Report of the Comptroller and Auditor General of India on Local Bodies for the year ended March 2016 Government of Bihar Report No. 4 of the year 2017 TABLE OF CONTENTS DESCRIPTION Paragraph Page no. Preface - v Overview - vii Part – A CHAPTER-I AN OVERVIEW OF FUNCTIONING OF THE PANCHAYATI RAJ INSTITUTIONS IN BIHAR Introduction 1.1 1 State Profile 1.2 1 Organisational setup 1.3 2 Functioning of PRIs 1.4 3 Formation of various Committees 1.5 5 Audit Arrangements 1.6 6 Response to Audit Observations 1.7 7 Accountability Mechanism 1.8 9 Source of Funds 1.9.1 11 Recommendations of State Finance Commission 1.9.2 13 Recommendations of Central Finance Commission 1.9.3 14 Maintenance of Records 1.9.4 14 Reconciliation of Balances 1.9.5 16 Maintenance of Accounts by PRIs 1.9.6 16 Impact of Audit 1.9.7 17 Good Practices 1.9.8 17 CHAPTER-II COMPLIANCE AUDIT Panchayati Raj Department Implementation of recommendations of Fourth State 2.1 19 Finance Commission in PRIs Loss of rental income 2.2 31 Avoidable payment of penal interest 2.3 32 Audit Report (Local Bodies) for the year ended 31 March 2016 Part – B CHAPTER-III AN OVERVIEW OF FUNCTIONING OF THE URBAN LOCAL BODIES IN BIHAR Introduction 3.1 35 State Profile 3.2 35 Organisational setup of ULBs 3.3 36 Functioning of ULBs 3.4 37 Formation of Committees 3.5 39 Audit Arrangements 3.6 40 Response to Audit Observations 3.7 42 Accountability Mechanism 3.8 44 Source of Funds 3.9.1 46 Centrally/State Sponsored Schemes 3.9.2 48 State Finance Commission 3.9.3 48 Maintenance of Records 3.9.4 49 Maintenance of Accounts by ULBs 3.9.5 49 Impact of Audit 3.9.6 50 CHAPTER - IV PERFORMANCE AUDIT Urban Development and Housing Department Utilisation of Grants under Civic Amenities Head (State 4.1 51 Plan) by Nagar Nigams CHAPTER-V COMPLIANCE AUDIT Urban Development and Housing Department Irregular/Unfruitful expenditure 5.1 75 Loss of tax revenue 5.2 77 Irregular payment of advances 5.3 79 ii Table of contents APPENDICES Appendix Subject Reference No. Paragraph Page 2.1 Statement showing main recommendations made 2.1.1 83 by the Fourth State Finance Commission with regard to PRIs 2.2 Statement showing status of works undertaken 2.1.3.4 84 during 2011-16 in the Sampled Units under high priority sector 2.3 Statement showing Work executed/found in 2.1.3.4 86 Private premises 2.4 Statement showing out of order Hand Pumps and 2.1.3.4 88 Solar Lights 2.5 Statement showing expenditure incurred out of 2.1.3.5 90 untied grant 2.6 Statement showing difference in Cash Book and 2.1.3.10 92 Bank Account Closing Balance as on 31 March 2016 2.7 Statement showing details of schemes executed 2.1.4.1 93 in contravention of the guidelines 2.8 Statement showing unauthorised occupation of 2.1.4.2 95 ZP IBs/lands as on 31 March 2016 2.9 Statement Showing Outstanding Rents 2.1.4.2 96 2.10 Statement Showing Outstanding Rents by 2.1.4.2 99 Government Offices as on 31 March 2016 2.11 Statement showing deprivation of revenue of 2.2 100 ` 3.78 crore (Patna Zila Parishad) 3.1 Statement showing list of functions to be carried 3.4.2 101 out by ULBs 3.2 Statement showing Target and Present Status of 3.8.4 102 SLBs in Nagar Nigams 3.3 Statement showing Receipt and Utilisation of 28 3.9.1.3 103 ULBs 3.4 Statement showing important recommendations 3.9.3 104 of Fifth State Finance Commission in respect of ULBs & its acceptance by the State Government 3.5 Financial Statement not prepared 3.9.5 106 4.1 Statement regarding transfer of grants to parallel 4.1.7.1 107 Bodies iii Audit Report (Local Bodies) for the year ended 31 March 2016 4.2 Statement regarding utilisation of grants 4.1.7.2 108 sanctioned for specific purposes 4.3 Statement regarding receipt and utilisation of 4.1.8.1 109 grants released for construction of parks 4.4 Statement regarding lack of land for Bus stands 4.1.8.2 110 4.5 Statement regarding receipt and utilisation of 4.1.8.2 110 grants released for construction of Bus stands 4.6 Statement regarding loss incurred/to be incurred 4.1.8.2 111 on account of demolition of BQSs 4.7 Statement regarding details of amount collected 4.1.8.4 112 but not deposited in special bank account of Samuh Vikas Samiti 4.8 Statement showing loss of Revenue 4.1.8.7 113 - Glossary - 114 iv PREFACE This Report for the year ended March 2016 has been prepared for submission to the Governor of Bihar under the CAG’s (DPC) Act, 1971. The Report contains significant results of the audit of the Panchayati Raj Institutions and Urban Local Bodies in the State including the departments concerned. The issues noticed in the course of test audit for the period 2015-16 as well as those issues which came to notice in earlier years, but could not be dealt within the previous Reports have also been included, wherever necessary. The audit has been conducted in conformity with auditing standards issued by the Comptroller and Auditor General of India. v Overview OVERVIEW This Report contains five chapters. The first and third chapters contain an overview of the functioning, accountability mechanism and financial reporting issues of the Panchayati Raj Institutions (PRIs) and Urban Local Bodies (ULBs) respectively. The second and fifth chapters contain compliance audit paragraphs relating to PRIs and ULBs respectively. Fourth chapter contains a Performance Audit report on ‘Utilisation of Grant under Civic Amenities Head (State Plan) By Nagar Nigams’ pertaining to ULBs. A summary of main audit findings is presented in this overview. 1. An overview of the functioning of PRIs in Bihar Audit arrangements Thirteenth Finance Commission recommended that the CAG must be entrusted with Technical Guidance and Support over the audit of all the Local Bodies at every tier. Government of Bihar accepted (December 2015) the standard Terms and Conditions for audit of Local Bodies under Technical Guidance and Support arrangement. (Paragraph 1.6.2) The audit of accounts of PRIs conducted by the Examiner of Local Accounts under the supervision of the Accountant General (Audit), Bihar as per Bihar & Orissa Local Fund Audit Act, 1925 was discontinued and the audit under Technical Guidance and Support arrangement commenced from December 2016. During the year 2015-16, Examiner of Local Accounts conducted audit of 1102 PRIs and Director of Local Fund conducted audit of 127 PRIs. (Paragraph 1.6.1 & 1.6.2) Devolution of functions, funds and functionaries Government of Bihar devolved 29 functions as listed in Eleventh Schedule of the Seventy-Third Constitutional Amendment Act to the PRIs, as of January 2017. As per Fifth State Finance Commission report, funds available to the PRIs from various sources were grossly inadequate for their assigned functions. Zila Parishads in the State did not have adequate staff to discharge the devolved functions and 79 per cent of sanctioned posts were vacant as of January 2017. In Zila Parishads such as Buxar and Supaul, men-in-position was less than 10 per cent of sanctioned strength. At Gram Panchayat level, 3,160 posts of the Panchayat Secretaries (38 per cent of the total 8,397 posts) were vacant as of 31 March 2016. (Paragraph 1.4.3) Utilisation of funds As of January 2017, Utilisation Certificates of ` 6,924.71 crore for the period 2007-16 were not submitted by the PRIs and utilisation percentage ranged between two to seventy nine per cent . (Paragraph 1.8.3) vii Audit Report (Local Bodies) for the year ended March 2016 Maintenance of Accounts by PRIs In PRIASoft, out of total eight Model Accounting System formats, only three formats were being generated. However, accounting work in PRIASoft was discontinued since 17 April 2015 and e-Panchayat Module was introduced thereafter. (Paragraph 1.9.6.2) 2. Compliance Audits Implementation of recommendations of Fourth State Finance Commission in PRIs The State Government accepted all the 17 recommendations made by Fourth State Finance Commission in respect of the PRIs. However, four recommendations were implemented in toto , ten recommendations were implemented with modifications and no action was taken on three recommendations. (Paragraph 2.1.1 ) Recommendations implemented in toto The Fourth State Finance Commission made four recommendations with regard to allocation of funds to the PRIs and the ULBs and its subsequent release to the three tier PRIs. Audit observed that the above recommendations were accepted by the State Government and implemented in toto. Recommendations implemented with modifications The State Government implemented ten recommendations with modifications as detailed below: Basis for release of grants The Fourth State Finance Commission recommended that 7.5 per cent of the State’s tax revenue net of collection costs should be devolved to the local bodies on the basis of the audited figures of that financial year. However, the State Government released funds on the basis of two year old figures. As a result, against recommendations of ` 4026.55 crore grants, ` 1580.49 crore was only released during 2010-15. (Paragraph 2.1.3.1) Release of grants half yearly in two instalments Audit observed that, in two years (2011-13) out of the three years of Fourth State Finance Commission period (2010-15), grants were released in one instalment at the fag end of the year.