May 2007

“Khajane”-The Online Treasury Computerisation Project

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“Khajane” is a major e-Governance initiative of the state government of Karnataka, India.  It is first  project of its kind in the country where the entire array of Treasury activities has been computerised.  This is the only project where from the time of approval of State Budget to the point of rendering accounts to the government the entire activity can be tracked in the system. By automating procedures and internal controls, it has strengthened the financial controls and promoted accountability and resulted in huge expenditure and efficiency gains.

Context of the Innovation and Conception of the Project

Khajane project has been implemented mainly to eliminate systemic deficiencies in the manual Treasury system and for the efficient management of State finances (administrative units below districts). There are 216 Treasuries functioning across the State, of them 31 are District level Treasuries and 185 are Sub Treasuries at Taluk and Sub Taluk levels. The Treasuries in the State disburse salaries to about 700,000 Government and Grant-in-aid employees, services 430,000 Service Pensioners and 1.5 million Social Security Pensioners. 21,000 Drawing Officers from 228 Departments draw money for implementation of 2117 schemes from the Treasuries in the State. The Treasuries handle about INR 36,000 Crore of Receipts and INR 46,000 Crore of Payments annually. In addition to State Government transactions, the Treasuries also handle the Zilla Panchayat/Taluk Panchayat (Rural Local Bodies) transactions amounting to  INR 8135  Crore.

In the manual Treasury system, due to ever increasing volume of transactions, certain systemic deficiencies had crept in. This was mainly due to gaps in the information of budget release, funds already utilised and the balance available etc. While the information was maintained at the District level, expenditure happened at multiple points, i.e. in all sub treasuries in the district. This resulted in overdrawl and fraudulent drawl of funds in few cases. Misclassifications and non-Reconciliation of expenditure. Delays in submission of accounts and in settling the claims were some of the deficiencies. Officials in treasuries had to look into multiple registers to validate a single bill. The compiled and classified expenditure and revenue details used to reach the government at least 60 days after the actual transaction.

A Committee headed by the Secretary, Finance Department (FD) studied the working of Treasuries and in consultation with software and networking experts from Indian Institute of Science, Indian Institute of Management and M/s Software Technology Parks of India, Bangalore, suggested comprehensive computerisation of all the treasury activities and networking of all the treasuries in the State to eliminate the above deficiencies.

The stakeholders of this basically G2G project are the finance department, other departments of the government, the Accountant General and Service Pensioners, Social Security Pensioners and Grant-in-aid Institutions. They were taken into confidence before drawing the blue print for the Project.

A Tripartite agreement, for the implementation of the project, between the state government, the service provider- M/s.CMC Ltd., and the network provider– M/s. STPI, Bangalore was signed on 8th January 2001. The software developed was deployed, after initial trials and  testing, in five pilot sites between May and October 2002. A parallel run was carried out for  about 6 months. The roll out was complete and all the 215 treasuries went online from 1st November 2002.

Application Software:

The software has been made modular and highly user friendly.The development of each module was supervised by a separate treasury team. The modular nature of the application  software has helped the department in adding many new features to the project without  disturbing or restructuring the existing basic software.

The application software caters to the needs of the department covering all varieties of transactions handled by the treasuries. These modules are: i) Receipts; ii) Payments; iii) Deposits; iv) Stamps and Strong Room; v) Pensions; vi) Social Security Pensions; vii) Accounts; viii) Returns; ix) House Keeping and; x) Master Maintenance.

Objectives:

The main objectives of the project were to:

  • Network all the Treasuries for easy access and better control.
  • Monitor all the transactions through the central server, Online.
  • Eliminate all systemic deficiencies.
  • Introduce effective budget monitoring and ways and means to control through the system
  • Automate generation of monthly accounts and
  • Set up a Comprehensive Financial Management Information System (FMIS) for better  management of state finances and contribute for meaningful review of progress of various schemes.


Salient features of the Innovation

Networking: All the 216 treasuries in the state are connected by a V-SAT Network and all bill transactions are monitored through the central server. Master files common to all the treasuries are updated from the central server only. All the government revenue and payment details are updated online centrally. The government has access to the real time data regarding expenditure.

Online data processing:
bills presented to treasury are processed and passed for payment   online. Various master files facilitate proper validations of the claims ensuring adherence to the provisions of the financial code. The process encompasses related activities like cheque printing, delivery and accounting. The data captured at the time of bill entry is used for system validation of the bill, as well as for finalisation of accounts and various reports.

Automated Account Generation: Data captured at the point of bill passing is used for all further processes like cheque printing, issuing and capturing payment details of cheque, reconciliation, accounting and preparation of Management Information System (MIS) reports eliminating many duplicate processes.

Comprehensive Expenditure Reports:
Various reports as per the needs of the Drawing  and Disbursing Officers (DDOs), Controlling Officers (COs), Chief Controlling Officers (CCOs), Financial Department, Departmental Secretaries in the government are generated. Starting from providing individual DDOwise, billwise details to major headwise, schemewise, sectorwise details, a wide variety of regular and exceptional reports are generated in the system.

Online Bill Clearance In The New System: In the computerised system, the role of the treasury officials is limited only to entering the details of the bills into the system. The validations of the bill against the budget availability, requirements regarding the provisions of financial code, treasury code, and manual of contingent expenditure will be validated by the system itself. The system checks for the validations and the genuineness of the drawing officer, the authority for him to draw the money for the scheme, whether it is within the financial powers. The budget availability will be validated by the system itself. The discretionary powers of the treasury officer have been brought to the bare minimum like only examining, whether certain annexures have been enclosed and certificates given by the  drawing officers. If the system raises an objection, the treasury officer has no discretion to over look it. With these system validations in place, the compliance and strict adherence to the provisions of various codes is ensured.

Budget Control: The system controlled budget monitoring is an important feature of this   Project. The budget releases by the Head of Department (CCO) to COs are uploaded to the central server at treasury network management centre after due verification by the system. They are transferred to the COs across the state in the district servers immediately. A similar budget distribution by the COs at district level to their implementing officers (DDOs) is uploaded at the district treasuries which are again after system validations is passed to the taluk server immediately. This budget distribution is released with full particulars up to the last item of expenditure, by the time the treasury officer captures the details of the bill into the system, the system already has the information regarding the funds released for this particular scheme/DDO. If the fund is available, the bill will be cleared, otherwise system raises an objection. This has eliminated the overdrawl of funds and misclassification.

Ways & Means of Control: The Finance Department can operate ways and means to control   directly on the central server after taking into cognisance of the cash availability and outstanding liability for the day. The system will restrict the clearance of bill across the state for the financial limits set by the finance department. This helps the government in better cash management and prevention of Overdrawls.

Online Fund Transfer:
In the manual system, the funds released to urban local bodies used to take minimum 4-6 weeks to reach the urban local bodies across the State and there were several stages of passing of orders and bill processing at state, district and taluk level. In the new system, Secretary, Urban Development, presents a bill at Bangalore and gives a list of urban local bodies and the amount to be transferred. The bill is cleared in Bangalore and the same day the money is transferred to urban local bodies accounts in treasuries across the State eliminating all the intermediary steps and delays. This on-line fund transfer facility is   also extended to the deposits of the Deputy Commissioners. This facility could be extended to all the deposit accounts, which are held in the Treasuries.

Monitoring of NDC Bills:
Non-payable Detailed Contingent (NDC) bills are the final   settlement bills for funds drawn as advances to meet the emergent payments by the implementing officers. In the manual system, there was no way of tracking the pending NDC bills as controlling officers were directly sending the NDC bills to the Accountant General (AG). A large number of cases of non-submission of NDC bills were observed by the AG. Now the government has implemented the procedure and the NDC bills are now being routed through the treasuries. A new provision has been made in the “KHAJANE” software so that the system will track the pending NDC bills and it will not allow the next AC bill to be cleared if the NDC bill for the previous AC bill is not cleared within 30 days. Now the DDOs have no option, but to submit the NDC bill within 30 days if they want to draw the next AC bill.

Social Security Pension Payment:
The state is disbursing about 15.7 lakh social security pensions like old age pensions- 5.1 lakh, physically handicap pensions-3.9 lakh, destitute widow pensions-6.7 lakhs every month across the state. Each pension is Rs.200 per month. With computerisation of treasuries the printing of this voluminous money orders have been decentralised upto sub-treasury level disbursed to pensioners during first week of every month, at their doorsteps.

Transparency in Treasury Transaction: To enhance the transparency in treasury transactions, the FIFO (First- In-First-Out) system is introduced in all the treasuries. The system will decide the seniority of the bill as soon as the bill is entered and clears it on FIFO basis. Interactive Voice Response System has been introduced to facilitate the DDOs to know the status of bill in treasuries by a mere Phone call.

Man Power Savings:
The implementation of the project has resulted in huge manpower saving because of automated classification and compilation of accounts at the treasury level. About 200 posts in the department of treasury have been abolished and about 300 staff   members have been redeployed in A.G.’s Office. This has resulted in saving to the government of about Rs.10 crores per annum. Though not quantifiable the elimination of overdrawls, prevention of frauds and drastic reduction in misclassifications has resulted in saving quite huge amounts.

Financial Management Information System:
The details captured at the time of bill   entry itself are utilised for preparation of classified accounts and also to generate various financial MIS reports. These reports are used by the finance department for management of state finances and by the departments and the government for reviewing the progress of implementation of schemes.

Some of the reports that are sent to FD online are reserve bank deposit statement giving the  details of cash received and cash disbursed for the day, the number of cheques issued by the  treasuries and the number of bills presented, and the number of bills pending in the treasury.  This helps in better management of the State finances. The finance department is in a better  position to monitor the ways & means position.

The following reports are generated on 2nd / 3rd of every succeeding month and shared with  the secretaries/heads of the departments. Tax & non-taxes Receipt of major departments with  daywise and districtwise detail are also provided the departments. Major headwise  expenditure, schemewise expenditure, object codewise expenditure, ministrywise / departmentwise / schemewise expenditure reports for the review of plan schems of Karnataka  development programmes are generated. The fund balances of zilla panchayats and taluk  panchayats. Reports on budget provisions, fund releases and expenditure incurred on district  sector plan are also made available. The treasuries are also providing the details of bills drawn  from the treasuries by the individual DDOs before 5th in a soft copy. This is to  facilitate the reconciliation process.

Major tax collecting departments are given daily collection reports so that they could take corrective steps and strengthen their recovery mechanism wherever shortfalls are noticed.

Dynamic reallocation of funds to needy areas has been facilitated by the online realtime expenditure details available in the central server. Now a days all requests to the finance department for additionalities and re-appropriation are regularly referred to the central database. In many cases it has been seen that though the head of the department is under the impression that on allocation of funds to his subordinate offices, the expenditure is incurred by them. But in reality lot of funds are found unutilised with DDOs in many cases. This has eliminated the futile exercise of providing additional funds and later on treating them as  savings as the department will not in a position to utilise these funds.

Lessons learnt

Elaborate study of the existing system and its deficiencies by a committee headed by the Secretary, (r) finance department, helped the department in determining the exact directionand objectives that had to be achieved by computerising the departmental processes. The objectives were clearly spelt out in this report and the project is based on these recommendations.

Systematic reengineering was undertaken by standardising the formats and the procedures, eliminating all redundant processes. Large vaerities of bill formats used in the manual system were rationalised for computer environment and finally the number was brought down to nine standard bill formats. Redundant procedures like entering the bill details in multiple registers were eliminated. The number of Drawing Officers are brought down to around 21,000 from 40,000.

Motivating the staff and keeping them informed and involved has been a major boost. Their feedback was also considered before finalising the application software. User friendliness of the software, simplification of processes, elimination of the drudgery of preparing and tallying the accounts has helped the easy acceptance of the system by the employees. The attraction of simplified accounting procedure which required no separate effort on preparation and tallying of accounts was one of the main points that caught the imagination of the staff members.

Number of service providers for implementation of the project was limited to just two- service  provider to develop the application software, supply hardware, bought out software (O/S & Database), UPS, LAN, and also to provide training and maintenance and – network provider for providing wide area network using V-SAT technology, and this has helped in smoother  coordination. This was due to the lessons learnt by the department in their previous endeavor  of district treasury computerization where because of multiplicity of vendors involved like  hardware provider, O/S providers, UPS supplier and application software developer, and lack of co-operation and co-ordination between them has caused great hardship
in the implementation.

The pilot testing of the application software was carried out in 5 sites, which covered all types of treasuries like district treasury, sub treasury, banking treasury and non banking treasury (which existed at that time). The trial run covered all varities of treasury transactions in full scale and was carried on for sufficiently long period which enabled the department to fine tune the application, to modify and make it more user friendly and fix number of bugs.

The progress of the project was very closely monitored by the two Committees, the steering committees headed by the secretary, FD and experts from IISc., IIM and other Stake Holders met once in a month and took decisions on policies and major technical, software and implementation related issues. Such regular and close monitoring led to timely completion of the project as all the decisions required were taken in the committees after due deliberations.

Nearly 2000 staff members were trained to handle the software and even trainers training  was provided before roll out. A core team of 25 officers were trained thoroughly by M/s. CMC  team regarding using the application Software, preparation of accounts, system  administration etc. At least one experienced officer was included in this core team from each  District. They acted as nodal officers for training at the districts. About 1400 staff members  were trained on basics of computerisation, mainly data entry, 600 officials on use of  application software. About 75 officials were imparted with system administrators training, and they were also used as trainers at the district level. Refresher courses are held regularly and as and when any important modifications or additional modules are introduced trainings  on operating these modules are conducted to keep the knowledge base updated.

Periodic trainings are being conducted to officials who are newly recruited and those who have come back from deputation from other departments.

Conclusion

The project is designed not only to cater to the needs of the department but also needs of the  other line departments. It is an integral part of the budget system reform, hence not only  designed to meet the present requirements but also to support any needs that are likely to arise later.

As a management tool it provides information required for decision making from the Drawing  Officer’s level to the highest level. Though basically anchored in the government accounting system, it is designed to generate verities of custom reports for internal and  external use, apart from the regular accounting reports.

The essence of the system lies in its capacity to accumulate, process, and provide information  to all the parties concerned on a realtime basis, most accurately and speedily. By system validations and internal controls, this has strengthened the financial controls and accountability.

Undoubtedly the project has ushered in unprecedented kind of financial discipline which  augers well for the financial management of public funds. The full potential of the project in  the form of huge data of high quality generated can be used better for monitoring, reviewing,  planning, auditing and to study the trends and patterns of revenue receipts and expenditure etc.

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