12
Transactions Between Government Entities
Table of Contents
12.1.1 Overview 12.3
12.1.2 Definition of transaction
between the Government entities 12.3
12.1.3 Types of transaction
between the Government entities 12.3
12.1.4 Types of government
entities involved in the transactions 12.4
12.2 General Policies 12.5
12.2.1 Overview of types of
inter-entity transactions and processes 12.5
12.2.2 Purchase of
goods/services by one Government entity acting as an agent for another
Government entity. 12.6
12.2.3 Provision of services by
one government entity to another government entity 12.7
12.2.4 Responsibilities 12.7
12.2.5 Mode of payment 12.8
12.3 Accounting Policies 12.9
12.3.1 Recognition of
inter-entity receipts 12.9
12.3.2 Recognition of
inter-entity expenditure 12.9
12.3.3 Exchange accounts 12.9
12.3.4 Settlement accounts 12.9
12.3.5 Transactions with foreign
Governments 12.10
12.3.6 Transactions between
government entities and government commercial undertakings 12.11
12.3.7 Consolidation of
inter-entity transactions 12.11
12.4 Accounting for
transactions between Government entities 12.12
12.4.1 Manual accounting records 12.12
12.4.2 Computerised accounting
records 12.12
12.4.3 Accounting entries for
transactions between government entities 12.12
12.4.4 Transaction between a
government entity and a commercial entity 12.14
12.5 Detailed Procedures 12.15
12.5.1 Introduction 12.15
12.5.2 Budgetary control
procedures 12.15
12.5.3 Expenditure processing
and recording 12.16
12.5.4 Approval of inter-entity
transactions 12.17
12.5.5 Recording of inter-entity
transactions in the office of DAO/AG/AGPR 12.19
12.5.6 Inter-entity transfer of
funds 12.21
12.5.7 Consolidation of
inter-entity transactions 12.22
12.5.8 Reporting of inter-entity
transactions 12.22
12.5.9 Reconciliation of
inter-entity balances 12.23
Introduction
12.1.1 Overview
12.1.1.1 This chapter deals with the policies, accounting treatment and procedures for transactions between the Government entities.
12.1.1.2 The policies include both general and accounting policies for transactions between the Government entities. The general policies give guidance on how particular inter-entity transactions should be handled. It also indicates the responsibilities of the supplying and receiving entities. The accounting policies deal with the recognition and consolidation of transactions between the Government entities using exchange and settlement accounts.
12.1.1.3 The accounting treatment details the records which need to be maintained for complete and accurate recording of transactions between the Government entities and the appropriate double entries for recording the transactions in the general ledger.
12.1.1.4 The procedures cover the approval, recording, transfer of funds, consolidation, reporting and reconciliation of transactions. Additionally there are further procedures for specific classes of transaction.
12.1.2 Definition of transaction between the Government entities
12.1.2.1 A transaction between the Government entities is where a transaction originates in one Government entity but is subsequently transferred to another Government entity. The exact circumstances in which this occurs are detailed in Section 12.2 ‘General Policies’.
12.1.3 Types of transaction between the Government entities
12.1.3.1 The two principal types of transaction between Government entities are:
·
purchase of goods/services or receipt of income
by one government entity acting as an agent for another government entity (the
principal entity), for example the central stores facility
·
provision of services by one government entity
to another government entity. For
example the PWD providing a service to a spending department. This may include the purchase of goods/supplies
on an agent basis as above.
12.1.3.2 The provision of services is subdivided further into services for which:
·
charges should not be made
·
charges should be made.
12.1.4 Types of government entities involved in the transactions
12.1.4.1 The two principal types of transaction are between:
·
departments in the same Government
(inter-department)
·
Governments (inter-Government), who maintain
separate accounting records and bank accounts.
12.1.4.2 The inter-department transaction is subdivided further into:
·
transactions between departments centrally
accounted for by the Government, maintaining the same bank account (generally
Non-Food)
·
transactions involving self-accounting entities,
who maintain their own accounting records, but who submit their accounts to the
Accountant General’s office each month to be consolidated with the central
records. These generally maintain the
same bank account (Non-Food) with the
State Bank but may have separate bank accounts
·
transaction
involving ministries outside the Pakistan Audit Department system who
maintain separate accounting records and bank accounts (Railways).
12.1.4.3 The entity in which the transaction initially occurs is termed the originating entity, this will be the entity acting as agent/supplier.
12.1.4.4 The entity to which the transaction is transferred is termed the principal or receiving entity.
12.2 General Policies
12.2.1 Overview of types of inter-entity transactions and processes
12.2.2 Purchase of goods/services by one Government entity acting as an agent for another Government entity.
12.2.2.1 The two principal types of purchase on behalf of another entity are:
·
specific purchase of a good/service for a known
principal entity/entities
·
general purchase of a good/service where the
principal entity/entities is unknown.
12.2.2.2 Where a specific purchase is made and paid for by the principal entity this should be regarded as a direct purchase by the principal entity which will benefit from the good/service and the following policies applied:
·
the policies and procedures relating to the
purchase detailed in Chapter 4 ‘Expenditures’ must be applied
·
the expenditure must be charged directly to the
principal entity benefiting from the purchase
·
approval must be immediately obtained from the
delegated officer within the principal entity benefiting from the purchase and
not the entity acting as agent
·
consequently, no inter-entity transaction is
required, as the entity incurring the expense is the one receiving the benefit.
12.2.2.3 Where a general purchase is made and paid for by the agent this should initially be regarded as an expense to the agent entity making the purchase. Subsequently when an issue is made, the appropriate proportion relating to any issues must be transferred to the principal entity ultimately receiving the goods/services. When an issue is made and the following policies applied:
·
the policies and procedures relating to the
purchase detailed in Chapter 4 ‘Expenditures’ must be applied
·
the expenditure must initially be charged to the
originating entity acting as agent
·
approval must initially be obtained from the
entity making the original purchase and subsequently from the principal entity
obtaining the ultimate benefit
·
subsequently the appropriate proportion of this
expenditure must be transferred to the principal entity to whom the purchase
issue is made
·
consequently, an inter-entity transaction will
be required, to transfer the expense from the original purchaser to the
beneficiary.
12.2.2.4 The general policies are applied to purchases. Similar general policies must be applied to receipts, but in accordance with Chapter 5 ‘Receipts’ rather than Chapter 4 ‘Expenditures’.
12.2.3 Provision of services by one government entity to another government entity
12.2.3.1 Provision of supply/service should be set down in a supply/service agreement between the entities.
12.2.3.2 A government entity shall not charge another government entity for services, unless directed by the Ministry of Finance and provided by a supply/service agreement. Consequently the costs will remain with the entity making the supply and an inter-entity transaction will not be required.
12.2.4 Responsibilities
12.2.4.1 The supplying and receiving entities must have clear and defined roles and responsibilities, for example in supply and service agreements.
12.2.4.2 The supplying and receiving entity must each be responsible for their own actions, whether an inter-entity transaction is required or not. For example, although no inter-entity transaction will be required where a service is provided, the receiving entity must still be responsible for the part that it plays including in the specification, acquisition and consumption of goods/services.
12.2.4.3 In general the distinction between supplying and receiving entity responsibilities should be that:
·
the receiving entity should be responsible for
the requirement (volume/standards of service) and the use to which the
goods/services are put
·
the supplying entity should be responsible for
the efficiency, economy and effectiveness with which it meets the receiving
entity’s requirement and will be held responsible for any waste resulting from
deficiencies in its own operations, unless otherwise specified in the
supply/service agreement (Direction 12.2.4.4).
In practice the distinction will depend on the unique
circumstances of the agreement between the two entities
12.2.4.4 The supply and service agreement shall specify whether the supplying or receiving entity is responsible for losses or rectifying mistakes.
12.2.4.5 Where an inter-entity transaction is not required and the receiving entity immediately records the expenditure:
·
the supplying entity must still be responsible
for the part it plays in providing the goods/services, as detailed in Direction
12.2.4.3. This must include the approval
of invoice claims where, acting as an agent, it is in a more appropriate
position to perform this role than the ultimate receiving entity
·
the receiving entity should not incur further
costs by duplicating these checks, but should ensure that these checks have
been satisfactorily performed before approving the claim.
12.2.4.6 Where the ultimate recipient of a good/service is unknown or where the cost will be transferred later via an inter-entity transaction:
·
the approval of claims must be performed by the
originating entity acting as agent
·
subsequently the supplying entity, as the entity
in which the transaction originated shall issue an approved inter-entity
transaction claim form [Form 12A] for authorisation by the receiving entity
·
the supplying entity should submit any relevant
invoice claims with the inter-entity claim forms as supporting documents, if
requested by the receiving entity.
12.2.4.7 Where a transfer of funds is required, the entity making the payment must issue a notification to the SBP via the Accountant General’s office to initiate the transfer and inform the entity receiving the funds of the transfer.
12.2.5 Mode of payment
12.2.5.1 The nature of settlement required depends on the status of the entities involved in the transaction, as detailed above in Section 12.1.4.
12.2.5.2 Inter-department transactions, where the departments share the same bank accounts, require no transfer of funds.
12.2.5.3 Inter-department transactions, where the departments do not share the same bank account, require transfer of funds.
12.2.5.4 Inter-Government transactions, as they do not share the same bank accounts, require transfer of funds through the settlement process. However below a threshold set by the Comptroller General the transfer of cash may be more effectively performed through the issue of a cheque by the entity making the payment.
12.3 Accounting Policies
12.3.1 Recognition of inter-entity receipts
12.3.1.1 The majority of receipts arising from inter-entity transactions, are recoveries of expenditure already incurred and therefore shall be recognised, in the accounts of the charging entity, as such and not as income. Receipts which are income should be recognised as such in accordance with Chapter 5 ‘Receipts’.
12.3.1.2 Recognition of the expenditure recovery arising from an inter-entity transaction must occur in the accounts of the charging entity on the date that the cash transfer is made by the transferor (Direction 12.4.3.2).
12.3.2 Recognition of inter-entity expenditure
12.3.2.1 Recognition of expenditure incurred directly by a government entity shall be consistent with Chapter 4 ‘Expenditures’.
12.3.2.2 Recognition of expenditure incurred by a government entity acting as an agent, where the principal entity is unknown, shall be consistent with Chapter 4 ‘Expenditures’.
12.3.2.3 Recognition of expenditure arising from an inter-entity transaction shall occur in the accounts of the entity being charged on the date that the cash transfer is made by the transferor (Direction 12.4.3.2).
12.3.3 Exchange accounts
12.3.3.1 All inter-entity transactions within the same government involving self-accounting entities and entities outside the control of the Accountant General’s offices must be accounted for using the exchange account process and therefore any transfers must be reflected in both sets of accounts (ie the government and the entity) This is described in detail in the Accounting Treatment section of this Chapter (Section 12.4).
12.3.3.2 The permissible exchange accounts shall be detailed in the Chart of Accounts. Exchange accounts used should conform with those detailed in the Chart of Accounts.
12.3.4 Settlement accounts
12.3.4.1 All inter-entity transactions between governments must be accounted for using the settlement account process. This is described in detail in the Accounting Treatment section of this Chapter (Section 12.4).
12.3.4.2 Settlement accounts will arise as a result of:
·
amounts receivable/payable to another government
brought through book adjustments
·
Federal/Provincial receipts and payments at
Provincial/ Federal account offices
·
receipts/payments relating to Departmental
Officers from other governments
·
misclassifications which subsequently require
adjustment through the Settlement account process.
12.3.4.3 An example of a misclassification adjustment would be Federal receipts which are misclassified in the Provinces. These should not normally be processed using settlement accounts This is because the receipts should be banked into the appropriate Federal Government bank account at the point of collection. This information is then submitted to the relevant AGPR sub-office. However, where a receipt is collected and incorrectly posted to the Provincial account and then is adjusted to the Federal accounts (or vice-versa), the settlement account process will be required.
12.3.4.4 All inter-entity transactions between governments shall be processed using settlement accounts apart from:
·
allocation from the general divisible pool of
resources by the Federal Government to the Provinces (share of Federal taxes)
·
grants paid to the Provinces by the Federal
Government
·
repayments of principal and interest by the
Provinces for loans provided by the Federal Government.
12.3.4.5 Adjustments involving the settlement account process and the transfer of cash should be reflected in the accounts of both entities on a monthly basis.
12.3.4.6 Settlement account transactions relating to a financial year must be notified to the State Bank by 15th July of the following year. [Any transactions received by SBP after this date will remain in the relevant suspense accounts until clearance in the following financial year.]
12.3.4.7 The permissible settlement accounts shall be detailed in the Chart of Accounts. Settlement accounts used should conform with those detailed in the Chart of Accounts.
12.3.5 Transactions with foreign Governments
12.3.5.1 All amounts due for payment or receipt on behalf of foreign Governments and other States must initially be recorded in the accounts of the Federal Government under the head ‘Accounts with foreign Governments’, pending recovery from or payment to those governments. Subsequently, if appropriate, an adjustment between the Federal and Provincial Governments should be made.
12.3.6 Transactions between government entities and government commercial undertakings
12.3.6.1 A government entity must charge and be charged for goods/services provided to/by government owned commercial undertakings and autonomous bodies. Such transactions should be considered the same, in principle, to any arms length transaction between government entities and private sector bodies.
12.3.7 Consolidation of inter-entity transactions
12.3.7.1 Inter-entity account balances within the same government shall be recognised in the accounts of the individual entity, but cancelled out on consolidation. Consequently the balances should not be recognised in the Consolidated Monthly Accounts.
12.3.7.2 Inter-entity account balances between governments shall be recognised in the separate accounts of each government, but cancelled out on consolidation in the Federal and Provisional Government’s accounts.
12.4 Accounting for transactions between Government entities
12.4.1 Manual accounting records
12.4.1.1 Manual accounting records must be maintained for expenditure and receipts as detailed in Chapters 4 and 5 of this manual.
12.4.2 Computerised accounting records
12.4.2.1 The computerised system will operate for inter-entity transactions for expenditures and receipts as detailed in the appropriate Chapters 4 and 5 of this manual.
12.4.3 Accounting entries for transactions between government entities
12.4.3.1 Where a transaction between government entities needs to be recorded, as defined in the policy section (Section 12.2), the appropriate double entry is dependant on the type of entities involved, as defined in the introduction to this Chapter (Section 12.1).
12.4.3.2 Inter-Government transactions
Example:
The Federal Government incurs an
expenditure and charges for issues supplied to a provincial government (Direction 12.1.4.1).
·
recognition of incurring the expenditure
Federal accounts
Dr Federal/Provincial
settlement account
Cr Cheque
clearing account
·
recognition of inter-entity transfer, when
transaction is passed from AGPR to the Provincial AG.
Provincial accounts
Dr Expense head account
Cr Federal/Provincial
settlement account
·
Recognition of transfer of the cash between bank
accounts, from Provincial AG to Federal AG, on receipt of clearance memo from bank.
Federal
accounts
Dr Bank account
Cr Federal/Provincial
settlement account
Provincial
accounts
Dr Federal/Provincial
settlement account
Cr Bank account
12.4.3.3 Inter-department transactions
a) Transaction between departments
centrally accounted for by the Government (Direction 12.1.4.2)
Example:
Department A initially incurs an expense on behalf of Department B
·
recognition of inter-department transfer
Dr Department B Expenditure
Head
Cr Department A Expenditure
Head
b)
Additionally where the departments do not share the same bank account
the department making the cash transfer shall notify the SBP of the transfer (Direction 12.1.4.2).
c)
Transaction between departments accounted for involving self-accounting
entities, not requiring a transfer of funds (Direction 12.1.4.2).
Example:
Department X provides supplies/services to the Department Y.
·
Recognition of incurring the expenditure
Department X’s accounts
Dr Dept
X/Dept Y exchange account
Cr Cheque clearing account
X sends the voucher to Department Y,
Department Y will either accept or reject the transfer. Upon acceptance, and
exchange of vouchers, the journal entry is:
·
Recognition of inter-entity transfer
Department Y’s accounts
Dr Expenditure
Cr Dept Y/Dept X exchange
account
d)
Additionally where the departments do not share the same bank account
the department making the cash transfer
shall notify the SBP of the transfer (Direction 12.1.4.2).
At the end of the month, the monthly civil accounts must net out the exchange account. This exchange process may be carried out on a monthly basis, and not necessarily on an individual transaction basis.
·
Recognition of transfer of the cash between bank
accounts, from Department Y to Department X on receipt of clearance memo from bank.
Department
X accounts
Dr Bank Account
Cr Dept X/Dept Y exchange
account
Department
Y accounts
Dr Department Y/ X exchange
account
Cr Bank Account
12.4.4 Transaction between a government entity and a commercial entity
Double
entry in accordance with Chapter 4 ‘Expenditures’ and Chapter 5 ‘Receipts’
12.5 Detailed Procedures
12.5.1 Introduction
12.5.1.1 This section describes the procedures and key controls to be performed for inter-entity transactions.
12.5.1.2 The processing of inter-entity transactions must comply with the directions laid down in previous sections of this Chapter.
12.5.1.3 The procedures apply to those situations detailed in the General Policy section and highlighted in the overview (Section 12.2.1) which give rise to inter-entity transactions being required.
12.5.1.4 The following key internal controls must be observed for inter-entity transactions:
·
all expenditure claim vouchers shall be approved
·
no charges shall be made for services between
Government entities unless instructed by the Ministry of Finance
·
all inter-entity transactions must be supported
by inter-entity transfer forms, prepared and approved by the entity making the
charge and approved by the receiving entity
·
all inter-entity transfers of cash above a
monetary threshold must be performed through the settlement account process and
a regular bank reconciliation must be undertaken to include these transfers
(Chapter 6)
·
monthly financial reports must be produced and
monitored by a delegated authority detailing inter-entity transactions (Chapter
7)
·
the Accountant General’s offices must perform
monthly consolidation of division/department accounts in which inter-entity
balances must be reconciled and exchange and settlement account balances
cleared.
12.5.2 Budgetary control procedures
12.5.2.1 The principal entity must ensure that the funds are available for the inter-entity transaction.
12.5.2.2 Any supplying entity required to undertake work or incur expenditure on behalf of another is required to exercise proper budgetary control over funds provided by the principal authority as detailed in Chapter 3 ‘Budgetary Control’ and in the responsibilities section of this chapter (Direction 12.2.4).
12.5.2.3 The supplying entity must ensure that:
·
the funds provided by the principal entity are
not exceeded
·
the money is spent for the intended purpose
·
any anticipated savings are promptly surrendered
back to the principal entity, unless agreed otherwise.
12.5.3 Expenditure processing and recording
12.5.3.1 The procedure for processing and recording of expenditure claim vouchers shall be in accordance with Chapter 4 ‘Expenditures’.
12.5.4 Approval of inter-entity transactions
12.5.4.1 Overview
12.5.4.2 Inter-entity transfer forms [Form12A] shall be prepared and approved by the entity in which the transaction originates. The form will therefore be prepared by the entity acting as agent or performing the service and submitting the charge.
12.5.4.3 All appropriate supporting documentation should be included with the forms.
12.5.4.4 The entity acting as agent/submitting the charge must present all the vouchers to the delegated authority of the receiving entity each month. This may be performed at the Clearing House meeting.
12.5.4.5 The forms must be approved by the entity ultimately receiving the goods/services, prior to recording the inter-entity transaction or transfer of cash.
12.5.5 Recording of inter-entity transactions in the office of DAO/AG/AGPR
12.5.5.1 Overview
12.5.5.2 The delegated officer in the Accounts Section of the DAO/AG/AGPR shall record the expenditure being incurred and subsequently the recovery of the expenditure in the entity transferring the costs.
12.5.5.3 The delegated officer in the Accounts Section must record the details of the expenditure, as stated on the authorised inter-entity transfer form, in the ‘Register of Adjustments’ [Form 12C] and in the expenditure Sub-ledger, in accordance with the directions in the Accounting Treatment section (Direction 12.4.3).
12.5.5.4 The total of transactions in the register must be reconciled with transaction forms.
12.5.5.5 The register must be reconciled with the transactions posted to the GL.
12.5.5.6 At the end of the day on which the postings are made, the Sub-ledger must be closed, verified and signed off by a delegated authority.
12.5.5.7 The delegated officer must prepare abstracts as required for posting from the Sub-ledger to the General Ledger.
12.5.5.8 The delegated officer must then make arrangements for the transfer of funds, where necessary.
12.5.5.9 Both Account Offices must record the transfer of cash in the Sub-ledgers, on issue of the cheque or advice note to the Central Accounts section of SBP, giving the details, in accordance with directions in the Accounting Treatment section (Direction 12.4.3).
12.5.5.10 Federal adjustments occurring at DAO and sub-treasuries must be submitted to the Provincial Accountant General on a weekly basis for consolidation. The Accountant General must compile these transactions in a ‘Register of Adjustments’. This consolidated advice must be sent to the Central Accounts Section of the SBP, who will then perform the required cash adjustments, on at least a monthly basis.
12.5.6 Inter-entity transfer of funds
12.5.6.1 Overview
12.5.6.2 Once the relevant officer has authorised the inter-entity transaction form there are two possibilities for proceeding:
·
if the entities involved in the transaction
maintain the same bank account the transaction requires no transfer of funds
·
if the entities involved maintain different bank
accounts a transfer must be made.
No comments:
Post a Comment