BOOKS & BUDGET SUBJECTS FOR ACCOUNTS DEPT

INTERNAL CHECK –PRE AND POST CHECK
1.1 INTERNAL CHECK
The check exercised By the Accounts office on the financial transactions of the Railways on half of Railway Administration is called internal check. This is called so to distinguish it from the audit conducted by the chief auditor of the railways receipts and expenditure on behalf of the controller and Auditor General of India. In fact the audit conducted by the Chief auditor should be rightly called “external audit” and the internal check carried out by the financial Adviser and his officers, on behalf of the Railway administration should be called “Internal audit” in modern parlance.
1. 1.1 The Scope and methods of internal check or internal audit have been brought out in detail in Chapter VIII of Accounts Code Volume I.
The Salient features of internal audit are as under.
(a) Check of Sanctions and orders,
(b) Check of delegation of financial authority,
(c) Check of all Establishment bills
(d) Pre-check and Post-check of expenditure
(e) Scrutiny of receipt - this includes inspection of original records at the stations as well as post audit of returns from the stations in the Traffic Accounts office;
(f) Internal check of debt and remittance transactions,
(g) Maintenance of Provident Fund Accounts,
(h) Check of pension payments,
(i) Prior check of all contractors bills etc., before passing the same for payment inspection of stations and other executive officers for checking the original records.
1.2 The Internal check is conducted with reference to -
(a) rules and orders issued by the President Railway Board, General Managers of Railways and various authorities,
(b) the instructions contained in the Codes and instruction issued from lime to time by the Railway Board,
(c) The recognized standards of financial propriety,
1. 3 While scrutinizing receipt. It should be seen
(i) That the amount due to the Railway for services rendered, supplies made, arc correctly and promptly assessed recovered as soon as they fall due,
(ii) that all receipt arc properly brought into account,
(iii» that all receipts are correctly classified, and if they represent an amount due to more than one railway, that they are correctly apportioned among the railways,
1.4 All claims against the railway are scrutinized with a view to see
(a) that the expenditure has been sanctioned by competent authority and that the expenditure is incurred by .an officer competent to incur it,
(b) that all prescribed preliminaries to expenditure are observed before disbursement of pay, etc.
(c) thai it is covered by the grant at the disposal of lhe officer incurring it,
(d) that the expenditure does not contravene any rules and orders in force,
(e) that the expenditure does not involve a breach of the Standards of financial Propriety
(f) that the expenditure sanctioned tor a limited period is not admitted beyond that period without furlher sanction,
(g) that in the case of recurring charges which are payable on the fulfilemtent of certain condition a certificate is forthcoming from the drawing oftice to the effect that necessary conditions have been fulfilled,
(h) that the charge is correctly classified,
As exceptions to this general rule the folldwing payments may be; made before such check: - a} Payments from imprest
(h) Payment from station earnings when permitted under rules.
(e) Commission deducted hy auctioneers from sale proceeds,
(d) Payment of certain classes of pay bills, muster sheets and labour pay sheets of open line staff specially pcrmined to be made by F.A. & C.A, 0.
1.5 INTERNAL CHECK OF SANCTIONS AND ORDERS
Tlie Accounts Officer -should examine every rule. order or sanction whether issued by the president or the Railway Board or any sub-ordinate authority in order to see
(a) that the authority framing the rule or according the sanction is cornpetent to do so,
(b) that the sanction is definite.
(c) that the rule or order or sanction does not contravene any general or special orders of any higher authority and
(d) that the sanctions to expenditure of definite amounts, [he same arc always expressed both in words and figures.
1.6 TREATMENT OF ERRONEOUS PAYMENTS
When erroneous payments have been passed for considerable time. owing either to a wrong interpretation of financial rules or due lo oversight, the following procedure should he observed:
fi) Wrong interpretation:
The new interpretation should be given effect from the date which the competent authority may decide. If no date is specially fixed, ihe correct interpretation -should be given effect to from the date it is stated by the competent authority
Oversight
Payment made less than 12 months ago, should be recovered. Every overpayment of money to a railway servant is and must he regarded as ii dcoi to public and ^J possible action should be taken for speedy recovery
1.7 POST CHECK OF PAID VOUCHERS
All bills, whether under the pre-check or the post check system in which payment has been made should be checked to see -
(a) that the acknowledgements of payments have been obtained (in English or Hindi).
(b) that the names of payees mentioned in the bills tally with the signatures obtained,
(c) that the payment has been witnessed, whereso required, by the official named in the bill and the acknowledgement is unqualified,
(d) that where a person other than payee himself has received the amount, the payment has been made under proper authority.
(c) that vouchers are stamped,
(f) that each voucher has been cancelled efficiently and promptly,
1.8 INTERNAL AUDIT AND INTERNAL CHECK :
Though Internal Check is part of Internal Audit as far as Railways are concerned yet there is a distinct difference between the two.
''International Audit is an independent appraisal function within an Organisation for the review of activities as a service to all levels of Management. It is a review of the operations and accounts some-times continuosly undertaken within a business by specially assigned staff".

The objectives of Internal Audit are
i) a Service to Management;
ii) ensures reliability and integrity of Accounts System.
iii) ensures compliances with rules and regulations;
Facilitate preventions and deieciion of frauds.
Internal Check is a part of the overall internal control system. The internal check is the check exercised on the day to day transactions which operate continuously as part of the routine system whereby the work of one person if proved independently of another.
SYSTEM OF INTERNAL AUDIT IN INDIAN RAILWAYS:
Internal Audit functions are performed in the form of Inspections of activity centres and offices by different agencies from Zonal and Divisional Railway offices:-
i) Inspection of Executive offices by Accounts Officers and Staffs as provided in Chapter-XVII of the Accounts Code Part-1,
ii) Inspection of stations by TIAs as per Chapter - XXXIII of Accounts Code - Part-II
Accounts Stores Verification of Stores as per Chapter-XXXIII of Stores Code
jv) Inspection of Subordinate Accounts offices by FA & CAO and his officers.
v) Inspection of Zonal Railway's Account Offices by the Board's Inspection Party,
All these Inspections are in the nature of Systems Audit ad Transaction Audit.
Further reading: Please refer Chapter-XVII of Accounts Code Part-1 to know more about the objectives of Inspections of executive offoces and the records that are to be inspected.
STATUTORY AUDIT
2.1 Railways are part of the Government of India and not a corporation under any statute or Indian Companies Act. There is, therefore, no statutory audit of the type under Indian Companies Act. Statutory Audit is conducted by CAG which is much more comprehensive than company auditors and the audit report on performance is submitted lo the Par/lament by CAG, Public accountability is, therefore, maximum.
2.2 FUNCTIONS
The Comptroller and Audit General of India is the final audit authority in India and he is responsible for the audit of the accounts of the Indian Railways hut has no responsibility for the compilation of such accounts. The form in which account of the Indinn Railway should he kept and changes in accounts classification affecting the recording of The expenditure in the Finance and Revenue Accounts are, however, subject to his approval (113-!).
2.3 OBJECT OF STATUTORY AUDIT (116 AI and 911 of Finance Code)
The Statutory audit has three fold purposes viz.
it is an accountancy audit - to check the accuracy and to see thai all payments are supported by receipted vouchers,
it is an appropriate audit - to check to ensure that expenditure and receipts have been properly classified and voted appropriations have not been exceeded
iii) it is also an administrative audit to check that expenditure has been incurred according to prescribed rules and regulations.
The main object of audit is to ensure -
a) that the system of accounts used by the internal check authority is correct,
b) that the method of check applied at every stage of the accounts is sufficient,
c) that the accounts are maintained and the checks applied with due accuracy and
d) that the arrangements exist in the accounts office to ensure attention to the financial interest of the railways on the part of all concerned.
2.4 RESPONSlBILITY
The responsibility of statutory audit is briefly as follows :-
a) it extends in respect of expenditure transactions lo all expcndiuture incurred in India.
(i) in respect of receipts, it includes receipt of Indian railways including receipts relating to accounts of manufacture,
c) it includes stores and stock accounts to do the extent prescribed by the Comptroller and Auiditor General of India.
2.5 Audit is always conducted ex-post facto i.e. after the event-
Audit cannot prevent an overpayment through negligence or non-observance of rules and regulations. It is the duty of Audit to report results to the proper authority so that appropriate action is taken to rectify the irregularity wherever possible and atleast prevent its recurrence
COMMUNICATION FROM AUDIT -DRAFT PARAS AND AUDIT REPORTS (Chapter IX of Finance Code)
I ordinarily the results of statutory audit are communicated through -
a) Specific reports of the more imporant and serious irregularities discovered in the course of audit, of Accounts and departmental offices and station records,
b) Audit notes detailing minor irregularities discovered in the course of audit of accounts office records,
c) Inspection reports .showing the results of audit of the initial records of executives offices (Para 916 of Financial Code).
An inspection report will consist of two parts, namely Part I dealing with the more important matters and Part II dealing with the rest, containing minor routine matters. Audit notes will also similarly consist of two parts. The final disposal of part II of audit notes and inspection reports rests with the Accounts officers and no formal reply to the Director of Audit is necessary. Replies to part I of inspection reports and audit notes and specific reports should be sent by the executive offices concerned to the accounts officer. In scrutinising them, the Accounts officer should call for further information, if necessary, and consult the head of the division or department concerned, where desirable before giving a reply to the Director of Audit (918 and 919 of Financial Code). All audit objections and notes should be promptly attended to by the Accounts officer.
All important eases coming to the notice of Audit during inspections or regular audit which in the opinion of the Director of Audit merits inclusion in the Audit Report are brought to the notice of the Railway Administration through special letters, notes of objection etc., to the Heads of Departments/FA&CAOs by Ihe Director of Audit. Since these special letters, factual statements form the basis of the material for the Audit Report, the Railway administration should deal with them at a sufficiently high level and bring out their point of view in a convincing manner before they proceed to prepare a draft paragraph for incorporation in Ihe Audit report.
11.3 Draft paras
If it is decided by the Director of Audit that the statement of facts are required to be converted into a Draft para for the Audit report, the draft para prepared will be sent by the Director of Audit to the Personal address of the GM simultaneously sending advance copies of the draft para with connected correspondence to the FA&CAO. HOD concerned, the additional Deputy, C&AG (Rlys) and the Director (Finance) Railway Board to facilitate prompt action and deatailed examination. The railway administration is required to give a final reply lo the Director of Audit, after consultations with the Railway Board, within a period of eight weeks from the receipt of the draft para. To allow some time for further enquiries and examination by the Railway Board, it will be neceessary for the railway to forward the draft para alone with a report from the Railway administration personally to the Director (Finance) Railway Board, as quickly as possible as but not later than five weeks of the receipt of the draft para. The reply will be sent over the personal signature of the GM duly vetted by the FA&CAO.
Any modifications which the Railway administration may desire to suggest or any comments which they wish Director of Audit to consider before giving their final reply should, as far as possible, be settled by personal discussions so thai the final reply of the administration is sent within the overall time limit of 8 weeks. After the railway administration has replied finally, any further enquiries by the Board or the Director of Audit will have to be dealt with on the basis of highest priority,
11.4 Audit report of CAG
If the Audit is convinced of Railway administration replies that there are no irregularities, the draft paras will be dropped- If the audit considers the cases as irregular the draft paras will be included in the report of the CAG and the report is presented to the Parliament where it is taken up for consideration by the Public Accounts Commiltee. The Committee obtains personal evidence of senior officers of the Railway Board. The recommendations made by the Committee are considered by the Railway Board and notes on action taken by the Board are submitted to the Committee.
The Audit Report Covers Comments arising from audit of the Accounts of Railways and Appropriation Accounts on Railway Grants. Other points arising from the test audit of financial transactions of Railways are also included,
The Audit Report generally highlights :-
Financial Results of the year,
Leakage and Seepage of Railway Earnings,
Avoidable expenditure
Underutilisation of assets:
Cost over runs due to Time overruns in the execution of projects
Inventory Control,
11.1 RECTIFICATION OF MISTAKES IN ACCOUNTS DISCLOSED BY AUDIT
(Para 922 of Finance Code)
if any mistake or inaccuracy is disclosed by Audit or detected in internal check, the following procedure should he adopted :
1) The mistakes should be rectified through the account of the month in hand if the accounts of the year have not been finally closed. (Any nature or mistakes)
2) Mistakes and misclassificaiion noticed after, closing March Accounts but before the preparation _of Capital and Revenue and Finance Accounts should be rectified - The corrections should be intimated to the Railway Board by the first week of August either through a revised account or through corrections to accounts already submitted.
3) The following rules are lo he followed if the mistakes are noticed after the submission of Capital and Revenue and Finance Accounts :-
(a) If the item belongs to one revenue or service head but is wrongly classified under another - No correction need be made. A suitable note against the original entry is sufficient
The mistakes must, however, be corrected if the error affects (i) the revenue or expenditure of another Railway or a branch line company or another Government Department (ii) Capital Head (iii) Debt or remittance head.
(b) Capital - If the corrections affect capital major heads the same should be effected as without financial adjustment i.e. by altering the progressive figure of capital outlay.
(c)Debt or Remittance head : If the error affects a debt or remittance head the following procedure should be followed ;-
(i) Item taken to one debt or remittance head instead of another (either debit or credit) the correction should be made by transferring it from one to the other
(ii) Item credited or debited to a debt or remittance head instead of revenue or service head - same procedure as mentioned at (i) above,
(iii) Item credited or debited to a revenue head instead of to a debt or remittance head - correction should be made by minus crediting or minus debiting the revenue head and crediting or debiting the proper head,
4, If the rectification of mistake would lead to an excess over grant or grants voted by Parliament or to a considerable change in the dividend payable in General Revenue, the orders of Financial Commissioner (Railways) must be obtained.
CHAPTER XIII
DEMANDS FOR GRANTS FOR EXPENDITURE ON RAILWAYS AND THE NATURE OF EXPENDITURE COVERED BY EACH
13, The proposal of Government in respect of sums required to meet the expenditure proposed to be met from the "Consolidated Fund of India" are submitted in the form of "Demands for Grant" to the Parliament. The Demand shall be for gross expenditure the credits and recoveries being shown in the form of footnotes to Demands. The Demands are divided into sub-heads and detailed heads -
The demands for grants represent basically the estimated expenditure proposed to be concurred in a 'Single” and homogenous group of functions broken up further into detailed activities.
At present there are 16 demands for Grants for expenditure of the Central Government on Railways These are detailed below. The nature of expenditure booked against them is shown against each.
DEMAND NO, 1 - RAILWAY BOARD:-
This demand is for expenditure on Railway Board. The credits under this represent recoveries from the Ministry of works and Housing (CPWD) for expenditure on the maintenance of Rail Bhavan which is arranged by the Railway Ministry in agreement with the Ministry of works and housing.
DEMAND NO. 2 - MISCELLANEOUS EXPENDITURE (GENERAL)
This demand includes
a The cost of surveys or preliminary investigation to examine the feasibility and prospects of new line construction and other projects:
b) Expenditure on the Research Designs and Standards Orgainsation which is attached to but not part of Railway Ministry.
c) Expenditure on miscellaneous special establishments dealing with problems affecting the working of the Railways as a whole but not part of the Ministry like the Railway Inspectorate, Central Bureau of investigations railway liaison offices etc.,. Credits under this is head refer to the recoveries from CBI for the Railway staff seconded to the CBI.
d) Expenditure on Statutory Audit. The charged amounts represent the cost of the railway Wing of the office of the Comptroller and Audit General of India,
e) Expenditure regulated by contracts on -
i) The share of net earnings payable to owners of branch lines worked by, and as part of the Indian Govt. Rly. system,
ii) Subsidy and rebate to such branch lines to make up their total earnings to specified minimum;
iii) Subsidy payable to lines owned and worked by certain private companies when their net earnings do not give the guaranteed return on their capital,
f) Expenditure on Misc, charges like the Railways contribution to the experimental research stations at Khadakvasala, Subscriptions to the International Railway Congress Association enrolment of Indian Railways as an associate member of the International Union of Railways, on hospitality and entertainment expenses in connection with the visits of foreign dignitaries etc.
DEMAND NO. 3 GENERAL SUPERINTENDENCE AND SERVICE
This demand is for expenditure on the Zonal Head quarters and Divisional Office of Railway Administrations- For the Accounts, Personnel and Stores Departments, this demand includes the expenses at the Divisional, Workshop and Depot level also.
The credits or recoveries under this Demand relate to commission charges recovered from the Defence Department for audit of warrants and credit notes connected with military traffic and the cost of staff recovered from non-Railway Departments for work done on their behalf for service rendered to them.
DEMAND NO. 4 - REPAIRS AND MAINTENANCE OF PERMANENT WAY AND WORKS
This Demand is for expenditure on Repairs and Maintenance of the P-Way assets like track, other buildings and structures, Repairs and Maintenance of railway colonies , staff quarters and welfare buildings are included under Demand No, 11,
The credits under this demand are for materials released from works charged to Revenue and share of credits for freight on Railway materials including coal.
DEMAND NO. 5 - REPAIRS AND MAINTENANCE OF MOTIVE POWER
This Demand is for expenditure on repairs and maintenance of motive power.
The credits under this Demand arc mainly for materials released from works charged to revenue and share of credits for freights charges on Railway material, including coal.
DEMAND NO. 6 REPAIRS AND MAINTENANCE OF CARRIAGES AND WAGONS
This demand is for expenditure on repairs and maintenance of carriages and wagon including Electric Multiple Unit Coaches-
The credits under this Demand are mainly for materials released from works charged to revenue and share, of credits for freight charges on Railway materials including coal.
DEMAND NO 7 - REPAIRS AND MAINTENANCE OF PLANT AND EQUIPMENT
This demand is for expenditure on repairs and maintenance of all plant and equipment by the Civil, Mechanical, Electrical and signals and telecommunications, engineering departments,
The credits under this Demand are mainly for materials released from works charged to revenue and share of credits for freight charges on Railway materials.
DEMAND NO. 8 - OPERATION EXPENSES - ROLLING STOCK AND EQUIPMENTS
This demand is for expenditure on the operating expenses of mechanical, electrical, signalling and telecommunications equipment including Rolling Stock.
The credits under this Demand are for share of credits for freight on Railway materials including coal,
DEMAND NO. 9 - OPERATING EXPENSES - TRAFFIC
This demand is for expenditure on Traffic operating and Traffic Commercial Departments (excluding claims organisation) This demand also includes Lease Charges of IRFC-
The credits under this Demand are for share of credits for freight on Railway materials including coal credit of unconnected coal wagons which used to be accounted for as earnings prior to 1972-73 are also included under this demand,
DEMAND N0.10 - OPERATING EXPENSES - FUEL
This demand is for expenditure on coal and other fuel for loco purposes, freight and handling charges, including fuelling of engines, sales lax, excise duly and cess on coal and electric current for traction purposes.
The credits under this Demand are for the value of cinders and coal ash sold, credits for electric energy supplied to outsiders and share of credits for freight charges on Railway materials, including coal. The credits for freight charges on coal in this and other demands offset the increase in Gross Budget in this Demand on account of freight.
DEMAND N0.11 - STAFF WELFARE AMENITIES
This demand is for expenditure on educational and medical facilities, health and welfare services, canteens and other stall amenities, repairs to staff quarters, residential and welfare buildings.
The credits under this demand relate to school fees collected, grants-in-aid to Railway schools received from State Governments,
DEMAND NO. 12 - MISCELLANEOUS WORKING EXPENSES
This demand is for miscellaneous working expenses like security, compensation claims for goods lost or damaged as also under workmen's compensation Act, catering expenditure on Hospitality and entertainment and the suspense heads which do not form part of other functional demands.
Credits or recoveries under this Demand relate mainly to credits adjusted under suspense heads-
DEMAND NO. 13 - PROVIDENT FUND, PENSION AND OTHER RETIREMENT BENEFITS
This is a composite Demand for all retirement benefits like Government Contribution to P-F, Special contribution to PP and payment of Pensionary charges to Railway staff covered by the retirement benefits. The various pension and other retirement benefits to pensionable employees are met out of Pension Fund and contributions to P.F. and payment of gratuities and special contribution, in respect of non-pensionable employees are met out of revenue.
Credits or recoveries represent service contribution from other Departments/Ministries in respect of staff on deputation. This gross demand includes recoupment from the public account to the consolidated fund of India of the sums voted initially by Parliament from out of the consolidated fund of India for meeting the expenditure chargeable to Pension Fund.
DEMAND NO, 14 - APPROPRIATION TO FUNDS
This demand is for appropriation from Revenue to the various Railway funds as under:-
a) Appropriation to DRF (As per RCC recommendations)
b) “ to pension fund (As per RCC recommendation)
c) " to Development fund (Out of revenue excess after Payment of dividend) ...
d) " to Capital Fund (Keeping in view the Plan requirement for building up infrastructure out of internal resources)
DEMAND NO. 15
Dividend to General Revenues, Repayment of loan taken from General Revenues and Amortisation of over capitalization. This demand is for payment lo General Revenue and contribution for grants to Slates in line of passenger fare lax,
DEMAND NO, 16 ASSETS ACQUISITION - CONSTRUCTION AND REPLACEMENT
This demand is for expenditure on Assets-Acquisition, construction and replacement, whether met out of loans to he obtained from the General Exchequer on internal resources of the Railway viz. Revenue, the DRF, the DF and the Capital Fund. No re appropriation of funds will be permissible between Capital, Railway Fund and Revenue, credits or recoveries represents adjustment in the accounts as reduction of expenditure, but are outside the scope of the gross demand. The gross demand, includes recoupment from the public account to the consolidated fund of India of the sums voted initially by Parliament from out of the Consolidated Fund of India, for meeting the expenditure chargeable for the DRF, DF and Capital Fund
The charged expenditure under all the demands (except demand no, 14 and 15) is for payment in satisfaction of court decrees and arbitration award where made into rule of the court.
CREDITS OUTSIDE THE SCOPE OF DEMANDS AND CREDITS TAKEN AS REDUCTION IN EXPENDITURE (Para 335 of Finance Code):
The credits mentioned under each grant above are The credits or recoveries excluded from the scope of the demands presented for vote of Parliament, In other words, [he budget is presented for 'Gross' and credits under each grant above are shown separately, The sub-head '900' under Demand 4 to 13 .ire such credits.
The following items of credits of recoveries are however taken In reduction of Demand and only net figures are shown under the Demand s;-
a) Credits realised from surplus stock, found in stock verification etc
b) Credits on accounts of write hack adjustments.
c) Credits for overcharges and undercharges under repairs,
d) Credits under 'Demands Payable' and 'Unpaid Wages'.
The credits motioned above (a to d) arc exhibited as minus debits in the financial accounts and those credits mentioned in Para 335 F I above are exhibited as credits.

ITEMS OF EXPENDITURE BOOKED TO DEMAND NO. 2 MISCELLANEOUS EXPENDITURE.
1) Surveys.
2) RDSO (Research, Designs & Standards Organisation),
3) Cost of Railway Statutory Audit. . .
4) Payment of worked lines. Subsidised Companies.
5) Miscellaneous Establishment;
I- Railway Recruitment Boards (RRBs)
2. Centralised Training Colleges.-
(Staff college, Vadodara, Pune, Jamalpur, Nasik, Secunderabad etc
3. Commissioner of Rly Safety, Railway Rates, Tribunal, Railway Claims Tribunal, Railway Transport Museum, Rail Fare and Freight Commission.
6) Miscellaneous Charges- such as
i)Contribution to research station at Khadakvasla
ii) Membership fee to the 'International Union of Railways
iii)Publicity for Tourism Promotion in India and abroad. Hospitality and Entertainment expenses in connection with visits of foreign Dignitaries,
iv) Children Train in some Parks
v) Grant-in-Aid lo Indian Rly. Welfare Organisation,
vi) Grant-in-Aid in CRIS,
vii) Payment to RITES for the studies undertaken for Railways on various subjects (study on costing of repairs in Workshop, Preparation of Manual for General Power Supply, Installation, etc.)
viii) Payment to Consultants for undertaking Study of Bombay Suburban System-
REVENUE RECEIPTS OF THE RAILWAYS
The Revenue Receipts of the Railways consist of Traffic Receipts and other Miscellaneous Receipts. Traffic Receipts consists of earnings from Passenger Traffic, other coaching-(Parcels and luggage), Good* Traffic and Sundry earnings like rent. Catering receipts, interest and maintenance charges from outside bodies etc,
Miscellaneous Receipts consists of receipts of Railway Recruitment Boards from sale of Application forms,, receipts from subsidised companies towards Government share of surplus Profits- The subsidy from General Revenue-s in respect of Dividend reliefs forms part of Misc, Receipts. Dividend received from Public Sector Undertakings of Rays (like RITES, IRCON etc) on the capital invested by railway is also misc. receipt.


CHAPTER XiV
EARNING BUDGET
The Budget Estimation of Traffic earnings is framed under Four distinct categories viz. (i) Passenger (ii) Other Coaching (iii) goods and (iv)sundries. The cumulative total of the above categories form the gross earnings. The commercial branch initially compiles the estimate of earnings in the proforma prescribed by the Board. This is based on the physical performance of prcvious year and the and the actual earnings and other available statistical data for the current year. Following are the methodology adoptcd for estimates of figures under each category.
1 PASSENGERS :
The originating No. of passengers seperately for suburban and non-suburban should be first assessed in the basis of the trend during the first four months. the current year and the actual of last year. This information is available in the 6 A statement. While assessing the above, commitments of growth in passsengers as in the Budget papers as well as Railway's own growth and pattern of traffic should also be taken into consideration. These originating No of passengers, thus estimated should then be converted into carried passengers. This is done by applying thc ratio of originating to carried No of passengers as per the trend of current year and last year. The average lead i.e., the average distance carried over the Railway shall then be fixed based on the trend of previous year. Change in the lead depends on the Railways juridisticion or change in the pattern of traffic. Normally the lead of' passenger traffic is constant. The average fare per passenger per km is used at the fare of previous year's actual. In the event of any revision in fare, the average fare is suitably modified with reference to the trend of current year. By multiplying the rate to the passenger kms, passenger earnings are assessed (carried No of passengers x lead x rate = passenger earnings)
2 OTHER COACHING;
ThIs head consists of earnings of parcels, luggage and other traffic. The traffic prospects, in this category are assessed by the Commercial Department considering the trend of movement of fruits (like plantain and oranges) based on the reports given by DRMs. Here again the factors like postal haulage charges billed against P&T Department and their acccptance are also taken into consideration.
3 GOODS
The originating tonnage are fixed by thc Board after discussion with the COPS in a meeting in the Board's oflice. The originating tonnes thus fixed will form thc basis for thc preparation of the Goods earning projection. Based on the originating tonnes as fixcd and approved hy GM. the carried tonnes arrived at range-wise by applying the ratio of originating to carried tonncs as is available in the 7-C statistical statement for the last year and current year. The average falr per tonne per kilo meter is arrived after taking into account the rate prevalent in the 7-C statement after suitably modifying the same with the current ttend and revision in freight rate etc. On the basis of the above statistical data the freight earnings are estimated as under :-
Carried tonnes x lead = NTKM
NTKM x rate = earnings (by multiplying the lead and rate to carried tonnes, goods earnings projections are fixed)
In addition to the freight earnings as estimated above, certain Misc, earnings such as wharfage, demurrage, siding charges, etc- are added by estimating the same based on the previous years actuals and the trends noticed during the year.
The freight earnings together with the Misc. earnings will form the total goods earnings of the Railways, commoditiy wise steel( manufactures, pig iron, alloy steel), coal for steel plants, washeries railway and other users, cement, ore for exports, food grains, fertilizers, general goods, but railway material separately.
4 SUNDRIES
an
The sundry earnings consists of rents recovered, advertisement thargc, catering earnings, profit for work done for outsiders in workshop, dividend accrued from State Road Transport Corporations and interest and maintenance charges of siding etc. The estimates under this category are done in relation to the current year's trend as well as earnings potential.

EARNINGS BUDGET (SPECIMEN)
Sl no
PASSENGERS

ANTICIPATED FOR THE YEAR
1
No. of originating passengers
200 MILLION
2
Carried No, of passengers
220 MILLION(100:110)
3
Average lead (in km)
230
4
Passenger km (2 x 3)
220x230)=50600 MILLION
5
Average fare in paise
12 paise
6
Earnings (4 X 5) (Rs in crores)
607 crores

GOODS:
Originaring tonnage 34.5 million tonnes
Tonne carried (100:260) 89.7 million tonnes
Average lead in km 435
Net tonne km (2 x 3) (435x89.7) =39019.5 million
Average rate per km 35 paise
Goods Earnings (4x5) 1365.68 crores
Other earnings (siding,wharfage, Demurrage etc) 14.32 crores
Total Goods Earnings 1380.00 crores
Traffic suspense: station outstanding, outstanding in the accounts office balance sheet, admitted debits, objected debits, wharfage, demurrage, frieght on hand, frieght not on hand, current freight special advices
PERFORMANCE BUDGETTING
1 The performance budgeting came into effect in Railways in 1979-80 and has been gradually stabilizing for purposes of management control over the costs in relation to the physical activity. Before discussing the merits and advantages of P.B, it is nccessary to have an understanding the form of budget which was in existance prior to the introduction of Performance Budgetting.
in one of the reports the World Bank Study team has described Budget as prepared in the Past as a "routine and dogged exercise, undertaken and produced by the bureaucratic elite" The form in which the Railway Budget was presented to Parliament till 1979-80 provided for appropriaition of funds for certain items of expenditure falling under each demand without correlating expenditure to the quantum of service to be rendered with the aid of the funds sanctioned. For all practical purposes the Budget was a potrayal or record of cash transactions and their anticipations; it did not at all serve as a tool for management or as a device for evaluation performance-
The Conventional Budget was more ‘appropriation oriented’ than 'performance oriented’. There were in all 22 demands for grants not strictly representing homnogenous functional groups or activities though the demands for grants’ are supposed to basicaly represent the estimated expenditure in a 'Single' or ‘homogenus’ group of functions. The other defects in the old system of budgetting were;-
i) The Accounts heads under the detailed heads of accounts did not correlate with the Budget heads. The expenditure under demands had to be eolleccted from different revenue abstracts.
ii) Budget had liltle relevance to performance.
iii) When Parliament sanctioned the budget, it was not aware of the quantum of services that would be rendered in Ihe various aspects of Railway activities,
i5.2 Based on the recommendations of a Task Force appointed for the purpose the demands for grants have been restructured with the approval of the Estimates Committee. It was therefore considered necessary that the budget as a document must be capable of fulfilling the following objectives:-
i) to present more clearly the purpose and objectives for which funds are sought and to bring out the programmes and accomplishments in financial and physical terms.
ii) to help in the better understaniding and review of the budget
iii) to improve the formulation of the budget and to aid the process of decision making at all levels of Govt., and
iv) to incorporate an element of accountability,
3 Performance budgetting therefore, implies fixing in advance performance, targets, under each activity, in acceptable and feasible measures of output, fixing corresponding finance outlay for achieving these physical outputs and monitoring and comparing the actual performance both in physical and financial terms.
The steps involved in Performance Budgetting, are identification of functions, programmes and activities. In order to achieve the objectives of P.B, the demands for grants have been restructured to spell out the functions, activities and objects. Each demand has 3 sub­divisions -
i) Sub Heads of Demands representing major functions,
ii) Detailed Heads representing further break-up of the activity classification i.e. identifying 'Why' the expenditure is incurred,
iii) Primary Units identityfying 'what' the expenditure denotes (objects of expenditure, i.e salary, allowances, material etc)
An example of concordance between the Sub-Heads of Demands for Grants and Main Heads of Accounting Classification is given below :-
15.4 For purpose of Managerial Control over the costs in relation to the physical activity, norms of quaninati 'e inputs and outputs and standards will have to be fixed and monitored on the basis of Unit Costs. At present Unit Costs can be assessed for few demands viz. Demand No.5, 6 and It). The units of perfromance have however been prescribed for all Revenue Demands. Few Examples are given below:-

Demand No
Demand Name
Sub Head of Demand & Main activity
Units of performance

4
R & M of way
and works

i) Maintenance of P.Way
i) Maintenance of service buildings
iii) Water supply
Equaled Track K.M.
10 square metres of plinth area
Million Litres for 10 M2
5
R &M of Motive Power
i) steam locos
a) running repairs
b) POH, IOH & Spl repairs
ii) diesel locos
a) running repairs
b) POH, IOH & Spl repairs
iii) electric locos
a) running repairs
b) POH, IOH & Spl repairs
Engine holding/ outage
6
R &M of carriage & wagons
i) carriages
a) running repaisr
b) POH, IOH & Spl repairs
ii) wagons
a) running repairs
b) POH, IOH & Spl repairs
Out turn in sick line in terms of vehicle units & No of trains dealt with in yeards & stations
Repair units


Repair units
7
R &M of Plant &Equipment
i) civil engineering dept
ii) mechanical dept
iii) electrical dept
iv) Overhead
v) signaling equipment
No of machines


Electric engines/EMU KMs
No of trains
8
Operatting expenses – rolling stock
i) steam locos
a. running staff
b. shed & yard staff
c. other expenses including water lubricants etc
ii) diesel locos
a. running staff
b. shed & yard staff
c. other expenses including water lubricants etc
iii) electric locos
a. running staff
b. shed & yard staff
c. other expenses including water lubricants etc
iv) carriage & wagons

Engine hours
No of engines
Total engine hours



Engine hours
No of engines
Total engine hours

Engine hours
No of engines
Total engine hours
Trains KMs
9
Opearating expenses – traffic/commercial
i) traffic & Movement inspectors
ii) passenger & station staff
iii) goods station staff
iv) stationery ticket collectors
No trains
No of originating passengers
No of invoices
No of passengers terminating
10
Operating expenses – Fuel
i) steam traction
a. passenger
b. goods
c. shunting
ii) diesel traction
a. passenger
b. goods
c. shunting
iii) electric traction
a. passenger
b. goods
c. shunting


1000 GTKMs
1000 GTKMs
Engine KMs

1000 GTKMs
1000 GTKMs
Engine KMs

1000 GTKMs
1000 GTKMs
Engine KMs

1.5 Performance Budget in simple words, tries to establish a meaningful relationship between means and ends, costs and results, objects and objectives. The restructured demands enable the management to distinguish between variable and semi variable expenditure.
1.6 P B, emphasises the purpose for which provision of funds is made,
P.B. lays emphasis on accomplishments rather than means of accomplishments.
P.B. seeks to bring out what the Govt. proposes, to do how much of it, at what cost and with what results.
Pre-determined norms and standards can provice good yardstick for the evaluation of performance,
1.7 CONSTRAINTS AND SUGGESTIONS
Though the PB is greatly useful for managerial control, it is difficult to completely switch over to a budgetary structure with an entirely commercial bias as Railways are a Govt. undertaking as well. At present, not to talk of standard cost per unit of performance, even the statistical average cost per unit of performance is not available for preparing budget.While the amount of expenditure incurred on each activity is being recorded, no tally of physical units of the activity performance is being kept in juxtaposition. The difficulties in this regard are real.
It is suggested that a number of teams of middle-level officers should be set up to work out the norms of Physical Performance and standard unit costs for major activities of each department. We would then have introduced "Performance Budgetling" in the true sense of the term.



CHAPTER XVII
1.1
INTEGRATED BUDGET
The budgeting work on Railways is connected with assessing or the annual requirements under Revenue Budget, the Works Programme and the Rolling Stock Programme. The Railways also submit the forecasts of earnings. These documents form the part of the Railway Budget presented to Parliament. However, hitherto, these programmes were considered separately at Railways and Board level and no connection was attempted with each other .The Capital and Revenue budgeting were slightly disjointed. It has since been realised that an integrated approach is necessary to evaluate performance of Railways,
Capital Budgeting aims at creating of infra-structure for economic development and the primary aim of investment is to generate income. Revenue Budgeting is nothing but translation of physical objectives into financial terms.
Some times Railways are in no position to generate sufficient income to pay dividend due to various social obligations investment of which have not generated sufficient income or sluggishness on the economy.
Aim of the capital inputs are primarily to generate income so that integrated approach to budget requires that each zonal railway should spell out in one place the capital and revenue inputs needed to achieve a certain level of earnings. With this aim in view, the Railway Bloard have directed all the Railway Administrations to submit a consolidated budget (ie., integrated budget) which should give the essential features of the proposed performances of each zonal railway and balance sheet reflecting the capilal-at--charge, the budgeting earnings ,an the working expenses, the net revenue and the return on capital.

The parameters to judge the performance of Railways are operating ratio, engine utilisation, passenger vehicle utilisation, wagon turn around, fuel consumption, turn over ratio etc, and the integrated budget therefore includes brief comments on the following important aspects :-
1.2
1. FINANCIAL RESULTS indicating the gross traffic receipts, working expenses, the operating ratio and the ratio of net revenue to the capita!-at-charge.
2. Proposed Plan outlays, capital investment, the dividend liability to General Revenue, the anticipated earnings for the year vis-a-vis the working expenses-
3. MATERIAL MANAGEMENT showing the position of inventories, .stores balances, manufacturing suspense and how efficient the systems are working. The "turn over ratio" is also furnished to work out the efficiency of inventory control.
4. Progress of computerization of accounts work relating to stores, traffic accounts etc.

5. Commitments about the overall operating performances with references to
a) Wagon turn round ( gap between two subsequent loading)
b) Engine turn round ( gap between two subsequent haulage)
c) Fuel consumption ( Specific Fuel Consumption - 1000 GTKMs
6. For earnings, the average lead and average rates both for goods and passenger traffic should be given
7 Projection of traffic earnings
8.Rolling Stock Programme both on additional and replacement account
9.Work, Machinery and Plant Programme
The integrated budget brings to limelight the efficiency, of working of financial viabiliity of the Railway system.
The Integrated Budget also highlights the following activities ;-
i) Requirements of Rolling Stock (Both on additional account and replacement account).
il) Incremental cost of additional traffic
iii) New trains introduced during the year.
iv) Other activities such as energisation, improvement in loco utilisation, All India whole sale price index and any other achievements worth mentioning,

1.3 The Integrated Budget is submitted along with the Preliminary work Programme in the first week of September. After discussion of the PWP, a revised Integrated Budget should be submitted along with Final Works Programme duly taking into account the changes thati might have taken place in the meantime (Para 622 of Engineering Code)
1.4 Utility
After the introduction of Performance Budget, the Significance of Integrated Budget is lost, Various statistical information that are already available can be made use of.
CHAPTER XVIII
WORKS BUDGET
1.1 The requirements of funds of Zonal Railways to progress their ongoing and new schemes proposed are to be grouped under the prescribed Plan Heads. Investment decisions relating to the creation, acquisition and replacement of assets on the Railways are processed through the Annual Works Machinery and Rolling Stock Programmes. These programmes are examined by the Board and discussed with the General Managers and the works to be undertaken and outlays during the budget year decided upon.
The works budget process stats almost a year in advance of the financial year to which it relates. Tentative requirements of funds are required to be projected at the beginning of say May '06 for the year 2007-08. This information is required to be presented in two parts.
(A) Throw forward amounts for the year 2006-07 from
i) Works in progress included in the budget of 2005-06
ii) Anticipated cost of new works included in the budget for 2006-07 workwise and classified under Cap, DRF, DFand Capital Fund.
(B) Tentative requirements for 2007-08 for:
i) Works in progress
ii) For new works proposed in 2006-07 classified workwise and under Cap, DRF, DF and Capital Fund.
In addition, Fhe plan oullay during the subsequent years of fhe plan is also required to be furnished under each plan head workwise. Simultaneously all schemes costing over Rs 3 crores are required to be got cleared by the Board after a broad serutiny of the financial implications as presented by the Railways. Track renewal proposals are furiher examined with reference to overall priorities having regard to the availability of Permanent Way materials.
1.2 i) In about June/July '2006 the Railway Board will convey to each railway in respect of each plan head the total outlay within which the works programme should be framed by the Railways. The railway taking note of the ceilings is required to submit the Preliminary Works Proramme some time in Aug/Sep 2006. In this outlay proposal for each work indicating the actual expenditure upto March 2006, outlay proposed for 2006-07, outlay proposed for 2006--08 together with balance to complete the works have to be shown. In addition two more annexures regarding (i) the position of actual expenditure on staff quarters and outlays proposed in the current and next year as also balance to complete the work and (ii) employment likely to be generated in the current year and next year under unskilled, educated, technical and non-technical are required to be given.
n) Project costs have to be based on firm dala and once the same is approved the changes in scope of the project should be allowed without prior reasons being adduced for accpctance by the Railway Board. As far as possible only the last sanctioned costs should be exhibited. Works sanctioned and taken up should continue to be included every year till they are finally completed.
iii) Works approved in earlier years and but commenced as well as works approved in earlier years but for which estimates have not been sanctioned by 30th June are required to be indicated in the programme.
iv) Certain far-reaching decisions have been taken in the recent years in regard to regard excess over estimates, material modification etc. It has been decided tlhat no outlay would be made available if there is no corresponding estimate provision left for utilization. This would mean that wherever there has been excess over estimates, these would have got to be covered by a proper sanction for the revised estimated cost by August itself. Only then it will be possible to reflect the revised cost in the statements and ask for the required budget provision in the succeeding year. In respect of material modifications also, Board have decided that a serious view would be taken if material modification not within the GM powers are not covered by a proper sanction. While approaching the Board with material modifications, the revised financal iimplications have to be brought out. These measures have cast a great responisibility on the project organisations to see that they confine themselves to the works provided for in the original estimate and if material modifications within their own powers are involved find out savings elsewhere to absorb them and where they are not within their own powers approach the Baard in time before the works are executed. In practice, however there are considerable problems in getting the revised estimates sanctioned mainly due to the time laken for secretarial scrutiny.
v) After having examined the individual railways progrommes the Board decide which works should be included in the next year's budgel and direct the railways to modifiy the programmes and submit the works programmes on ihe stipulated dates. The budget estimates therefore reflect the final investment decisions. The estimated amount is advised to the Planning Commission/Ministry of Finance for necessary provision being made in the ways and means budget of the Govt. of India and after it has been ascertained that funds will be available, the programmes are submitted to the Ministry for approval.
vl) Thereafter the demands for grants and other papers are presented to Parliament. With the recommendations of the President Appropration bill is also introduced for drawal of funds from consolidated fund of India. This bill passed in the Parliament and asssented to by the President forms the budgetary allocation to the railways, Thereafter, allotments are made to the railways through budget orders. Allotments fixed by the President are shown as 'charged'.
I.3 No reappropriation is permissible between 'voted' and 'charged' allotments as also between capi al, railway funds and revenue. The provision under ihe plan heads (i) electrification projects (ii) new lines, (iii) gauge conversions, (iv) track renewal cannot be reappropriated without the approval of the Board. This equally applies in (i) staff quarters and (ii) amenities for staff under staff welfare works as well as passenger amenities and other railway users' amenities. Other re-appropriations are, permissible before the close of the financial year.
*
The stages for review and asking for additional provision/surrendering provision not required are at the August review, revised estimate, first modification and final modification stages. Supplementary grants should be sought in the same financial year in which it is required. In case expenditure has already been incurred, these should be covered by seeking excess grants based on the recommendations of the Public Accounts Cummittee as a result of the scrutiny of the Appropriation Accounts by the C&AG of India.
1.4 The expenditure to be forecast is also to be comipiled and reflected under diffarent primary units,
The main points to be taken care of in framing these estimates are :
a) Wherever payments are made by other railways on Railway Board contracts a forecast of the likely payments is to be obtained from them.
h) Similarly in respect of services rendered or work done also either by home railway or others the adjustments are to be estimated properly and incorporated.
c) budget section should identify the spending units and ensure That the projections arec received in time and taken note of
d) In the above cases the process involves advance action. in other respects it is just the process of review of likely payment;it has to be carefully noted in this connection that if the reviews are to be purposeful the current state of expenditure should be readily available under various primary units and further split up into the components thereof in the same manner in which the budget has been built up. This would only be possible if a computerised system of compiling the transactions under these components on a monthly basis is evolved. With the advent of personal computer this is an elementary exercise and from February onwards even a day to day watch can be attempted to produce worthwhile results. Large scale adjustiments vitiate the budgetary process and it is here that a close interaction between the executive and Accounting Wings is called for.



CHAPTER XTX
ZERO BASED BUDGETING
Zero Base Budgeting has been defined as "a Planning and Budgeting process which requires each Manager to justify his entire budget request in detail from scratch (hence zero base) and shifts the burden of proof to each manager to justify why he should spend any money at all. This approach requires all activities be identified in 'decision packages' which will be evaluated by systematic analysis and ranked in order of importance
The traditional budgetary system relies on the present accounting data base. Thus, if salaries and wages of the employees have increased by five per cent every year on an average, the salaries and wages budget for the coming year is fixed by increasing previous years expense figures by five per cent. This system of budgeting has served well to exercise a measure of financial control and discipline in an organisation. However such a measure is not enough.

1.2 ZBB is a technique which complements and links the existing planning, budgeting and review processes. It is a management tool which provides a systematic method for evaluating all operations and programmes current or new, allows for budget reductions and expansions in a rational manner and allows the re-allocation of resources from low to high priority programmes. It is also a tool for the decision makers enabling them to frame range of options and choose priorities among alternative programmes in relation tor resource availability.
In ZBB. a unit is required lo justify not only the new activities and the funds therefor but also the ongoing activities. The ZBB requires identification and sharpening of objectives, examination of various alternatives ways of achieving through cost-benefit and cost-effecetiveness analysis, prioritisation of objectives and programmes which have outlived their Utility.
1.3, Suppose in an administrative set up, six clerks are employed as comptists for doing the work of addition and substractions. Recently the administration provided the staff with electronic calculating machines and also installed personal computer, with the result, the comptomer clerks have either no work or very little work. The Administration would fail to see that the clerks could be effectively redeployed or dispensed with. The traditional budgetary system would ensure that their salaries were paid till retirement for very little or no work.
The above example, although exaggerated can correspond to many situations in our exiting organisation where ‘dead wood’ abound in many areas. The ZBB helps to identify such areas of wasteful extpenditure and if desired can also suggest alternative uses of items of expenditure that are presently wasteful in nature.
The ZBB is an extension of Performance Budgeting as The ZBB technique links the budget with corporate objective.
1.4 In the Railway system/preparation of works programme well in advance partly suits the req uirements of ZBB. The same cannot be said so in respect of Revenue Budget. The technique of ZBB will help certain specialised areas especially whenever there is switch over from one system to another (e.g. Steam traction to Diesel. Diesel to electric and from manual to Computerisation etc.) indentify the 'Dead Woods',
1.5 HOW ZBB DIFFERS FROM TRADITIONAL BUDGETING
o A traditional budget is function-oriented, a ZBB is programme or project oriented
o in traditional budgeting, Justification is required only for new programmes, existing programmes are sell perpetutating whereas ZBB requires all programmes and projects are to be justified.
o traditional budgeting views critically only cost increases; ZBB critically examines existing levels of expenditure.
o traditional budgeting is input oriented; ZBB is output oriented
1.6 STEPS INVOLVED IN ZBB
1. Define the objectives of the budgeting exercises to achieve cost reduction in areas such as staff overheads, or to analyse and drop projects that are unlikely to achieve corporate objectives or to restructure the organisation itself.
2. Decide on the strategy for implementation, here the object is to decide whether to implement the ZBB technique in one particular area.
3. Develop decision Units: This is the key to effective ZBB, Each decision unit must be independent of all other units so that if the cost benefit analysis proves unfavourable the unit can be dropped.
4. Completion of decision package : After the decision units are identified a decision package for each such unit is made up.
5. Rank all packages : Once the decision packages are completed, all the packages are ranked according to the cost-benefit analysis,
6. Implement : Implementation process consists of simply acccpting those projects that have a positive cost benefit analysis.
1.7 CONCLUSION : To some, ZBB , is simply an old idea dressed up in a new name, To others, ZBB symbolises a new approach to management. But nobody would question its real value.


PARLIAMENTARY AND MANAGEMENT'S CONTROL OF RAILWAY FINANCES
(Chapter III of "Admn. and Finance - an introduction" and Chapter IV and V of Finance Code)
1.1 Indian Railways being a major departmental undertaking of the Govt, their functions and Finances are watched, monitored and controlled by Parliament. The Finances and perfomance of Railways as a Commercial enterprise are controlled by Railway Management.
1.2 PARLIAMENTARY CONTROL
The control of parliament over Railway finance is exercised as follows :-
i) Voting the Railway Budget and review of the Budget through Appropriation Accounts under various Articles of constitution of India.
h) Review of the policy and finances of Railway by Parliamentary Committees viz- Estimates Committee, Public Account Committee and Railway Convention Committee.
1.3 PARLIAMENTARY FINANCIAL COMMITTEES
Even though Parliament discusses the Demands for Grants for sufficiently long period before voting, due to magnitude and complexity of State activities, it is almost impossible for Parliament as a body to scrutinise the myriad of expenditure proposals and Govt. activities effectively and minutely. In order to help it exercise effective control over Public expenditure, Loksabha has set up three financial Committees viz. Public Accounts Committee, Estimates Committee and Committee on Public Undertaking. Railway Convention Committee an ad-hoc Committee functions like a Finance: Committee.
1.3.1 ESTIMATE COMMITTEE
The function of this committee is to report on the economies. improvements in organisation, efficiency o or administrative reform that may be effected consistent with the policy underlying the estimates.the committee can suggest alternative policies in order to bring about efficiency .and economy in administration .the committee also examines whether the money is well laid out within thc limits of the policy implied in the estimates.

The committee may also examine matters of special interest that may come to light in the course of its work though unconnected with the estimates. The commitiee continues the examination of the estimates throughout the Financial year and may report to the house as its examination proceeds or on the conclusion of the examination.
1.3.2 PUBLIC ACCOUNTS COMMITTEE
The Public Accounts Committee examines the acounts showing the appropriation of sums granted by the Parliament for the expenditure of Govt.of India, the annual finance account of the Govt. and such other accounts as the Committee may think fit. The Committee also examines the revenue receipts of the Govt. If any money has been spent by the Govt on any service in excess of the amount granted by Parliament for that purpose, the Committee examines with reference to facts of each case the circumslances leading to such an excess and presents a report thereon to the Parliament.
The functions of PAC extend "beyond the formality of expenditure to its wisdom, faithfulness and economy".
The attention of the PAC is mainly devoted to its examination and consideration of Appropriation Accounts and Audit Reports thereon of thc Comptroller and Auditor General of India. The Committee also examines and enquires into various irregularities which have become public even though no formal audit has hecn presented on the subject.
1.3.3 RAILWAY CONVENTION COMMITTEE
The R.C.C. is an ad-hoc Committee constituted to review the rate of dividend which is payable by the Railways to the General Revenues as well as other ancilliary matters in connection with Railways finance vis-a-vis general finance and make recommendations thereon.
While the Committee of 1949, 1954, 1960 and 1965 confined themselves only to the question of determining the rate of divedend payable by Railways during the succeeding quinquinnium the RCC 1971for the first time selected some subjects for detailed examination and presented reports to Parliament covering not only the question of dividend but also diverse subjects pertaining to Railway's working. The Committee of 1973,1977 and 1980 followed suit.
1.3.4 FOLLOW-UP OF COMMITTEE REPORTS
Parliamentary procedure in Lok Sabha envisages an elaborate system of follow up of the recommendations made in thc report of the ' Financial Committees. After presentation of the reports, copies are forwarded to ministries for taking action on the recommendations made therein.

1.4 MANAGEMENT CONTROL OF RAILWAY FINANCES
The budgetary and expenditure control are exercised by Railway Management in the following manner :-
I) Continuous review of expenditure vis-a-vis budgetary allotments through various budgetary stages (August Review. Revised Estimates, First and Final Modification).
ii) Fixing proportionate Budget allotments at the begining of the year
iii) Exchequer control to control the cash ooutgo
iv) Sound reporting system to the management viz,
a) 10 day statement of originating traffic
b) Approximate Account Current
c) Monthly Financial reviews
d) Annual Reviews and Annual reports (Capital and Revenue Account Appropriation Accounts).
v) Maintenance of Registers to review expenditure viz. –a). Works Registers b). Revenue Allocation Register c). Funds: Register
vi) Built in Internal Check system
1.5 PROPORTIONATE BUDGET ALLOTMENT
In addition to the review of expenditure vis-a-vis Budget allotment through various budgetary stages, a month to month basis review is conducted by distributing the sanctioned allotment for the year over the twelve months. This is called Proportionate Allotment. Great care is taken to work out the Proportionate Budget Allotment as this will form basis for monthly financial review.
All known factors of disturbance and special features are to be taken intp account. The FA & CAO in consultation with the officers responsible for the control of expenditure works out at the begining of each financial year the Proportionate Budget allotment under each sub head. The fllowing factors are taken into consideration while draming Proportionate Budget Allotement.
i) Throw forward !iability from the Previous year
ii) Expenditure for which liability exists but which is not likely to be incurred evenly during the year because of Periodical nature and other causes.
iii Expenditure which is practically fixed and evenly distributed throughout the year.
iv) Need to keep some amount as reserve for meeting fresh or unanticipated expenditure
v) Trend of expenditure booked during previous years.

1.6 Exchequer control
Exchequer control is an important aid to the expenditure control mechanism as this envisages an effective check on cash out go through drawing limits. One of the measures introduced to conserve and stabilize the cash resources of the Govt is known as 'Exchequer ContoI'.
Thp excheque Contol mechanism will mainly operate as a preventive measure against the excess budgetary allocations in respect of cash transactions. It will constitute an essential improvement over the existing system of 'post facto' control through monthly financial reviews and other reviews.
The implementation of exchequer control involves the following steps:-
i) Correct assessment of ‘Cash' and 'Adjustments’ portion of the sanctioned annual budget under each demand by each disbursig officer
ii) As accurate an assessment as possible of the Quarterly requirements of cash.
iii) issue of Quarterly/Monthly cash authorization to disbursing officer
iv) Concurrent control of cash outgo by each disbursing officer.
Broadly the cash budget should be broken under the following main categories :- i) Staff (ii) Fuel (iii) Other purchases (iv) payment of contractor's bills (v) other disbursements and (vi) Civil Grants.
EFFECTIVENESS :
The present mechanism serves the purpose under normal circumstances. However, whenever thereis inflationary trend due to sudden hike in prices, payment of arrears or DA etc, the cash allotments is not increased automatically. The delay in getting additional allotments results in deferring certian payments suchi as contractor’s bills etc., thereby artificially controlling the cash outgo.
SUGGESTIONS :
The additional cash allotments due to inflation should be automatic.
Too much emphasis should not be made on cash outgo relating to Debt heads (ie, amount not met from Consolidated Fund of India) (PF, withdrawals, refund of Deposits etc)
There should be clear demarcation between Consolidated Fund and Public Account
1.7 SPENDING LIMIT
1.7.1 Railway Board while distributing the "allotments" through Budget orders also fixes spending limit imposing a cut of 5 to 10 % of the Grants voted by the Parliament. For all practical purposes the spending limit is treated as as Budget Grant and in all the financial reviews the actual expenditure will be compared with spending limit. This imposition of cut is mainly to abosorb post budgetary factor such as grant of DA, inerease in the cost of materials etc witout resorting to supplementary Grants,


1.8 MONITORING OF CASH BALANCE WITH RESERVE BANK OF INDIA-CONTROLLING NET DRAWALS'CASH BUDGET :
Exchequer control mechanism in vogue in Railways takes care of control of cash outflows relating to Revnue Demands, works demand and Civil demands and non budgeted items like PF refund or deposits, payments debitable to other than consolidated Fund of India. Cash Budget in the present form therefore, intended to asses the cash outgo based on which Quarterly cash allolment is made as, a part of exchequer control. The suspense head 'Cheques and Bills' indicates the amount of cheques issued during a month and helps to watch that no cheques are drawn beyond the prescribed limit. The deficiency in the preseni system is that certain expenditure incurred by other Government departments on hehalf of the Ministry of Railways and affecting balance in the Books of RBI are not taken into account in the Cash Budget. Such transactions are as under ;-
1. Pension payments through Public Sector Banks.
2.. Pension Payment by Postal Department.
3. Debil from DGS&D and other departments adjustable through RBI.

Ministry of Finance have been emphasising the need for close monitoring of cash flow to Railway's account with RBI and have been laying great stress on Railways confining net withdrawls from RBI to the prescribed limits. It has therefore, become necessary to prepare estimate net withdrawals by refining the present form of Cash Budget. In order to assess the net withdrawals, it is necessary to prepare estimate separately for cash Inflows and cash outflows.
The net withdrawls from RBI is determined by two factors, namely -
1. Traffic Receipts as well as Misc. Receipt and other cash receipts under public account being deposited in dilferent banks which are watched through 'Remittance into Bank and
2. The payment as reflected in 'Cheques & Bills' as well as pension disbursements made by PSBS are reimbursed to them by RBI and the debits adjusted through RBI

ESTIMATING OF CASH OUTFLOWS : Under the revised system the Railways will have to estimate the cash outgo of not only for the issue of cheques by railways but also the debits of other Govt. departments adjusted through RBI affecting Railway’s cash account in the booksof RBI. in other words such debits are part of railways’s cash outgo. The following is the prororma :
Demand No.2
Demand No.3 to 13
Demand No.16
Total Budgeted items 'A'
Non Budgetted items :
1. civil Grants
1. Refudn of Deposits.
3. Payment on behalf of other Railways.
TOTAL B
1. Pension payments of PSBs.
2. Other adjustments such as DGS & D etc. debited to Railway through RBI.
TOTAL C
The total of A,B and C will be total cash outflow.
Estimation of Cash Inflows :
For the purpose of cash inflows the assessment should be on originating earining of whose collection the respective Railways are responsible. Due allowance should be given for delay in realisation of a portion of earnings. in framing the estimate of cash inlfow the following break up of receipts are to be made :
1 Traffic earnings (Originating) 2. Misc. Cash receipts (Deposits etc)
3 Drafts, Chequers cum credit notes and other Bank instruments.
4.Billable vouchers like military warrants and other vouchers to be billed against Defence and Postal Department (Amount recoverable from these Departments).
Having assessed the cash inflow, it should be ensured that the cash received is remitted promptly, bills are preferred without loss of time and intimating the RBI concurrently,
The time taken in respect of the following should be monitored closely so that there is not much variation between the assessment and the credit to Railway's account by RBl,
1. Transportation of cash and Paid instruments from stations to cash offices, 2 Shroffing at the cash offices.
3. Deposit of cash and the paid instruments in Banks,
4. Obtaining credit in respect of paid instruments.
5. Transit of credit in respect of paid instruments in Traffic Accounts, billing of these vouchers to different Departments and obtaining credit from RBl in respect of Defence and Postal Departments.
PROFORMA OF CASH INFLOW ESTIMATE :
CASH BILLABLE Vr TOTAL
1. Passengers (Orginating)
2. Other coaching
3. Goods (Unapprotioned)
4. Sundry
Total of Cash Receipts :
The net of cash inflows and cash outflows as worked out above wll give the net withdrawal portion and the Finance Ministry will monitor the same from RBI sources.


MANAGING OF VARIOUS RAILWAY FUNDS
1.1 The Railways maintain the following funds for different purposes viz
a) Depreciaion Reserve Fund (DRF)
b) Pension Fund
c) Development Fund
d) Capital Fund
e) Railway Safety Fund
f) Special Railway Safety Fund
The Development Fund maintained by the Zonal Railways record expenditure only and the overall balance/overdraft position is maintained by Railway Board. Balances in the funds remain with the Ministry of Finance and interest is credited to the funds on the balances. Plan outlay of Indian Railways comprises of budgetary support i,e capital from thc Ministrv of Finance and expenditure to be met by Indian Railways from their own internal resources i,e. DRF,DF. OLWR and Capital Fund.
The first two funds viz.. Depreciation Reserve Fund and Pension Fund are in the nature of 'Provision^' earmarked for a very specific purpose. They are 'charge’ funds and represent amounts set aside for "providing coins and currency' for the specific purpose for which they are created. On the other hand, the last two viz Development Fund and Capital Fund can be said to be General purpose funds. DF and Capital Fund are maintained only out of 'profits' or 'surplus', but the charge' funds have to be maintained out of the revenue 'before true profits’ can be ascertained.
Let us discuss each of these funds to ascertain how far do the railways finance them properly and to what extent is the.expenditure properly debited to them.
1.2 DEVELOPMENT FUND
This fund was created in 1950 replacing the "Betterment Fund". Presently, the following items are chargeable to DF.
i) Works of Railway Users' Amennies.
ii) Labour Welfare works above Rs 1 lakh
iii) Unremunerative works costing over Rs10 lakhs.
iv) Safety Works
v) Passenger Amenities Works.
This fund started borrowing from GeneraI Revenues since 1960’s. interest has to be paid on money borrowed from General Revenues. The loan otistanding to General Revenue as on 31-3-1990 was Rs.34 crores and the entire liability was discharged by the Railways during 1992-93 and the balance under this fund as on 31-3-94 is a meagre amount of Rs 32 lakhs,
1.3 DEPRECIATION RESERVE FUND
This fund was created from 01-04-1924. This Fund, being a charge fund this has to be financed not from the surplus but from revenues. Uplo 1935 the amount tobe credited to the fund was determined on Straight line Method i.e. by dividing the cost of each class of assets by their normal life. From 1935-36 to 1949-50, one-sixteenth of the capital at charge was credite to the fund every year. The 1950 Convention Committee however, started fixing a lumpsum amount to be credited to the fund due to Railway’s inability to appropriate adeqyuate money to this fund for several years. Raiwlays faced a heavy backlog in replacements and renewals. As a result the contribution was increased from rs 200 crores in 1980-81 to Rs 2000 crores during 1995-96. this amount to be credited to this fund for each quinquenium is decided by the Railway ConventionCommittee.
1.4 PENSION FUND
this fund was created in 1964-65 when the system of Contributory Provident fund was discontinued for the new entrants in Railway service and Pension Scheme was made compulsory for them and optron for the old employees.
The Pension Fund is financed:
i) by transfer of money CSRPF of the employees
jj) from Revenue also,
iii) from Capital (Production Units)
The number of pensioners and quantum of pension are taken into account while deciding the amount to be credited to the fund. After implementation the recommendations of the 4th Pay Commission, the expenditure charged to this fund has increased tremendously and so also the appropriation to the Fund. The amount of Appropriation to Pension fund for 1995-96 is Rs.1971 crores. Appropriation to DRF and Pension Funds is made having regard to the recomincndations of thc R.C.C.
1.5 CAPITAL FUND
In pursuance of the rccommmendations of the Railway Convention Committee a new fund "capital fund" has been constituted from the surplus left after payment of dividend and appropriation to DF for 1992-93.
The plan expenditure initially used tio be met from out f the budgetary support received by the Railways from the central Govt. and their own internal resources generation. ini view of the acute resource crunch, the budgetary support provided by the Central Govt to the railways started dwindling. The Budgetary support which was 58 % in the VI Five Year Plan came down to 41 % in the VII Five Year Plan and then to 32 % in 1991-92. it was 16 % in 1995-96.
Resources are going to become more and more scarce and the time is not far when the budgetary support may cease to exist. Raising of resources from the market has been an expensive proposition. The Railways annual Iease charges of 16 % to IRFC is almost double the rate of dividend of 7.5%. Moreover, the 9 % tax free bonds floated by the IRFC are noo longer popular. In a situation like this when the Budgetary support is declining and market borrowing expensive and uncertain, the Railways have no option but to function on a self-sustaining commercial basis.
The size of the VIII Five Year Plan Rs 27202 crores, not sufficient to meet the transport demands. if the Railways are able to generate additional resources by themselves, the plan size£ may be adequately increased to meet in full the transport demands.
The Capital Fund should be used to Finance Capital works on the Railways and is not intended to improve the general ways and means of the Government.
1.6 DISPENSATION OF RRF AND ACSPAF
RRF was created in 1924 and started sustaining year after year in 'Loans from General Revenues'. With the introduction of Deferred Dividend Liability Account the utility of this fund ceased to exist. Hence this fund was dispensed with from 01-04-1993.
ACSPAF came into existance from 01-04-1974. This fund was to meet the liability arising of Accident Compensation and also to meet the cost of certain Safety and Passenger Amenity works. As similar expenditure is already booked to DF there is overlap of expenditure. It has therefore been deicided to abolish ACSPAF with effect from 01-04-1993 and the expenditure presently charged to this fund is re-allocated as under-
Accident compensation Demand No. 12 Abstract K-250
Safety Works DF IV
Passenger Amenities DF I
1.7 The appropriation to DRF, DF, Capital Fund, Pension Fund is budgetled under Demand No, 14 and appropriation from the fund (expenditure from the fund) is budgeted under Demand No. 16 for. DRF, DF and Capital Fund and Demand No 13 for Pension Fund. The Interest on the Fund balances is credited to these funds.
1.8 Capital -at-Charge and Capital Fund :
The rules of allocation are same for booking the expenditure to Capital at-charge and Capital Fund.Capital-at-Cbarge is a loan Capital borrowed from General finance for creating assets. The Capital-at-Charge is non-refundable and interest bearing loan. The Interest is paid in the form of dividend to General Revenues. The payment of dividend is perpetual. The rate of diividend is as per the recommendations of R.R.C.
Capital-at-Charge is also termed as budgetory support for Railway's Plan investment. The Plan investment is financed through generation of internal resources, budgetary support and also market borrowings through IRFC. The Capital-at-Charge is the book value of assets created from the loan Capital from General Revenues.
Capital Fund is created out of Railway's surplus to meet the needs of Railway's Plan investment. The plan size of Railways cannot be reduced since capacity constraints would endanger economic progress of the Country. The gap between the requirements of resources and the availability is to be bridged. The growing self-reliance on the part of Indian Railways is to be continued. The only way is to increase the internal resources. The creation of Capital Fund is to reduce the borrowing from General Revenues.
No dividend will be paid on the expenditure met from Capital Fund. On the other hand, interest is credited to the fund on the balance of the Fund at the end of each financial year. Though there are no seperate rules of allocation for booking the Capital expenditure to Capital-at-Charge and Capital Fund, it is seen from the Budget Papers that the Capital-at-Charge is operated to book the expenditure under Plan Heads 1100- 'Construction of New Lines' and Plan Head 5100 - 'Staff Quarters' and Capital Fund is operated for other Plan Heads. At present the capital fund is not operated.
1.9 Railway Safety Fund:
the fudn was effective from 01.04.2001. The fund was created fro a specific purpose of manning of unmanned level crossings and construction of Road Under Bridge (RUB)/ Road Over Bridge (ROB) . the source of the fund is Central Road Fund, through a levy of 1 % cess on petrol and diesel. The Indian railways received 12 ½ paise on every litre of petrol sold ( 1 % cess) and receives 6 ¼ paise on every litre of diesel sold ( 1 % cess).

1.10 Special Railway Safety Fund:
The fund was effective from 01.10.2001. The fund was created for the following purposes: renewal and replacement of overaged assets renewal of track, bridges, signal equipments, rolling stock and other safety enhancement works. The source of the fund is the levy of safety surcharge on passenger traffic (Rs 5000 croers) and the additional financial assistance by the ministry of fiancé (Union Ministry). This is a non-lapsable fund.