Delegation of Financial Powers & New Management Strategy

14 February 2012

Real Zest of life lies not in Achievement but in its Effort, not in Arriving but in its Striving

IFA scheme changing the face of DAD

Words of Former President Honble APJ Abdul Kalam addressed to IDAS Officers: -

Transformation of Finance and Audit as Partner of Defence Missions. Performance Audit rather than conventional Audit. Cross fertilization of ideas between Executives and Finance. Advice should be How to do it rather than How not to do it
Contd

Contd..
Expectations from IFA: IFA role should be seen as big opportunity to project the professional image of DAD. Providing Rich dimension to the core tasks of DAD. Provide solutions to the problems to get respect for the advice we render. IFA role to be understood as part and parcel of the decision making process IFAs are as a matter of fact, an extension of Ministry of Defence (Finance)

BACKGROUND
Scheme of Delegation of financial powers had its origin in 1975.
In 1975 MOD had following powers
Full powers for procurement of scaled stores Rs. 50Lakhs for non-scaled stores Single tender power was Rs. 25 Lakhs PAC Power was Rs. 10Lakhs

Genesis
Committee of Defence Expenditure constituted in 1990 recommended substantial delegation of financial powers to the Services. MOD mooted initiation of further studies on the concept of Authority-cum-Responsibility-Budget Centres on the lines those adopted by the UK Army. These initiatives planted the seeds for formulation and implementation of New Management Strategy (NMS) for the three Services. Implemented in 1995 to 1997.

Genesis
Post Kargil Group of Minister (GoM) Report on Higher Defence Management made recommendations for:
Review of the financial powers of the three Services. Thus Committee on Delegation of Financial Powers was set up in 2001. Outcome Delegation of Financial Powers (MOD letter dated 22nd April 2002)

Portion of Revenue budget delegated to Service HQrs. The powers were to be exercised in consultation with the Integrated Financial Advisers.

Genesis
More refinement was required:
Decentralizing the process of decision making, Remove anomalies and inadequacies to make the system more effective, Review of Powers delegated vide the above orders and other Govt letters delegating financial powers to the Services CFAs, as amended to date.

PMOs directions to Review the Delegation of Financial Powers to the three Services.

Genesis
Recommendations of the Committee set up by the RM under FA (DS) in Dec 2005
Further enhancement of financial powers of CFAs General principles & policy guidelines kept in view Delegated powers to CFAs who were earlier overlooked in the review of 2002 Provisions of DPM 2005 and GFRs 2005 kept in view Delegation emphasizes `Value for Money which encompasses economy, efficiency and effectiveness.

Outcome Delegation of Powers MOD letter 2006

Why Delegation required?

Trend of Defence Expenditure/Budget

120000 100000 80000 60000 40000 20000 0 2002-03 2006-07 55662 89000

106000

105600

Budget (In Rs. Crores)

2007-08

2008-09

Why Delegation required?

Before Delegation

Procurement Budget Utilisation. Consequently, the number of low and medium value cases handled by the Services and lower echelons will go up from 82% to 85% and only about 15% high value procurements and majority of PAC / Single tender cases would still be referred to MoD
MOD 54% MOD 70%

After Delegation

Services 30%
Services 46%

Services MOD MOD

Services

Why Delegation required?

Enhancement of Powers linked with budget: Linked with the Sub Head, detailed head-wise budgetary allocations with a mandate for concomitant improvement in efficiency and OP preparedness. Also improves linkage of financial powers with budget centres/acccounting.

Highlights of Delegation
Decentralisation.
Decentralisation of powers required from Service Headquarters and lower echelons down to Field functionaries.

Special Operational Powers.

Initially Powers exercisable during War, Hostilities and Special Operations without consultation of IFA, were delegated to the PSOs / Commanders-in-Chief in the Navy in April 2002,

Now these have also been now provided for the Army and IAF,
to be invoked on issue of a Govt Notification declaring a state of ops.

Dispensation for Field CFAs.

Certain enhancement of financial powers has been considered for the CFAs to whom IFA cover has not been provided as in far flung and operational areas and for handling emergencies.

Highlights of Delegation
Rate Contracts.
Powers delegated to Service HQrs and DGAFMS to enter into Rate contracts for common usage items/ stores / medicines with standard specifications Large annual turnover to enable users/ hospitals to make direct procurements based on rate contracts finalised centrally by the former.

Type of Procurement.
Distinction between powers proposed for sanctioning procurements on OTE/LTE basis and purchases on Single Tender and PAC basis. No enhancement of financial powers for Single tender purchases Certain high level CFAs who were omitted earlier in Apr 2002 e.g. VCOAS & VCAS now included.

Highlights of Delegation
Increase in Powers

Objective
For Procurements ex-trade Procurements/Repairs/Overhauls ex PSUs/OFs and Govt. Deptts in Navy and Air Force Induction of newer and more technologically advanced equipment.

Scaled items

50-100%

NonScaled items

50-100%

Highlights of Delegation
IMPORTS

Description Increase
Highest CFA in Army/IAF Enhanced to Rs. 20Crs

Objective
Will cover requirements of Army including Special Clothing & Mountaineering Equip for troops in Siachen As per Navys requirement/Projection Includes Powers for release of FFE in consultation with respective IFAs

Highest CFA in Navy Powers of ExImport

Enhanced to Rs. 12Crs Up to limits of delegated financial powers of various CFAs

Highlights of Delegation
Measures Suggested. Better fiscal management in the Services, Resulting in tangible benefits by way of timely acquisitions, Time bound implementation of schemes / projects, improved availability and serviceability state of major weapon systems / platforms / equipment in the hands of the field functionaries and optimum utilization of in-house capabilities built up over the years

Institutional Safeguards
Priority Procurement Plan. Formulation for each Service in all major areas of procurement,

Should indicate the carry forward liabilities and new schemes during the FY,
Periodical reviews to see the results achieved vis--vis targets set. Funds are to be spent within the ambit of overall prioritized plan CFA at each level should have his plan for the budget allocation held by him which dovetails into the overall plan for that purpose. These plans will be made both at HQ level and Command level in respect of various budget holders and notified formally in consultation with their respective IFAs.

Institutional Safeguards
Link between Revenue and Capital Plans.
The progress of schemes under the delegated powers of the Services and those to be executed under MoD powers must be monitored separately on a monthly basis at the level of MOD. The Revenue Procurement Plan must be correlated appropriately with the Capital Acquisition Plan to ensure that the linkage between the two is well taken care of.

Approval of Procurement.
The TPC / PNC will only be a recommendatory body for procurements which will be sanctioned at next higher level by the CFAs, both in Service HQrs and in MoD.

Use of In-house Capability.

The in-house capacity of Ordnance Factories, Army Base Workshops/Advance Base Workshops, Base Repair Depots, Naval Dockyards and Defence Shipyards must get utilised optimally.

Institutional Safeguards
Accountability.
Norms to be established by delineating measurable performance parameters for each major area of expenditure, such as
availability of major eqpt / weapon systems /aircrafts /ships, maintainability and serviceability aspects, Major Works Program, automation of Services, training etc.

Identification of these quantifiable targets is to be completed by the Services in six months time, Regular monitoring of performance against targets set, in sync with the outcome budget of MoF.

Multiple Interface.
Revenue Procurements having Civil Works and manpower induction components to be reviewed as projects To be monitored on a regular periodicity with reference to major milestones.

Institutional Safeguards
Implementation of Transportation Model.
The transportation model for direct dispatch of stores from the OFs /PSUs /Suppliers to the ultimate consignee must be implemented Central stocking to the maximum extent possible in the CODs / Depots,
Reduce transportation costs and ensure timely availability of equipment with the actual users.

Institutional Safeguards
Capital Acquisitions.
Delegation of financial powers to Services at the level of Vice Chief/ Dy Chief is recommended for Capital Schemes/Projects costing upto Rs 30 Cr.

The CFAs would be able to sanction approx 35% of the total Schemes and approx 1 % of the budget in the AAPs of the respective Services.

Necessary checks and balances are being provided to ensure

Discipline that has been built up in the Acquisition Wing in regard to AON, Quantity Vetting, categorization and stipulations of DPP 2005 are duly factored in. A Quarterly Report should be rendered by the Services/HQ IDS to the DG Acq on the progress of various capital schemes under delegated powers, The report should indicate the actual cash outgo against the budgetary projections in the AAPs. Review will be done after one year.

Allied Issues
Powers Without Financial Advice.
Enhanced delegation of financial powers without financial concurrence has not been considered in such cases, as this goes against the grain of financial advice system.

Financial Powers of MoD.

Concomitant increase in the financial powers delegated to MoD functionaries in Jan 2003 would also need to be firmed up in consultation with the concerned JSs and Addl FAs. Similar principle for approving procurements as in case of Service HQrs will apply to TPCs concluded in MoD.

Highlights of Delegation of Powers

Exercise of financial powers will be governed by existing orders and instructions on the subject, as amended from time to time, instructions/guidelines.

SOPs will be strictly followed.

All purchases exceeding Rs. Five Lakhs in value to be made on the advice of TPC to be constituted by CFA and will include the IFA or his representative as a member.

Highlights of Delegation of Powers

Financial powers to be exercised in consultation with CDA/IFA shall be in prior consultation with the CsDA/IFAs. Purchase orders will not be split up in order to bring them within the delegated financial powers of a lower CFA. CVC guidelines issued from time to time on purchase/procurements/other financial dealings by Central Govt. Departments will be strictly complied with while processing cases in exercise of the delegated financial powers.

Highlights of Delegation of Powers

Write Off of losses and Regularization of Audit Objections may be settled under the enhanced financial powers.

Broad Objectives & Vision-Army

Improved Serviceability State of Stores/ Equipment/Supplies
Procurement of Ordnance Stores Indigenous Non-Scaled/NIV Items Import of Stores Siachen Clothing

Broad Objectives & Vision-Army

Enhancement of Financial Powers of EME
Improvement in Serviceability State Decrease in Mean Time to Repair Modernization of Army Base Workshops Product Development & Indigenization

ASC Supplies Sanction of Works

Broad Objectives & Vision-Army

Removal of Certain Anomalies/Bottlenecks
Non-inclusion of appropriate CFA Purchase of Stationery Write off of Losses of Stores and Public Money Other Omissions in Financial Powers

DGOF Supplies

Broad Objectives & Vision-Army

Areas of Enhanced Activities of the Army
R&D Projects by ATC/ABWs Simulators Induction of Simulators Powers for Access Networks

Important Recommendations for Field Army

Unit/Miscellaneous Grant Stationery Stores Repairs IT Powers

Broad Objectives & Vision-Army

Army Cdrs Special Financial Powers (ACSFP)
Ceiling of Emergent Repairs FOL

Improvement in Op Preparedness
Powers during Special Operations Emergent Procurement of Stores/Spares from abroad Powers to VCOAS for Special Forces

Broad Objectives & Vision-Navy

Primarily aimed at bringing about improved serviceability and availability of systems/platforms at their optimal and peak performance levels Indigenous Procurement Refit and Maintenance / Repair of Ships Imported Stores

Broad Objectives & Vision-Navy

Hiring of Services Hiring of Transport Rationalization of existing provisions Powers to write off Losses

Overall Improvements:
Reduction in lead time Reduction in delays and costs in offloading of refit of ships to trade Reduction in backlog of refit of ships & equip Reduction in lead time for commencing & execution of emergency repairs to ships/submarines Increase fiscal awareness leading to better financial management of resources

Broad Objectives & Vision-Air Force

Primarily aimed at bringing about improved serviceability and maintainability of Aircrafts/ Systems and cater appropriately for repair and overhaul of the ageing fleet of air crafts as also to cater spares support for recent additions to the transport fleet Maintenance of Aircrafts Repairs and overhaul Delegation to HQ Maintenance Command

FOL consumption
Consumption norms

Broad Objectives & Vision-Joint Staff

CISC and C-in-C, SFC have been equated with VCNS and COM/COL Financial powers proposed for CISC keeping in view his status as Chairman, VCC

New CFAs Cmdt TSIs, Bde Cdrs, AOCs, Component Cdrs, COs/Sqdn Cdrs of IDS units TSIs NDA Khadakwasla, DSSC Welington & CDM Secunderabad.

Detailed Guidelines for Exercise of Delegation of Financial Powers

Authority-cum-Responsibility Budget Centres introduced selectively for Field Logistics unit.
Delegation emphasis Value for Money which encompasses economy, efficiency and effectiveness.

Budget Management under NMS - ARMY

TLBH
VCOAS

HLBH
DCOAS (IS&T), DCOAS (P&S) AG, QMG, MGO, E-in-C

ILBH
DGs and ADGs

Budget Centres

MANNER OF
EXERCISING FINANCIAL POWERS

Exercise of Financial Powers

Rule 63 of FR I: - The powers authorized in are personal and cannot be delegated to any subordinate officer; As such Delegated powers can be exercised only by the CFA to whom the powers are delegated. Re-delegation to any subordinate officer is not allowed/permissible
Contd .

However..
Rule 65 of FR I: - Other officers may be authorized to sign for an officer possessing financial Powers Officer possessing financial powers may authorise a staff officer to, sign communications and documents of a financial character on his behalf,
Contd .

Provided
Officer possessing financial powers is personally and unreservedly responsible, Responsibility is on the Officer, whether the communication conveying the orders is signed by himself or by an officer subordinate to him. The name of the officer who is authorised to sign is communicated to the audit officer concerned and that concurrent authorisation to several officers to the full limit of powers, is not made. In such cases it shall not be necessary for the officer possessing financial powers to sanction each item personally. This applies also in the case of special powers to sanction expenditure not precisely covered by rule.,
Contd .

Various Situations
When an officer possessing financial powers is absent on leave and no officer has been formally appointed in his place Financial responsibility will rest on the officer actually performing his duties

Will exercise the full powers of the absentee for the that absent period.
The subordinate officer's signatures in these cases should however indicate that he signs "for . . . . . . . absent on. . .."
Contd .

Various Situations
When an officer possessing financial powers is absent on tour or temporary duty
he may permit in writing another officer to sign letters on his behalf. An audit officer will accept the subordinate officer's signature as implying that the orders have been approved by the superior officer, Provided that the signing officer signs "for. . . . . .absent on tour/temporary duty".
Contd .

Various Situations
When an Officer possessing financial powers has been posted out and no officer has been formally appointed in his place:
Financial responsibility will rest on the officer actually performing his duties Will for the time being exercise the full powers of the appointment.

CONCEPT AND PHILOSOPHY

Introduction
Study carried out in UK to empower managers with financial powers and to make them responsible for achievement of specific objectives. Authority-Accountability-Responsibility and budget centre concept was tried in Base Supply Depot, Liverpool and Military Farms in UK Managers permitted with flexibility were given delegation of powers and were made responsible for physical and financial powers.
Contd

CONCEPT AND PHILOSOPHY

Introduction Contd..
Executives were allowed to:
Re-appropriate from one major head to another without necessity of seeking sanction of MOD Transfer between revenue and capital heads. Flexible budget system whereby 5% capital expenditure to overflow to the next financial year.

The concept of ARB was selected and introduced in the Navy in 1993 as New Management Strategy

OBJECTIVES
Short-Term Objectives
Allocation of Budget with clearly defined Targets/objectives Providing necessary resources Reviewing the Performance

Contd

OBJECTIVES
Long-Term/Ultimate Objectives:
Value for Money
Economy, efficiency and effectiveness of expenditure

Operational Availability
Operational availability of ships/submarines/ Aircrafts Better Logistics support Minimize Financial Cost of Logistics

METHODOLOGY OF NMS
Planning
Annual Provisioning Plan is prepared by COL and Annual Refit Plan is prepared by COM

Enhanced Delegation of Financial Powers

LP Powers CP Powers Cash and Carry Powers Advance payment powers and Foreign Procurement powers
Contd

METHODOLOGY OF NMS
Contd.. Authority-cum-Accountability, Responsibility and Budget Centres (ARBs) in 3 tier approach
Authority-cum-Accountability Centre:
Accountable for the Revenue Budget Called as High Level Budget Holders (HLBHs) Example CNS, COM/COL, ASD, MS

Responsibility Centre:
Responsible to authority centres Management of Objectives within given budget called as Intermediate Level Budget Holders (ILBHs) Example ACOM. ACP, GM(R), GM(T), CPRO & CMP

Budget Centre:
Actual functionaries doing the day-to-day management and monitoring of expenditure called as Functional Level Budget Holder (FLBHs) Example DLS, DCV, DFM, DNA, DOS IN NHQ; AGM, DGMs in NDs

Contd

METHODOLOGY OF NMS
Contd Allocation of Budget:
Allocation to MOs & NSDs is done by NHQ.

LP Budget is being allocated and not the central purchase budget

Appraisal
Annual Review Report is submitted to NHQ i.e. to DNP by ASD regarding targets and their achievements.
Financial Estimates for various kinds of ships are prepared by ASD (MB) which are being compared with the actual expenditure for purpose of variance analysis.
Contd

ROLE OF IFAs
Integrated Financial Advice forms a major component of New Management Strategy IFA (Navy) will provide financial advice to TLBH and HLBH at Naval Headquarters IFA (Navy) is responsible to TLBH and HLBHs to ensure that:
Accounting systems, procedures have been established and are functioning properly in accordance with the accounting procedures laid down by the Government. Instructions & guidance on financial matters are issued to all concerned LLBHs receive guidance in the preparation of budgetary estimates.

CONCLUSION
NMS does not financial powers! only mean enhanced

Concept of ARBs is the centerpiece of NMS

Enhanced financial powers and greater flexibility in resource management have also to be linked with greater accountability and responsibility.
Contd

CONCLUSION
Contd Accordingly developments in the following attributes is demanded:
Objective setting Resource Allocation Concepts of costing Mechanism for monitoring expenditure Output measurement by way of performance parameters & reviews

Implementation of proper management strategy and financial management to seek best value for money. Thus NMS is an entirely new approach towards Management with an objective of managing the Navy ON CORPORATE LINES.

Fundamental Principles of Public Buying

Rule 21 - Standards of Financial Propriety

(i) Every officer is expected to exercise the same vigilance in respect of expenditure incurred from public moneys as a person of ordinary prudence would exercise in respect of expenditure of his own money. (ii) The expenditure should not be prima facie more than the occasion demands.
Contd

Contd..

Rule 21 - Standards of Financial Propriety (iii) No authority should exercise its powers of sanctioning expenditure to pass an order which will be directly or indirectly to its own advantage.
(iv) Expenditure from public moneys should not be incurred for the benefit of a particular person or a section of the people, unless A claim for the amount could be enforced in a Court of Law, or The expenditure is in pursuance of a recognized policy or custom. Contd

Contd..
Rule 21 - Standards of Financial Propriety (v) The amount of allowances granted to meet expenditure of a particular type should be so regulated that the allowances are not on the whole a source of profit to the recipients.

 Rule 137

Fundamental Principles of Public Buying

Rule 160

Transparency, Competition, Fairness and Elimination of Arbitrariness in the Procurement Process

 Rule 161 - Efficiency, Economy and Accountability in Public Procurement System Public procurement procedure is also to ensure efficiency, economy and accountability in the system. To achieve the same, the following keys areas should be addressed :(i) To reduce delay, appropriate time frame for each stage of procurement should be prescribed by the Ministry or Department. Such a time frame will also make the concerned purchase officials more alert.
Contd

Contd..

Rule 161 - Efficiency, Economy and Accountability in Public Procurement System

(ii) To minimize the time needed for decision making and placement of contract, every Ministry/Department, with the approval of the competent authority, may delegate, wherever necessary, appropriate purchasing powers to the lower functionaries.

Contd

Contd..

Rule 161 - Efficiency, Economy and Accountability in Public Procurement System (iii)The Ministries or Departments should ensure placement of contract within the original validity of the bids. Extension of bid validity must be discouraged and resorted to only in exceptional circumstances.

Contd.. Rule 161 - Efficiency, Economy and Accountability in Public Procurement System (iv)The Central Purchase Organisation (e.g DGS&D) should bring into the rate contract system more and more common user items which are frequently needed in bulk by various Central Government departments. The Central Purchase Organisation (e.g. DGS&D) should also ensure that the rate contracts remain available without any break.

 Rule 163 The Ministries or Departments may hire external professionals, consultancy firms or consultants for a specific job, which is well defined in terms of content and time frame for its completion or outsource certain services.

 Rule 178 - Outsourcing of Services

A Ministry or Department may outsource certain services in the interest of economy and efficiency and it may prescribe detailed instructions and procedures for this purpose without, however, contravening the following basic guidelines.

Thank you

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