INTRODUCTION:
In one of the land mark decisions[1] of Government of India, commercial
entities under Currency and Coinage Division of Department of Economic Affairs,
Ministry of Finance were corporatised with effect from 10th February
2006. There were nine such departmental organizations responsible for printing
of currency notes, security paper, travel document and postal stationery,
minting of coins, medals and medallions, production of security paper,
etc. The daunting task ahead was to
ensure transformation of departmental units into a company registered under Indian
Companies Act, 1956. However, the
immediate challenge before the management was to prepare accounts, consolidate
and comply with statutory provisions.
In order to achieve this, it was thought prudent
to build on the available data and prepare accounts of the units with maximum
possible accuracy. These units were
maintaining cash account and a subsidiary account namely proforma account. This
is a kind of accounting record generated at the end of financial year by
collecting and collating the data from cash accounts as well as other records. There
is no set accounting principle and no prescribed format to collect and present
information. Some broad outlines are stipulated such as requirement of
preparation of Balance Sheet, Profit & Loss Accounts and method of
calculation of depreciation. Available
data of proforma account was adopted and all expenses incurred by Government of
India in running these units, net of earnings were taken into consideration to
arrive at sources and deployment of funds.
As per the consolidation these funds amounted to Rs.3237.71 crores as on
10/02/2006[2]. In order to complete the preparation and
compilation of accounts, account codes were devised, guidelines issued and
continuous monitoring was done to achieve this objective in a time bound
manner. There were several challenges
like non availability of accounting data, lack of trained manpower and resources,
non availability of authentic and revalidated data on assets, preparation of
books of accounts on commercial pattern and compliance with provisions of
Companies Act, Income Tax Act and other statutory compliances. With limited resources account was compiled
deriving information from records maintained on cash basis. Inputs were taken from cash accounts
pertaining to cash items and from Proforma Accounts as well as other sources
for non cash items and non-government transactions. With concerted effort accounts upto
31/03/2006 were prepared, audited by Comptroller & Auditor General of India
MANDATE OF MINISTRY OF FINANCE:
Government of India
A. MINTS:
This Mint was established in the year 1829 which is one of the
oldest mints of the Country. It has got
the capacity of minting coins, medals & further, it is also takes care of
refining of Gold and Silver and other metals.
This mint was established in 1952 at
Kolkata. Originally, different minting
facilities were created in and around Kolkata in the 18th
Century. One of the mints was modernized
in the year 1952 and it was then known as Alipore Mint. Later-on Government of India, renamed it as
India Government Mint, Kolkata.
India Government Mint, Hyderabad
was originally started in the year 1903 in the Hyderabad Hyderabad
This Mint was established in the year 1988. The Minting facility at Noida takes care of
the requirement of Coins. This is one of
the modern mints in the country.
B. CURRENCY/BANK NOTE
PRESSES:
- Currency Note Press,
Currency Note Press, Nasik Road India
- Bank Note Press,
Dewas
(Madhya Pradesh)
Bank Note Press, Dewas was established in 1973
and it was notified as commercial Undertaking under Ministry of Finance. It prints Bank Notes of Rs.20/-, Rs.50/-,
Rs.100/- and Rs.500/- denominations.
This Press also manufactures security ink for various security printing
organizations.
C. SECURITY
PRESSES:
India Security Press, Nasik Road
- Security Printing
Press,
This organization was established in the year 1982 and it was
notified as commercial industrial unit under the administrative control of
Govt. of India, Ministry of Finance. It
also prints and supplies low Denomination Judicial & Non-Judicial Stamp
Papers, Postal Stamps & Postal Stationery to Dept. of Post, etc., covering
mostly the Southern States.
D. SECURITY PAPER
MILL:
- Security Paper Mill,
Hoshangabad
Security Paper Mill (SPM), Hoshangabad was established in 1968 and
it was notified as non-commercial undertaking under the administrative control
of Govt. of India, Ministry of Finance.
This unit manufactures different types of Security Papers.
CREATION OF SECURITY
PRINTING AND MINTING CORPORATION OF INDIA
NEED:
From time to time, measures were taken to reform
the above departmental organizations by Government in general and Ministry of
Finance in particular. Government of India
INCORPORATION OF SPMCIL:
Once such reports are accepted by the
Government, depending upon the nature and quantum of change required, approval
of competent authorities is obtained. The consultant suggested conversion of government
department into a company which required approval of Cabinet Ministers of
India. Accordingly, in September 2005 Cabinet Note was put up for
corporatisation of these nine units so that approval of Cabinet is obtained. Union
Cabinet approved corporatisation of units on 02/09/2005. Subsequently, a company
namely Security Printing and Minting Corporation of India Limited was
registered under Companies Act, 1956 on 13/01/2006. Ministry vide Gazette Notification
transferred all assets and liabilities, staff etc. to the company w.e.f.
10/02/2006. Since, the company was not having any liquid resources at the time
of creation and taking over of nine units, it was granted a loan of Rs.7000
million (US$175 million) from Government as working capital to start its
operations and then be at its own. Further Government envisaged modernization
of security paper mill, capacity enhancement of security paper production, modernization
of currency printing unit and automation of various activities being carried
out in traditional manner. It has assured to provide fund for the same.
CONVERSION OF
ACCOUNTS
CHALLENGES FACED:
SPMCIL came into being as per notification of
Government and without creation of necessary infrastructure and support system.
Consultant had advised in reports about creation of a corporate headquarters
manned with a bare minimum strength. Even recruitment of those officers took
time as recruitments need to do be done by following a transparent process.
Therefore, in the initial phases only a handful of officers were there to take
care of affairs at SPMCIL Head Office. At unit level no resources were
available for this challenging task. Financial Advisors and Chief Accounts
Officers (FA&CAOs) of the units were loaded with the responsibility of
handling the implementation of this transition at unit level with their small team
of untrained personnel.
Information on asset and liability at unit level
was not available or if available it was inconsistent or inaccurate. In order
to make the task easier and uniform across the units first detailed guidelines
were issued in April’06. This was prepared keeping the broad accounting policy followed
by business entities in mind. Further, methodology for accounting and timelines
for the project with clearly marked milestones were prepared. Regular meetings,
interactions and rigorous efforts for capacity building were initiated as part
of this project. Units were at different level of computerization and using
different formats to record information. There was no system of capturing
information as per accrual principles. Collating and collecting this
information at unit level was a major challenge. Since the units were
independent in the past, inter unit transactions used to be handled like any
other transaction which led to actual transfer of fund. This further used to inflate
turn over of all units put together as raw material of one unit was the
finished product of other unit and both were treating there output as sales. As
a result of corporatisation, banking became costly and every transaction of
transfer of funds used to cost a lot of money. Banking arrangement needed to be
reviewed to take care of different dynamic requirements of business pertaining
to both cash and non-cash transactions. At the end of all this there was a
major challenge of consolidation of the accounts inputs received from the units.
This included preparation of balance sheet as on 9-2-2006 with necessary
sub-ledgering. Soon after consolidation it was to be taken over in the books of
SPMCIL as on 10-2-2006. This required application of due diligence and accepted
principles of price considerations. Further issues haunting at the time of this
project was preparation of accounting details and disclosures pertaining to
receivables and payables, maintenance of fixed assets registers. Soon after
preparation of accounts it was to be approved by the Board, audited by the
statutory auditors and presented to shareholders in the AGM. Thereafter returns
as required under Companies Act of India, 1956 and other statutory returns were
to be filed.
HOW IT WAS HANDLED:
In order to make the task easier and uniform
across the units first detailed guidelines were issued in April’06. This was prepared
keeping the broad accounting policy followed by business entities in mind. Further,
methodology for accounting and timelines for the project with clearly marked
milestones were prepared. Regular meetings, interactions and rigorous efforts
for capacity building were initiated as part of this project. Accounting
entries were computerized using very popular accounts software with back up
support available at all units. Units were asked to enter the accounting data
in computer on a daily basis and send the back up of accounts in an electronic
form at the end of month. Once the system established, back up was obtained on
a fortnightly basis. Accounts back up was reviewed and corrections were
suggested. As the situation warranted, feed back obtained and corrections
carried out from one unit were circulated in the form of guidelines for the
benefit of all units.
Prior to corporatisation, transactions between
units were settled on cash basis. Receipts were inflated as it was counted
twice. Further, banking operations were also required to be carried out where
book adjustment would have achieved the results. Therefore it was decided to
discontinue this practice after the corporatisation. Now it is being handled
through modern and effective techniques i.e. Inter Unit Accounting on accrual
basis. In this system, Units’ balance sheet shows only funds from Corporate Office
and its application at their end. Since a lot of fund transfer was taking place
at the unit level, it was prudent to have banking arrangement whereby minimum
time is taken in fund transfer with minimum efforts and minimum possible
transaction cost. Accordingly bank was selected through competitive,
transparent tender, covering funds and non-funds parameters. It has resulted in
better management of cash and smooth transfer of funds at no cost, hence
savings.
Almost all units were handling the accounting in
manual forms. There was a set up of Drawing and Disbursing Office which used to
prepare the bill and present to Pay and Accounts Office (PAO) for release of
payment and accounting thereof after pre-check of bill, ascertaining the admissibility
of the claim and look into the availability of budget. After payment and
accounting, consolidation of accounts was done at PAO as done in all other
Government Departments. PAO was computerized but it was handling accounts only
on cash basis. There was a need to ensure that accounting books are maintained
and uniformity is also ascertained across the units. In order to achieve this
mammoth objective it was necessary to switch over to computerized accounting
right from voucher level to consolidation. It was decided to attempt ledgering to
the maximum possible extent with preparation of ledgers, sub-ledgers and
journals.
At Unit Level PAO was recording transactions on
cash basis covering following items/accounts:
Bank Accounts, Expenditure in Grant Heads, Adjustment
Accounts and settlement through other PAOs e.g. Central Public Works Department,
Department of Audio Visual Publicity etc
Therefore SPMCIL got Government Equity/Funds
consisting of net balances of the above transaction and effect of some
transaction handled on accrual basis e.g. interest calculations on loan taken
from Reserve Bank of India
Above information takes care of sources of
funds. Information on application of funds was derived from the records
maintained on cash basis/available proforma accounts (Closing Entries on
9-2-06). Information on fixed assets was tracked from the fixed assets
registers or from the latest available proforma accounts maintained at the
unit. Store records were adopted for quantitative details of inventories. Its
valuation information was derived from the proforma accounts or it was valued
as per the last comparable rate of transaction of the same inventory. Similar
approach was followed for the Work in Progress (WIP) and finished goods.
Depreciation for the period was worked after classifying the assets in
accordance with accounting standards. Sundry creditors were recast based on
store records considering goods taken on credit from the suppliers for which
payment was still not released. Party wise ledgers were maintained for all
transactions. Once the information was collected and entered in the
computerized system, it was necessary to check its accuracy and consistency. To
ensure accuracy of sources of funds, data from accounts of PAO was the most
reliable source hence it was reconciled with him. At unit level this included reconciliation
of collected information with the Bank accounts of PAO and authorizations made
by PAO to other PAOs to incur expenditure on their behalf. To above cash
figures, such authorizations made to other PAOs were added to arrive at total
cash figure. Non Cash Items covered accrued interest liability, liability of pensionary
charges as per General Financial Rules and non-Govt. transactions namely
depreciation (P&L) and its provision (BS). With the above methodology and
checks, accounts for 50 days of operations in the first year and complete year
operation in 2006-07 were prepared and audited.
CAPITAL STRUCTURE OF SPMCIL:
As on 31.03.2006, in the audited Balance Sheet[5] of SPMCIL, there stands an
amount of Rs.28420.93 million (US$710.52 million) being funds adjustable from
Government of India. Due to earlier method of accounting, neither these funds
could be linked and traced through voucher level transaction nor is it
desirable to do that. On the scrutiny of records and assets maintained by
different units, it was noticed that huge blockage of funds is there in
non-earning or unproductive assets. These assets have remained idle in past and
continue to remain so, due to outdated machines and limited production
capacity. Moreover, huge funds have been blocked in social assets created due
to social commitments of the Government of India e.g. huge town ships with all infrastructure,
dedicated power stations, water and sewage line, fire brigade. Besides, large area
of land acquired in various units is lying idle, due to various security
reasons. Considering the above facts, it can be concluded that large amount of
funds are not engaged in any kind of income generating asset hence
non-productive.
Besides, many units were established more than
50 years ago and included Plants & Machineries in their Fixed Assets which
are either obsolete or non-functioning. Neither they are generating any kind of
income nor engaged in the production process. Due to this, SPMCIL had assets in
balance sheet which represent sunk cost and in addition it had to bear huge
maintenance and social cost regarding the prior social commitments of the
Government.
Considering the above underlying facts and
principle of prudence, capital structure of the company is being worked out. As
all assets cannot be attributed as income generating assets, hence need arose to
identify assets into earning and non-earning assets. In order to determine
whether the assets to be treated as financed by the Equity Capital and assets
to be financed through Grant Capital, classification of assets has been done.
This is done to clearly calculate the return on capital invested. Return on
Equity Capital can be provided only through income generating assets and Grant
capital can be used in the creation of various social and other assets.
Equity Capital:
Equity Capital includes Funds attributable to
Earning Assets i.e. Plant & Machinery, Tools & Parts and Inventories
which are engaged in production process. As mentioned earlier, not the entire
asset base is income generating asset. These assets are being identified and
categorized which are likely to be of the value amounting to Rs. 9769.10
million (US$ 244.23 million) as on 31.03.2006.This includes Rs.500,000
(US$12,500) Share capital already raised and Reserves & Surplus of Rs. 323.76
million (US$ 8.09 million). Balance funds may be allocated to Equity Capital which
is Rs. 9445.34 million (US$ 236.13 million).
Grant Capital:
Grant capital represent funds invested in social
and maintenance assets and are non-earning in nature. They have been spent
either in acquiring assets facilitating production in indirect manner but not
directly attributing to commercial production activities of the units. Besides,
it includes social asset created due to welfare and social policies of
Government, for instance huge partly unused residential colony for workers. It
is estimated that asset which may be termed as Grant Capital amounts to Rs.18354.50
million (US$ 458.86 million) out of total remaining amount of Rs. 29632.80
million (US$740.82 million). From this amount outside liabilities of Rs. 11278.30
million (US$281.96 million) have been deducted to arrive at the balance which
may be attributed as Grant from Government.
Conclusion
With
clear objective, methodology and specific targets, conversion of accounts from
cash to accrual was handled at SPMCIL. This has benefited the management in monitoring of units on industry standards, specially financial ratios and
operational parameters. Inventory built up was huge and now
the issue has been flagged due to the above reforms. It has resulted in
liquidation of unserviceable/unused inventories, increase in inventory turn
over. As the process of reforms was handled almost in a war like situation,
available resources were drenched beyond their capacity. In order to get the
benefit of reforms and continue with it, capacity building and training is
essential. A set up needs to be created to take care of auditing at unit level
in a timely manner. As accrual accounting involves greater detailing, data
capturing and analysis, hence significant cost and man-power (man-hours) are
required. In the end, it must be highlighted that accrual accounting involves
more man-efforts and cost than cash accounting.
Note: This article was published in the Jornal " Journal of Centre for Management Studies, New Delhi"
[1]
Gazettes notification of Government of India, January 2006.
[2]
Source: Department of Economic Affairs, Ministry of Finance, Government of
India.
[5]
Audited Accounts of SPMCIL
