‘Inflated budget led to poor fiscal health’

File photo of a BBMP council meet in September 2015.

File photo of a BBMP council meet in September 2015.   | Photo Credit: Sudhakara Jain

The Bruhat Bengaluru Mahanagara Palike (BBMP) recently paid ₹214. 47 crore to close a loan and took back two mortgaged properties. Currently, it has outstanding loans of ₹652.43 crore, and has made an effort to improve its fiscal health. However, it was a different story three years ago.

The 2015-16 audit report, which was recently submitted, reveals that the civic body was not just in poor fiscal health but also stymied by poor financial discipline.

Unnecessary expenditure

In the report, the BBMP's chief auditor points to an inflated budget,with a revenue deficit of around 18%. The actual expenditure was more than estimated. With the budgetary estimate inflated, the actual fiscal position was hidden, the report states.

One of the main contentions of the report is that the administration failed to curtail unnecessary expenditure, thereby adding pressure to the BBMP's already poor financial health.

The report points out that though the office of the chief auditor sought account statements as per the Karnataka Municipal Rules Act, 1976, the same was provided only in September 2017. Documents to substantiate expenditure under various heads had not been provided. There were other lapses, such as accounts not being maintained as per the norms. The reconciliation of accounts was not done nor were revenue receipts managed properly.

M. Shivaraju, Ruling Party Leader in the BBMP council, puts the blame on the BJP, which was in power in the civic body from 2010 to 2015. “They mortgaged several of properties of the BBMP and borrowed heavily at high interest rates. We have been able to improve revenue generation, besides swapping loans at a high rate of interest for ones at a lower rate of interest, and got back most of the mortgaged properties. The civic body’s fiscal health is improving,” he said.

Mismanagement of accounts

In 2015-16, the BBMP had failed to account for the cesses collected on behalf of the government, deposits to be made, income tax, sales tax, royalty, loans and grants released by the government for specific purposes under the appropriate heads. Bank accounts had been opened without requisite permission from the State government, and there was little knowledge on the number of accounts.

Admitting the need to bring in financial discipline in the civic body, BBMP Commissioner N. Manjunath Prasad recently wrote to the State government (Additional Chief Secretary, Department of Urban Development) about the need to bring the civic body under the Karnataka Local Fund Authorities Fiscal Responsibility Act, 2003.

In his letter, the commissioner admitting to a lack of financial discipline, and pointed out that inflated budgets had adversely affected the civic body. With actual revenue collections not commensurate with the estimates in the budgets, the civic body was finding it difficult to implement projects, clear pending bills, and even fulfil its obligatory duties, such as effective solid waste management.

“If the BBMP is brought under the Karnataka Local Fund Authorities Fiscal Responsibility Act, we will be able to put in place a system to monitor revenue and expenditure,” he said.

Recommendations to the BBMP

In a move to bring in better financial discipline, the chief auditor has recommended prompt submission of the action taken report for the objections raised so far, maintain up-to-date records of property tax and rent collection, conduct pre-audits before releasing payments for pending bills, maintain road history and prioritise important roads works. It has also recommended monitoring of works being executed at all stages, and fix responsibility on officials while ensuring works are executed in accordance to Karnataka Transparency in Public Procurement Act, 1999.

The auditor has recommended that the civic body prioritise presenting realistic budgets, cut down on unnecessary expenditure, reconcile accounts effectively, improve collection of taxes and cesses, besides focus on mobilising its own resources.

Cess collected, not deposited with government

The civic body collects health cess, library cess and beggary cess along with property tax from citizens, which are to be deposited with the State government. However, the audit report states that these cesses have remained with the BBMP as the administration has failed to transfer the money to the government.

According to the audit report, the BBMP collected ₹297.02 crore as cesses, but transferred only ₹70.75 crore. In total, the cess to be transferred to the government is ₹1007.27 crore, which includes the pending amount from previous financial years as well.

Srikanth Vishwanathan, Chief Executive Officer, Janaagraha Centre for Citizenship and Democracy, says, “Over the past two-three years, the BBMP has been taking corrective steps. For example, pending bills and outstanding loans have come down. The BBMP Commissioner has urged the government to bring the civic body under the ambit of Karnataka Local Fund Authorities Fiscal Responsibility Act, 2003, and the Karnataka Municipal Accounting and Budgeting Rules, 2006. These are applicable to all urban local bodies, except BBMP. Once BBMP is brought under these, it will be possible to bring in more reforms that will make way for better financial governance. There will also be checks and balances to ensure that the elected council does not present inflated budgets.”

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Printable version | Aug 13, 2020 11:35:46 AM |

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