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Panchayat Raj and Rural Development · Chapter 11

Chapter 11: Accounting, Fund Administration and Audit

What to remember

  • Every rupee a Panchayat receives or spends must be recorded in the cash book on the same day, supported by a voucher, and checked by audit.
  • Accounts and audit of Panchayats have a constitutional base in Article 243J. Social audit by the Gram Sabha is a separate tool that adds public checking to official audit.
  • PFMS and PRIASoft move Panchayat money and records online, so that payments reach the final payee through a traceable electronic route.

1. Why Panchayats need strict accounts

A Gram Panchayat handles money from many sources: its own taxes and fees, grants from the Finance Commissions, funds of centrally sponsored schemes and funds of state schemes. Public money is held in trust. Strict accounts show that the money was used for the purpose it was given. They also help the Sarpanch, the Panchayat Secretary, the Gram Sabha and the auditor to see the true financial position.

Article 243J of the Constitution (Part IX) says the State Legislature may, by law, make provisions for the maintenance of accounts by Panchayats and for the audit of those accounts. The State Panchayat Raj Act and its rules then give the detailed procedure.

2. Basic records of a Gram Panchayat

  • Cash book: the main record. Every receipt and every payment is written in date order. It is closed every day with a closing balance. The Secretary and the Sarpanch sign it.
  • Receipt book: serially numbered receipts are issued for every amount received, such as house tax.
  • Vouchers: the written proof of a payment. A voucher carries the date, the payee, the amount, the purpose and the sanction. Bills, quotations and the payee's acknowledgement are attached to it.
  • Bank pass book: the bank's own record. It is matched with the cash book to find differences.
  • Ledger or head-wise register: shows income and spending under each scheme or fund head.
  • Asset register: lists the property of the Panchayat such as buildings, tanks, roads and equipment.
  • Stock register and measurement book: record materials and works. The measurement book records the measured quantity of work done on a civil work.

Basic rules of writing accounts:

  • Never overwrite. A wrong entry is cut by a single line and the correct entry is written, with an attesting signature.
  • Never leave blank spaces between entries.
  • Do not keep large cash in hand. Money is banked quickly.
  • Spend only after proper sanction and within the budget.

3. Cash book and double entry

A simple cash book has two sides. The receipts side lists money coming in. The payments side lists money going out. A double-column cash book has an extra column for bank transactions beside the cash column. Under the double entry system every transaction has two effects, a debit in one account and an equal credit in another. The Model Accounting System made for Panchayati Raj Institutions follows a standard set of formats and heads, so that every Panchayat in the country keeps its books in the same way. Its software was PRIASoft (Panchayat Raj Institutions Accounting Software), now subsumed in e-GramSwaraj (from 2020). With it, a Panchayat enters vouchers online and gets reports such as the cash book, trial balance and receipts and payments account without hand calculation.

Panchayat accounts are traditionally kept on a cash basis (money actually received or paid). Under the accrual basis an income or expense is recorded when it is earned or owed, even before cash moves.

4. Fund administration and PFMS

PFMS is the Public Financial Management System. It is run under the Controller General of Accounts, Ministry of Finance. It tracks funds from release by the central government down to the final payment to the beneficiary or vendor. Main ideas:

  • Funds go through electronic transfer to bank accounts, not through cash.
  • A scheme has a single bank account of the implementing agency, and payments are made online with digital signature of authorised signatories.
  • Release of the next instalment is tied to use of earlier funds, so unspent money does not lie idle. Systems that release funds only when needed are called just-in-time release.
  • Direct Benefit Transfer (DBT) sends wages and benefits straight to the bank account of the person entitled.

e-GramSwaraj is a portal of the Ministry of Panchayati Raj for planning, accounting and monitoring. It links plan preparation with the accounting records and with payments through PFMS. Panchayats can see their own physical and financial progress on it.

Grants: Finance Commission grants reach local bodies in two parts, basic and performance linked, according to the Commission's design. The Union Finance Commission is appointed under Article 280. The State Finance Commission (Article 243I) reviews the finances of Panchayats and recommends sharing of taxes and grants. A Panchayat must keep funds of each source in the correct account and use "tied" grants only for the permitted purposes.

5. Audit: the three layers

TypeWho does itWhat it checks
Internal checkThe Panchayat's own officers, the Executive Officer or SecretaryDaily accuracy, sanctions, proper vouchers
Statutory auditThe state's audit department (Local Fund Audit) and, as per arrangement, the Comptroller and Auditor General (CAG) in a guiding roleLegal compliance, correct use of funds, financial accuracy
Social auditThe Gram Sabha with trained village-level resource personsWhether the work really happened, whether wages and benefits reached the right people

CAG's role: For Panchayats, the CAG gives *Technical Guidance and Supervision* over the audit that the state's own audit agency carries out. This arrangement followed the recommendations of the Finance Commissions. It improves quality but does not make the CAG the direct auditor of every Panchayat.

Audit Online is an application of the Ministry of Panchayati Raj for conducting and recording audit of Panchayat accounts electronically. It links to accounts entered on e-GramSwaraj (earlier PRIASoft).

Audit reports: The auditor prepares an audit report with observations known as audit paras. The Panchayat must reply and fix the lapses. Serious issues such as missing money are handled by recovery and, where needed, action against the person responsible. Compliance is reviewed by higher offices.

6. Social audit

Social audit is a public check on what government did against what it claimed. People compare the records with the real situation on the ground.

  • Under the MGNREGA, 2005 (Section 17) the Gram Sabha had to conduct a regular social audit of all works in the Panchayat area. From 1 July 2026 MGNREGA was replaced by the Viksit Bharat - Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, 2025 (VB-G RAM G), which requires Gram Sabha social audits at least once every six months.
  • The social audit is held in the village. Muster rolls, bills, measurement books and wage payments are read out and verified by visiting work sites and meeting workers.
  • A Gram Sabha meeting is then held where findings are placed. The implementing officers must answer and the Gram Sabha's decisions are recorded.
  • Social audit must be done by a unit independent of the implementing agency. Andhra Pradesh set up an independent society for this purpose, the Society for Social Audit, Accountability and Transparency (SSAAT). It was among the first in the country and became a model for other states.

7. Other tools of accountability

ToolPurpose
Gram SabhaApproves plans, lists of beneficiaries and utilisation of funds
Right to Information Act, 2005Citizens can ask for records, bills and muster rolls
Public display of accountsBoards and walls show receipts, spending and work details
Citizen charterPromises on services and time limits
Grievance systemsComplaints against irregularity are received and addressed
MIS and websitesOnline records of muster rolls and payments, open to the public
Utilisation certificateA proof sent to the grant-giving authority that the money was spent for the purpose

Utilisation certificate is an important document. Without it, the next instalment of the grant may be delayed.

8. Common irregularities

Some common audit findings are: spending without sanction, no voucher for payment, advance not adjusted, cash balance kept above the permitted limit, work done without measurement, money used for a purpose other than the one the grant was meant for, and failure to keep the registers up to date. A good Panchayat keeps records current every day, banks all receipts, and shows all accounts to the Gram Sabha.

Exam traps

  • Article 243J (accounts and audit) vs Article 243I (State Finance Commission) vs Article 243H (taxes and grants of Panchayats): three nearby articles, three subjects.
  • Cash basis vs accrual basis: cash basis records when money moves; accrual basis records when income is earned or expense is owed.
  • PFMS vs PRIASoft: PFMS tracks fund flow; PRIASoft is accounting software for Panchayats.
  • Technical guidance and supervision of CAG vs direct audit by CAG: the CAG guides, the state audit agency audits.
  • Social audit vs statutory audit: social audit is done by people of the village for the Gram Sabha; statutory audit is done by an official audit department.
  • Voucher vs receipt: a voucher supports a payment made; a receipt is issued for money received.
  • Cash book vs bank pass book: cash book is kept by the Panchayat, pass book is kept by the bank.
  • Section 17 of MGNREGA (social audit) is often confused with the Right to Information Act, which is a different law.

One-liners

  • 1. Article 243J deals with accounts and audit of Panchayats.
  • 2. The cash book is closed daily and signed by the Sarpanch and Secretary.
  • 3. A wrong entry is struck through with one line and attested, not overwritten.
  • 4. PRIASoft is the accounting software for Panchayati Raj Institutions.
  • 5. PFMS is run under the Controller General of Accounts.
  • 6. DBT sends benefits directly into the beneficiary's bank account.
  • 7. e-GramSwaraj is the Ministry of Panchayati Raj portal for planning, accounting and monitoring.
  • 8. Section 17 of the MGNREGA requires Gram Sabha social audit.
  • 9. SSAAT is the independent social audit body of Andhra Pradesh.
  • 10. The CAG provides technical guidance and supervision over audit of Panchayats.
  • 11. Audit observations are called audit paras.
  • 12. A utilisation certificate proves a grant was spent for its purpose.

Practice questions

  1. Which Article of the Constitution allows the State Legislature to make provisions for maintenance of accounts and audit of Panchayats?

    1. Article 243H
    2. Article 243K
    3. Article 243I
    4. Article 243J
    Answer

    D. Article 243J

    Article 243J deals with accounts and audit of Panchayats.

  2. In a Gram Panchayat, which record shows every receipt and payment in date order and is closed daily?

    1. Measurement book
    2. Stock register
    3. Asset register
    4. Cash book
    Answer

    D. Cash book

    The cash book is the main daily record of money received and paid.

  3. A wrong entry in a Panchayat cash book should be corrected by

    1. erasing it with fluid
    2. striking it with a single line and attesting the correction
    3. overwriting the figure
    4. tearing out the page
    Answer

    B. striking it with a single line and attesting the correction

    Overwriting is not allowed; the wrong entry is cut by one line and attested.

  4. The written proof of a payment, carrying the payee, amount, purpose and sanction, is called a

    1. trial balance
    2. pass book
    3. ledger
    4. voucher
    Answer

    D. voucher

    A voucher with bills attached supports every payment.

  5. PRIASoft is software meant for

    1. land records of villages
    2. online voting in Panchayat elections
    3. tracking rainfall in villages
    4. accounting of Panchayati Raj Institutions
    Answer

    D. accounting of Panchayati Raj Institutions

    PRIASoft is the Panchayat Raj Institutions Accounting Software.

  6. PFMS, used to track release and use of public funds, works under the

    1. Reserve Bank of India
    2. Controller General of Accounts
    3. Election Commission
    4. Comptroller and Auditor General
    Answer

    B. Controller General of Accounts

    PFMS is run under the Controller General of Accounts, Ministry of Finance.

  7. Under which law is the Gram Sabha required to conduct regular social audit of works in its area?

    1. Right to Information Act, 2005
    2. MGNREGA, 2005 (Section 17)
    3. Companies Act, 2013
    4. Indian Contract Act, 1872
    Answer

    B. MGNREGA, 2005 (Section 17)

    Section 17 of MGNREGA requires Gram Sabha social audit.

  8. The independent social audit body set up in Andhra Pradesh is known as

    1. APSRAC
    2. SERP
    3. APMAS
    4. SSAAT
    Answer

    D. SSAAT

    Society for Social Audit, Accountability and Transparency.

  9. Observations of an auditor on irregularities in accounts are generally called

    1. audit paras
    2. budget heads
    3. muster rolls
    4. utilisation notes
    Answer

    A. audit paras

    Audit observations are called audit paras and need replies.

  10. A document sent to the grant-giving authority to show that money was spent for the purpose intended is the

    1. bank statement
    2. utilisation certificate
    3. voucher book
    4. trial balance
    Answer

    B. utilisation certificate

    Utilisation certificates are required before the next instalment is released.

  11. Consider the statements. 1. The cash book is closed with a balance every day. 2. Large cash should be kept in hand by the Sarpanch for convenience. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    Money should be banked quickly; the cash book is closed daily.

  12. Consider the statements. 1. The CAG audits every Gram Panchayat directly. 2. The CAG gives technical guidance and supervision over audit of Panchayats. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    B. 2 only

    The state audit agency audits; the CAG guides and supervises.

  13. Consider the statements. 1. Social audit is done by the Gram Sabha with the help of village-level resource persons. 2. A social audit compares records with the real situation at the work site. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    C. Both 1 and 2

    Both describe social audit correctly.

  14. Consider the statements. 1. Under the cash basis, income is recorded when it is earned even if cash has not been received. 2. Under the accrual basis, entries are made only when cash moves. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    D. Neither 1 nor 2

    The two descriptions are reversed.

  15. Match: (a) Cash book (b) Bank pass book (c) Asset register (d) Measurement book. Which pairing is correct?

    1. Cash book - record kept by the bank
    2. Asset register - daily receipts and payments
    3. Bank pass book - property of the Panchayat
    4. Measurement book - quantity of work done
    Answer

    D. Measurement book - quantity of work done

    A measurement book records measured quantities of civil work.

  16. The portal of the Ministry of Panchayati Raj that links planning, accounting and monitoring of Panchayats is

    1. Aadhaar Seva
    2. e-Nam
    3. GeM
    4. e-GramSwaraj
    Answer

    D. e-GramSwaraj

    e-GramSwaraj is the unified portal for Panchayat planning, accounting and monitoring.

  17. Sending wages and benefits straight into the bank account of the person entitled is called

    1. Direct Benefit Transfer
    2. Treasury bill
    3. Letter of credit
    4. Cash credit
    Answer

    A. Direct Benefit Transfer

    DBT removes middlemen and leaks in payment.

  18. Which body recommends the sharing of taxes and grants to Panchayats at State level under Article 243I?

    1. Public Service Commission
    2. State Finance Commission
    3. Planning Commission
    4. State Election Commission
    Answer

    B. State Finance Commission

    Article 243I provides for the State Finance Commission.

  19. Audit Online is an application meant for

    1. electronic audit of Panchayat accounts
    2. online sale of produce
    3. tracking of tax returns
    4. online counselling of farmers
    Answer

    A. electronic audit of Panchayat accounts

    Audit Online is a Ministry of Panchayati Raj application for audit of Panchayat accounts.

  20. Which of the following is a common audit objection in Panchayat accounts?

    1. Banking all receipts quickly
    2. Spending without proper sanction
    3. Maintaining the asset register
    4. Attaching bills to vouchers
    Answer

    B. Spending without proper sanction

    The other options are good practice.

  21. In a double entry system, every transaction has

    1. a debit in one account and an equal credit in another
    2. a debit only
    3. a credit only
    4. no effect on accounts
    Answer

    A. a debit in one account and an equal credit in another

    This is the basic rule of double entry.

  22. Which record lists buildings, tanks, roads and equipment owned by a Panchayat?

    1. Voucher file
    2. Cash book
    3. Receipt book
    4. Asset register
    Answer

    D. Asset register

    The asset register lists property of the Panchayat.

  23. Why is just-in-time release of funds under PFMS useful?

    1. It removes the need for audit
    2. It prevents the Gram Sabha from meeting
    3. It avoids unspent money lying idle in accounts
    4. It allows spending without sanction
    Answer

    C. It avoids unspent money lying idle in accounts

    Funds are released as needed, linked to use of earlier funds.

  24. Which pair of Articles relates to Panchayat taxes and Panchayat accounts respectively?

    1. 243A and 243B
    2. 243H and 243J
    3. 243K and 243L
    4. 243G and 243I
    Answer

    B. 243H and 243J

    243H is taxes and grants; 243J is accounts and audit.

  25. A serially numbered receipt book is used when a Panchayat

    1. buys materials
    2. pays wages to workers
    3. receives money such as house tax
    4. measures works
    Answer

    C. receives money such as house tax

    Receipts are issued for amounts received.

  26. Consider the statements. 1. The bank pass book is a record kept by the bank. 2. The cash book is matched with the pass book to find differences. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    C. Both 1 and 2

    Both are correct; this is the basis of bank reconciliation.

  27. Consider the statements. 1. The Right to Information Act, 2005 lets citizens ask for muster rolls and bills. 2. Public display of accounts on boards is a tool of accountability. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    C. Both 1 and 2

    Both are accountability tools at Panchayat level.

  28. Which is the main difference between social audit and statutory audit?

    1. Social audit checks only arithmetic
    2. Statutory audit is done in the Gram Sabha
    3. Social audit is done only by the CAG
    4. Social audit is done by village people for the Gram Sabha; statutory audit is by an official department
    Answer

    D. Social audit is done by village people for the Gram Sabha; statutory audit is by an official department

    Social audit is people-based; statutory audit is official.

  29. In social audit, muster rolls and bills are verified by

    1. sending them to the Parliament
    2. visiting work sites and meeting workers
    3. keeping them secret
    4. sealing the records
    Answer

    B. visiting work sites and meeting workers

    Verification is on the ground and then placed before the Gram Sabha.

  30. The Union Finance Commission is appointed under which Article?

    1. Article 265
    2. Article 243J
    3. Article 243I
    4. Article 280
    Answer

    D. Article 280

    Article 280 provides for the Finance Commission at the Union level.

  31. Which of the following is NOT a basic accounting rule for a Panchayat?

    1. Never overwrite entries
    2. Spend only after sanction
    3. Leave blank spaces between entries
    4. Bank receipts quickly
    Answer

    C. Leave blank spaces between entries

    Blank spaces allow later insertions and are not allowed.

  32. Consider the statements. 1. PFMS tracks funds from release to the final payee. 2. PRIASoft is used to track the release of central funds to States. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    PRIASoft is accounting software, not a fund tracking system.

  33. The Model Accounting System for Panchayats is meant to

    1. keep books in uniform formats across the country
    2. replace the Gram Sabha
    3. collect taxes
    4. distribute ration
    Answer

    A. keep books in uniform formats across the country

    It standardises formats and heads of accounts.

  34. Which statement about audit paras is correct?

    1. They are only for the Sarpanch's information
    2. The Panchayat must reply to them and correct the lapses
    3. They are never reviewed
    4. They are issued by the Gram Sabha
    Answer

    B. The Panchayat must reply to them and correct the lapses

    Replies and corrective action follow audit paras.

  35. Tied grants given to a Panchayat can be used

    1. for any purpose the Sarpanch likes
    2. for personal expenses
    3. only for the permitted purposes
    4. for political events
    Answer

    C. only for the permitted purposes

    Tied grants are restricted to the purposes for which they are given.

  36. A digital signature of authorised signatories is used under the electronic payment system to

    1. print receipts
    2. open the Gram Sabha
    3. measure works
    4. approve online payments securely
    Answer

    D. approve online payments securely

    Payments need DSC of authorised signatories.

  37. A statement showing balances of all accounts, used to check arithmetical accuracy of books, is the

    1. trial balance
    2. muster roll
    3. utilisation certificate
    4. voucher
    Answer

    A. trial balance

    The trial balance checks that debits equal credits.

  38. Which of the following best explains why Panchayats must display their accounts publicly?

    1. It reduces the work of the auditor to zero
    2. It lets villagers check how public money was used
    3. It is required only for private firms
    4. It prevents RTI questions
    Answer

    B. It lets villagers check how public money was used

    Public display is a tool of transparency.

  39. The first stage of checking in a Panchayat, done by its own officers on daily accuracy and vouchers, is

    1. performance audit by Parliament
    2. social audit
    3. statutory audit
    4. internal check
    Answer

    D. internal check

    Internal check is carried out by the Panchayat's own staff.

  40. Muster rolls in MGNREGA works record

    1. attendance and wages of workers
    2. land ownership
    3. votes cast
    4. tax assessment
    Answer

    A. attendance and wages of workers

    Muster rolls are verified in social audit.

  41. Consider the statements. 1. Article 243J is part of Part IX of the Constitution. 2. Article 243J deals with the powers of the Gram Sabha. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    It deals with accounts and audit, not Gram Sabha powers.

  42. Who should sign the Panchayat cash book at the close of the day?

    1. Village postman
    2. District Collector
    3. Any villager
    4. Secretary and Sarpanch
    Answer

    D. Secretary and Sarpanch

    The responsible officers sign the closing balance.

  43. A voucher without attached bill or acknowledgement is a problem because

    1. the Sarpanch is removed automatically
    2. the payment cannot be verified
    3. the money becomes tax free
    4. the audit is cancelled
    Answer

    B. the payment cannot be verified

    Supporting documents make payment verifiable.

  44. Money paid to a contractor without measuring the work done would be an example of

    1. a Finance Commission grant
    2. a utilisation certificate
    3. an audit irregularity
    4. good practice
    Answer

    C. an audit irregularity

    Works must be measured before payment.

  45. Which is an advantage of electronic fund transfer to the payee?

    1. No record is created
    2. No bank account is needed
    3. Cash can be carried home easily
    4. The payment is traceable
    Answer

    D. The payment is traceable

    EFT leaves a record trail.

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