Report of the Comptroller and Auditor General of India Audit of the Finance Accounts of the Government of Bihar Opinion The Finance Accounts of the Government of Bihar for the year ended 31 March 2022, present the financial position along with accounts of the receipts and disbursements of the Government for the year involving transactions from and / or to the Consolidated Fund, the Contingency Fund and the Public Account of the State. The compilation of Finance Accounts comprises two Volumes; Volume-I contains the consolidated position of the state of finances and explanatory ‘Notes to Finance Accounts' including a summary of Significant Accounting Policies and Volume-II depicts the accounts in detail. The Appropriation Accounts of the Government for the year for Grants and Charged Appropriations, which represent the budget comparison, are presented separately. On the basis of the information and explanations that my officers required and have obtained and as a result of test audit of the accounts, in my opinion, the Finance Accounts read with the explanatory ‘Notes to Finance Accounts' present fairly, the financial position and the receipts and disbursements of the Government of Bihar for the year 2021-22. Observations arising from audit of these accounts as well as audit conducted during the year or earlier years are contained in my Financial, Compliance and Performance Audit Reports on the Government of Bihar being presented separately for the year ended 31 March 2022. Basis for Opinion The conduct of audit is in accordance with the CAG’s Auditing Standards. These Standards require that we plan and perform audits to obtain reasonable assurance that the accounts are free from material misstatement. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. The audit evidence that we have obtained provides a basis for my opinion. Responsibilities for Preparation of the Initial and Subsidiary Accounts The State Government is responsible for obtaining authorisation of budget from the State Legislature. The State Government and those responsible for execution of budget such as treasuries, offices and departments of the Government of Bihar, are responsible for preparation and correctness of the initial and subsidiary accounts as well as for ensuring the regularity of transactions in accordance with the applicable laws, standards, rules and regulations. Also, they are responsible for rendering the initial and subsidiary accounts and information related thereto to the Office of the Principal Accountant General (Accounts and Entitlements) of Bihar for compilation and preparation of the Finance Accounts. iii Responsibilities for Compilation of Annual Accounts The Office of the Principal Accountant General (Accounts and Entitlements) of Bihar functioning under my control is responsible for compilation and preparation of Annual Accounts of the State Government. This is in accordance with the requirements of the Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971. The Annual Accounts have been compiled from the vouchers, challans and initial and subsidiary accounts as received from the treasuries, offices and departments of the Government of Bihar and the statements received from the Reserve Bank of India. Statements 8, 9, 10, 15 (Annexure-I), 17(b), 17(c), 19 and 20 and Appendices III, IV, IX, XI and XII, in this compilation, have been prepared directly from the information received from the Government of Bihar and the Union Government who are responsible for such information. Responsibilities for the Audit of the Annual Accounts The audit of the Annual Accounts is conducted through the Office of the Accountant General (Audit) in accordance with the requirements of Articles 149 and 151 of the Constitution of India and the Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971 for expressing an opinion on these Accounts based on the results of such audit. The Office of the Accountant General (Audit) and the Office of the Principal Accountant General (Accounts and Entitlements) are independent organisations with distinct cadres, separate reporting lines and management structure. Emphasis of Matter I want to draw attention to: 1. An amount of ₹ 279.12 crore (previous year’s short transfer of balance ₹ 338.96 crore minus ₹ 59.84 crore excess transferred during 2021-22) was yet to be transferred to National Securities Depositories Limited (NSDL) as on 31 March 2022, on account of contributions of the Employees as well as of the Government. Uncollected, unmatched, and un-transferred amounts, with accrued interest represent outstanding liabilities of the Government under the National Pension System. (Note 5(i) to Finance Accounts) 2. During the year 2021-22, departments of the State Government had drawn ₹2,460.86 crore from Government’s accounts against 3,605 Abstract Contingent (AC) bills, in which 954 AC bills, amounting to ₹ 572.76 crore (23.27 per cent), were drawn in March 2022. Substantial expenditure against AC bills in March shows that the drawal was primarily to exhaust the budget provisions and reveals inadequate budgetary control. Further, 25,101 AC bills amounting to ₹ 6,859.68 crore drawn up to 2020-21 were outstanding, as on 31 March 2022, in addition to the 827 AC Bills of 2021-22, amounting of ₹ 770.05 crore, which were outstanding on March 2022. Thus, a total of 25,928 AC bills, amounting to ₹ 7,629.73 crore, were outstanding, as on 31 March 2022. Advances drawn and not accounted for added to the possibility of wastage/misappropriation of government funds. (Note 3(vi) to Finance Accounts) v 3. During the year 2021-22, 23,188 Utilisation Certificates amounting to ₹ 99,178.89 crore, which had become due (drawn up to 31.08.2020) for submission, were not submitted by the bodies and authorities of the State against the grants-in-aid provided by Government of Bihar. Therefore, there was no assurance that the amount of ₹ 99,178.89 crore had actually been utilised, for the purpose for which it was sanctioned/authorised by the Legislature. High pendency of UCs is fraught with risk of misappropriation of funds and fraud. The major defaulting departments were Panchayati Raj Department (₹ 34,707.48 crore), Education Department (₹ 25,867.47 crore) and Urban Development Department (₹ 11,092.71 crore). (Note 3(vii) to Finance Accounts) 4. As per CFMS, an amount of ₹4,040.21 crore was lying parked in Personal Deposit (PD) Accounts, at the end of March 2022, under 212 administrators. Further, migration of 05 PD Accounts, from CTMIS to CFMS, containing an amount of ₹1.54 crore, was pending till date. After a lapse of three financial years (since 01.04.2019) of accounting under CFMS, the accuracy and reliability of data in respect of PD Accounts could not be ascertained and the same is being reflected in Finance Accounts of the respective year and State Finance Audit Report. The treasury offices/administrators had neither furnished information regarding refund of the unspent balance to the Consolidated Fund as reduction of expenditure under the concerned service head, nor reconciled the same with office of the Principal Accountant General (Accounts & Entitlements). (Note 3(v) to Finance Accounts) 5. In the last five years (2017-18 to 2021-22), the State Government has enhanced the ceiling amount of outstanding guarantees from ₹20,581.52 crore to ₹37,631.92 crore. The outstanding guarantees stood at ₹25,069.78 crore (including interest), as on 31 March 2022. The State has neither created a Guarantee Redemption Fund, nor framed any rules for fixing a ceiling on guarantees. Guarantees, being contingent liabilities, do not form part of debt but in the eventuality of default, they have the potential of aggravating the liability position of Government. (Note 5(ii)(B)(b) to Finance Accounts) 6. Over the last several years, Government of Bihar has been transferring amounts from the Consolidated Fund to Public Accounts (Specifically to Deposit accounts such as Major Head- 8448), by debiting revenue and capital Major heads of accounts. The amounts so transferred are taken as expenditure for the year in the accounts, although actual expenditure may or may not have occurred during the year. The State had transferred ₹26,561.64 crore to deposit accounts, till 31 March 2022. Trend Analysis shows that funds booked under capital expenditure and transferred to Major Head 8448 ranged from 44 per cent to 91 per cent during last five years, which is significant. (Statement 21 of Finance Accounts) 7. Over the last three years, expenditure amounting to ₹ 14,082.36 crore was not included in the respective expenditure heads but kept under the head 8658-102-Suspense Account (Civil), for the want of vouchers, sub-vouchers, non-attachment of sanction orders/running bills and other supporting documents, which were not furnished to Principal Accountant General (Accounts & Entitlements), Bihar as proof of expenditure. During the Financial Year 2021-22, ₹ 2,384.56 crore vii was added to the OB Suspense Accounts, while ₹ 2,063.14 crore was cleared from the OB Suspense Accounts pertaining to previous years. There is no assurance that the amount of ₹ 321.42 crore has actually been spent, during the financial year, for the purpose for which it was sanctioned/ authorised by the Legislature. As such, there is an understatement of expenditure to that extent in the year 2021-22. The progressive balance under the head 8658- 102-Suspense Account (Civil) stood at ₹ 14,785.91 crore at the end of March 2022. (Note 3(xix) and Statement 21 of Finance Accounts) 8. The Budget Speech (2020-21) of the Government of Bihar, as also the Finance Department’s order of 01.04.2019, stated that the Comprehensive Financial Management System (CFMS) had been implemented with effect from 01.04.2019. The office of the Accountant General (Audit), Bihar, has been in regular touch with the Government of Bihar for taking up the Information Technology Audit of CFMS. The Finance Department had, however, responded that CFMS was still under development, which was contrary to the Department’s own orders. The State Government had also found several serious issues with the system like duplicate pay bills, twice payments of salary, difference in the transaction Digital Signature, dates and approval dates being corrected from back-end, incorrect handling of Debit Notifications and Return Notifications resulting in accounts mismatch and subsequent correction being made from back-end, database changes being made without any approval, updation/deletion of data without consent of the department, bills being generated without allotment/authorisations being available, net amount paid exceeding the actual payable amounts, excess withdrawal of claims against the available budget allotment amount etc. and raised these issues with the System Developer. In the light of above facts and issues with the CFMS, there is a risk in running such System. Therefore, Accountant General (Audit), Bihar, sought (19.08.2022) comments/replies from the Finance Department about the assurance of integrity and reliability of CFMS data. The Finance Department responded (23.09.2022) that all the highlighted issues have been resolved and assured that such operational issues have not been reported in the recent past. However, the Department had earlier stated (29.04.2022) that the User Acceptance Test of all functionalities as per the Request for Proposal (RFP) had not been done yet. Further, transactions had been made in the System since over two years of its implementation, without adequately testing the System. Given the above facts, there is a risk of material accounting entries still being done through the back end of the CFMS, without any valid rationale, which can potentially lead to misrepresentation of Government Finances. My opinion on the Finance Accounts is not modified due to Emphasis of Matter section. Date: (GlRISH CHANDRA MURMU) Place: New Delhi Comptroller and Auditor General of India ix