This PPT delivered for Institute of Chartered Accountant of India as a training tool narrates success story of municipal accounting reforms carried out by Vadodara Municipal Corporation of Gujarat and provides roadmap for municipal accounting reforms

1. EXPERIENCE OF VADODARA MUNICIPAL CORPORATION -
CONVERSION OF ACCOUNTS FROM CASH TO ACCRUAL BASIS OF
ACCOUNTING
Faculty
Committee on Public and Government Financial Management
Institute of Chartered Accountants of India
Online Recording of Presentation on 16th July, 2020

2. 08-07-2021
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1980’s Mumbai,Chennai & KolkattaWBTA for Water and Sewerage Service
1990-94Vadodara and other Cities of Gujarat underWB TA
1997-01Tamil Nadu 105 ULBs
1999-01ADBTA Anand, Jaipur,Tumkur
2001-03 Bangalore, Indore, Ludhiana &
Hyderabad on their own initiative
Initial
Efforts
Policy
Reforms
2003 onwards - Maharashtra, Karnataka,Andhra
Pradesh, Delhi, Raipur, Jabalpur etc.
2000 – 11th CFC Recommendations
2001-Supreme Court Directives
2000 - ICAITechnical Guide
2002–C&AGTask Force,
URI Fund By MOUD GOI
2004 onward – Nagpur,Vejalpur,Thane, Nashik
2004–Model Accounting Manual
2006 – 14 – JNNURM Made MAR
& Public Disclosure Mandatory
2005 -08 – Gujarat MAR – 159 ULB
2006 -14 – MAR undertaken in more than 500 ULB and in
almost all the States of India
Recent
Reforms
2005 – 12 – DFID funded Project in MP andWB
2008-10Andhra & Karnataka adopt online MAS for ULBs
2014 onwards implementation under AMRUTTowns
Municipal Accounting Reforms in India
2005 –10 – 12th CFC – making C&AG
supervision mandatory, States passed
confirmatory legislations
2014 – One
of AMRUT
Reforms

3. CP&GFM, ICAI
VMC ACCOUNTING REFORMS -
INTRODUCTION
 First attempt : July 1990 – July 1993 under World Bank Technical
Assistance : Reasons for failure
➢ Premature or ahead of time before atmosphere of municipal reforms
➢ Lack of opinion building exercise / imposed reform feeling
➢ Lack of top management support in providing
 required staff for implementation
 Administrative solutions to implementation problems
 Inadequate co-ordination amongst departments
 Lack of thrust and motivation to the parties involved in Implementation exercise
➢ Lack of required legal changes to Municipal Act and Municipal Account Code
➢ Audit processes not covered under this Technical Assistance, so it remained
unreformed
➢ Computerization of new accrual-based accounting system was not envisaged, and
implementation was done on manual basis
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4. CP&GFM, ICAI
VMC ACCOUNTING REFORMS -
INTRODUCTION
 Second attempt : 1995 to 1997 : Own initiative by in-house designing and
implementation.
 Successful : Reasons –
➢ Learnings from first failed attempt :What should not be and what should be done.
➢ Sound budgetary reforms byVMC during 1992-1995
➢ Availability of Personal Computers (hardware) and DOS based Tally software
 Process of accounting reforms started in second half of 1995 by undertaking
following:
➢ Conceptualization of accounting reforms,
➢ Procurement of computers and necessary software,
➢ Development of revised chart of accounts and its synchronization with budget heads
➢ Training of selected existing staff about accounting principles, use of computers and Tally
Software
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5. CP&GFM, ICAI
VMC ACCOUNTING REFORMS - PROCESS
 Parallel run of modified accrual based computerized accounting system having
following features started from 1st April1996
➢ Adoption of Fund Based Accounting System - helped VMC to break down accounting
work in homogeneous, manageable and identifiable units, which it could hand over to a
specific person or group of persons. It also helped to overcome the problem of slowing
down of accounting software,
➢ Streamlining of Existing Accounting System - various redundant procedure,
processes, forms were dropped or shortened to free people from the existing system to
carry out parallel run.
➢ Supported by Budgetary Reforms – First of its kind the budgetary reforms of VMC
comprised of -
 Correction of illogical budget structure and classification
 Pruning of budget document
 Introduction of performance and zero-base budgeting
 Giving special status to Revised budget and improving its quality
 Giving LongTerm perspective to Budgeting
 Evolution of resource allocation mechanism
 Introduction of subsidiary Budgeting System
 Making Budget non-lapsable 5

6. CP&GFM, ICAI
VMC ACCOUNTING REFORMS - PROCESS
➢ Application of ComputerTechnology (Tally) from Inception - helped implementation:
 Employees relieved of increase in workload i.e. less no. of persons were required for carrying parallel
run,
 They were relieved of fear of remembering and applying principles of double entry accrual based
accounting.
➢ Formulation of Matrix Structure of Budget and Accounting Heads - No other
municipal accounting reform experiment has evolved or utilized these rules or has formulated
such an exhaustive matrix.
 There must be at-least one budget code (cost centre) for each and every account code.
 There can be several budget codes (cost centres) using the single accounting code.
 But there cannot be more than one accounting code for the single budget code/item (cost centre).
➢ Step-by-step Staggered and Participative Implementation of different fund accounts –
 Municipal Main Fund (Central Accounting System) 1st April 1996
 Municipal Capital Fund (Own Sources) 1997-98 (second half)
 Municipal Capital Fund (Loans and Borrowings) 1997-98 (first half)
 Municipal Capital Fund (Capital Grants) 1997-98 (first half)
 Municipal Public Deposits Fund 1997-98 (first Half)
 Municipal Advances Revolving Fund 1st Sept. 1997 (second half)
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7. CP&GFM, ICAI
VMC ACCOUNTING REFORMS - PROCESS
➢ Ready made accounting software in place of tailor-made software –
Preparation of tailor-made software was costly and time-consuming affair in
1990s. Prior to 1995, there were few ready-made accounting software packages
available in the market, but they had a closed environment and fixed chart of
account. These packages were not useful to municipal bodies as they have
different types of receipts and payment heads.
➢ Use of Cash Based along with Double Entry Accounting System -
innovation utilized in parallel cum test run and later on continued in selected
areas of the main system. It was observed that more than 80 per cent benefits
of improved accounting reforms come from application of double entry
accounting system in place of single-entry accounting system.
➢ Training concentrated on operational aspects (on the JobTraining)
➢ Cost efficient, economical reform process – VMC spent only Rs. 5.5 lakhs
(additional) in all on hardware and software
➢ Non-Employment of Any Additional Staff
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8. CP&GFM, ICAI
VMC ACCOUNTING REFORMS - PROCESS
 Since 1-4-1998, VMC is maintaining its accounts on double entry modified accrual-
based accounting system.
 In year 2000, VMC adopted Windows platform based Tally Software and upgraded
computer hardware.
 Since then, VMC has gone on improving software and hardware configuration from
time to time. Computerised accrual based double entry system is operational in
VMC with following features
➢ Fully Computerised system, runs on ‘on-line’ basis.
➢ Uses ready-made accounting software.
➢ User friendly – any non accounting background employee can be put to work.
➢ No additional staff for implementation.
➢ After shifting to DEABAS, total staff of Accounts Department got reduced and even with
increased load of work, increase in staff was not required.
➢ Timely - works on real time basis.
➢ Capable as a tool of decision making. 8

9. CP&GFM, ICAI
VMC ACCOUNTING REFORM - IMPACT
 Quality of accounts improved in totality
 Double entry made detection of unintentional errors and
prevention of intentional errors possible
 Fund accounting removed extra-ordinary receipts and
payments from political process
 Improved financial discipline - budgetary and financial control
of the expenditure
 Knowing sector-wise allocation, service-wise deficit and
subsidy, individual source-wise revenue & its costing became
feasible. (Reduction in staff ofVMC in general)
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10. CP&GFM, ICAI
VMC ACCOUNTING REFORM - IMPACT
 Cost economy and cost comparison in decision making
became possible
 Solved the menace of increasing unadjusted advances
 Helped VMC to present its annual accounts in a market
friendly language. (Loans from commercial banks)
 Also made it possible to go for credit rating
 Unearthed savings and plugged loopholes/wasteful expenditure
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11. CP&GFM, ICAI
VMC ACCOUNTING REFORMS – IN SUM
 The secret of successful accounting reforms inVMC lies in
1. Understanding the requirements, strengths, limitations of VMC (SWOT analysis)
and
2. Formulating an appropriate implementation plan for undertaking reforms.
3. Theoretically appropriate, participative, user-friendly, tuned to the ground
realities, cost effective and more importantly capable of mass replication. (It was
used to implement accounting reforms in 169 ULBs of Gujarat during 2006-
2010)
4. Holistic as it takes into its fold budgetary and administrative reforms also.
5. Indigenous and different, it took a longer period to evolve but it can be
replicated in any other municipal body.
6. Innovative implementation solutions.
7. It is difficult but not impossible to develop appropriate accounting reforms
model for the municipal bodies. The crux of problem lies in formulating suitable
implementation strategies to undertake any type of reforms in a municipal body.
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12. CP&GFM, ICAI
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