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Mainstream, Vol XLVI No 46

Deceptive Presentation of Government Accounts

Tuesday 4 November 2008, by Era Sezhiyan


The Ministry of Finance is responsible for the administration of the finances of the Central Government. The Budget has become an important part of the general economic policy. If a government department makes serious mistakes in classification of expenditures or receipts, it may seriously distort in the budgetary allocations made by Parliament and affect the economic and financial matters of the country as a whole.

The government accounts are kept on cash basis and most of its transactions are done by cheques drawn on accredited public sector banks which are also authorised to receive monies on behalf of the government. The Reserve Bank of India is the main banker for the government and other authorised banks function as agents of the Reserve Bank in handling the transactions of the government.

Whenever transactions of receipts or expenditures cannot be classified immediately under the relevant major heads of accounts due to lack of information about the transaction or for any other reason, it is kept temporarily under different suspension heads. These suspension heads, temporary in nature, should be cleared, as soon as possible, by (-) debit or (-) credit as the case may be, on receipt of the relevant information required.

The Audit Report No.1 of 2007 has pointed out serious lapse on the part of the government in not clearing the outstanding suspense balances. Table 1 shows the steep increase in the position of the suspense balances during the period 2002–2006.

As pointed out earlier, a suspension account is only a temporary measure to carry doubtful receipts and disbursements till analysis and permanent classification. Normally each item under suspension account should be cleared as early as possible, in any case before the closure of the financial year. As the government allowed the amounts under suspension remain uncleared, the balance items had accumulated over the years, from Rs 3299 crores to Rs 8560 crores (both in Dr.), by about 26 per cent in the five-year period.


Outstanding Balances under Major Suspense Accounts
(Rupees in crores)
Head of Account Net Balance as on 31 March
2002 2006
Suspense (PAO) Dr. 565 Dr. 599
Suspense Accounts (Civil) Dr. 290 Dr. 706
Suspense Accounts (Postal) Cr. 7 Dr. 693
Suspense Accounts (Defence) Cr. 644 Dr. 1795
Suspense Accounts (Railways) Dr. 568 Dr. 860
Suspense Accounts (Telecom) Dr. 659 Dr. 642
Public Sector Bank Suspense Cr. 52 Dr. 963
Suspense Accounts for
purchases abroad
Dr. 697 Dr. 1009
Reserve Bank of India (Hq.) Cr. 172 Dr. 66
Reserve Bank of India (CAO) Cr. 9 Cr. 239
Cash Settlement Suspense Dr. 207 Dr. 302
Others Dr. 1197 Dr. 1164
Total Dr. 3299 Dr. 8560

(Source: Audit Report No.1 of 2007 – Table 1.9)

It may be noted here that more attention should have been paid in clearing the adverse entries in the suspense accounts. The Audit Report 2005 cautioned the Government: “Para 1.19. Adverse balances arise largely due to accounting errors or accounting situations arising out of rationalisation of the classification of accounts or administrative re-organisation, which break up one accounting unit into many. For example, against the accounting head of any loan or advance, a negative balance will indicate more repayment than the original amount advanced.”

That Report in the same para also noted an assurance given for early liquidation of the balances: “The Controller General of Accounts stated in November 2004 that all items under adverse balances were under investigation and action was being taken in stages to liquidate the balances. It would be desirable to provide suitable explanatory memoranda in the Finance Accounts about the specific nature of the transactions leading to the adverse balances and progress of clearance in each case to improve the quality of accounts.”

The Audit Report of 2006 did not show any sign of implementation of the assurance of early liquidating the balances; further there was no explanatory memorandum ‘on the specific nature of the transactions leading to adverse balances’ and no progress of clearance to improve ‘the quality of accounts’.

It may be noted that the Table 1 gives the particulars of the ‘net’ of the Outstanding Balances under Suspension as on March 31 of 2002 and 2006. Each suspense head of account may contain debit and credit entries to be cleared. If there are debit items of Rs 100 crores and credit items of Rs 98 crores, the ‘netting’ process notes the balance as Rs 2 crore. In this example, the total amount of the Suspense Balances Outstanding to be cleared will be Rs 198 crores and not Rs 2 crores as shown as ‘net’.

In its 2007 Report, the Audit made a review of the operation of the suspense accounts and found that the items to be cleared should be the total of all actual suspense balances temporarily placed under the suspension account. The Audit Report gave the particulars of the ‘Actual Suspense Balance Outstanding’ which are reproduced here in Table 2.


Actual Suspense Outstanding as on March 31, 2006
(Rupees in crores)
Minor Head Debit Credit Net Balance Actual
in Finance Accounts Suspense Balance Outstanding
(1) (2) (3) (4) (5)
PAOSuspense 1720 1121 Dr. 599 Dr. 2841
Suspense Accounts
1021 315 Dr. 706 Dr. 1336
Public Sector Banks
Suspense 1812 850 Dr. 962 Dr. 2662 Reserve Bank
Suspense(Hq) 261 195 Dr. 66 Dr. 456 Reserve Bank
Suspense (CAO) 73 312 Cr. 239 Cr. 385

(Source: Audit Report No.1 of 2007 – Table 1.10)

The presentation of ‘net‘ amounts in the government accounting is a dubious way, diverting the attention of the readers and Parliament from the magnitude of the accumu-lated arrears increasing year by year and from the inexcusable negligence and dereliction of duty in not clearing the temporary suspense balances.

In the overview of the Chapter 1 of the 2007 Audit Report No.1, the Audit has reported: “The negative spread in the growth of resource availability and assets formation resulted in progressive decline in assets base of the Union Government relative to its liabilities. The increasing trend was observed in outstanding suspense balances under various minor heads of the Union Government reflecting lack of coordination between the RBI and the Government as well as within various Ministries/Departments of the Government. If these amounts remain uncleared, and the balance under the Suspense Heads keeps on accumulating, the resultant position would not reflect a correct appreciation of the state of Government Accounts.”

The Audit Report No.13 for the year ended March 2007 does not contain any further reporting by the Audit on this subject matter of suspense balances outstanding; probably they are frustrated with the obdurate inaction of the Ministry on any unpalatable findings made by the Supreme Audit.

The Reserve Bank of India is the apex authority to secure monetary stability of the country and to supervise the financial sector of all commercial banks and financial institutions. As stated earlier, the Reserve Bank as the main banker for the government and all the public sector banks functioning under the Reserve Bank, handle the transactions of the government. If the Finance Ministry and the RBI could not reconcile their figures on the transactions involving them and if they fail to give clear and correct information, where else can the people go to get truthful information about the state of government accounts? If salt were to lose its savour, where can it be salted with?

It is high time the Public Accounts Committee and Parliament take note of the ‘netting’ devices of the government before the entire system of government accounting is caught in an inexplicable network of deception and distortion.

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