railway classification of expenditure rules

LECTURE ON RAILWAY

ALLOCATION RULES

Date: 10th September, 2011

Venue: ESTC/Lallaguda/Secunderabad

By M.Nageswara Rao, SSO(A)/S.C.Railway, Secunderabad

PREFACE This presentation is only illustrative and not exhaustive.

Here, I am customized the Classification of Accounts expenditure according to Lallaguda unit needs.

WHAT REQUIRES TO PERFECT IN ALLOCATIONS

The First and foremost is

Little interest

One should have little interest in the allocations which he/she should do the work.

WHAT REQUIRES TO PERFECT IN ALLOCATIONSThe Second One is

Should have Finance Code Volume II (Classification of Accounts Expenditure and Earnings) – either a hard copy or soft copy.

Soft copy of the above one as well as other Railway Codes and Manuals is available in the Accounts Office.

Gone are the days, when one is facing so many difficulties to access to Railway Codes and Manuals.

Due to wide use of computers, all codes and manuals are available at fingertips (through soft copy).

WHAT REQUIRES TO PERFECT IN ALLOCATIONS

WHAT REQUIRES TO PERFECT IN ALLOCATIONS

But most of the people afraid of the big volume covering nearly 250 pages.

But the real fact is, if one condenses the above volume according to his requirements, it comes in just 50 pages.

WHAT REQUIRES TO PERFECT IN ALLOCATIONS Let us check:-

Remove Hindi version – It bring down the content from 250 pages to 130 pages.

Hindi fluent staff if any one, they may remove english version.

WHAT REQUIRES TO PERFECT IN ALLOCATIONS

The Finance Code covers Revenue expenditure, Capital Expenditure and Earnings.

However Capital expenditure and Earnings are very little coverage for LGD unit, so we can contemplate only on Revenue expenditure.

For that, Demands 03, 04, 06, 07, 11, 12 and 13 are relevant out of total 11 Demands ( i.e., 03 to 13 Demands)

So further it bring down from 130 pages to 50 pages only.

It may come down more, in case of executive staff, who is concern of his unit/department.

WHAT REQUIRES TO PERFECT IN ALLOCATIONS

WHAT REQUIRES TO PERFECT IN ALLOCATIONS Even that 50 pages too meant

for just reference and when ever the occasion arises only.

For salaries and other regular expenses, if one landed in the correct allocation, they need not worry about further.

WHAT REQUIRES TO PERFECT IN ALLOCATIONS

NOW TAKE A PRACTICAL EXAMPLE, BY SELECTING DEMAND NO. 4 (REPAIRS AND MAINTENANCE OF PERMANENT WAY AND WORKS)

NOW CONSIDER DEMAND NO.4 In Finance Code II, Demad No.4 has 9

Minor Heads, 34 Sub Heads and 88 Detailed heads existed to cover entire Engineering department expenses in the Zonal Railway.

However, for LGD, Budget grant covers only

2 Minor heads (Out of 9 Minor heads) 3 Sub Heads (Out of 34 Sub Heads) 4 Detailed Heads (Out of 88 Detailed

Heads)

PROFILE OF D.NO.4 (LGD UNIT) 04-112 - Salaries of XEN & ADEN 04-116 - Salaries of Office staff

of XEN/EWS &

ADEN/FBWP/MLY 04-130 - Contingent expenses 04-431 - Contractual payments

(Only PU 32 has to be operated)See, how the task is

very simple, if one takes attention to the allocations necessary

for his unit only.

Only 4 detailed heads

required out of 88

available

WHAT REQUIRES TO PERFECT IN ALLOCATIONS The Third and Last one is

Check that correct allocation is covered under BUDGET GRANT allotted to your Department or Unit.

Otherwise, although the allocation is correct one, but it placed under Annexure K as “ Expenditure without Grant”

WHAT REQUIRES TO PERFECT IN ALLOCATIONS For this purpose, we are distributing

copies of Budget Grant for the current year i.e., 2011-12 to all the participants in this session.

It is classified Department wise and Grant is available for Sub Head wise and PU wise.

In addition to that, the important allocations of Suspense Heads ( Not Revenue allocations) also compile in one document and distributing to all the participants.

WHAT REQUIRES TO PERFECT IN ALLOCATIONS After arriving the correct allocation, it is

the duty of the staff to glance the above Budget Grant statement and ensures that funds are available for the said correct allocation (both Sub Head and Primary Unit of allocation)

If not matches with the available grant, there is a possibility of MIS CLASSIFICATION.

WHAT REQUIRES TO PERFECT IN ALLOCATIONS Some times, the activity for which

expenditure may not cover under Budget grant. In such cases, funds will be asked for those activities during Budgetary Reviews such as August Review, Revised Estimates and Final Modification.

Otherwise such expenditure will be included in Annexure K as Expenditure without Grant.

HOW TO IDENTIFY THE DEMAND NO AS PER ACTIVITY The moment the expenditure is going to

be incurred, the executive staff has to identify primarily the Demand for which the activity is chargeable.

For that recognize of all the Revenue Demands by staff is must.

HOW TO IDENTIFY THE DEMAND NUMBER AS PER ACTIVITY

Understand of all Demands i.e., 03 to 13 is very easy, if one visualize the activities involved in the Demands.

BECAUSE THE ORDER OF DEMANDS 03 TO 13 ARE PLACED AS PER THEIR ROLE IN THE TRANSPORTATION ACTIVITY.

I expect, all the participants grasp easily all the 03 to 13 Demands once followed my visualization.

03 DEMAND – GEN.SUPDT.SERVICES

BOSS

04 DEMAND – P.WAY & WORKS

05 DEMAND – LOCOS (MOTIVE POWER)

06 DEMAND – CARRIAGES & WAGONS

07 DEMAND – PLANT & EQUIPMENT

08 DEMAND – OPTG.EXPENSES-ROLLING STOCK & EQUIPMENT

09 DEMAND – OPTG.EXPENSES - TRAFFIC

10 DEMAND – OPTG.EXPENSES - FUEL

11 DEMAND – STAFF WELFARE AND AMENITIES

12 DEMAND – MISCELLANEOUS WORKING EXPENSES

13 DEMAND – P.F., PENSION & OTHER RETIREMENT BENEFITS

Group Demand No

Demand Name

General Superintendence and Services

3. General Superintendence and Services on Railways

Repairs & Maintenanc

e

4. Repairs and Maintenance of Permanent Way and Works

5. Repairs and Maintenance of Motive Power

6. Repairs and Maintenance of Carriages and Wagons

7. Repairs and Maintenance of plant and Equipment

Operation

8. Operating Expenses-Rolling Stock and Equipment

9. Operating Expenses-Traffic10. Operating Expenses - Fuel

Staff Welfare, Retirement

Benefits and Miscellaneous

11. Staff Welfare and Amenities12. Miscellaneous Working Expenses

13. Provident Fund, Pension and other Retirement Benefits

DETAILED HEAD & PRIMARY UNIT

DETAILED HEAD PRIMARY UNIT

REPRESENTS THE ACTIVITY REPRESENTS OBJECT OF EXPENDITURE

INDICATING WHY INDICATING WHAT

Example: 06-230 POH OF COACH

Examples: Pay, DA, HRA, Contractual payments.

NOW, COME TO PRACTICAL-- SALARIES OF MINISTERIAL STAFF OF CWM/LGD (FUNCTIONAL) - DEMAND NO. 06

Minor Heads Sub- Heads Detailed Heads

100 Establishment in offices

110 Officers and office establishment . (Mechanical).

111 Officers--C. & W. 112 Administrative Office establishment-

C. & W.113 Officers C&W - DMUs114 Admn. Office establishment C&W, DMUs

120 Supervisory staff and their office staff C&W -DMUs(Mechanical)

121 Subordinate supervisory staff-- C. & W.

122 Office staff.123 Sub. Sup. Staff- DMUs.124 Office Staff C&W DMUs

130 Contingent expenses (Mechanical) ..

130 same.

MINOR - 100 SUB - 110 DETAILED - 112

Thus, the final head of account is 06-112

Under this detailed head, Pus 01 to 16 and 20 are operated.

NOW, COME TO PRACTICAL-- SALARIES OF MINISTERIAL STAFF OF DY.CEE/SHOPS/LGD(FUNCTIONAL) - DEMAND NO. 06

Minor Heads Sub- Heads Detailed Heads

100 Establishment in offices 140 Officers and office establishment . (Electrical).

141 Officers-Workshop-E.M.U.142 Officers-Open Line-E.M.U.143 Officers "Workshop-General services.144 Officers-Open Line-General services145 Office establishment-Workshop E.M.U.146 Office establishment-Open Line-E.M.U.

147 Office establishment-Workshop-General services148 Office establishment-Open Line-General services.

MINOR - 100 SUB - 140 DETAILED - 147

Thus, the final head of account is 06-147

Under this detailed head, Pus 01 to 16 and 20 are operated.

EXAMPLE: SALARIES OF MINISTERIAL STAFF OF S&T WORKSHOP (FUNCTIONAL) DEMAND NO. - 07 MINOR HEAD - 100 ( Establishment in Offices)

SUB HEAD - 110 ( Officers and Office est.-S&T)

DETAILED HEAD-113 ( Admn. Office est -workshop.)

Thus final head of account is 07-113 Under this detailed head, Pus 01 to 16 and 20 are

operated.

EXAMPLE: SALARIES OF MINISTERIAL STAFF OF STORES DEPOTS DEMAND NO. - 03 (Gen.Suptd &

Services) MINOR HEAD - 400 ( Materials Management)

SUB HEAD - 420 ( Stores Depots)

DETAILED HEAD-422 ( Office Est. (other than stock

keeping, receipt and inspections.)

Thus final head of account is 03-422 Under this detailed head, Pus 01 to 16 and 20 are

operated.

EXPLANATORY NOTES IT IS GIVEN AT THE END OF EACH

DEMAND IN THE FINANCE CODE VOLUME II.

MOST USEFUL FOR UNDERSTANDING ALLOCATIONS IF ONE HAVE ANY AMBIGUITY IN UNDERSTANDING THE SAME.

CONTINGENT EXPENDITUREDEPT. HEAD OF

ACCOUNTP.U’s expenses

MECH 06 -130 18 to 24, 27,28,32,99

Office expenses such as stationery, forms, books, telephone bills, etc.

ELEC. 06-160 18 to 24 Same as above

S & T 07-130 18 to 24, 27,28,32,99

Same as above

STORES 03-423 18 to 24, 27,28,32,99

Same as above

ACCOUNTS 03-213 18 to 24, 27,28,32,99

Same as above

CONTINGENT EXPENSES UNDER 04, 06 AND 07 DEMANDS

SUB HEAD 130 IS EXCLUSIVELY FOR CONTINGENT EXPENSES

EXAMPLES OF CONTINGENT EXPENSES:

Office expenses such as stationery, forms, books, telephone bills, etc.

NEW PENSION SYSTEM

DEBIT CREDIT

EMPLOYEE CONTRIBUTION

SALARY HEAD

000071 01

GOVT CONTRIBUTION

13-890 08

000071 01

NEW PRIMARY UNITS

15 - COMPOSITE TRANSFER GRANT (CTG)

20 - LEAVE ENCASHMENT

25 - CHILDREN EDUCATION LEAVE (PREVIOUSLY IT IS CALLED AS RTF) - Operated only in Demand No. 11

SIGNIFICANCE OF DIFFERENTIATING REVENUE FROM CAPITAL

• In simple view,

• REVENUE means Recurring expenditure like salaries, office expenses, maintenance, fuel etc.

• CAPITAL means One time expenditure like acquisition of locos, coaches, etc.

• Dr. PROFIT AND LOSS A/C OF X COMPANY Cr.To Purchases 1,00,000 By Sales 1,20,000To Salaries 2,000To Office exp. 5,000To Rent 5,000To Profit 8,000 ----------- ------------

1,20,000 1,20,000 ------------ -------------

BALANCE SHEET OF X COMPANY

CAPITAL AND LIABILITIES ASSETS

CAPITAL 1,50,000 CASH - 1,28,000ADD: Profit 8,000 FURNITURE - 30,000 ------------ 1,58,000

----------- ------------ 1,58,000 1,58,000

------------ -------------

• If I show, the furniture payment Rs.30,000 in Profit and Loss A/c (instead of Balance Sheet), the profit Rs.8,000 just turn into loss of Rs.22,000. -- To evade Income tax, this trick is played by companies.

• Similarly if Office expenses Rs.5,000 shows as office furniture in Balance Sheet(instead of Profit and Loss A/c), the profit will shoot up from Rs.8,000 to Rs.13,000. -- To get a loan from banks, by showing efficient the business they are running. Also termed this one as WINDOW DRESSING.

SIGNIFICANCE OF DIFFERENTIATING REVENUE FROM CAPITAL

• Take the following live example in which, the Mistake in this simple categorization cause irreversible damage and turned two giant organizations in their field to no more entities.

SIGNIFICANCE OF DIFFERENTIATING REVENUE FROM CAPITAL

• ENRON CORPORATIONAmerican energy, commodities, Services

company founded in 1932.

Fortune named Enron "America's Most Innovative Company" for six consecutive years

In the year 2000 its revenues were 5 lakh crores (100 Billion dollars)

SIGNIFICANCE OF DIFFERENTIATING REVENUE FROM CAPITAL

SIGNIFICANCE OF DIFFERENTIATING REVENUE FROM CAPITAL

• ENRON CORPORATIONJust because of showing capital receipts as

Revenue receipts i.e., in P & L account, it went into bankruptcy (I.P) in the year 2001.

The scandal also caused the dissolution of the Arthur Andersen accounting firm, one of the top Five World Accounting companies.

SIGNIFICANCE OF DIFFERENTIATING REVENUE FROM CAPITAL

• Arthur Andersen• Similar miserable story like ENRON COMPANY.• Founded in 1913• Andersen, who headed the firm until his death

in 1947, was a zealous supporter of high standards in the accounting industry.

• Andersen's motto was "Think straight, talk straight."

SIGNIFICANCE OF DIFFERENTIATING REVENUE FROM CAPITAL

• Arthur Andersen

• Because of It’s wrong practices in accountancy i.e., showing capital receipts as revenue receipts, it caused fall of Giant American company as well as termination of itself.

SIGNIFICANCE OF DIFFERENTIATING REVENUE FROM CAPITAL

• Arthur Andersen• From a high of 28,000 employees in the US

and 85,000 worldwide, the firm is now down to around 200 based primarily in Chicago due to effect of ENRON BANKRUPTCY.

HIGHER ORDER THINKING QUESTIONS

WHAT IS THE LOGICAL

DIFFERENCE BETWEEN CAPITAL

AND CAPITAL FUND?

HIGHER ORDER THINKING QUESTIONS

IS DEPRECIATION RESERVE FUND (DRF) A CAPITAL SOURCE OF FINANCE OR REVENUE SOURCE OF FINANCE ?

GIVE RELEVANT REASON IN SUPPORT OF YOUR ANSWER ?

HIGHER ORDER THINKING QUESTIONS

SINCE LOAN CAPITAL IS DIVIDEND BEARING ONE, IS THERE ANY OPTION TO RAILWAYS TO REFUND THE LOAN TO GENERAL REVENUES?

GIVE RELEVANT REASONS IN SUPPORT OF YOUR ANSWER?

M A R & D PDEBIT CREDIT

MISC ADVANCE REVENUE

121121-02 129121-02

DEMANDS PAYABLE

121201-02 129201-02

Have you ever question, why this

allocation is having 8 digits instead of 7

digits?