The Accountant General has found that public sector units (PSUs) in the State routinely showed bad debts as assets in their annual financial statements.
In his communiqué to the Government, Principal Accountant General (PAG-Economic and Revenue Sector Audit), Amar Patnaik said the malpractice “created virtual and imaginary values not backed by adequate quantity of assets.”
He warned the government that the “entire scenario would lead to creation of asset bubbles in these companies/corporations, which might burst at sometime.”
The PAG found that the outstanding debt of most PSUs ran into crores of rupees. Such huge balances were repeatedly shown in successive financial statements as recoverable debts under “current assets” even when the possibility of getting the money was remote. This affected the fair presentation of accounts.
Moreover, such dubious accounting practices contravened the “prudential norms” for Non Performing Assets as mandated by the Reserve Bank of India. The situation has increased the “risk of corruption and misuse of entrusted power”. The PAG said that “doubtful debts needed to be quantified and written off when so evaluated” so that the financial position of various PSUs could be truthfully evaluated. For instance, private millers owed Supplyco Rs.1.05 crore. A wound-up government company owed the Travancore Titanium Products Rs.5 crore.
However, little effort was seen to recover the long-standing debts. The amounts were routinely shown in financial statement as “receivables.” The PAG observed that the PSUs appeared to have no consistent and systematic policy to objectively evaluate the possibility of recovering old debts.
The position of the PSUs was that such transactions were at the government’s behest. Thus, only the government could write off such bad debts with the concurrence of the board of directives of the PSUs.
The PAG said many of the PSUs ran on revival packages and government grants. He would be compelled to recommend that the State’s largesse to PSUs that resorted to unrealistic accounting practices be stopped. The PAG would also be forced to “raise a comment” on such bad debts if they were shown as recoverable assets in financial statements.
He has directed the Finance Department to direct PSU to evolve an “appropriate prudential norm” in regard to bad debts.
