NRHM- Financial Management Presentation On Technical Assistance In 3 Areas

1. NRHM- Financial Management Presentation On Technical Assistance In 3 Areas TECHNICAL MANAGEMENT AND SUPPORT AGENCY 1

2. Background and Need NRHM- Decentralized approach with focus on continuous appraisal and review of financial management systems across implementing levels • Joint Review Missions identified a few areas which needed strengthening • The following three areas were selected on a priority basis for review: Technical Assistance Area Need for the TA • Improper accounting and reporting observed at the sub district implementing units • Development of model financial and accounting handbooks for sub-district level implementing units to provide guidance to NRHM field level accounting personnel. • To assess the level of implementation and effectiveness of concurrent audit systems in various states as gaps were found in the same Assessment of NRHM internal audit/ concurrent audit systems with respect to its implementation, quality of reports and impact in terms of improvements in systems and reporting. • To bring about standardization in accounting systems and methods across states • Evaluation of Customized Version of Tally being used by NRHM in few States and Develop a Roadmap for Its Implementation in other States 2

3. Approach and Methodology Questionnaire • Questionnaire circulated amongst all states and UTs relating to • Use of Tally • Institution of Concurrent Audit • Existence of accounting guides • Meeting with key officials of FMG to attain a common understanding of the objective, scope, approach, work plan and the sample size • Review of certain documents made available Kick off Meetings • Primary visits to 5 states namely Rajasthan, Orissa, Madhya Pradesh, Assam and Karnataka . • For each state, 2 districts, 2 blocks, 2 CHC/PHC and 2 sub centers were covered • Discussions with key officials and accounting personnel on issues and possible solutions Field Visits Review of Records and Accounting Practices • Review of accounting records, practices, statutory and concurrent audit reports and others • Analysis of relevant documents • Discussion undertaken and Information collected used to analyze issues and make recommendations to improve systems Analysis 3

4. NRHM- Financial Management Development of Model Accounting Handbooks 4

5. Scope of Work Need for development of model handbooks arose from the improper accounting and reporting observed at the sub district implementing units • Development of model financial and accounting handbooks for the following implementing units at the sub district level: • Block • CHC/PHC • RKS • Sub Centers • VHSCs Scope of Work 5

6. Contents of the Model Handbooks • Model handbooks have been developed with a defined structure and content • Can be customized as per the fund disbursement and reporting structure of the implementing units in each of the states. 6

7. The Way Forward Need to create awareness and effectively disseminate the model handbooks Initiative Action Required At Centre Level • Create Awareness about Availablity of Handbooks at a Central Level Workshop • Vet and formalize final handbooks and put up on the NRHM website At State Level • Customization of Handbooks to Incorporate State Specific guidelines • The state may appoint a core team of 4-5 people like SFM, SAM etc to vet and customize the handbooks within a fixed time • Conversion of Handbooks into Local Language • The state could distribute the handbooks in English/ in the local language spoken in the state • Uploading the handbooks on the Website of the State Health Department • This would ensure easy and continuous accessibility to the end users , thereby eliminating delays • Printing of Handbooks • States can go for distribution of printed copies of handbooks to the implementing units in case internet facility not available at lower level units • Dissemination among the implementing units • Dissemination by SHS to DHS , DHS to Blocks and by blocks to their lower level units 7

8. NRHM- Financial Management Assessment of the NRHM Concurrent Audit Systems 8

9. Scope of Work • Evaluation of compliance with the guidelines laid down for selection and appointment of statutory auditors • Evaluation of audit reports to assess compliance with formats and checklists • Assessment of the current concurrent audit system to identify and suggest areas of improvement • Development of a benchmark tool against which the financial management systems and concurrent audit mechanisms can be evaluated Scope of Work 9

10. Analysis of Statutory Audit Reports • Overall Quality of the statutory audit reports seem to have improved over the previous year • Financial statements were largely available in the prescribed formats • Some requirements as per the guidelines were however not met • 17 statutory audit reports submitted by the states to the centre (up to 30th Nov, 2009) were analysed with respect to the compliance with guidelines mentioned in the FM manual on the content and format of the audit report. • Following were some quality issues observed in the reports: • Other issues like incomplete checklists, formats of financial statements not followed etc were also observed 10

11. Analysis of Statutory Audit Systems Statutory Audit Systems have been analyzed in terms of the appointment and selection process of the auditor and the quality of the audit report Recommendations Issues • Delayed Appointment of auditors and delayed report submission • Actual staff visiting the districts less qualified and experienced vis-a-vis the staff proposed in technical proposal • Lack of understanding of local language by auditors • One firm auditing multiple states without adequate capacity leading to delays and quality issues • Qualitative assessment and analysis of accounting issues observed missing in audit reports • Compliance though inclusion of all requirements / checklists etc in the audit reports needs improvement • Formation of an audit committee to monitor regularly the progress on statutory audit and take appropriate action • Submission of Summary Report by the state to the center on the appointment and selection process of the statutory auditor • Revision in the Technical Evaluation criteria with higher weightage to the qualification and experience, local language knowledge etc of the audit staff • Suggestions on contractual covenants to be included in auditor’s contract to improve timely submission and quality of the report e.g. No change in the audit team without permission • Suggestion to monitor the capacity of the audit firm before awarding multiple state audits. Insist on separate teams for different states • An audit evaluation form prescribed to be prepared by the state to provide feedback on statutory auditor . Could facilitate reappointment of auditor if found suitable 11

12. Analysis of Concurrent Audit Systems- Issues • Analyzed, both at the state and district levels, in terms of • Appointment and selection process of the auditors • Adherence to scope of work • Quality of concurrent audit report • Quality of action taken • Delayed or no appointment of the state concurrent auditor • No formal bid evaluation cum selection committee formed and format of technical bid not followed strictly • Delayed or no appointment of the DHS concurrent auditors due to lack of availability of local firms etc • Large fee variation and very low audit fee Appointment & Selection • Non adherence to the scope of work by state concurrent auditor specially in monitoring and analyzing the district concurrent audit reports • Inconsistency in the frequency of the audit • Inadequate coverage of blocks and peripherals • One audit firm conducting multiple audits • Incomplete manpower/ incomplete information available at sub district levels Scope of Work • Low quality of audit reports, no qualitative assessment, missing or incomplete checklists, missing financial statements etc • Late submission of audit reports • Low quality and delay of district concurrent audit reports result in justifying non action by the state Reporting/ Action taken 12

13. Analysis of Concurrent Audit Systems- Recommendations Formation of Audit Committee Remuneration of Concurrent Auditor • Need to create an Audit Committee • Composition of the Committee • Mission Director • State Finance Manager • Other Representatives from government • finance department • External finance expert • State Accounts Manager • State Concurrent Auditor,DAMs and District Concurrent Auditor to participate in meetings (by invitation only) • Functions of the Committee • Ensure timely appointment of statutory and concurrent auditors • Review status of timely completion and quality of audit reports • Discuss key audit findings with state personnel and suggest actions • Assess training needs for auditors and review the feedback on them • Recommend necessary guidelines, circulars etc necessary for management control • Monitor adequate follow up action being taken on the audit observations • State should have a realistic 'fixed budget' of audit fees or go through a competitive process without a fixed budget (market would then determine fee) • Instead of providing a low cumulative fee, the fee structure can be segregated as follows: • Monthly/ Quarterly fee for the district audit • Monthly/ Quarterly fee per block visited (to include on rotation basis, coverage across health institutions under the block) • This will ensure the following: • Fee is commensurate with the audit coverage expected • Separate fee for block and district will help focus on blocks as a separate entity ensuring a qualitative block audit. • Good Practices found documented in report. 13

14. Analysis of Concurrent Audit Systems- Recommendations Contd.. Appointment and Selection • Focus on timely appointment of auditors. Statutory auditor appointment timelines could be considered • Preferably the state should appoint district concurrent auditors • Improvements in the Technical Evaluation process to ensure high quality concurrent audit • Regular review of audit progress and re-appointment of auditors only if they have satisfactorily performed on the basis of an Audit Evaluation Form • Auditor remuneration to be re-structured upward significantly based on scope of work assigned and coverage Scope of Work • Multiple audits to be awarded as per the capacity and skills of the audit firm • Scope of work to include adequate coverage and reporting on sub district level units • Submission of audit plan by the audit firm to monitor proper coverage during the audit • State Concurrent Auditor to have a sufficiently large team to enable it to carry out its scope of work Reporting • Measures to improve the quality of the report like acceptance of the report by DAM before releasing the fee etc In order to improve the effectiveness of concurrent audit, an assessment and benchmark tool has been designed to benchmark and rate units based on quality of their FM systems, quality of concurrent audit and quality of action taken to bring about improvements 14

15. Snapshot of the Benchmark Tool Objective The benchmark tool will enable the supervisory units to assess the robustness of the FM system of their subsidiaries, rate them for a comparative analysis, and also to improve the performance of the units by closely monitoring them on the ‘performance measures’ defined below. Performance Measures Health of the FM systems (A) Quality of Concurrent Audit Process (B) Quality of Monitoring/ Action Taken (C) • Assess the as-is state of: • Books of accounts • Internal controls • Staffing • Reporting • Compliance with guidelines • Timelines and quality of reports • Monitoring Mechanism • Quality of follow up action Scoring The benchmark tool quantifies the performance of the unit under the three performance measures by allotting marks under each section. Ratings are as follows: 15

16. NRHM- Financial Management Evaluation of Implementation of Customized Version of Tally & Development of Road Map for its Implementation 16

17. Scope of Work Need for standardization of accounting systems and methods across the states has been recognized. • The center has mandated all states to implement the customized version of Tally under NRHM. • Scope of Work included: • Evaluation of the implementation of customized version of Tally in Karnataka and recommend on the feasibility / suitability of the replication of the customized version throughout India • Identification of issues and recommend actions to mitigate non implementation • Development of a detailed roadmap for implementation / roll out of the customized version throughout the country. 17

18. Mandate from GoI to Implement Tally Across States • The MoHFW, GoI has advised all the states in August 2009, to procure customized-version of Tally ERP 9.0 to help standardize and streamline the process of accounting, book keeping and reporting at various levels. • Progress is as below – Many states are either yet to adopt customized version or are in a preliminary phase of installation / training. • Karnataka (Pilot state) is still in the initial stages of implementation (till district level). 18

19. Overview of Special Features under NRHM Customized Version of Tally NRHM Vouchers Financial Statements To account for different categories of receipts and disbursements • Income & Expenditure • Balance Sheet • Schedules Features in the Customized Version Electronic Transfer of Data NRHM Reports • Export/ Import of date (excel sheets through e-mail etc) • Online Synchronization (required online internet access) • FMR • SoE • FMR • SFP 19

20. Administrative/ Implementation Issues 20

21. Functional and Technical Issues * As per subsequent feedback from the Tally Vendor, many of the above issues can be addressed and action has already been taken /is underway to incorporate them Implementation of customized version of Tally is a good step forward in the short term but in the longer term, the MoHFW may consider the option of evaluating/ developing a web enabled solution in a central environment for NRHM 21

22. Recommendations • Top management Prioritization Constitution of Core Implementation and Monitoring Group MoU/ Agreement with Tally • Need to create a dedicated team at the state level comprising of 3-4 people • Functions of the team • Develop a road map for implementation with activities, timelines and responsibilities • Monitor process of customization and implementation • Co-ordination with Tally representatives and finalization of agreement with them • Dissemination of important information / instructions to districts / blocks • Monitoring progress on data entry, feeding in of reconciled opening balances and report generation • Addressing other operational issues with respect to Implementation (Query resolution mechanism, etc.) • Validation of the reports / data being generated and setting out further customization requirements required by Tally in future • A formal agreement / MoU shall be entered into between Tally Solutions and state authorities • Aspects of MoU • Number of single / multi user licenses required / Number of existing licenses to be upgraded • Additional customization aspects (if any) • Training support to be provided by Tally / Tally Agents at state / district level, including user manual / training material / handbooks, etc. • Role of Tally in handholding / implementation / trouble shooting support / helpline • Costs for licensed version, training, hand holding, future involvement, etc • Timelines for each activity 22

23. Recommendations Contd.. • Preparation of a detailed roadmap with timelines and responsibilities needs to be created (suggestive phase-wise Road map has been suggested) • Identification of Tally champions to assist in implementation at lower level units and act as first level contact for any support • Systematic installation and training initiatives (suggestions made on the options that can be used) • Ensure adequate human resources (Tally/ IT staff, training) • Plan adequate support / follow-up activities (Help desk/tally champion/tally support/ other external support agencies) • Ensure requisite infrastructure like dedicated computer, power back up, internet connectivity, etc. • Close monitoring from GoI level - Need to create a designated team at the centre / FMG level to monitor the overall process of customization and implementation of Tally across states 23

24. THANK YOU 24