03 Accounting Policies and Procedures Manual

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Government of Pakistan

Accounting Policies and Procedures

Manual


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Accounting Policies and Procedures Manual Table of Contents

Table of Contents

1 Introduction1.1 Purpose of the Manual1.2 tructure of the Manual1.! "eader Guidance

1.# Authorit$% Applicabilit$% &istribution and Maintenance of the Manual

'vervie(2.1 Introduction2.2 'rganisational tructure of the Accounting $stem2.! The Accounting $stem2.# 'utline of Chapters2.) Abbreviations2.* &efinitions

+udgetar$ Control!.1 Introduction!.2 General Policies!.! &etailed Procedures!.# pecific +udgetar$ Procedures

,-penditures#.1 Introduction#.2 General Policies#.! Accounting Policies#.# Accounting for ,-penditures#.) &etailed Procedures

#.* alaries and ages#./ Pension Pa$ments#.0 General Provident und#. Contractor3ork Pa$ments#.14 5oans And Advances#.11 'verseas Pa$ments#.12 Grants6in6aid% Contributions etc.#.1! Assignment Account and Personal 5edger Account#.1# Maintenance of Permanent Accounting "ecords

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"eceipts ).1 Introduction ).2 General Policies ).! Accounting Policies ).# Accounting for receipts ).) &etailed Procedures ).* Treatment of specific cl sses of receipta 77777777777777777777777777777777777777777777777777777777777777777777777 Issued 1!6eb61appmcover

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Accounting Policies and Procedures Manual

* +ank "econciliation*.1 Introduction*.2 'vervie(*.! General Policies*.# &ail$ Procedures*.) Monthl$ Procedures

inancial "eporting Procedures/.1 Introduction/.2 General Policies/.! 8ear6end accounting policies/.# &etailed Procedure

5oss and "ecoveries of Public Mone$0.1 Introduction0.2 General Policies0.! Accounting for 5osses and "ecoveries

elf6accounting ,ntities.1 Introduction.2 General Policies.! Accounting Policies.# Accounting for elf6accounting ,ntit$ Transactions.) &etailed Procedures

Table of Contents

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14 Pro9ect Accounting 14.1 Introduction 14.2 General Policies 14.! Accounting Policies 14.# Accounting for Pro9ect ,-penditures

11 Accounting for 5iabilities 11.1 Introduction 11.2 General Polic$ 11.! Categories of 5iabilities 11.# Accounting Policies 11.) Accounting Procedures 11.* "econciliation of 5iabilit$ "ecords 11./ "eporting of 5iabilities

12 Transactions +et(een Government ,ntities 12.1 Introduction 12.2 General Policies 12.! Accounting Policies 12.# Accounting for transactions bet(een Government entities

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12.) &etailed Procedures

Table of Contents

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1! Procurement and Asset Management 1!.1 Introduction 1!.2 General Policies for Procurement 1!.! Accounting for tores 1!.# i-ed Assets Management 1!.) General Policies for &isposal of i-ed Assets 1!.* Accounting for Proceeds from &isposals

1# Public Account Transactions 1#.1 Introduction 1#.2 General Polic$ 1#.! Accounting Polic$ 1#.# &etailed Procedures 1#.! "econciliation of Public Account transactions 1#.# "eporting of Public Account balances

1) Insurance 1).1 Introduction 1).2 General Policies 1).! Claims Against the Government 1).# Accounting Policies

1* General Accounting 1*.1 Introduction 1*.2 "etention of Accounting "ecords 1*.! Maintenance of Accounting "ecords 1*.# :se of uspense Account 1*.) Control of 'fficial orms and Che;uebooks

Table of Contents

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1/ Assignment Accounts and Personal 5edger Accounts 1/.1 Introduction 1/.2 Policies 1/.! &etailed Procedures 1/.# Appendi- A 6 Assignment Account3Personal 5edger Account Transactions

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Accounting Policies and Procedures Manual Introduction

1 Introduction

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Table of Contents

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Purpose of the Manual

tructure of the Manual

"eader Guidance

Authorit$% Applicabilit$% &istribution and Maintenance of the Manual1.#.1Authorit$1.#.2,ffective date1.#.!Application1.#.#Compliance1.#.)&istribution% maintenance and update

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1.1 Purpose of the Manual

1.1.1.1 The purpose of this Manual is to set out the detailed policies andprocedures to be used in accounting for the Government of Pakistan=sfinancial transactions.

:nder Article 1/4 of the Constitution% the Auditor General canprescribe detailed policies and procedures in respect of the follo(ing<

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all transactions of centralised accounting entities

specific transactions of self accounting entities (hich operate (ithinoverall control of the Auditor General e.g. staff related pa$ments

transactions ad9ustments of self accounting entities (ith thecentralised accounting entities or in bet(een themselves

reporting re;uirements of the self accounting entities.

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This Manual contains the detail to accompan$ the overall frame(orkset out in the Manual of Accounting Principles ?MAP@.

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1.2 tructure of the Manual

1.2.1.1 The Manual is structured according to the ma9or financialmanagement activities of the Government.

The organisation of the chapters and sections (ithin the Manual issho(n in the Table of Contents.

The first t(o chapters provide an introduction and an overvie( tothe accounting s$stem.

The follo(ing three chapters cover the core processes of budgetar$control% e-penditures and receipts.

Chapters * and / cover the supporting processes of bankreconciliation and financial reporting.

ubse;uent chapters address the policies and procedures forsupplementar$ processes and for other financial management activitiesof the Government.

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1.! "eader Guidance

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There are five levels of heading in the Manual<

level 1 6 chapter

level 2 6 section

level ! 6 sub6section

level # 6 direction

level ) 6 bullet point

The organisation of the sections and sub6sections (ithin eachchapter is sho(n in the Table of Contents at the front of each chapter.

The la$out of each page (ithin this Manual is standardised. The titleof the Manual and the name of the chapter are displa$ed in the top left

and right corners of each page respectivel$. The footer for each pagecontains the issue date% page number and file reference.

The general structure of each chapter (ithin this Manual isstandardised% dealing (ith the sub9ect matter in the follo(ing sections?(here this structure is inappropriate some chapters omit certainsections or are detailed in a different manner@<

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introduction

general policies

accounting policies

accounting treatment

detailed procedures

procedures for specific class of transactions.

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1.!.1.) A list of abbreviations and definitions of terms commonl$ used in thisManual is included for reference purposes.

The Appendi- includes proformas of the registers and the forms tobe used in the application of this Manual.

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1.# Authorit$% Applicabilit$% &istribution and Maintenance of the Manual

1.#.1 Authorit$

1.#.1.1 This Manual is issued under the authorit$ of the Auditor6General of

Pakistan% in accordance (ith Article 1/4 of the Constitution ofPakistan% read (ith Pakistan ?Audit and Accounts@ 'rder 1/!.

1.#.2 ,ffective date

1.#.2.1 The effective date for application of this Manual is the date of issueof the Manual b$ the Auditor6General.

All accounting entities (ill have up to t(o financial $ears?commencing from 1 ul$ subse;uent to the effective date of release@to be in full compliance (ith this Manual.

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1.#.! Application

1.#.!.1 Accounting entities 6 An accounting entit$ is an$ unit of theGovernment e.g. ministr$% division and department% (hose principalsource of funding is an appropriation from the Government ofPakistan% and (hich is not an e-empt entit$ ?as listed in chedule 2 ofthe MAP@.

There are t(o t$pes of accounting entit$% namel$ centralisedaccounting entities and self accounting entities.

Centralised accounting entities 6 a centralised accounting entit$is an$ accounting entit$ for (hom the Accountant6General has primar$responsibilit$ for the transaction processing% recording and reportingfunctions of that entit$. At no stage does this arrangement absolve thePrincipal Accounting 'fficer of his3her responsibilities for financialmanagement% in accordance (ith Paragraph 0.1 of the MAP.

elf6accounting entities 6 a self6accounting entit$ is an$accounting entit$ for (hom the Principal Accounting 'fficer hasprimar$ responsibilit$ for the accounting and reporting functions. A listof self6accounting entities is contained in chedule 1 of the MAP?current at the date of issue of this Manual@.

,-empt entities 6 an e-empt entit$ is an$ entit$ listed in chedule 2of the MAP ?current at the date of issue of this Manual@. Theseinclude independent entities and commercial undertakings and entitiesestablished under a state resolution or a notification of the Governmentor under Companies 'rdinance% but placed administrativel$ under a

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Ministr$ or &ivision for the purpose of accountabilit$ ?also refer to'rganisational tructure section of Chapter 2 B'vervie(=@.

1.#.# Compliance

1.#.#.1 Compliance (ith this Manual is mandator$ for all centralised entities.

Chapter Belf6accounting entities= sets out more detail on theapplicabilit$ of this Manual to self6accounting entities.

,-empt entities are outside the scope of this Manual and aretherefore not re;uired to compl$.

Compliance (ith the directives and principles contained in thisManual are mandator$ as the principles and directives have beenissued under the Pakistan ?Audit and Accounts@ 'rder 1/!.

The Pakistan ?Audit and Accounts@ 'rder 1/!% provides that the

Auditor6General (ill be responsible for keeping the accounts of theederation and of each Province% other than certain specified entities.The 'rder is issued subse;uent to Article 1/4 of the Constitution ofthe Islamic "epublic of Pakistan (hich states that Bthe accounts of theederation and of the Provinces shall be kept in such form and inaccordance (ith such principles and methods as the Auditor6Generalma$% (ith the approval of the President% prescribe=.

In the event that an accounting polic$ or a procedure in this Manualconflicts (ith other manuals or directives% other than those amendingthis Manual% the accounting polic$ or procedure in this Manual (illprevail.

Centralised entities shall not implement accounting policies orprocedures in conflict (ith% or contrar$ to% those set out in this Manual.The self6accounting entities ma$ formulate detailed accounting policiesand procedures in pursuance of the MAP (ith the approval of theAuditor6General.

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1.#.) &istribution% maintenance and update

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The Auditor6General of Pakistan is responsible for<

the initial issue of the Manual to all Accountant General offices%&istrict Account offices and the Principal Accounting 'fficers ofcentralised and self6accounting entities

the maintenance and update of the Manual% including distribution ofan$ updates or amendments to all Accountant General offices%&istrict Account offices and the Principal Accounting 'fficers ofcentralised and self6accounting entities.

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1.#.).2

Introduction

In each Accountant General office% &istrict Account office and foreach centralised and self6accounting entit$% the AG3&A'3 PA' isresponsible for ensuring that<

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initial copies of the Manual are distributed to all Accounts 'fficers(ithin their entit$

all subse;uent updates and amendments of the Manual aredistributed to all Accounts 'fficers (ithin their entit$.



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Accounting Policies and Procedures Manual 'vervie(

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Table of Contents

2.1

2.2

Introduction

'rganisational tructure of the Accounting $stem2.2.1Accounting entities2.2.2"esponsibilities

The Accounting $stem2.!.1e$ principles of the accounting s$stem2.!.2e$ accounting control ob9ectives and respective controls2.!.!e$ reporting control ob9ectives and respective controls

'utline of Chapters

Abbreviations

&efinitions

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2.#2.#2.#

2.0 2.0 2.02.11

2.1!

2.1)

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2.1 Introduction

2.1.1.1 This chapter sets out in overvie( both the organisational structureand the s$stem of accounting to be follo(ed b$ the ederal andProvincial Government.

This chapter also provides a brief overvie( of each chapter (ithinthe Manual.

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2.2 'rganisational tructure of the Accounting $stem

2.2.1 Accounting entities

2.2.1.1 The Government of Pakistan includes both the ederal and

Provincial Governments.

There are four Provincial Governments ?+alochistan% DP%Pun9ab and indh@ and the one ederal Government.

The ederal Government of Pakistan and the Governments of eachof the Provinces are separate accounting and reporting entities. ,achgovernment operates separate bank accounts (ith the tate +ank ofPakistan.

ithin the ederal and Provincial Governments there are bothcentralised and self6accounting entities.

A centralised accounting entit$ is an$ accounting entit$ for (homthe AG3AGP" has the primar$ responsibilit$ for the accounting andreporting of that entit$. The centralised accounting entit$ operatethrough their respective single bank account called EDon6oodAccount 1F (hich is controlled b$ AG3AGP".

A self6accounting entit$ is an$ accounting entit$ for (hom thePrincipal Accounting 'fficer has primar$ responsibilit$ for theaccounting and reporting functions ?e.g. orest@. elf6accountingentities maintain their o(n accounting records and submit monthl$accounts in the prescribed form to the Accountant General=s officesfor consolidation. elf6accounting entities do not necessaril$ operatethrough the same bank account as centralised accounting entities% suchas "ail(a$s and ood. ome operate through an assignment orpersonal ledger account% (hile others operate the same bank account.

Additionall$ there are government entities (hich are e-empt ?aslisted in Manual of Accounting Principles ?MAP@ chedule 2@

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2.2.2 "esponsibilities

2.2.2.1 The Constitution of Pakistan sets out the primar$ accountingre;uirements of the governments and the role and responsibilities of theAuditor6General. "efer to the MAP for more detail.

The Government=s accounting function is structured as a hierarch$(ith four levels.

irst of all% the Auditor6General% has overall responsibilit$ for theaccounts of the ederal Government and the accounts of each of the

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Provincial Governments.. The Auditor6General additionall$ providesthe Combined Annual Accounts of the ederation and the AnnualAppropriation Accounts to the President. In the case of the ProvincialGovernment Appropriation Accounts are submitted to the relevantGovernor.

2.2.2.# The relationship bet(een the Auditor6General % having ultimateresponsibilit$% and the other levels is structured through a scheme ofdelegation of authorit$ and reporting lines.

econdl$% the Accountant General Pakistan "evenues and theAccountants General are responsible for transactions at the ederaland Provincial Government level.

The Accountant General Pakistan "evenues ?AGP"@ isresponsible for the centralised accounting and reporting of federaltransactions. Additionall$ the AGP" is responsible for the

consolidation of summarised financial information prepared b$ federalself6accounting entities. The AGP" receives accounts and reportsfrom the &A's% PA's% ederal Treasuries and +P3D+P% andprovide Annual Accounts ?to the AGP@ and Consolidated Monthl$Accounts ?to the ederal inance &ivision@. There are AGP" sub6offices in each of the Provinces (ho also act as the &A' in respect ofederal Government transactions relevant to the Provincialead;uarters.

,ach Accountant General ?AG@ is responsible for the centralisedaccounting and reporting functions (ithin their respective Province%

under the authorit$ of the Auditor6General. Additionall$ theAccountant General is responsible for the consolidation of thesummarised financial information prepared b$ provincial self6accounting entities. The$ receive accounts and reports from the &A'sand PA's% and provide Annual Accounts ?to the AGP@ andConsolidated Monthl$ Accounts ?to the Provincial Government%through the Provincial inance &epartment@. In addition eachAccountant General also acts as the &A' in respect of the Provincialead;uarters.

There is a Principal Accounting 'fficer ?PA'@ in each

Ministr$3&ivision3&epartment. ithin self6accounting entities the PA'has been delegated the authorit$ b$ the Mo for the accountingfunctions and for preparing accounts for submission to the AccountantGenerals. The PA' has the authorit$ to control the financialmanagement of the entit$ under him3her% (ithin the limits prescribed b$the Government. The$ also reconcile accounts (ith the AG3AGP"offices.

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2.2.2.

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Thirdl$% the &istrict Account 'fficers are responsible for theaccounting functions of the districts. ,ach province is divided intodistricts. DP also have district agencies for tribal areas% (hich areseparatel$ funded b$ the ederal Government. The &A's have theauthorit$ to pre6audit bills% issue pa$ments and record governmenttransactions at a district level. The$ receive reports from the &&'sand bank scrolls from the +P3D+P and prepare reports forsubmission to the AG3AGP" offices. The &A' perform the abovementioned functions for both ederal and Provincial transactionsoccurring (ithin his3her &istrict. eparate accounting records aremaintained for ederal and Provincial transactions. In turn the &A'reports both to the AG and AGP" sub6office.

2.2.2.14 As (ell as &A's% departmental treasuries are established to record specific accounting transactions% such as Income Ta-% ales Ta-% Customs and Dational avings Treasuries.

2.2.2.11 ourthl$% the &ra(ing and &isbursing 'fficers ?&&'@ are responsible for the accounting% cash and personnel functions of specific entities (ithin departments. ,ach district contains a number of entities each having a &&'. The &&'s have the authorit$ to submit bills for pre6audit to the &A's% and report to both the &A' of the district and the PA' of his3her entit$3department.

2.2.2.12 At both the ederal and Provincial level% the Government=s banker is the tate +ank of Pakistan% (ith Dational +ank of Pakistan acting as its agent.

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2.2.2.1! 'vervie( of the accounting organisational structure.

'verall responsibilit$ for ederal and Provincial accounts

Auditor6General Mo

"esponsible foraccounting and reporting functions of ederal and Provincial centralisedentities% and consolidation of self6accounting entit$ summarised financial

information

AGP" ?ederal@3AG ?Provincial@

"esponsible forfinancial management ofdepartment and% in a self6 accounting entit$% the accounting and reporting functions

PA'

"esponsible foraccounting functions of the districts &A'

"esponsible for operational aspects ofentities (ithin departments

&&'

"eporting 5ine

&elegationof authorit$

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2.! The Accounting $stem

2.!.1 e$ principles of the accounting s$stem

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The ke$ aspects of the accounting s$stem shall be<

double entr$ bookkeeping

modified cash basis of accounting% record accounting transactionsas per cashflo(% (ith the follo(ing modifications<

6 commitment accounting% recognise and record significantcommitments as the$ arise% through a purchase order orother legall$ binding contract

6 accounting for certain assets and liabilities%. At period enddisclosure of all material assets and liabilities% in the Annual

Accounts

6 ph$sical asset accounting% s$stematicall$ recognising theac;uisition of ph$sical assets% using asset registers in accountsoffices.

2.!.2 e$ accounting control ob9ectives and respective controls

2.!.2.1 The follo(ing ke$ control ob9ectives and their respective controlsare essential to the s$stem of accounting operated at all levels in theederal and Provincial Government. The controls detailed are inappro-imate chapter order. ome controls (ill meet a number of

control ob9ectives.

Accurac$< the information in the accounts and the supportingsubsidiar$ records shall be accurate% representing the actual substanceof past events% (ithout undue errors or omission. This shall includecorrect and consistent classification of transactions and the recognitionof revenues and e-penditures in the correct time period. Thisob9ective shall be addressed b$<

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budgetar$ control procedures

a proper approval% certification and authorisation process forpa$ments

revie( and authorisation of pa$roll schedules b$ a delegatedauthorit$

reconciliation of che;ue3transfer advice to claim prior to signing b$authorised signator$

reconciliation of ta- revenue receipts to ta- authorit$ records

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a regular% complete and up6to6date bank reconciliation

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procedures and control for recording inter6entit$ transactions

maintenance of ph$sical assets register

performance of regular stocktakes

control over maintenance of permanent accounting records

procedures and control for making ad9ustments to accountingrecords

reconciliation of the general ledger to sub6ledgers% registers andsource documents

detailed Chart of Accounts for classif$ing transactions

a regular post6audit process% both internal and e-ternal

Completeness< the information in the accounts and the supporting

subsidiar$ records shall be a complete representation of all pasttransactions that have occurred during the reporting period. Thisob9ective shall be addressed b$<

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recognition of significant commitments% using a commitmentsregister

regular checks for transactions not brought to account% using anoutstanding claims register

reconciliation of ta- revenue receipts to ta- authorit$ records

issue and revie( of se;uentiall$ numbered receipts for all revenue

mone$ shall in general be received b$ +P3D+P

regular% complete and up6to6date bank reconciliation

ph$sical assets shall be recorded in a register disclosed in amemorandum account

regular and s$stematic% revie( and clearance of suspense accounts

reconciliation of general ledger to sub6ledgers% registers and sourcedocuments


a s$stematic and verifiable consolidation of accounts fromsubsidiar$ ledgers% registers and source transactions.

2.!.2.# ,-istence3Halidit$< all transactions accounted for must be genuinetransactions. This ob9ective shall be addressed b$<

> a proper approval% certification and authorisation process forpa$ments

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claims shall be stamped as paid on authorisation for pa$ment

audit trail from the pa$ment to the source documents supportingthe claim

revie( and authorisation of pa$roll schedules b$ a delegatedauthorit$

reconciliation of che;ue3transfer advice to claim prior to signing b$the delegated authorit$

no duplicate receipts provided

regular% complete and up6to6date bank reconciliation


maintenance of ph$sical assets register% including procedure fordisposal and e-istence checks of assets

a regular post6audit process% both internal and e-ternal.

,conom$< the accounting s$stem shall include controls to ensurethe prudent allocation of government resources. This ob9ective shallbe addressed b$<

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e-penditure approval% certification and authorisation procedures

a competitive procurement process

central purchasing facilities

asset management policies and procedures.

2.!.2.* ,ffectiveness< the accounting s$stem shall include controls to

ensure the effective performance of government responsibilities. Thisob9ective shall be addressed b$<

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clearl$ defined responsibilities% scheme of delegation and reportinglines

comprehensive procedure notes

human resources program including recruitment% training andappraisal.

2.!.2./ ,fficienc$< in practice there (ill often be a trade off bet(eeneconom$ and effectiveness. The accounting s$stem should seek to

operate as efficientl$ as possible b$ optimising the relationship bet(eenthese t(o variables. This ob9ective shall be addressed b$<

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pre6audit ?certification@ of pa$ments.

issue of pa$ment through direct bank transfer

use of imprest s$stem for small pa$ments

collection of revenue through +P3D+P



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hierarchical organisational structure in (hich there is a clearscheme of authorit$ delegation to perform the tasks

responsibilit$ accounting% using responsibilit$ centres

production of annual and monthl$ financial reports

limited duplication of roles

consolidation of accounts.

Minimise risk of fraud and corruption< the accounting s$stemshall include controls to minimise the risk of fraud and corruption. Thisob9ective shall be addressed b$<

> segregation of duties% so that certain accounting functions shouldbe performed b$ different officers% including<

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accounts and auditrecording of receipts and collection of mone$approval3authorisation and issue of pa$ment.recording of e-penditures and issue of pa$ment


pre6audit of claims for pa$ment

maintenance of an authorised signatories list b$ the bank

re;uirement of a double signator$ for issue of pa$ment

issue of pa$ment through direct bank transfer and che;ues

maintenance of a ph$sical assets register


control over maintenance of permanent accounting records

procedures and control for making ad9ustments to accountingrecords

reconciliation of the general ledger to sub6ledgers% registers andsource documents

responsibilit$ accounting% using responsibilit$ centres

clearl$ defined responsibilities% scheme of delegation and reportinglines


2.!.! e$ reporting control ob9ectives and respective controls

2.!.!.1 ufficient< the accounting s$stem must produce sufficientinformation for the ade;uate control of the government=s finances.This ob9ective shall be addressed b$<



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preparation of monthl$ and annual accounts

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availabilit$ of an audit trail through sub6ledgers% registers andsource documents to substantiate the financial reports

preparation of additional operational information b$ entities asre;uired

on6going revie( of information re;uirement b$ users.

"elevance< the accounting s$stem must produce financialinformation (hich is relevant and understandable to the users of theinformation. The financial reporting from the accounting s$stem mustbe based on the accountabilities re;uired of users% and their decisionmaking re;uirements. This ob9ective shall be addressed b$<

> on6going revie( of information re;uirement b$ users.

2.!.!.! "eliable < the accounting s$stem shall produce reliable financial

information. This ob9ective shall be addressed b$ the controls overcompleteness% accurac$ and validit$.

Consistenc$< the accounting s$stem must enable consistentinformation to be produced in financial reports% in order to be usefulfor decision making. This ob9ective shall be met b$<

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a consistent reporting period and unit of currenc$

consistent accounting basis and policies

consistent reporting formats and disclosures

accounting policies consistentl$ applied across all governmententities.

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2.# 'utline of Chapters

2.#.1.1 This manual is structured according to the ma9or financialmanagement activities of the Government. A summar$ of thesechapters is provided belo(<

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Introduction< introduction to the Manual% detailing its purpose%structure and applicabilit$

'vervie(< overvie( of the accounting organisational structure ands$stem

+udgetar$ control< overvie( of the budgetar$ c$cle and thedetailed procedures involved in polic$ setting and the preparation%authorisation% implementation% reporting% monitoring and revie( ofbudgets

,-penditures< policies% accounting treatment and procedures to

be applied for e-penditures% and all stages of pa$ment processing.The chapter also includes procedures for specific t$pes of pa$mentand maintenance of permanent records

"eceipts< policies% accounting treatment and procedures inrelation to receipts

+ank reconciliation< policies and procedures for the bankreconciliation

inancial reporting procedures< procedures for the preparationand consolidation of accounts% including periodic ad9ustments andannual financial statements

5oss and recoveries of public mone$< (rite6off and recoveriesof public mone$% also recover$ of amounts o(ed on account ofloans and advances given to provincial government% local bodiesand government emplo$ees (hich are outstanding

elf 6accounting entities< policies% accounting treatment andreporting for self6accounting entities

Pro9ect accounting< policies and procedures for developmentpro9ects

Accounting for liabilities< procedures relating to public debt

transactions undertaken b$ the Government% including internal ande-ternal borro(ings

Transactions bet(een government entities< policies% accountingtreatment and procedures for transactions bet(een Governmententities

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'vervie(

Procurement and asset management< accounting policies andprocedures relating to Government procurement% includingpurchasing% management and disposal of stores and ph$sical assets

Public account transactions< describes the public account anddeals (ith specific aspects of the public account not previousl$

covered in the Manual

Insurance< accounting policies in relation to insurance

General accounting< procedures for the recording andmaintenance of Government records. Includes use of suspenseaccounts and control of official forms and che;uebooks

Assignment accounts and personal ledger accounts< policiesand procedures relating to usage of assignment accounts andpersonal ledger accounts.

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2.) Abbreviations

The follo(ing abbreviations are used in the Manual<

AG

AGP

AGP"

APPM

C+"

CG

CMA

CoA

CA

&A'

&&'

&GP"

,A&

"M

IA

GAAP

G

GoP

MAP

M&+

M&M+

Accountant General

Auditor6General of Pakistan

Accountant General Pakistan "evenues


Central +oard of "evenue

Comptroller6General

Consolidated Monthl$ Accounts

Chart of Accounts

Consolidated uarterl$ Accounts

&istrict Accounts 'ffice3'fficer

&ra(ing and &isbursing 'fficer

&irector General Pakistan "evenues

,conomic Affairs &ivision

inancial "eporting Manual

International Accounting tandards

Generall$ Accepted Accounting Principles

Government inancial tatistics

Government of Pakistan

Manual of Accounting Principles

Main &esignated +ranch

Monthl$ &esignated Main +ranch tatement

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Mo

D+P

DI

PA'

PAC

PA&

A,

,

+P

Ministr$ of inance

Dational +ank of Pakistan

De( Items tatement

Principal Accounting 'fficer

Public Accounts Committee

Pakistan Audit &epartment

chedule of Authorised ,-penditure

elf6Accounting ,ntit$

tate +ank of Pakistan

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2.* &efinitions

The follo(ing are definitions of terms commonl$ used in this Manual<

abstract An intermediate schedule prepared to facilitate theconsolidation of financial information.

This term includes the centralised accounts offices includingthe ,-ecutive ,ngineer of a public (orks division and theself6accounting offices.

This term identif$ the offices carr$ing out the accounting (orkand t$picall$ includes the offices of the &A'% AG andAGP".

The time period over (hich financial information is reported%normall$ either a $ear or a month.

A set of specific rules (hich defines ho( a particulartransaction (ill be treated and accounted for in the books ofaccounts. here accounting policies are laid do(n in thismanual% the$ al(a$s relate to specific treatment of a specifict$pe of transaction.

An$ document upon (hich accounting transactions arerecorded or an$ other document issued or used in thepreparation and processing of accounting transactions.

A method of accounting that recognises e-penses (heneconomic benefits have been consumed and revenues (heneconomic benefits have been generated.

An amount paid b$ the Government to a contractor3supplierfor the purpose of securing goods or servicesJ or an amountprovided to a Government emplo$ee for a specified purpose%and to be ad9usted as per terms and condition of the advance.

A list of authorised pa$ments sent b$ an accounts office to abranch of the +P or D+P. ?includes dail$ advice% pa$rolladvice% pension advice% direct credit advice@

A set of financial reports% produced after the close of thefinancial $ear b$ the Auditor6General of Pakistan for theederal and each of the Provincial Governments.

accounting entit$

accounts office

accounting period

accounting polic$

accounting record

accrual accounting

advance

advice note

Annual inancialtatements

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appropriation

'vervie(

An allocation of funds to a spending ministr$ or departmenton the basis of the Authenticated chedule of Authorised,-penditure.

The permission given b$ an authorit$ or a delegated authorit$to undertake a particular action% such as incurringe-penditure.

uture economic benefits controlled b$ the entit$ as a resultof past transactions or other past events. ?MAP% ection!.!@.

A Government bank account established (ith the D+P% toprovide independent dra(ing facilit$ for nominated pro9ectsand other activities% (ithin the prescribed limitation.

A department (hich has direct relation (ith a &ivision andhas been declared as such b$ the ederal Government andrepresented in the Chart of Accounts entit$ code.

The capabilit$ to trace a particular balance from the financialstatements do(n to its source documents ?and vice versa@% asevidence that the balance is complete and accurate.

?i@ In accounting terms% the approval given b$ an authorit$ ora delegated authorit$ for a particular pa$ment to be made.

?ii@ In the conte-t of the +udget% the process of passing theAnnual +udget tatement through the legislature for approval.

approval

asset

assignment account

attached department

audit trail

authorisation

the +ank tate +ank of Pakistan% or The Dational +ank of Pakistan% asan agent of the +P% unless other(ise specified.

A batch of documents received from the bank including thebank scroll% supporting vouchers% paid che;ues and otherdocuments.

A dail$ advice received from a designated branch of the

Dational +ank of Pakistan or tate +ank of Pakistan% listingreceipt collected and pa$ments disbursed on behalf of theGovernment% against each of the Government bank accounts.

&efined in article 04 of the Constitution% a statement of theestimated receipts and e-penditure of the Government for afinancial $ear% referred to as the Annual +udget tatement.

bank return

bank scroll

+udget



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capital e-penditure

'vervie(

?i@ or the purposes of budgeting% e-penditure met fromcapital receipts% as given b$ a particular grant number in theChart of Accounts.

?ii@ In accounting terms% e-penditure incurred for the purposeof ac;uiring% constructing or enhancing ph$sical assets or onschemes of capital outla$% as given b$ the ob9ect code in theChart of Accounts.

capital receipt ?i@ or the purposes of budgeting% receipts obtained fromsources of finance other than revenue ?e.g. loans@.

?ii@ In accounting terms% receipts generated from the proceedsof sale of ph$sical assets or receipts intended to set6offcapital e-penditure.

cash accounting A method of accounting that records cash pa$ments and cashreceipts onl$.

The amount held in a particular bank account at an$ point intime.

The net movement in the cash balance over a particularreporting period% given b$ the sum of pa$ments and receipts.

A financial report provided to sho( the net movement in cashover a particular reporting period% sho(ing ho( and (herethe cash has been applied.

An estimate made of likel$ future cashflo(s based onhistorical patterns of e-penditures and receipts% kno(ledge ofe-pected pa$ments ?commitments@ and collections?demands@% changes in Government polic$ and other factors.

An$ accounting entit$ for (hich the Accountant6Generalis responsible for the processing of its accounting transactions?e.g. certif$ing% authorising and issuing pa$ments@ andmaintaining its accounts.

A process undertaken b$ the &A'3AG3AGP"% including,-ecutive ,ngineer of a public (orks division% involvingverification ?proper approval and validit$@and audit ?scrutin$against irregularities@ of a pa$ment prior to it being made.?previousl$ referred to as pre6audit@.

cash balance

Cashflo(

Cashflo( tatement

cashflo( forecast

centralisedaccounting entit$

certification



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charged e-penditure

'vervie(

As defined in Article 01 of the Constitution% certaine-penditures met from the Consolidated und% (hich ma$ bediscussed% but not submitted to the vote of the DationalAssembl$ ?or Provincial Assembl$ in the case of Provinces@.

A listing of codes on the basis of (hich accountingtransactions are classified to provide meaningful financialinformation.

A document submitted b$ &&'s to the &A'3AG3AGP"office% containing the particulars of a valid and dul$ approvedclaim for pa$ment against a nominated budget head.?previousl$ referred to as a bill@.

A t$pe of General 5edger account (hich is used to transfer abalance from one entit$ or process to another ?includese-change and settlement accounts@.

An obligation to make a future pa$ment% the funds for (hichare reserved against the allocated budget of an entit$.

A set of financial reports produced b$ the PakistanAudit &epartment (hich presents a consolidated summar$ ofthe Annual Accounts of the ederation and each Province.

&efined in Articles /0 and 110 of the Constitution% refers toall revenues received b$ the ederal3 Provincial Government%all loans raised and all mone$s received in repa$ment of an$loan b$ that Government.

The Monthl$ financial reports produced b$ theAG3AGP"% (hich present a summar$ of the accounts of theederation3Provinces.

Aggregation of information from several entities to present asif one entit$% therefore eliminating transactions bet(een theentities being consolidated.

All non6development e-penditure% other than salaries andsalar$ related e-penditure.

A t$pe of general ledger account (hich summarises a numberof transactions from a subsidiar$ ledger into a single balance.

An officer formall$ empo(ered b$ the responsible authorit$to perform a particular function.

chart of accounts

claim voucher

clearing account

commitment

Consolidated inancialtatements

Consolidated und

Consolidated Monthl$Accounts

consolidation

contingent e-penditure

control account

delegated authorit$



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department The e;uivalent level of a &ivision% in the case of ProvincialGovernments% as given b$ the "ules of +usiness and listed inthe Chart of Accounts entit$ code.

,-penditure provided in grants% relating to developmentpro9ects. &evelopment pro9ects are pro9ects undertaken toac;uire% build or improve ph$sical assets or develop humanresources.

A facilit$ provided b$ the banks (hich allo(s salaries andother emplo$ee related pa$ments to be made directl$ into thebank accounts of those persons% (ithout the need for ane-change of ph$sical cash or che;ues.

&ispla$ of financial information in a supplementar$ note to the

financial statements% rather than in its main bod$% in order toprovide further detail about a particular item.

A distinct region (ithin a Province% as determined b$ theGovernment and sho(n in the Chart of Accounts entit$ code.

A self contained administrative unit responsible for theconduct of business of the ederal Government in a distinctand specified sphere and declared as such b$ the ederalGovernment and included in the Chart of Accounts entit$code.

A s$stem of recording accounting transactions (hich re;uiresall 9ournal entries ?inputs@ to the General 5edger to be inbalance% i.e. total debits e;ual total credits.

An organisational unit of Government. This term can beapplied to specific t$pes of organisational units% depending onthe conte-t ?i.e. self6accounting entit$% centralised accountingentit$% spending entit$@.

An accrual accounting concept defined as the residual interest

in the assets of an entit$ after the deductio n of all its liabilities.

A General 5edger account through (hich transactionsbet(een centralised accounting entities and self6accountingentities of the ederal Government are recorded.

An amount of e-penditure e-ceeding the approved budget%(hich is regularised through an ,-cess +udget tatement.

development e-penditure

direct credit

disclosure

district

division

double entr$ s$stem

entit$

e;uit$

e-change account

e-cess



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e-empt entit$ An$ entit$ outside the scope of the Manual of AccountingPrinciples and related manuals.

?i@ In accrual accounting% defined as a decrease in futureeconomic benefits in the form of reductions of assets orincreases in liabilities of the entit$% other than those relating todistributions to Government as o(ner% that result in adecrease in e;uit$ ?MAP% ection !.!@.

?ii@ In cash and modified cash accounting% defined as theoutflo( of cash arising as a result of pa$ments issued in agiven reporting period.

e-pense

financial asset A reporting classification of assets% used to describe cash heldand an$ assets readil$ convertible to cash.

The financial $ear commencing 1 ul$ and ending !4 une%consisting of t(elve monthl$ periods.

Assets characterised b$ their long6term or strategic purpose.i-ed assets are usuall$ ph$sical in nature% such as plant ande;uipment% buildings etc. In financial reporting% useds$non$mousl$ (ith Bnon6financial assets=% because the$ arenot readil$ convertible to cash.

A graphical displa$ used in these manuals and other

documentation% to represent the flo( of information andcontrols (ithin a process or group of processes.

An element used in the Chart of Accounts% (hich providesfinancial information on particular economic activities%according to the International Monetar$ und=s Governmentinance tatistics ?G@ classification scheme.

A pool of mone$% set aside and used for an intended purpose%as provided b$ legislation or special orders ?e.g.Consolidated und% trust fund@.

A term used in budgetar$ control to describe the remainingbudget allocated to an entit$% after deducting outstandingcommitments and actual pa$ments.

The primar$ ledger in (hich accounting transactions arerecorded% in double entr$ format% and from (hich financialreports are produced.

financial $ear

fi-ed assets

flo(chart

function

fund

funds available

general ledger



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general polic$ A set of general rules (hich defines ho( a transaction istreated in the books of accounts. :nlike accounting policies%a general polic$ describes the overall treatment of atransaction.

unding provided to a Ministr$ or &epartment% through thechedule of Authorised ,-penditure.

Pett$ cash s$stem for making small pa$ments. Contains a setbalance of cash (hich is subse;uentl$ replaced b$ pett$ cashvouchers on pa$ment of cash.

A term used to describe the s$stem of checks% reports andprocedures that are enforced in an accounting s$stem toprotect against fraud and to ensure complete and accuratefinancial information is produced.

a uni;uel$ numbered input voucher to the General 5edger%containing accounting transactions% used in the double6entr$recording s$stem.

uture sacrifices of economic benefits controlled b$ the entit$as a result of past transactions or other past events. ?MAP%ection !.!@.

An amount is material to the accounts if its omission or

misstatement is likel$ to influence the economic decisionsmade b$ the users of the information.

An account maintained separatel$ to the General 5edger butstill operated (ithin the internal control process. Informationrecorded in memorandum accounts is used to providesupplementar$ information to the inancial tatements.

A method of accounting in (hich all cash pa$ments andreceipts are recorded% along (ith certain assets andliabilities3commitments

,-penditure provided for in grants% relating to the on6goingcosts of Government% such as salaries and allo(ances ofemplo$ees and contingent e-penditures.

A Chart of Accounts element used to classif$ financialinformation according to the IA accounting re;uirements?e.g. asset% liabilit$% revenue% e-penditure% e;uit$@% and

grant

imprest account

internal controls

9ournal entr$

liabilit$

materialit$

memorandum account

modified cash

non6development

ob9ect

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provide sub6classifications therein ?e.g. salaries% travel%transport@.

obligation 'bligation in the conte-t of commitment means the legalre;uirement to honour the terms of a contract rather than theterm EcommitmentF (hich is used in its accounting conte-t.

The section (ithin the &A' responsible for preparing thepa$roll.

A record re;uired to be maintained in order to generateaccounting transactions% but is not in itself a transaction. ?e.g.pa$roll records% GP fund records. pension records@.

A ledger account maintained b$ the &A'3AG3AGP"%established as a dra(ing facilit$ for nominated purposes.

&efined in Article /0 of the Constitution% all other mone$sreceived b$ or on behalf of the ederal Government% otherthan the Consolidated und% or deposited (ith the upremeCourt or an$ other court established under the authorit$ of theederation.

The total liabilit$ arising from the borro(ings of theGovernment% including both domestic loans and foreign ?ore-ternal@ loans.

?i@ An amount of cash collected or the process of collectingmone$.

?ii@ An official document provided to a pa$er% as proof thatmone$ (as received.

receipt voucher A form (ith (hich amounts collectable b$ the Governmentare deposited (ith the bank% containing the particulars of thereceipt. ?previousl$ referred to as a challan@.

"eported on% or incorporated in amounts reported on% the

face of the financial statements of the entit$.

A process of substantiating recorded financial informationagainst an alternative source of data ?e.g. bank reconciliation%reconciliation bet(een accounts offices and spendingdepartments@.

pa$roll section

permanent record

personal ledger

Public Account

public debt

receipt

recognise

reconciliation

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release

'vervie(

A sanction given b$ Ministr$ of inance% permitting aparticular budgetar$ allocation to be spent% on the basis ofcash being available.

?i@ In accrual accounting% defined as increases in futureeconomic benefits in the form of increases or enhancementsof assets or decreases of liabilities% other than those relating tocontributions b$ the Government as o(ner% that result in anincrease in e;uit$. ?MAP% ection !.!@.

?ii@ In cash and modified cash accounting% defined as an inflo(of cash% arising as a result of collections received in a givenreporting period.

revenue

self6accounting entit$ An$ accounting entit$ that performs its o(n accountingfunction and maintains its o(n accounts% includingcertification% authorisation and issue of pa$ments.

A General 5edger clearing account through (hich cashtransactions bet(een governments are recorded.

Accounts comprising of Public Account mone$s that areoperated under the authorit$ of Ministr$ of inance% but arenot trust accounts.

A financial report consisting of balances of assets andliabilities for an entit$% as at a particular period end date. etout in the inancial "eporting Manual.

A financial report consisting of balances of revenues ande-penditures for an entit$% over a given reporting period. etout in the inancial "eporting Manual.

+ook of initial entr$ of all accounting transactions in aparticular accounting office% for subse;uent double entr$ intothe General 5edger.

Provided in Article 0# of the Constitution% an additional

budget statement laid before Parliament% (here funding for ane-isting service is insufficient% or the need for a ne( serviceshas arisen (hich (as not included in the original budget.

An amount included in the original approved budget% that isgiven back because it has not or (ill not be spent in thefinancial $ear b$ the entit$.

settlement account

pecial &eposits

tatement of Assets and5iabilities

tatement of "evenuesand ,-penditures

sub6ledger

upplementar$ +udget

surrender

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suspense account

'vervie(

An account used if the correct head to be debited or creditedis unable to be identified at the time of transaction% (hich shallbe cleared once the correct head is identified.

5egal entities in their o(n right% under the ste(ardship of theGovernment% and as such e-pected to produce financialstatements in their o(n name. Trust accounts are normall$established under an Act of Parliament or Presidential 'rder.

As defined in Article 02 of the Constitution of Pakistan% thatpart of the Annual +udget tatement relating to othere-penditure% submitted to the Dational Assembl$ in the formof demands for grants% on (hich the Assembl$ votes.

Trust Account

voted e-penditure

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Accounting Policies and Procedures Manual +udgetar$ Control

! +udgetar$ Control

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Table of Contents

!.1

!.2

!.2.1!.2.2!.2.!!.2.#

!.!

Introduction

General Policies "esponsibilities for budgeting General budget classifications Method of budgeting +udget format

!.!

!.)!.)!.)!.*!./

!.0 !.0 !. !.!.14!.14!.1!!.1!!.1*!.1/!.1/!.1/!.10!.24!.24

!.22!.22!.22!.22

&etailed Procedures!.!.1Introduction!.!.2+udgeting procedure 6 overvie(!.!.!Polic$ setting and issue of +udget Call Circular!.!.#Preparation of non6development budget!.!.)Preparation of non6development ?permanent@ budget!.!.*Preparation of non6development ?temporar$@ budget!.!./Preparation of development budget!.!.0Preparation of receipt estimates!.!.Consolidation of budget data!.!.14Authorisation!.!.11Implementation!.!.12"eporting and monitoring!.!.1!upplementar$ Grants!.!.1#"evie(

pecific +udgetar$ Procedures!.#.1Introduction!.#.2Charged ,-penditures!.#.!Centrall$ provided for e-penditures

!.#



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!.1 Introduction

!.1.1.1 In the public sector% the +udget is an instrument b$ (hich theGovernment e-presses its priorities and allocates resources toimplement its policies. The +udget is a tool b$ (hich planned

e-penditures are controlled% at all levels of Government% includingspending ministries% departments and units.

The +udget applies onl$ to the Consolidated und.

:nder the Constitution% the ederal3Provincial Government isre;uired annuall$ to la$ before the Dational3Provincial Assembl$% astatement of estimated receipts and e-penditure for the forthcomingfinancial $ear. This is referred to as the Annual +udget tatement.This statement indicates separatel$ the sums re;uired to meete-penditure charged upon the ederal3Provincial Consolidated undand other e-penditure to be made from the ederal3Provincial

Consolidated und.

The budgeting c$cle consists of si- phases broadl$ categorised asfollo(s<

> setting of budget polic$ and initiatives< the Cabinet meets todetermine budget polic$% initiatives and priorities. These are thencommunicated to ministries and departments via the inance&ivision3&epartment and inancial Advisors in the case of ederalGovernment.

preparation< this stage includes the preparation and submission ofbudget estimates of e-penditure and receipts b$ entities andsubse;uent revie( and consolidation of estimates b$ the inancialAdvisors ?in the case of ederal Government@ and the inance&ivision3&epartment.

authorisation< this stage involves submission of the Annual +udgettatement before the Dational3Provincial Assembl$. This consistsof t(o stagesJ approval b$ the Dational3Provincial Assembl$% andauthentication b$ the Prime Minister3Chief Minister. The approvedbudget is referred to as the Bchedule of Authorised ,-penditure=.

implementation< this stage refers to the communication of thebudgets to the spending ministries and departments via the inance&ivision3&epartment and the inancial Advisor in the case ofederal Government. 'n implementation of the +udget% the entit$can carr$ out activities and incur e-penditure% for (hich funding hasbeen given in that period.

reporting and monitoring< actual revenues and e-penditures?including commitments@ are recorded and reported to monitor

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progress against budget throughout the financial $ear. "eportingassists managers in decision making and in particular re6allocation offunds (here re;uired ?Chapter /@. This includes the provision ofboth internal and e-ternal reports.

> revie(< the periodical revie( of financial performance and theachievement of polic$ ob9ectives b$ spending agencies and e-ternalrevie( bodies. This includes audit activities and revie( b$ PublicAccounts Committee. At $ear end outstanding commitments arerevie(ed and budget provision ?through supplementar$ grant@ madefor the follo(ing $ear. or "evised +udget ,stimates see !.!.).!and !.!.1!.

The budgetar$ c$cle is represented in the follo(ing diagram.!.1.1.)

'vervie( of the +udgetar$C$cle

Preparation

Mo3&pending Ministries

Polic$ etting

Cabinet

Authorisation

CabinetDational Assembl$3Provincial Assembl$

"evie(

PA& pending MinistriesPublic Accounts Committee

Implementation

Mo3&pending Ministries

pending Ministries PA&

"eporting and

Monitoring

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!.2 General Policies

!.2.1 "esponsibilities for budgeting

!.2.1.1 pending ministries are responsible for the preparation of their o(n

budget estimates. In each ministr$ there is a inancial Advisor (ho isunder the administrative control of the inance &ivision3 &epartment.This officer guides the preparation of estimates b$ spending entities(ithin the ministr$ and co6ordinates the budget (ith the inance&ivision3&epartment and various other bodies as re;uired throughoutthe budget c$cle.

A number of other Government entities provide support during thebudget process. These include various committees responsible for therevie( and approval of budget proposals ?as nominated from time totime b$ the Ministr$ of inance@% including<

>

>

>

!.2.2

the Planning Commission

the ,conomic Affairs &ivision

the Accountant General.

!.2.1.2

General budget classifications

!.2.2.1 The estimates provided in the Annual +udget tatement must besho(n in accordance (ith Constitutional re;uirements. :nder theConstitution the budget estimates must sho( separatel$<

> the sums re;uired to meet e-penditure charged upon the

ederal3Provincial Consolidated und ?refer to &irection !.#.2.1.for a list of items included as charged e-penditures@

the sums re;uired to meet other e-penditure% other than charged%proposed to be made from the ederal3Provincial Consolidatedund.

>

!.2.2.2 ithin these overall re;uirements% spending ministries anddepartments are re;uired to submit budget estimates in prescribedclassifications. 'n the e-penditure side% separate estimates areprepared for current and development e-penditures. eparateforecasts are also prepared for receipts. The classification of current

and development e-penditure needs to be sub 6classified into theiroreign ,-change and "upee components both denominated inrupees.

Don6development e-penditures refer to the on6going administrativeoperations (ithin a ministr$ or department% in fulfilling its polic$ob9ectives. These include salaries and allo(ances of officers and staff.

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There are t(o t$pes of non6development budgetJ permanent andtemporar$<

> permanent budget< these are non6development e-penditures thathave previousl$ been approved and are continuing. These includepermanent staffing establishments% travelling% fi-ed allo(ances andcontingent e-penditure. This is submitted as the BPart I= budget

temporar$ budget< these are ne( items of non6developmente-penditure such as temporar$ additions to e-isting establishmentsor services that have either continued on from $ear to $ear on atemporar$ basis or have been ne(l$ sanctioned and not included inthe current $ear=s budge t. This is submitted as the BDe( Itemstatement= ?DI@ or BPart II= budget.

>

!.2.2.# &evelopment e-penditure refers to activities conducted andmanaged distinctl$ as individual pro9ects% (ith finite start and end datesand clearl$ specified deliverables. &evelopment pro9ects t$picall$

involve the construction or improvement of ph$sical assets or thedevelopment of human resources. &evelopment pro9ects aresubmitted as BDe( Item tatements=.

&evelopment budgets should have a flo(6on effect to the non6development budget. hen a development pro9ect is completed itshould result in ne( items of non6development e-penditure% such assalaries% maintenance and utilities.

!.2.2.) orecasts of revenue shall be prepared b$ those entities responsiblefor administration of those revenues. This includes ta- authorities such

as the Central +oard of "evenue in the ederal Government and therespective ,-cise and Ta-ation &epartments in the Provinces.

!.2.! Method of budgeting

!.2.!.1 The method used b$ ministries and departments for preparingbudget estimates (ill be determined b$ the inance &ivision3&epartment. Irrespective of the t$pe of e-penditure or method ofbudgeting used% the estimates provided to the inance &ivision3&epartment must be full$ substantiated.

Ministries and their subordinate spending entities should frame theirbudgets according to planned outcomes and not inputs. or e-ample%a ministr$ should first consider (hat outcomes it (ishes to achieveagainst a particular function or program% rather than ho( man$ ne(staff it (ishes to emplo$. &evelopment and non6development budgetestimates should be considered 9ointl$% in order to determine (hetherthe planed outcomes of the entit$ ?and those of the Government as a(hole@% can be met.

!.2.!.2

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!.2.!.!

+udgetar$ Control

,stimates of e-penditure are to be provided on a cash basis% that is%e-penditure incurred (hen pa$ment is made (ithin the financial $ear.This is consistent (ith the accounting polic$ for the recognition ofe-penditure.

orecasts of revenue are to be prepared on a cash basis% that is%based on (hat can reasonabl$ be e-pected to be paid and collected inthe financial $ear. This (ill be calculated from prior $ear collectionfigures% ad9usted for changes in revenue collection polic$. Theforecasts (ill be provided in gross amounts ?e.g. revenues (ill not besho(n net of an$ related costs@. This is also consistent (ith the relatedaccounting polic$ for the recognition of revenues.

!.2.!.#

!.2.# +udget format

!.2.#.1 The format b$ (hich budget estimates are to be submitted%consolidated and ultimatel$ presented before the Dational and

Provincial Assemblies (ill be the same% as determined b$ inance&ivision% in consultation (ith the respective Provincial inance&epartments.

The budget (ill be compiled to be consistent (ith the Chart ofAccounts specifications.

!.2.#.2

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!.! &etailed Procedures

!.!.1 Introduction

!.!.1.1 This section describes steps to be follo(ed in the budgetar$

procedure% based on the components of the budgetar$ c$cle asoutlined in the Introduction ?&irection !.1.1.#@.

These procedures refer to the budgeting process in general and%unless other(ise specified are applicable to all spending entities.Ministries and departments (ill ensure procedures for the collection ofsubsidiar$ details and the preparation and scrutin$ of budget estimatesare laid do(n in departmental regulations of the ministries anddepartments.

rom time to time the inance &ivision3 &epartment (ill issue

orders pertaining to budgetar$ procedures. These include specificorders for a financial $ear or a particular class of e-penditure. uchinstructions are to be follo(ed in con9unction (ith the procedurescontained in this Manual.

The follo(ing ke$ controls are essential to the budgeting process<

> all budget estimates for a ministr$ or department must be revie(edand signed off b$ the inancial Advisor before it is submitted to theinance &ivision3 &epartment

all budget estimates for a ministr$ or department must be approvedand signed off as evidence b$ the inancial Advisor before it is

submitted to the inance &ivision3 &epartment

budget estimates and supporting schedules must be prepared in aprescribed format

the budgets must be authorised b$ the Dational3ProvincialAssembl$

authorised budgets must be communicated to the AccountantGeneral so that a complete record is maintained for verification andauthorisation of pa$ment

the inance &ivision3&epartment must communicate the authorised

budgets to the spending ministries and departments through releaseletters

the Principal Accounting 'fficer for each entit$ must monitoractual transactions against budget.

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!.!.2 +udgeting procedure 6 overvie(

+udgetar$ Control

spending Ministries3&epartments andsubordinate entities

prepareestimates< part I ?permanent@

prepareestimates< part II ?temporar$@

prepare estimates 6

development

revenue collectionauthorities

prepare preliminar$

estimates< revenue

inancial Advisor

e-amine currentestimates ?pt I@

Approved b$ PA'

e-amine currentestimates ?pt II@

e-aminedevelopment estimates

e-amine revenue estimates

submit budgetorders< ?parts 1 and II@

submit De( Item tatements

submit preliminar$ K final revenue estimates

Mo3&

determine siLe ofannual development programme

revie( current estimates

revie( development estimates3 prioritise pro9ects

revie( final revenue estimates

prepare &emands for Grants< Don6developmentsection ?b$ Ministr$@

prepare &emands for Grants 6 &evelopment section

prepare consolidated

estimates of revenue

The +udget?consolidated &emands for Grants and chedule of Authorised ,-penditure@

update accounting3funds control records

AGP"3 AG

communicatebudgets to Ministries Mo3& and &epartments

Approval b$ DA3PAand authenticated b$ PM3CM

!.!.! Polic$ setting and issue of +udget Call Circular

!.!.!.1 ,ach $ear% the Cabinet must meet and set out the budget polic$%including ne( initiatives% targets and priorities. The budget polic$ (illestablish the planned surplus or deficit% (ith underl$ing assumptions oneconomic gro(th% inflation and other planning parameters.

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!.!.!.2

+udgetar$ Control

After the Cabinet has set the budget polic$% the inance &ivision3&epartment (ill prepare and issue the +udget Call Circular. Thisdocument sets out the timetable in (hich budget estimates are to beprovided b$ the spending ministries and departments and an$ otherrelevant instructions to be follo(ed.

The deadlines for submission of estimates sho(n in the follo(ingsections are indicative onl$% as the$ (ill var$ from $ear to $ear andbet(een individual provinces. In all cases the dates sho(n in the+udget Call Circular shall be adhered to.

!.!.!.!

!.!.# Preparation of non6development budget

!.!.#.1 After the +udget Call Circular is issued% ministries and departmentsshall prepare detailed estimates of their non6development e-penditurefor the forthcoming financial $ear.

&evelopment budgets must be prepared on an integrated basis.permanent and temporar$ budget estimates must not be preparedindependentl$ of one another.

,stimates of non6development e-penditure must sho( separatel$%(ithin each grant<

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Bcharged= and Bother than charged= e-penditure

e-penditure on revenue account and e-penditure on capitalaccount.

!.!.#.2

!.!.#.!

The Principal Accounting 'fficers must approve and sign off thebudgets relevant to their entities.

or each spending entit$ (ithin a ministr$% the level at (hich non6development estimates are to be submitted is as follo(s<

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for each grant% the grant and units of appropriation

for each primar$ unit of appropriation% to the detailed levels ofboth function and ob9ect heads

!.!.#.)

!.!.) Preparation of non6development ?permanent@ budget

!.!.).1 ,stimates provided under the permanent ?or Part I@ budget% asdefined in &irection !.2.2.!% must onl$ include items (hich havealread$ been cleared b$ the inance &ivision3 &epartment. If an itemappears in these estimates for the first time% it must be supported b$ acop$ of the approval for continuation of that item on a permanentbasis.



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!.!.).2

+udgetar$ Control

It should not be assumed that estimates provided under thepermanent budget are fi-ed items. pending ministries anddepartments should revie( their overall establishment re;uirementsand patterns of contingent e-penditure to identif$ potential savings(hen preparing their budget.

In order to form the basis for the follo(ing $ear budget estimates%revised estimates must be prepared for the current financial $ear."evised estimates should be determined in light of<

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actuals for the first # months of the current financial $ear plusactuals for the last 0 months of the previous financial $ear

commitments entered into and e-pected to be paid in the currentfinancial $ear

12 months actuals for the previous t(o $ears

ad9ustments arising from<

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re6appropriations (ithin particular grants during the currentfinancial $ear

ne( items of e-penditure approved throughupplementar$ +udget during the current financial $ear

surrenders made or e-pected to be made during thecurrent financial $ear.

!.!.).!

an$ other relevant factors

the impact of development and non6development factors.

!.!.).# here the revised budget e-ceeds the approved grant% the ministr$or department must indicate ho( the e-cess is proposed to be met andthe delegated authorit$ (ho authorised the increase.

here the revised budget is less than the approved grant b$ morethan )% an e-planation of the saving must be provided b$ the ministr$or department.

+udget estimates for the ne-t financial $ear are then prepared foreach detailed head ?detailed function and ob9ect (ithin each unit ofappropriation@. or permanent budgets% the follo(ing information mustbe provided at detailed head level<

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actuals for the last financial $ear and budget variances for that $ear

budget estimate for the current financial $ear

revised estimate for the current financial $ear

budget estimate for the forthcoming financial $ear.

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!.!.)./

+udgetar$ Control

rom the information collected above% a statement (ill be preparedcomparing the differences bet(een<

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current $ear=s approved grant and the revised estimate

the budget estimate submitted for the current $ear and the estimatefor ne-t $ear.

!.!.).0 +udget estimates should be prepared to include subsidiar$ details inthe prescribed form ?e.g. nominal rolls% calculation of allo(ances etc.@%and made available for scrutin$ b$ the Ministr$ of inance% ifre;uested.

'ther relevant factors should also be considered in developing anestimate for ne-t $ear=s budget. These include the follo(ing<

> ad9ustment for e-pected inflation as provided% increase in salar$costs and an$ other planning assumptions provided in the budgetcall circular.

kno(n deferred liabilities% as recorded on the 5iabilities "egister%for the ne-t $ear.

anticipated savings arising from productivit$ gains% and reductionor termination of specific programs.

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!.!.).14 ,stimates relating to approved establishments% both permanent and temporar$% should take into account provisions for leave% e-pected vacancies and allo(ances pa$able to emplo$ees% based on past actuals and other relevant factors. ubstantiation must be provided fo r variations from the previous $ear=s establishment.

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posts (hich (ill not be filled must not be provided for. Thisincludes provision for staff on long6term transfer or leave.

estimates of salaries must be supported b$ the number of postsagainst each establishment% and an e-planation of an$ variationbet(een the ne-t $ear and the current $ear=s posts.

!.!.).11 5ump sum provision in the budget must not be made unless in e-ceptional circumstances. or e-ample% the use of Bother= e-penditure heads should be avoided% in favour of more clearl$ defined heads.

!.!.).12 Permanent budget estimates must be submitted b$ the concerned spending entities to the inancial Advisor no later than 1 &ecember each $ear. ubse;uentl$ the +udget 'rders pertaining to the permanent ?Part I@ budget must be submitted to the +udget ing of the inance &ivision3&epartment and copied to the Accountant General% no later than 1 anuar$



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!.!.).1! The dates detailed are applicable unless other(ise notified b$ the Ministr$ of inance.

!.!.* Preparation of non6development ?temporar$@ budget

!.!.*.1 Temporar$ budget estimates% as defined in &irection !.2.2.!% shall

onl$ be included in this section of the budget (here alread$ agreed(ith inance &ivision3 &epartment. Do scheme of fresh items can beincluded in the +udget unless it is complete and approved.

The re;uirements for preparation of revised estimates and e-cessesand surrenders as given in &irections !.!.).! to !.!.).) also appl$ totemporar$ budgets.

Temporar$ budget estimates must be submitted b$ spending entitiesto their respective ministries for e-amination no later than 1 Dovembereach $ear. here clearance of fresh charge proposals is re;uired b$other ministries or departments% it should be obtained prior tosubmission .

Temporar$ budget estimates must be submitted to the inancialAdvisor no later than 1 &ecember each $ear. ubse;uentl$ thebudget orders pertaining to the temporar$ ?Part II@ budget must besubmitted to the +udget ing of inance &ivision3 &epartment (ith acop$ to the Accountant General no later than 1 ebruar$.

The comparative anal$sis of revised estimates (ith sanctioned grantsand budget estimates for the current $ear and ne-t $ear provided for in&irection !.!.)./% should also be submitted.

The dates detailed are applicable unless other(ise notified b$ theMinistr$ of inance.

!.!.*.2

!.!.*.!

!.!.*.#

!.!.*.)

!.!.*.*

!.!./ Preparation of development budget

!.!./.1 &etailed procedures for the preparation% appraisal and approval ofdevelopment pro9ect proposals are set out in the BManual for&evelopment Pro9ects= issued b$ the Planning Commission and areapplicable to all spending entities. &evelopment pro9ect estimatesmust onl$ be prepared for pro9ects approved in accordance (ith thoseprocedures.

hen spending entities submit their proposals to the PlanningCommission for the Annual &evelopment Programme% a cop$ of thissubmission must be for(arded to the respective inancial Advisor.This (ill include detailed estimates for individual pro9ects.

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!.!./.!

+udgetar$ Control

,stimates of development e-penditure for each pro9ect3schememust be furnished b$ spending entities to the inancial Advisor no laterthan 1 &ecember each $ear. The follo(ing information for eachpro9ect3scheme must be provided<

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name of pro9ect3scheme

e-pected date of completion

ph$sical targets to be achieved in the pro9ect

accumulated e-penditure and percentage of completion up to theend of the previous $ear

revised budget estimate and ph$sical targets for the currentfinancial $ear

budget estimate for ne-t financial $ear

targets proposed for ne-t financial $ear and basis for determiningtarget.

!.!./.# The level at (hich development pro9ect budgets (ill be submitted isas follo(s<

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development grant and scheme ?pro9ect@ (ithin each grant

at detailed function and ob9ect level for those heads pertaining topro9ect e-penditures (ithin each primar$ unit of appropriation.

!.!./.) pending entities shall provide details of ph$sical targets to beachieved b$ the pro9ect% along (ith budget estimates.

If a pro9ect is ne(% and a budget estimate is submitted for the firsttime% it should be accompanied b$ copies of the relevant PCI andPCII ?pro9ect definition and feasibilit$@ forms.

Proposals submitted to orks &ivision3&epartment for (orkse-penditure to be incurred under a development pro9ect% shall becompiled b$ orks &ivision3&epartment on a pro9ect6(ise basis andsubmitted to inance &ivision3 &epartment.

pending entities must ensure that there is no overlap of budgetsbet(een individual development pro9ects or bet(een development andnon6development e-penditures.

The local currenc$ component of the development pro9ect estimatemust be sho(n separatel$ from the foreign currenc$ component. Inaddition% these components of the development pro9ect budget are notinterchangeable throughout an$ stage of the pro9ect.

!.!./.*

!.!././

!.!./.0

!.!./.

!.!./.14 In relation to the estimate of foreign aid for a pro9ect% the follo(i

Documents

03 Accounting Policies and Procedures Manual