Enhancing Accountability and Transparency: Towards Transformative Emphasis on Local Level Accounting in India
Summary: India’s rural and urban areas face significant challenges in infrastructure and resource utilization, impacting public service delivery. The country has a dual local governance structure comprising Urban Local Bodies (ULBs) and Rural Local Bodies (RLBs), responsible for different administrative functions. The presence of over 403,000 Chartered Accountants, regulated by the Institute of Chartered Accountants of India (ICAI), is crucial for enhancing financial reporting standards within these bodies. The ICAI has introduced initiatives like Accounting Standards for Local Bodies (ASLB) and training programs to promote effective public finance management. Transitioning from cash-based to accrual-based accounting can provide greater transparency and improved decision-making. However, many local bodies struggle with poorly qualified personnel, inadequate IT infrastructure, budget constraints, and mismanagement of funds, leading to reduced efficiency and public trust. To address these issues, the ICAI and the Indian government have launched capacity-building programs and developed standardized accounting guidelines through the National Municipal Accounts Manual (NAMAM). A focus on digital transformation aims to enhance transparency and accountability in local governance. By strengthening financial reporting and governance, India can improve service delivery, promote sustainable growth, and foster public welfare in both urban and rural regions.
India has a significant number of rural populations, which depend upon the local regions for food and raw materials. While the country is so dependent on the rural areas, they are more prone to lack of proper infrastructure, and funds are not properly utilized. Neither are the urban areas behind in terms of such issues, wherein municipal resources fail to bring significant public service improvements. The answer lies in systematic accounting and transparency measures, especially accrual-based accounting.
Local Governance in India: Structure and Scope
There are two kinds of local bodies in India: Urban Local Bodies and Rural Local Bodies, both performing different types of activities.
Urban Local Bodies (ULB)
- Municipal Corporations: The large and major cities and areas which are administered by 268 corporations.
- Municipal Councils/Boards: Those towns and small cities, in total of 1,874 councils.
- Nagar Panchayats: These types of panchayats administer areas which are almost turning to urban from the rural level, with 2,458.
- Smart City Authorities: Established in 100 cities to implement technology-driven infrastructure through Smart City initiatives. (Source: Local Government Bodies of India)
Rural Local Bodies (RLBs)
- District Panchayats: Biggest rural administrative unit, which administers entire districts (total of 630).
- Block Panchayats: Manages several Gram Panchayats under one block and are 6,614 in number in India.
- Gram Panchayats: Grassroot-level administration units that administer the village, with 253,163 in India. (Source: Panchayat Hub by PRIA)
Chartered Accountants and ICAI: Enable Accountability
There are 403,619 Chartered Accountants in India and 158,109 are practicing until April 2024. These practitioners make sure the public sector as well as the private sector adhere to the quality of financial reporting. There have been some steps from the Institute of Chartered Accountants of India regarding proper accounting practices in the local bodies.
√ Accounting Standards for Local Bodies (ASLB): These lay down uniform accounting standards for reporting the financial activities of ULBs and RLBs and thereby ensure uniformity and transparency.
√ Certificate Course on Public Finance & Government Accounting: This course teaches the participant about government finance, management of public funds, and relevant standards for effective fiscal management.
√ Board for Local Bodies Accountants Certification (BLoAC): ICAI offers accounting research foundation’s under BLoAC to accredit accountants at grassroots levels Panchayat and Municipal Body with 12th grade pass certificate that can enhance grassroot financial reporting.
Accounting Practice: Transition from Cash to Accrual Accounting
Indian local bodies can choose between cash-based or accrual-based accounting. Cash-based accounting is easy to maintain, and most small entities maintain it. On the other hand, accrual-based accounting is more used by bigger bodies because it gives much more detail regarding financial situations.
Advantages of Accrual Accounting
It is very transparent because the accrual accounting system keeps records when the transactions are done rather than just at the time of the flow of cash. It offers a very clear view of an organization’s financial position.
Better Decision Making: It gives long term financial information that helps to properly allocate resources.
Challenges in Accounting for Local Bodies
Accrual-based accounting has its own advantages but ULBs and RLBs are facing significant issues in the management of funds:
> Poor Qualified Personnel: Most of the local bodies do not have professional accounting staff, thus the error increases and efficiency decreases.
> Lack of Sufficient IT Infrastructure: Since accounting does not have digital systems necessary in current accounting, the efficiency reduces.
> Budgetary Constraints: Inability to invest in more technological infrastructure, training facilities, and other important infrastructures in finance.
> Mismanagement of fund: Waste of money due to bad management and corruption. People do not have confidence with this kind of management and governance.
Preventive Measures: ICAI and Government Policies
Because of the above drawbacks, ICAI and the Indian government have taken following steps:
Capacity Building Programs: They have initiated training programmes on accounting skills among employees working in ULB and RLB.
National Municipal Accounts Manual (NAMAM): Standardized accounting guidelines for ULBs developed by the Ministry of Housing and Urban Affairs.
Digital Transformation: Increasing impetus toward IT systems for computerized accounting to enhance transparency and accountability.
Conclusion: Building Transparency for Sustainable Growth
Financial transparency and accountability by the local bodies in India support the development and enhancement of services from the government. Due to standards given by ICAI and governmental aids, financial reporting is eventually headed toward greater consistency and dependability among ULBs and RLBs. Proper governance and sustainable development of India’s rural and urban territories will be advanced along with public welfare when proper accounting frameworks and competent individuals power the local
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