CHAPTER VII EXECUTION OF THE BUDGET—I (Control of Expenditure)

January 20, 2025

61. As mentioned in Chapter I, “Execution of the budget” marks the third of the four budgetary stages, and is purely an executive function.

DISTRIBUTION OF GRANTS

62. (1) When the Demands for Grants and the Appropriation Bill have been passed, the work of distributing the grants among the various Controlling and Disbursing Officers is taken up. A Chief Controlling Officer(CCO) may either retain with him the whole of the appropriation and watch the actual expenditure there against, or distribute the appropriation among his Subordinate Controlling Officer(SCO), who, in turn, may distribute the funds as their disposal among the Disbursing Officers(DO) subordinate to them. Ordinarily, a Chief Controlling Officer has full discretion to decide whether, in a particular case, he should retain the appropriation, or distribute it among his subordinates. If he decides to adopt the later course, it is desirable that he still retains a reasonable sum, to meet future demands of sub-controlling Officers who may require more funds. Each Sub-controlling Officer may, likewise, retain a reasonable amount, to sanction, when necessary small additional amounts requested by the Disbursing Officers subordinate to him.

(2) The distribution of appropriation by the Chief Controlling Officer among his Subordinate Controlling Officers and by the later among the Disbursing Officers should be made as soon as the budget is passed. The distribution should be modified, if necessary, with reference to the final edition of the budget, if and when printed and made available, and the alterations communicated to the officers concerned promptly.

(3) Under the revised system of classification of Government transactions, introduced with effect from 1974-75, provision for the construction of functional buildings, e.g., schools, colleges, hospitals, etc; is made in the budget under a distinct sub-head “Buildings”

below the functional major heads concerned. The Chief Engineer (General, Buildings and Roads) being the Chief Controlling Officer in respect of this sub-head, he alone is competent to distribute/reappropriation/surrender the funds provided thereunder.

UNIT OF APPROPRIATION

63. A grant is not always co-extensive with a major head of account. Often, it comprises more than one major head. Till the end of 1973-74, the sub-heads within a grant were the units of appropriation, except in a few cases where the ‘detailed account heads’ were treated as units of appropriation.

Under the five-tier system of classification introduced with effect from 1974-75, the detailed head is taken as the unit of appropriation, wherever it exists, and the sub/minor head in all order cases. The unit of appropriation is of vital importance in the scheme of financial control; it is by watching the progress of Expenditure against each such unit that the Controlling Officer can ensure that the expenditure does not exceed the grant as a whole.

CONTROL OF EXPENDITURE

64. (1) In a parliamentary system of Government, control over public expenditure is exercised by the three different agencies—

(1) the Legislature, (2) the Executive and (3) Audit.

(2) The Legislature sets a limit every year on public spending, and appropriates the sum to be spent on each service (vide section “Appropriation Bill” in Chapter VI). It also examines (through the Estimates Committee) how best economy could be effected in the execution of plans and programmes embodied in the Budget Estimates. The Accountant General examines the accounts to satisfy that the grants made by the Legislature have been applied to the purposes for which they were intended, and that the expenditure incurred is in accordance with the law, rules and regulations in force, and has not exceed the limits set by the Legislature. His report is laid before the Legislature, which causes it to be examined by the Public Accounts Committee/Committee on Public Undertakings. This review completes the cycle of control exercised by the Legislature, conjointly with Audit, over public expenditure (vide details in Chapters IX, X, XI, and XII). In this chapter, attention will be confined to the rule played by the Executive in controlling expenditure.

(3) Control of expenditure by the Executive is a necessary concomitant of legislative control. The sums appropriated by the Legislature are, in effect, money (grant) placed at the disposal of the Executive, to be spent on specified services, and the Executive has no power to spent more on these services than the authorised by the Legislature. The funds so made available are spent actually by a large number of officers—Disbursing Officers—many of whom may not known the amounts spent by the others. The machinery devised by Government to co-ordinate spending by the different agencies consist in grouping the Disbursing Officers under various Controlling Officers, who will be answerable to Government for the control of expenditure. The grouping is generally on a departmental basis, the Head of Department being the Chief Controlling Officer. In cases where the appropriation is retained by Government, and not distributed, the Secretary to Government of the Department concerned will be the Chief Controlling Officer. Below the Chief Controlling Officer, there may be Subordinate Controlling Officer who will be answerable to the former for the control of expenditure from funds placed at their disposal. A list of Chief Controlling and subordinate Controlling Officer and the heads of account for which they are responsible is given in Appendix 9. The sums appropriated by the Legislature are placed by Government at the disposal of the Chief Controlling Officer, whose duty it is to keep a constant watch over current and anticipated expenditure, and ensure that the expenditure does not, at any time, exceed the appropriation. If the expenditure in excess of the appropriation has to be incurred, they should see that a supplementary appropriation/advance from the Contingency Fund is obtained in time (before incurring excess expenditure). Likewise, if it is found in the course of the year that any of the appropriations cannot be utilised in full, they should inform Government as soon as they feel sure of the probable amount of such saving. To facilitate control over expenditure, Chief Controlling Officers have been given certain powers of reappropriation. The Disbursing Officers are required to submit their controlling Officer monthly statements of expenditure, after reconciliation with the treasury figures, in the case of officers listed in Appendix 10. These are consolidated and got reconciled with the books of the Accountant General by the Controlling Officer, who thus gains a complete view of the flow of expenditure against the appropriation placed as his disposal by Government.

(4) Control of expenditure by the Executive may be conveniently sub-divided into (1) control exercised by the Finance Department and (2) that exercised by the Administrative Department.

CONTROL BY THE FINANCE DEPARTMENT

The Finance Departmentexercises control over expenditure mainly in two different ways:

(i) By taking action, wherever necessary based on the “Warning Slips” issued by the Accountant General.

(ii) Through the Systems of Appropriation Control and Letter of Credit in selected departments.

66. “Warning Slips” of the Accountant General.—According to long-standing practice, if expenditure under a head of account is being incurred at a place more rapid than is warranted by the appropriation, and there is the likelihood of the expenditure exceeding the appropriation, the Accountant General brings this to the notice of the Chief Controlling Officer and the Finance Department, so that corrective measures could be taken in time to check this trend. These “Warning Slips” should be returned to the Accountant General, indicating on the reverse, the action taken to check the flow of expenditure or to obtain a supplementary appropriation, if excess expenditure is unavoidable. Likewise, if the expenditure under a head of account has actually exceeded the appropriation, the Accountant General usually brings this fact to the notice of the Chief Controlling Officer and the Finance Department, for taking appropriate remedial measures. This should not, however, be taken to mean that action to regulated the flow of expenditure/obtain a supplementary appropriation need be taken only after such advance warning/post facto intimation is received from the Accountant General. As outlined in paragraph 64 (3), the Executive has its own machinery to watch the flow of expenditure, and whenever this indicates that expenditure is being incurred at a disproportionately faster rate, corrective steps should be taken promptly, whether or not any warning is received from Audit.

67. Appropriation Control.—The system of Appropriation Control was introduced with effect from 1st April, 1974, in 15 selected department. It aims at controlling expenditure (not appropriation, as the name suggests), by making it impossible for the departments concerned to draw on treasuries in excess of the appropriation. When a bill is presented for payment at the treasury, the availability of budget provision (appropriation) to cover the payment is checked with reference to the entries in the Appropriation Control Register, specially maintained for the purpose.

In case the appropriation then available is insufficient to cover the payment, the bill is returned uncashed. Disbursement of salaries, wages and pensions has, however, been exempted form the purview of the scheme. Detailed instructions regarding the System of Appropriation Control are contained in G. O. (P) 49/74/Fin., dated 1st March, 1974, vide Appendix 11.

68. Letter of Credit.—

(1) The System of Letter of Credit was introduced with effect from 1st April 1974, in the Public Works, Public Health Engineering and Forest Department and was made applicable, as per G. O. (MS) No. 451/80/Fin., dated 15th July, 1980, to the Harbour Engineering Wing of the Port Department also. These Departments obtain funds in lump from Treasury on cheques. This system aims at controlling expenditure month by month, by limiting the amount that a division can draw on a treasury during a month.

(2) As soon as the budget for a year is presented to the Legislature, the Heads of the Departments concerned forward, to the Finance Department, requisitions, in the prescribed form, showing the funds required by each division during each month of the year, based on the total budget provision for that year. The monthly requirement will be worked out, with due regard to the stage of works attended to by each division, favorable working conditions, and other relevant factors. After scrutinising the requisitions, the Finance Department issues to each Divisional Officer a Letter of Credit, specifying the monthly limits, with copies to the Head of the Department, the circle Officer, and the District Treasury Officer concerned. The Divisional Officer should restrict the amount drawn on the treasury during a month to the limit for the month laid down in the Letter of Credit. The Treasury Officer/Bank will maintain a register to note the credit limits allowed to each officer, and see that cheques issue in excess of the permitted limits are not honoured. Thus, in effect, the system acts as a built-in pre-check for regulating the flow of expenditure.

(3) Letters of Credit are issued for three months at a time. Unspent balance, if any, at the end of a month/quarter may be carried over to the succeeding month/quarter without any specific authorisation, except during the month of March, when the balance automatically lapses.

If, for unavoidable reasons, the limit for a month has to be exceeded, the Divisional Officer may do so upto 20 per cent of the credit allowed for the month, provided the excess is adjusted during the remaining months of the quarter.

(4) Payment of salaries/ wages, refund of deposits (Earnest Money, Security and Retention), disbursements from Provident Fund Accounts, payment of scholarships, stipends, L. I. C. premia and House Construction advances, and expenditure on works relating to National Highways are excluded from the purview of the Letter of Credit System. Payments of work done on behalf of other divisions, other civil departments and outside agencies will, however, fall within its purview.

CONTROL BY THE ADMINISTRATIVE DEPARTMENTS

69. The responsibility for enforcing control over expenditure; with a view to ensuring that there is no unauthorised excess over appropriation, is mostly that of the Administrative Departments. The administrative Departments discharge this responsibility through the hierarchy consisting of the Chief Controlling Officer, the Subordinate Controlling Officer, and the Disbursing Officer. Instructions for the guidance of these officers and the Administrative Departments of the Secretariat in controlling expenditure are given in the succeeding paragraphs.

Disbursing Officers.—(1) Every Disbursing Officershould report monthly to the superior controlling authority the actual expenditure and the liabilities incurred during and upto the previous month. For this purpose, each disbursing Officer should maintain a register of expenditure and liabilities, in Form KBM 12. As soon as a bill is cashed it should be posted in the relevant columns of the register, against the treasury district in which payment is made (Sl. No. 3). The adjustments, if any, made by the Accountant General should also be entered in the register (against Sl. No. 5), as soon as the intimation is received. After the close of the month, the Disbursing Officer should, wherever necessary, reconcile his figures of expenditure with the treasury

figures and forward to the Controlling Officer immediately superior to him an extract of his account (Form KBM 12), omitting the details leading upon the District totals against Sl. No. 3.

(2) Each Disbursing Officer should also maintain a separate Liability Register in Form KBM 13, so that he may have a complete picture of the flow of expenditure, which is possible only if the outstanding commitments and liabilities against which payments will have to be made during the current and subsequent financial years are also known. He should forward to the Controlling Officer every month a statement in Form KBM 14, showing the liabilities incurred during the month of report, payments made against liabilities and liabilities cancelled or finally paid off and the progressive amount of outstanding commitments.

71. Subordinate Controlling Officers.—The Subordinate Controlling Officer, should consolidate, in Form KBM 15, the figures from his own register of disbursements (Form KBM 12) and those from the extracts of accounts received from the Disbursing Officers subordinate to him. The disbursements pertaining to each unit of appropriation should be grouped by districts. He should, after reconciliation with treasury figures where necessary, forward an extract of his register (Form KBM 15) to the Chief Controlling Officer, omitting Sl. Nos. 5 and 8, and showing only the totals against the others.

72 Chief Controlling Officers.—(1) Chief Controlling Officer must not only ensure that the total expenditure is kept within the bounds set by the Legislature, but also see that the funds allotted are spent on subjects of public interest and for the specific purpose for which the money was provided. He must be in a position to assume before Government, and the Public Accounts Committee if necessary, complete responsibility for departmental expenditure, and explain any instance of excess or financial irregularity that may be brought to notice as a result of and scrutiny of otherwise. During the period the Vote on account in operative, it is also his responsibility to see that the expenditure does not exceed the limit fixed by the Appropriation (Vote on Account) Act.

(2) A Chief Controlling Officer should, therefore, keep a close and constant watch over the progress of expenditure, whether Voted or Charged, Plan or Non-Plan, and see that expenditure

pertaining to each section/category does not exceed the provision therefor. For this purpose, he may, as already mentioned, either retain the whole of the appropriation with him and watch the actual expenditure there against, or distribute the appropriation among his subordinate Controlling Officers, making each officer responsible for watching the expenditure against his share of the appropriation. In the former case, the Chief Controlling Officer is wholly responsible for watching the expenditure against the appropriation, while in the latter, he shares this responsibility with his subordinate officers. Major non-recurring items of expenditure should, however, be watched separately as the flow of expenditure in such cases, is uneven. Such expenditure may be controlled by requiring the Disbursing Officers to send special reports every month such expenditure is incurred, showing the details of expenditure already incurred and the possible requirements for the rest of the year.(3) As is done by the Subordinate Controlling Officers, the Chief Controlling Officer, too, will consolidate monthly, in Form KBM 15) the figures from his own register of disbursements (Form KBM 12, and those taken from the extracts furnished by the Subordinate Controlling Officers, after which he should send a clerk to the Office of Accountant General with departmental registers. The clerk should, with the assistance of those in charge of compilation in the Accountant General’s Office, compare the departmental figures with the books of the Accountant General and prepare, in duplicate, a statement of discrepancies, showing in separate columns, the adjustments to be made by the Chief Controlling Officer. The Accountant General’s Office will keep one copy to his own office, where the necessary adjustments will be effected and the Accountant General informed accordingly. The Accountant General will, likewise make the necessary adjustments in his books, and inform the Chief Controlling Officer. The latter should then send a certificate to the Accountant General to the effect that the figures, in his registers have been reconciled with those in the books of the Accountant General.

(4) If the Chief Controlling Officer’s office is outside Trivandrum, he should forward to the Accountant General, not later than the 28th of the month following that to which the accounts relate an extract, in Form KBM 15, showing the figures under

each minor, sub, and detailed head of account, except the adjustments communicated by the Accountant General and the figures against Sl. Nos. 8 and 9. The Accountant General will check the figures with those booked in his office and point out discrepancies, if any. The Chief Controlling Officer should reconcile the discrepancies, and forward the certificate of reconciliation early.(5) To enable of the Secretariat to which the progress of expenditure against the appropriation, the Chief Controlling Officer should forward to the Administrative Departments of the Secretariat monthly returns of expenditure in Form KBM 16. The returns should reach the Secretariat by the end of the month following that to which the accounts relate.

(6) Controlling Officers should keep themselves informed not only about expenditure actually incurred, but also about liabilities incurred/commitments made, which would entail expenditure during the current and subsequent financial years. Every Controlling Officer should, therefore, maintain a Liability Register Form KBM 13, just as any Disbursing Officer. On receipt of the statements in Form KBM 14 from the Disbursing Officer, vide para 70 (2) above, the Controlling Officer should incorporate the details in his Liability Register (Form KBM 13), so that his Register will give a complete picture of payments likely to be made during the current succeeding years towards liabilities already incurred by himself and his subordinate officers. The Liability Register, if maintained properly, would greatly facilitate the exercise of effective control over expenditure and accurate budgeting.

Administrative Departments.—(1) As already pointed out, the responsibility for the control of expenditure against the sanctioned appropriation is mostly that of the Administrative Departments, and all that the Finance Department can do is to take steps for the rectification of any defect in the system of control that comes to its notice. It is however, open to the Administrative Departments to seek the advice of the Finance Departments on matter affecting the control of expenditure.

(2) The monthly returns of expenditure (Form KBM 16) submitted by the Chief Controlling Officer, vide para 72(5) above should be filed in chronological order by the departments

of the Secretariat, so as to facilitate comparison of the progressive total of expenditure with the sanctioned appropriation. If the departmental figures reported by the Chief Controlling Officers have to be corrected subsequently, this should ne done by plus or minus entries below with progressive totals. If, in any case, the figures of the Accountant General are found to be higher than the departmental figures, pending reconciliation, the former should be taken into account for the purpose of control of expenditure.(3) The instructions for the guidance of the Chief Controlling Officers, vide para 72 above apply mutatis mutandis to the Departments of the Secretariat, so far as appropriation under the direct control of the Secretaries to Government/Finance Secretary are concerned.

RECONCILIATION OF EXPENDITURE

(1) The importance of prompt and proper reconciliation of the departmental figures of expenditure with the books of the treasury and the Accountant General cannot be over emphasised. This would greatly help in the timely detection of fraud, misappropriation of Government money, and such other malpractices which may otherwise go unnoticed.
Besides reconciliation of the departmental figures with those of the Accountant General assumes added significance in view of the fact that the Appropriation Accounts and the Finance Accounts, which ultimately scrutinised by the Public Accounts Committee of the Legislature, are prepared with reference to the books of theAccountant General.

Unless the discrepancies, if any, are detected and pointed out in time, it may not be possible for the Accountant General to make the necessary adjustments in the Accounts of the year. Reconciliation at lower levels with the books of the treasury also helps the process of reconciliation with the books of the Accountant General, which, as mentioned in para 72, is the responsibility of the Chief Controlling Officer. At present, only the Officers listed in Appendix 10 have to reconcile their figures of the expenditure with the treasury figures, before forwarding their accounts (Form KBM 12) to the superior controlling authority. However, with the expansion of the existing facilities in the treasuries for the conduct of reconciliation, all the Disbursing Officers are eventually to be brought within the purview of the appendix.

(2) In view of the importance of prompt reconciliation, all Chief Controlling Officers should forward to Government in the Finance Department monthly reports, showing the progress of this item of work. The reports should contain, inter alia, particulars such as the number if heads if account for which reconciliation certificates are required to be sent to the Accountant General, the number of heads reconciled, the number of certificates sent, the balance outstanding, and the reason for the delay. The Administrative Departments and the Finance Department should watch closely the progress of reconciliation beginning form July each year and are that the work is completed before the close of the financial year, so that cases of misclassification could be detected and rectified.

(3) Reconciliation of Departmental figures with the books of the treasury and the Accountant General should not be confined to expenditure, but should embrace revenue as well. This would prevent defalcation through short-remittance. Recoveries adjusted in accounts in reduction of expenditure should also receive equal attention.

(4) Expenditure met from advances out of the Contingent Fund should not be mixed up with other expenditure, but should be reconciled separately, vide Rule 11 of the Kerala Contingency Fund Rules, 1957 (reproduced in Appendix 14).

(5) The instructions contained in the preceding sub-paragraphs apply equally to the Departments of the Secretariat, so far as appropriations under the direct control of the Secretaries to Government/Finance Secretary are concerned.

ACCOUNTANT GENERALS ADJUSTMENTS

In respect of adjustments made by the Accountant General,either directly, as in the case of inter-departmental adjustments, or through the Central Accounts Section of the Reserve Bank of India as in the case of inter-governmental adjustments, intimation will usually be issued to the Chief Controlling Officers concerned. They should, however, arrange the correct details of such adjustments at the time of reconciliation of figures, and make the necessary entries in their own accounts, special care being taken to avoid duplication.

APPROPRIATION AGAINST WHICH
BILLS ARE DRAWN BOTH BY
OFFICIALS AND NON-OFFICIALS

In respect of appropriation against which bills are drawn both by officials and non-officials, the head of the Department will control the expenditure by reducing the appropriation at his disposal by the amount of each bill countersigned by him. He should subsequently verify the fact of drawal, while reconciling figures to the treasury and in the Office of the Accountant General. The Secretary, Legislative Assembly, will also follow this procedure for controlling expenditure on account of travel expenses of the Members of the Legislature.

PERSONAL CLAIMS OF GAZETTED OFFICERS

All Gazetted Officers should, in respect of their personal claims, forward to the Controlling Officersconcerned, monthly statement of bills drawn, showing, inter alia the budget classification, gross amount of the bill, deduction made, net amount of the bill, nature of the claim, date of encashment, and the period to which it relates.

SPECIAL PROCEDURE FOR THE GUIDANCE OF THE PUBLIC WORKS, PUBLIC HEALTH ENGINEERING AND FOREST DEPARTMENTS

The procedure for the control of expenditure detailed in the preceding paragraphs is not suited to the mode of functioning of the Public Works, Public Health Engineering and Forest Departments, where claims are met, not by presenting bills at treasuries, but by drawing cheques on them. Unlike other departments, these departments compiled accounts to the Accountant General. The special procedure to be followed by these departments for the control of expenditure is outlined below.
79. Public Works and Public Health Engineering Department.—(1) The Divisional Officer should prepare monthly a statement in Form KBM 17, separately in respect of each major head of account, showing the progress of expenditure under each units of appropriation, and the sanctioned appropriation (modified up-to-date) there against. Works for which a lump sum had been placed

at the disposal of the Divisional Officer may be grouped together, and only the total need be shown. The expenditure incurred under each unit of appropriation should be posted from the Register of Works and the Schedule of Works Expenditure. In respect of suspense heads, the gross debits and credits may be posted. Undischarged liabilities and anticipated columns. The statements should be completed within a week after the date for closing the divisional accounts, and a copy forwarded to the Superintending Engineer.(2) The Superintending Engineer will consolidate the statements received from the Divisional Officers into a Circle report (Form KBM 18), and sent it, in duplicate to the Chief Engineer. The Chief Engineer will, likewise, consolidate, also in Form KBM 18, the Circle Reports, for the purpose of reviewing the progress of expenditure against the appropriation for the State as a whole. He will also check the Circle Reports with the accounts of the Accountant General, and return the duplicate copy of each report to the Superintending Engineer, indicating the corrections necessary and the reasons therefore. The Superintending Engineer will incorporate the corrections in his own accounts, under intimation to the Divisional Officer.

Forest Department.—(1)The Divisional Officers of the forest Department should submit monthly to the Circle Conservator of Forests a statement, in Form KBM 19, showing the progress of expenditure against the sanctioned appropriation (modified up-to-date). The statement, which may be compiled from the monthly divisional accounts (Form K.F.D.C. 87) forwarded to the Accountant General, should reach the Circle Conservator not later than the 8th of the month following that to which it relates. The Divisional Forest Officers should also be submit to the Circle Conservator every month, three days after monthly accounts (Form K.F.D.C. 87) are sent to the Accountant General, a statement, in Form KBM 20, showing the progress of expenditure on individual works sanctioned by higher authorities. Expenditure on contingencies should be watched through the Contingent Registers.

Question…………..the Forest Department should submit monthly to the Circle Conservator of Forest, a statement showing the progress of expenditure against the sanctioned appropriation.

(A) Chief Engineer

(B) Superintending Engineer

(D) Drawing Officer

Correct Answer:-Option:(C)

(2) The Circle Conservator should consolidate, in Form KBM 21, his own expenditure and that shown in the statements received from the Divisional Forest Officers. Besides he should

prepare a return in Form KBM 19, for the Circle as a whole, and send it to the Chief Conservator of Forests, so as to reach him not later than the 18 th of the month following that to which it relates.(3) The Chief Conservator of Forests will obtain similar statements, also by the same date, from the Disbursing Officers working directly under him, and will then consolidate, in Form KBM 21, his own expenditure and that shown in the Circle and other returns, so that he may watch expenditure of the Department as a whole against the sanctioned appropriation. He should also reconcile the consolidated statement with the audited figures of expenditure, made available by the Accountant General.