Position Paper on PWD Works and other Cheques related SAP Entries dt 27.02.2020
OFFICE MEMORANDUM
Subject: Cheques related SAP Entries
I am directed to refer to the subject noted above and to state that works accounts are required to be maintained by the concerned District Accounts Officers / Treasury Officers on SAP-system in accordance with the provisions of the New Accounting Model. Deviations from the NAM are objected to by the audit authorities.
2. In order to ensure accurate maintenance of works accounts and to avoid audit objections in future and correct the past mistakes, this office has prepared the enclosed Position Paper which is sent herewith for soliciting valuable feedback. It would be highly appreciated if the feedback is sent to this office within a fortnight for further necessary action in accordance with law.
As per Article 170(1) of the Constitution, the accounts of the Federation and of the Provinces shall be kept in such form and in accordance with such principles and methods as the Auditor-General may, with the approval of the President, prescribe. The accounting principles and methods prescribed by the Auditor General under the aforesaid Article are collectively called the NAM (New Accounting Model). The following seven books contain these principles and methods:
- Manual of Accounting Principles (MAP);
- Accounting Policies and Procedures Manual (APPM);
- Financial Reporting Manual (FRM);
- Chart of Accounts (CoA);
- Manual of External Reporting Requirements (MERR);
- Handbook of Accounting Guidelines; and
- APPM Book of Forms
- Section 4.4.6.2 of the APPM regulates accounting entries
2. Section 4.4.6.2 of APPM regulates accounting entries regarding expenditure of all types:
Accounting entries on the date of issuance or endorsement of cheque:
Debit—-Expenditure head account
Credit—-Cheque clearing account
Explanation: Expenditure head account is debited with the gross amount and deductions made from the claim are credited to relevant receipt heads. Cheque clearing account is credited with the net amount payable to the vendor from the Bank.
Accounting entries on the date of payment by the bank
Debit Cheque clearing account
Credit—-Bank account
3. The above two accounting entries are applicable to recording of transactions relating to expenditure heads (A0000), tax receipts heads (B0000), non-tax receipts heads (C0000), capital receipts heads (E0000), assets heads (F0000) or liabilities heads (G0000).
4. As prescribed in Section 5.4.3.1, double entry required for the recognition of all types of receipt realized through bank is as under:
Debit—-Bank Account
Credit—-Revenue Account (detailed head)
5. If receipt is realized through book transfer, the following entry shall be made on the SAP-system:
Debit—-Expenditure account code
Credit—-Receipt account code
6. Section 4.4.6.5 of the APPM deals with refunds of amounts received in the following words:
“4.4.6.5 Refund – where a refund has been paid, the following double entry shall be made:
Dr Refunds account (revenue)
Cr Cheque clearing account
[to record refunds paid against a specified ‘refunds’ account (or as a debit to revenue)]
Dr Cheque clearing account
Cr Bank account
[to record the amount cleared from the bank account. This will be the date as per the Bank Return]”
The above accounting entries shall be made in all cases where payment is made against money already received and not against budgetary allocations. In other words, these accounting entries are required to be made in case of refunds or repayments from the Provincial Consolidated Fund as well as Public Account of the Province.
7. Cheque clearing accounts commonly in use are as follows:
| Major Code | Description | Minor Code | Description | Detailed Code | Description |
|---|---|---|---|---|---|
| G01 | Current Liabilities | G011 | Cheque Clearing | G01101 | Non-food Account |
| –do— | –do— | –do— | –do— | G01102 | Food Account |
| –do— | –do— | –do— | –do— | G01190 | Special Drawing Account Cheques (SDA) |
| –do— | –do— | –do— | –do— | G01191 | Assignments Accounts Cheques |
8. Some of the Bank account codes generally used in accounts are as under:
| Major Code | Description | Minor Code | Description | Detailed Code | Description |
|---|---|---|---|---|---|
| F01 | Cash and Bank Balances | F011 | Balance with SBP | F01101 | Non-Food Account |
| –do— | –do— | –do— | –do— | F01102 | Food Account |
| –do— | –do— | –do— | –do— | F01120 | District Education Authority Punjab SBD |
| –do— | –do— | –do— | –do— | F01121 | District Health Authority Punjab SBD |
9. In the light of the NAM, accounting entries of expenditure of the public works divisions by the concerned DAO/TO are required to be as follows:
Accounting entries on the date of endorsement of cheque by the DAO/TO:
Debit—-Expenditure head account
Credit—- G01101-Non Food Account (cheque clearing account)
Accounting entries on the date of payment by the bank
Debit —- G01101-Non Food Account (cheque clearing account)
Credit —- F01101-Non-Food Account (Bank Account)
10. In respect of receipts on account of deposit works, call deposits of contractors and special cheques not payable in cash, the normal accounting entries are as under:
Accounting entries in case transaction is made through bank
Debit—- F01101-Non-Food Account (Bank Account)
Credit—-G10113-Public Works / Pakistan PWD Deposits
Accounting entries in case transaction is made through book transfer
Debit—-Expenditure head account
Credit—- G10113-Public Works / Pakistan PWD Deposits
11. The following entries shall be made by the concerned DAO/TO in respect of payments against receipts of public works deposits:
Accounting entries on the date of endorsement of cheque by the DAO/TO:
Debit—- G10113-Public Works / Pakistan PWD Deposits
Credit—- G01101-Non Food Account (cheque clearing account)
Accounting entries on the date of payment by the bank
Debit—- G01101-Non Food Account (cheque clearing account)
Credit—- F01101-Non-Food Account (Bank Account)
12. All of the above entries are necessarily required to be made on the SAP-system.
13. Following deviations from NAM have been observed in existing instructions and practices being implemented by the Director General Accounts Works, Punjab (DGAW):
i. At the time of endorsement by the DAOs / TOs, the works cheques are being credited to G10425-Cheques which is not a cheque clearing account. Correct cheque clearing account is G01101-Non Food Account. Perusal of the list of all cheque clearing accounts in the Chart of Accounts indicates that G10425-Cheques is not a cheque clearing account. If correct cheque clearing account is used at the time of endorsement on the PWD cheques, accounting entries on the date of payment by the Bank shall make the transaction complete in all respects leaving no chance of any outstanding amount under G01101-Non Food Account. In case of non-payment within the prescribed period, reverse entry shall make accounts as they actually must be.
ii. Income tax deducted from claims of contractors / suppliers is creditable to the head G12714-Income Tax deduction from contractors / suppliers. The DGAW is getting this credited by the DAOs / TOs to the head G10425-Cheques which is incorrect.
iii. Sales Tax on Services (Punjab) must be credited to the head B02385. The DGAW is causing its credit to G10425-Cheques which is incorrect.
iv. The DGAW has directed that following accounting entries be made in respect of internal cheques or special cheques:
Accounting entries on the date of endorsement of cheque by the DAOs /TOs for book transfer
Debit—-Expenditure head account
Credit—- G10409-Internal Cheques (Public Works)
Accounting entries on the date of entry of receipt into his books by the DAOs / TOs
Debit—- G10409-Internal Cheques (Public Works)
Credit—- G10113-Public Works / Pakistan PWD Deposits
Accounting entries on the date of endorsement of cheque by the DAOs / TOs for payment by the Bank
Debit—- G10113-Public Works / Pakistan PWD Deposits
Credit—- G10425-Cheques
Accounting entries on the date of payment by the Bank
Debit—- G10425-Cheques
Credit—- G10409-Works Audit Suspense
14. A number of complications and inaccuracies are caused by the aforesaid incorrect accounting entries some of which are as follows:
(a) These entries are not in conformity with NAM;
(b) The receipt under G10409-Internal Cheques (Public Works) shall remain unpaid forever in the books of the Division and of the DAO / TO especially in case of issuance of internal cheques from one district to another. Moreover, the receiving Works Division or the DAO / TO will debit the head G10409-Internal Cheques (Public Works) at the time of entry of receipts into books of accounts without availability of corresponding credit under head G10409-Internal Cheques (Public Works) in books of the Works Division and of the DAO / TO. As a result, positive balances shall continue to pile up under head G10409-Internal Cheques (Public Works) in books of the Works Divisions issuing internal cheques and of the DAOs / TOs endorsing the cheques and negative balances in the receiving Works Division and the DAO / TO. This is precisely the situation which has rightly been objected to by the audit. The solution being suggested by the DGAW will perpetuate the problem and will give birth to more serious audit objections. The solution proposed by the DGAW is the mother of the problem the audit has pointed out.
(c) Booking of Income Tax and Sales Tax on Services under head G10425-Cheques is without understandable justification and renders reconciliation of receipts impossible. Refund of revenue becomes almost impossible in absence of credit of the revenue to irrelevant head.
(d) Use of accounts other than cheque clearing accounts renders it impossible to accurately determine the liability on account of unpaid cheques.
14. From the perspective of financial management, non-use of proper cheque clearing accounts disables the SAP-system to give accurate reports regarding cash liabilities of the Government on account of cheques issued but standing unpaid on a particular date. Non-availability of this information has adverse effects on cash and financial management of the Province. Moreover, booking of receipt or expenditure to work audit suspense makes the accounts unreal and artificial. With the availability of SAP and implementation of the NAM, use of suspense heads (in cases in which proper heads are available and there is no hindrance or problem in their use) is not justifiable on any rational grounds.
15. In order to correct past mistakes and to check recurrence of similar mistakes in future, the following actions are required to be taken:
- Issuance of instructions by the Inspectorate of Treasuries & Accounts to the effect that transactions of the works divisions shall be recorded in the SAP-system strictly in accordance with the NAM as identified in this Position Paper;
- Revision of instructions issued by the DGAW to make them NAM-compliant;
- Proposal of transfer entries by the DGAW in the light of the NAM to correct past mistakes in accounting entries in order to get audit paras settled and to avoid such objections in future; and
- Clearance of all inter-district internal cheques / special cheques through the Bank in future and their accounting as required by the NAM.
