NRHM 5 YEARS

NRHM- Financial Management Presentation On Technical Assistance In 3 Areas

TECHNICAL MANAGEMENT AND SUPPORT AGENCY

Background and Need

NRHM 5 YEARS

NRHM- Decentralized approach with focus on continuous appraisal and review of financial management systems across implementing levels
Joint Review Missions identified a few areas which needed strengthening The following three areas were selected on a priority basis for review:

Need for the TA

Improper accounting and reporting observed at the sub district implementing units

Technical Assistance Area

Development of model financial and accounting handbooks for sub-district level implementing units to provide guidance to NRHM field level accounting personnel.

To assess the level of implementation and effectiveness of concurrent audit systems in various states as gaps were found in the same To bring about standardization in accounting systems and methods across states

Assessment of NRHM internal audit/ concurrent audit systems with respect to its implementation, quality of reports and impact in terms of improvements in systems and reporting. Evaluation of Customized Version of Tally being used by NRHM in few States and Develop a Roadmap for Its Implementation in other States

Approach and Methodology

NRHM 5 YEARS

Questionnaire

Questionnaire circulated amongst all states and UTs relating to Use of Tally Institution of Concurrent Audit Existence of accounting guides Meeting with key officials of FMG to attain a common understanding of the objective, scope, approach, work plan and the sample size Review of certain documents made available Primary visits to 5 states namely Rajasthan, Orissa, Madhya Pradesh, Assam and Karnataka . For each state, 2 districts, 2 blocks, 2 CHC/PHC and 2 sub centers were covered Discussions with key officials and accounting personnel on issues and possible solutions Review of accounting records, practices, statutory and concurrent audit reports and others Analysis of relevant documents Discussion undertaken and Information collected used to analyze issues and make recommendations to improve systems

Kick off Meetings

Field Visits

Review of Records and Accounting Practices

Analysis

NRHM 5 YEARS

NRHM- Financial Management

Development of Model Accounting Handbooks

Scope of Work

NRHM 5 YEARS

Need for development of model handbooks arose from the improper accounting and reporting observed at the sub district implementing units

Scope of Work

Development of model financial and accounting handbooks for the following implementing units at the sub district level: Block CHC/PHC RKS Sub Centers VHSCs

Contents of the Model Handbooks

NRHM 5 YEARS

Model handbooks have been developed with a defined structure and content Can be customized as per the fund disbursement and reporting structure of the implementing units in each of the states.
S. No 1 2 3 4 4.1 4.2 Contents of the Handbooks* Introduction Overview of Fund Flow and Reporting Pool Wise Classification of Activities for which Funds are Received, Disbursed and Spent Accounting & Book Keeping Requirements Important Accounting Principles and Policies to be followed Books of Accounts to be Maintained and Formats Formats provided for Double Column Cash and Bank Book, Ledger, Fixed Asset/ Stock Register and Advance Register and Ageing Analysis E.g. receipt of funds, disbursement of money as advance to the subsidiary units etc. E.g. Recognition of income to the extent of expenditure incurred, transferring of interest to Income & Expenditure Account For Cash, Grants in Aid, Bank/ E-transfer, Payments & Expenditure, Fixed Assets, Advances and TDS Details

4.3 4.4

Basic Accounting Entries Monthly/ Quarterly/ Annual Financial Statements (Closing and Consolidation Entries) Accounting Process & Internal Controls

4.5

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5.1 5.2 5.3 5.4

Financial Reporting Requirements

FMR/ SoE Reporting Utilization Certificates Reporting Audit Requirements Other Requirements

The Way Forward

Need to create awareness and effectively disseminate the model handbooks

NRHM 5 YEARS

Initiative At Centre Level

Create Awareness about Availablity of Handbooks at a Central Level Workshop

Action Required

Vet and formalize final handbooks and put up on the NRHM website

At State Level
Customization of Handbooks to Incorporate State Specific guidelines Conversion of Handbooks into Local Language Uploading the handbooks on the Website of the State Health Department Printing of Handbooks The state may appoint a core team of 4-5 people like SFM, SAM etc to vet and customize the handbooks within a fixed time The state could distribute the handbooks in English/ in the local language spoken in the state This would ensure easy and continuous accessibility to the end users , thereby eliminating delays States can go for distribution of printed copies of handbooks to the implementing units in case internet facility not available at lower level units Dissemination by SHS to DHS , DHS to Blocks and by blocks to their lower level units

Dissemination among the implementing units

NRHM 5 YEARS

NRHM- Financial Management

Assessment of the NRHM Concurrent Audit Systems

Scope of Work

NRHM 5 YEARS

Scope of Work

Evaluation of compliance with the guidelines laid down for selection and appointment of statutory auditors Evaluation of audit reports to assess compliance with formats and checklists Assessment of the current concurrent audit system to identify and suggest areas of improvement Development of a benchmark tool against which the financial management systems and concurrent audit mechanisms can be evaluated

Analysis of Statutory Audit Reports

NRHM 5 YEARS

Overall Quality of the statutory audit reports seem to have improved over the previous year Financial statements were largely available in the prescribed formats Some requirements as per the guidelines were however not met o17 statutory audit reports submitted by the states to the centre (up to 30th Nov, 2009) were analysed with respect to the compliance with guidelines mentioned in the FM manual on the content and format of the audit report. o Following were some quality issues observed in the reports:
Parameter Bank Reconciliation statement Utilization Certificates Audited FMRs Reconciliation between expenditure as per FMR and audit report Notes to Accounts Accounting Policies Comments on Previous years observations Audit Checklists No. of reports lacking on the parameter 9 6 13 12 7 5 14 12

Management letter checklist

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o Other issues like incomplete checklists, formats of financial statements not followed etc were also observed
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Analysis of Statutory Audit Systems

NRHM 5 YEARS

Statutory Audit Systems have been analyzed in terms of the appointment and selection process of the auditor and the quality of the audit report
Issues
Delayed Appointment of auditors and delayed report submission Actual staff visiting the districts less qualified and experienced vis-a-vis the staff proposed in technical proposal Lack of understanding of local language by auditors One firm auditing multiple states without adequate capacity leading to delays and quality issues Qualitative assessment and analysis of accounting issues observed missing in audit reports Compliance though inclusion of all requirements / checklists etc in the audit reports needs improvement

Recommendations
Formation of an audit committee to monitor regularly the progress on statutory audit and take appropriate action Submission of Summary Report by the state to the center on the appointment and selection process of the statutory auditor Revision in the Technical Evaluation criteria with higher weightage to the qualification and experience, local language knowledge etc of the audit staff Suggestions on contractual covenants to be included in auditors contract to improve timely submission and quality of the report e.g. No change in the audit team without permission

Suggestion to monitor the capacity of the audit firm before awarding multiple state audits. Insist on separate teams for different states
An audit evaluation form prescribed to be prepared by the state to provide feedback on statutory auditor . Could facilitate reappointment of auditor if found suitable
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Analysis of Concurrent Audit Systems- Issues

Analyzed, both at the state and district levels, in terms of o Appointment and selection process of the auditors o Adherence to scope of work o Quality of concurrent audit report o Quality of action taken

NRHM 5 YEARS

Appointment & Selection

Delayed or no appointment of the state concurrent auditor

Scope of Work
Non adherence to the scope of work by state concurrent auditor specially in monitoring and analyzing the district concurrent audit reports Inconsistency in frequency of the audit Inadequate coverage blocks and peripherals the of

Reporting/ Action taken

Low quality of audit reports, no qualitative assessment, missing or incomplete checklists, missing financial statements etc Late submission of audit reports Low quality and delay of district concurrent audit reports result in justifying non action by the state

No formal bid evaluation cum selection committee formed and format of technical bid not followed strictly
Delayed or no appointment of the DHS concurrent auditors due to lack of availability of local firms etc Large fee variation and very low audit fee

One audit firm conducting multiple audits Incomplete manpower/ incomplete information available at sub district levels
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Analysis of Concurrent Audit Systems- Recommendations

Formation of Audit Committee
Need to create an Audit Committee Composition of the Committee Mission Director State Finance Manager Other Representatives from government finance department External finance expert State Accounts Manager State Concurrent Auditor,DAMs and District Concurrent Auditor to participate in meetings (by invitation only)

NRHM 5 YEARS

Remuneration of Concurrent Auditor

State should have a realistic 'fixed budget' of audit fees or go through a competitive process without a fixed budget (market would then determine fee) Instead of providing a low cumulative fee, the fee structure can be segregated as follows: Monthly/ Quarterly fee for the district audit Monthly/ Quarterly fee per block visited (to include on rotation basis, coverage across health institutions under the block) This will ensure the following:

Functions of the Committee Ensure timely appointment of statutory and concurrent auditors Review status of timely completion and quality of audit reports Discuss key audit findings with state personnel and suggest actions Assess training needs for auditors and review the feedback on them Recommend necessary guidelines, circulars etc necessary for management control Monitor adequate follow up action being taken on the audit observations

Fee is commensurate with the audit coverage expected Separate fee for block and district will help focus on blocks as a separate entity ensuring a qualitative block audit. Good Practices found documented in report.

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Analysis of Concurrent Audit Systems- Recommendations Contd..

Appointment and Selection

NRHM 5 YEARS

Focus on timely appointment of auditors. Statutory auditor appointment timelines could be considered
Preferably the state should appoint district concurrent auditors Improvements in the Technical Evaluation process to ensure high quality concurrent audit Regular review of audit progress and re-appointment of auditors only if they have satisfactorily performed on the basis of an Audit Evaluation Form Auditor remuneration to be re-structured upward significantly based on scope of work assigned and coverage

Scope of Work
Multiple audits to be awarded as per the capacity and skills of the audit firm Scope of work to include adequate coverage and reporting on sub district level units

Submission of audit plan by the audit firm to monitor proper coverage during the audit
State Concurrent Auditor to have a sufficiently large team to enable it to carry out its scope of work

Reporting
Measures to improve the quality of the report like acceptance of the report by DAM before releasing the fee etc

In order to improve the effectiveness of concurrent audit, an assessment and benchmark tool has been designed to benchmark and rate units based on quality of their FM systems, quality of concurrent audit and quality of action taken to bring about improvements
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Snapshot of the Benchmark Tool

NRHM 5 YEARS

Objective The benchmark tool will enable the supervisory units to assess the robustness of the FM system of their subsidiaries, rate them for a comparative analysis, and also to improve the performance of the units by closely monitoring them on the performance measures defined below.
Performance Measures

Health of the FM systems (A) Assess the as-is state of: Books of accounts Internal controls Staffing Reporting

Quality of Concurrent Audit Process (B) Compliance with guidelines Timelines and quality of reports

Quality of Monitoring/ Action Taken (C)

Monitoring Mechanism Quality of follow up action

Scoring The benchmark tool quantifies the performance of the unit under the three performance measures by allotting marks under each section. Ratings are as follows:
Score 0-50 51-70 71-85 > 85 Rating D- Very Weak, Needs Substantial Improvement C- Deficiencies observed in some areas, Needs some improvement B- Satisfactory in most areas, can move to the next rating with minor improvements A- Well Performing

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NRHM 5 YEARS

NRHM- Financial Management

Evaluation of Implementation of Customized Version of Tally & Development of Road Map for its Implementation

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Scope of Work

NRHM 5 YEARS

Need for standardization of accounting systems and methods across the states has been recognized.

The center has mandated all states to implement the customized version of Tally under NRHM. Scope of Work included: Evaluation of the implementation of customized version of Tally in Karnataka and recommend on the feasibility / suitability of the replication of the customized version throughout India Identification of issues and recommend actions to mitigate non implementation Development of a detailed roadmap for implementation / roll out of the customized version throughout the country.

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Mandate from GoI to Implement Tally Across States

NRHM 5 YEARS

The MoHFW, GoI has advised all the states in August 2009, to procure customized-version of Tally ERP 9.0 to help standardize and streamline the process of accounting, book keeping and reporting at various levels. Progress is as below Many states are either yet to adopt customized version or are in a preliminary phase of installation / training. No. of States / UTs ( Status as of Jan 2010) 21 21 10 17 14

Stage of Implementation Order Issued for Purchase of Tally Licenses For SHS level For DHS level For Block level Training Conducted Software Installed

Karnataka (Pilot state) is still in the initial stages of implementation (till district level).

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Overview of Special Features under NRHM Customized Version of Tally

NRHM 5 YEARS

NRHM Vouchers

Financial Statements

To account for different categories of receipts and disbursements

Income & Expenditure Balance Sheet Schedules

Features in the Customized Version

NRHM Reports FMR SoE FMR SFP

Electronic Transfer of Data Export/ Import of date (excel sheets through email etc) Online Synchronization (required online internet access)

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Administrative/ Implementation Issues

NRHM 5 YEARS

Category

Issues

Administrative/ Inadequate prioritization by top management Implementation Implementation roadmap not in place Issues Formal Arrangement with Tally Vendor ( for training, customization, trouble shooting, (Reasons for slow handholding support etc) missing progress) Capacity Issues (staffing, infrastructure and training) Absence of Trouble Shooting Support Important features not being currently used like export/ import of data etc Incomplete Customization & Testing Lack of Adequate Data Management and Back up Plans

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Functional and Technical Issues

Category Functional Issues * Issues Financial statements and UCs not in latest formats No provision for inter unit reconciliation

NRHM 5 YEARS

Administrative / Structural issues to be customized state wise (Cost Centres/ COAs/ Cash Bank Accounts) Features- compatibility with local language, linkage with HMIS missing Full-proof validation of reports/ data absent

Technical Issues

Distributed architecture where solution components are installed at each site with a local database
Complicated Process of Updation of Master Data- after implementation beyond district level. Processes related with approval and incurring expenditure remains manual-Imperatives to move to the software minimal No source code/technical manual provided

Significant additional overhead costs after expiry of one year

* As per subsequent feedback from the Tally Vendor, many of the above issues can be addressed and action has already been taken /is underway to incorporate them

Implementation of customized version of Tally is a good step forward in the short term but in the longer term, the MoHFW may consider the option of evaluating/ developing a web enabled solution in a central environment for NRHM

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Recommendations

NRHM 5 YEARS

Top management Prioritization

Constitution of Core Implementation and Monitoring Group
Need to create a dedicated team at the state level comprising of 3-4 people Functions of the team Develop a road map for implementation with activities, timelines and responsibilities Monitor process of customization and implementation Co-ordination with Tally representatives and finalization of agreement with them Dissemination of important information / instructions to districts / blocks Monitoring progress on data entry, feeding in of reconciled opening balances and report generation Addressing other operational issues with respect to Implementation (Query resolution mechanism, etc.) Validation of the reports / data being generated and setting out further customization requirements required by Tally in future

MoU/ Agreement with Tally

A formal agreement / MoU shall be entered into between Tally Solutions and state authorities Aspects of MoU Number of single / multi user licenses required / Number of existing licenses to be upgraded Additional customization aspects (if any) Training support to be provided by Tally / Tally Agents at state / district level, including user manual / training material / handbooks, etc. Role of Tally in handholding / implementation / trouble shooting support / helpline Costs for licensed version, training, hand holding, future involvement, etc Timelines for each activity

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Recommendations Contd..

NRHM 5 YEARS

Preparation of a detailed roadmap with timelines and responsibilities needs to be created (suggestive phase-wise Road map has been suggested) Identification of Tally champions to assist in implementation at lower level units and act as first level contact for any support Systematic installation and training initiatives (suggestions made on the options that can be used) Ensure adequate human resources (Tally/ IT staff, training) Plan adequate support / follow-up activities (Help desk/tally champion/tally support/ other external support agencies) Ensure requisite infrastructure like dedicated computer, power back up, internet connectivity, etc.

Close monitoring from GoI level - Need to create a designated team at the centre / FMG level to monitor the overall process of customization and implementation of Tally across states

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NRHM 5 YEARS

THANK YOU

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