedures in Railways Accounts", the Demands Payable Head should only be operated once towards the close of the year i.e., March to bring all unliquidated liabilities of that year into accounts of the year.

 

·         The object behind this practical method is "the fiscal year for the preparation of accounts is a financial year (not on monthly basis), the non - operation of the Head DP would not materially affect the Railway Accounts for first eleven months.  Hence A separate account of DP for 11 months dispensed and operated in March only in financial year.  However DP for April in subsequent year should operate only to clear the balance of previous year.

 

 

·         Journal Entries are

 

IN THE MONTH OF MARCH ACCOUNTS

Date	Transaction	Debit	Credit
31.03.2020	Revenue Demands A/c  (Say Demand No.3) Dr	Rs.100
	To Demands Payable A/c      Cr		Rs. 100
	(To bring into the account of revenue liabilities (not discharged) of last month in March A/cs)

IN THE MONTH OF APRIL ACCOUNTS

Date	Transaction	Debit	Credit
01.04.2020	Demands Payable A/c	Rs.100
	To Cheques& Bills            Cr.		Rs. 100
	(To account the discharging of last year (March) liabilities in April A/cs)

 

              Ledger Account of Demands Payable A/c for the month of March, 2020

Date	Debit	Amount	Date	Credit	Amount
31.03.2020	To Balance C/d	Rs. 100	31.03.2020	By Demand No. 03	Rs.100
	Total	Rs.100		Total	Rs. 100
			01.04.2020	By Balance C/d	Rs. 100

*****

 

 

 

 

 

Demands Recoverable

●        Introduced from 01.04.1988.

●        Purpose: to bring to account all dues pertaining to Rent/lease of Railway Land and Buildings and Interest and Maintenance Charges of Sidings.

●        When the amounts due for Railway has been raised in the form of Bills – Debited to Demands Recoverable and Credited to Abstract Z earnings.

●        On the receipt of remittance from the parties – Debited Cash A/c (RIB) and Credited to Demands Recoverable.

Journal Entries:

Date	Transaction	Debit	Credit
01.04.2010	Demands Recoverable A/c   Dr	Rs.100
	To Abstract Z (Sundry Earnings)        Cr.		Rs. 100
	(Raising bills for amounts due to Railways)

 

Date	Transaction	Debit	Credit
20.04.2010	RIB - Remittance Into Bank  A/c  Dr	Rs.50
	To Demands Recoverable            Cr.		Rs. 50
	(Receipt of Cash from the parties)

 Ledger Account of Demands Recoverable A/c for the month of April, 2010

Date	Debit	Amount	Date	Credit	Amount
01.04.2010	To Abstract Z (Sundry Earnings) A/c	Rs. 100	20.04.2010	By RIB  A/c	Rs.50
			30.04.2010	By Balance C/d	Rs.50
	Total	Rs. 100		Total	Rs. 100
01.05.2010	To Balance B/d	Rs. 50

●        Closing Balance of D.R.: Represents unrealized amount in the form of outstanding “Demands Recoverable”

●        Examples: A. Land rent charges for engineering and commercial plots. B. Interest, maintenance charges & Inspection charges for sidings. C. Rent of Buildings & D. Maintenance charges for ROBs, FOBs and level crossings.

●        These are form a part of Sundry earnings (Abstract Z)

●        Clearance under the “Demands Recoverable” leads to reduction in Traffic Suspense.  Thus resulting in Better operating Efficiency.

●        It is always having Debit Balance.

Traffic A/c

Link Head connecting Govt Accounts and Commercial Accounts.  It is in nature of "Sundry Debtors A/c" in commercial accounts

      Debtor - All earnings (Local & Through)

      Creditor - All Recoveries for such earnings

      Balance: Unrealized earnings  - Always Debit balance

      OB - Previous Month's CB

 Specimen Journal entries

Date	Transaction	Debit	Credit
01.01.2020	Traffic A/c Dr	Rs.200
	To Coaching Earnings A/c      Cr		Rs. 200
	(Being accounted the earnings for which realisation is due)

 

Date	Transaction	Debit	Credit
25.01.2020	Remittance Into Bank (RIB) A/c Dr	Rs.150
	To Traffic A/c                                 Cr		Rs. 150
	(Realisation of earnings due)

            Ledger Account of Traffic A/c for the month of January, 2020

Date	Debit	Amount	Date	Credit	Amount
01.01.2020	To Coaching Earnings A/c	Rs. 200	25.01.2020	By RIB A/c	Rs. 150
			31.01.2020	By Balance b/d	Rs.50
	Total	Rs. 200		Total	Rs. 200
01.02.2020	To Opening Balance	Rs. 50

·         So, Traffic Account, being a Suspense account operated on Earnings side is always shows a Debit Balance.

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Labour Account

First stage:

The amount on account of Labour should be debited to "WMS Account" by credit to 'Labour Suspense'   - in Capital JV

Date	Transaction	Debit	Credit
28.01.2020	WMS A/c                          Dr	Rs.200
	To Labour Suspense            Cr		Rs. 200
	(Being the details posted from Labour schedule)

Second stage:

The Muster Rolls/ Labour Pay sheets having been passed for payment and debited to 'Labour Suspense'  -   in CO7s

Date	Transaction	Debit	Credit
29.01.2020	Labour Suspense A/c       Dr	Rs.200
	To Cheques & Bills                                 Cr		Rs. 200
	(Being posted from the various Abstract of Bills {CO 7s) passed  For the month)

 Ledger Account of Labour Suspense A/c for the month of January, 2020

Date	Debit	Amount	Date	Credit	Amount
29.01.2020	To Cheques & Bills A/c	Rs. 190	28.01.2020	By WMS A/c	Rs.200
31.01.2020	To Balance c/d	Rs. 10
	Total	Rs. 200		Total	Rs. 200
			01.02.2020	By Opening Balance	Rs. 10

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