Indian Railway Codes and Manuals-Finance code-Vol-I-Chapter-1(I)
CHAPTER-I
Financial Organization Historical Background
101.
At the dawn of the 20th Century, nearly fifty years after the first Railway
train steamed out of Bori Bunder, there were thirty three separate Railway
Administrations in India, operating over 41,000 route kilometers of Railway
lines. Of these, four were worked by Government, five by the erstwhile Indian
States, and the remaining 24 by private Railway Companies. The Non-Government
Railways—i. e., other than the four owned and directly worked by the
Government—operated under varying degrees of Government supervision. Their
regulation and control vested in the Railway Branch of the Public Works
Department of the Government of India. The Department was headed by an officer
of the Indian Civil Service who was a member of the Viceroy and Governor
General's Executive Council. He was assisted in the Railway Branch, by one
Secretary, three Deputy Secretaries (one each for Traffic, Accounts and
Construction), 4 Under Secretaries and 4 Assistant Secretaries. The entire
Railway system was divided into seven circles, and a team of one Consulting
Engineer, and one Government Examiner of Accounts was posted to each of these
seven circles. The accounting and auditing functions for the whole Department,
including the Railway Branch, were combined in the Accountant General, Public
Works Department.
102.
In October 1901, the Secretary of State for India in Council appointed Sir
Thomas Robertson, C. V. O., as Special Commissioner for Indian Railways to
enquire into and report on the administration and working of the Indian
Railways. In his report (1903), Sir Thomas recommended setting up of a Railway
Board consisting of a President or Chief Commissioner, and two other
Commissioners all of whom should have a practical knowledge of Railway matters
and should be 'men of high railway standing'. The Board should be assisted by a
Secretary, a Chief Inspector of Railways, the necessary number of ordinary
inspectors and the requisite number of Government Auditors. As a consequence of
these recommendations, it was decided early in 1905 to abolish the Railway
Branch of the Public Works Department and to transfer the control of the
Railway systems to a Railway Board consisting of a Chairman and two Members.
The Railway Board assumed office in March, 1905, directly responsible to the
Government of India in the Department of Commerce and Industry, and their staff
included amongst others an Examiner of Accounts, redesignated in the following
years as Railway Accounts Officer. Within a short time, however, the set up was
re-organized on the recommendations of the Railway Finance Committee (1908) by
constituting the Railway Board with its staff as the Railway Department
distinct from and independent of the Department of Commerce and Industry under
the same Member of the Viceroy and Governor General's Executive Council. The
designation of the Chairman, Railway Board, was changed to that of the
President of the Railway Board who was to have direct access to the Viceroy and
Governor General. At the same time, consequent upon the amalgamation of the
Accounts and Civil Audit Establishments of the Public Works Department under
the control of the Finance Member of the Government of India, the 3 post of
Accountant General, Public Works Department was abolished and a separate, post
of Accountant General, Railways was created.
103.
The most important landmark in the history of the financial administration on
Railways in India was the appointment of the Financial Commissioner for
Railways in April, 1923 with the sanction of the Secretary of State for India,
as part of the scheme of reorganization of the Railway Board as recommended by
the Acworth Committee (1921). The declared object of this appointment was to
secure, firstly, economy in the expenditure of public moneys and secondly, the
co-ordination of Railway policy with the general financial policy of the
Government of India. This was followed by the Separation Convention of 1924 by
which Railway finances were separated from the General Finances of the
Government of India*. *Acworth Committee's recommendation on the separation of
Railway Finances from the General Finances of the Government of India was as
follows: "We recommend that the Finance Department should cease to control
the internal finances of the railway, that the railways should have a separate
budget of their own, be responsible for earning and expending their own incomes
and for providing such net revenue as is required to meet the interest on the
debt incurred or to be incurred by the Government for railway purpose; and that
the railway budget should be presented to the Legislative Assembly, not by the
Finance Member of the Council but by the Member in charge of Railways", On
consideration, Government of India found that this recommendation was
inconsistent with certain provisions of the Government of India Act, 1919. It
was, therefore, decided that separation of Railway Finances be effected by
means of a Convention to be laid before the Legislative Assembly in the form of
a resolution, and that the Assembly be asked to agree to it . Accordingly, the
matter was placed before the Legislative Assembly who voted the Convention
resolution of 1924 on the 20th September, 1924. 103 A. Railway Budget has since
been merged (in the year 2017) with Union Budget and estimates of Ministry of
Railways have been included in the estimates of Union Budget which is prepared
and presented by Ministry of Finance. This involves presentation of a separate
Demand for Grants under Article 113 (2) of the Constitution of India for
Ministry of Railways and presentation of a single Appropriation Bill under
Article 114 (1) of the Constitution of India.
104.
The Financial Organization on the Railways has thus evolved through the
following five stages, viz.—
Stage
I: The stage prior to the appointment of the Financial Commissioner for
Railways, when the Railway finance administration was a part of the Finance
Department of the Government of India. The accounting work was done by the
Accountant General, Railways, under the administrative controller of the
Auditor 4 General.
Stage
II : Appointment of the Financial Commissioner of Railways in April 1923 as
stated in the preceding paragraph.
Stage
III : Completion of the process of separation of the Accounting & Auditing
functions on the Railways in 1929 as a sequel to the recommendations of the
Acworth Committee supported in the report of Sir Arthur Lowes Dickinson
(August. 1927). Under this arrangement, the post of Accountant General,
Railways (then under the administrative control of the Auditor General) was
replaced by—
i)
The Controller of Railway Accounts
responsible to the Financial Commissioner Railways; and
ii)
The Director of Railway Audit under the
Auditor General.
At the Railway level also the two functions were
separated by appointing a Chief Accounts Officer answerable to the Controller
of Railway Accounts, and a Chief Auditor responsible to the Director of Railway
Audit. This, incidentally, marked the beginning of the Indian Railway Accounts
Service as a Cadre distinct from that of the Indian Audit and Accounts Service.
Stage IV : Placing of the Railway Accounts
Department under the General Manager where upon the Chief Accounts Officer was
placed under the administrative control of the General Manager 'instead of the
Financial Commissioner, Railways. This organizational change was recommended by
the Indian Railway Enquiry Committee, 1937. (more commonly known as the
Wedgwood Committee) on the pattern of the British Railway practice to ensure
full contact an adequate co-ordination between the General Manager and his
Chief Accounts Officer. While making this change on the Indian Railways, the
Chief Accounts Officer was redesigned as the Financial Adviser & Chief
Accounts Officer. It was, however, a condition precedent to this arrangement
that the Financial Adviser and Chief Accounts Officer would have access to the
Financial Commissioner in all important matters on which he might be in
disagreement with the General Manager not only as regards accounting regularity
but also on questions of financial prudence. This arrangement was initially
tried as an experimental measure on two State Railways (the North Western
Railway and the Great Indian Peninsular Railway) with effect from November,
1938 and was made permanent in 1941 when it was extended to all Government
Railways.
Stage V: Setting up of a distinct Finance Branch
under the Financial Adviser & Chief Accounts Officer for placing at the
'disposal of the General Manager an improved machinery for financial advice and
control’. Again, this scheme was initiated as an experimental measure in
November, 1947 on one of the Railways, the then B. B.& C. I. Railway, and
was later adopted permanently on all Indian Government Railways. 5 With the
completion of the above- mentioned five stages, the administrative and
financial set- up of the Ministry of Railways has achieved its present unique
character viz., a) This Ministry has been fully delegated with powers relating
to all Railway matters; b) The Railway Ministry is managed entirely by railway
men, and c) The Railways have their own independent and integrated financial
set up, i. e.—
i) The Railway Ministry enjoys full powers
of financial sanction to expenditure, and
ii) Accounts are maintained by the Railway's
own accounting Cadres and not by the Comptroller & Auditor General.
105.
The Member Finance (erstwhile Financial Commissioner), is the professional head
of the Railway Financial Organization and represents the Government of India,
Finance Department on the Railway Board. In his capacity as ex-officio
Secretary to the Government of India in the Ministry of Railways in financial
matters, he is vested with full powers of the Government of India to sanction
Railway expenditure subject to the general control of the Finance Minister. This
arrangement is intended to ensure that financial control over operations of the
Railway Department is exercised from within the Organization by an officer who
shares with the Members of the Railway Board and the Chairman the managerial
responsibility as a senior partner in the common enterprise of efficient and
economic working of the Railway undertaking. In the event of a difference of
opinion between the Member Finance and other Members of the Boards the former,
has the right to refer the matter to the Finance Minister.
106.
In the discharge of his responsibilities as head of the Railway Finance
Organization, Member Finance, may issue or cause to be issued, instructions to
the Financial Adviser & Chief Accounts Officer, on all accounting and
administrative matters. These instructions will be communicated to the General
Manager and it is the duty of the Financial Adviser & Chief Accounts
Officer, to give effect to them. The latter should, however, keep the General
Managers in touch with such correspondence as may be exchanged by him direct
with Member Finance, or officers in the Railway Board working under him.
107.
At the time of the initial transfer of control over the Railway Accounts
Department to the General Manager, the following stipulation was made by the
Railway Board on the functions and responsibilities of the Financial Adviser
& Chief Accounts Officer in regard to tendering of financial advice—
"At
present the duty is imposed on the Financial Adviser and Chief Account Officer
of advising the General Manager to make a reference to the Railway Board in the
event of the former disagreeing with the latter on any matter of financial or
accounting importance, or making such a reference himself should the General
Manager be unwilling to do so. The 6 change involved in the proposed delegation
of control of the Accounts Department will not relieve the Financial Adviser
and Chief Accounts Officer of this obligation. It will on the contrary lead to
emphasize his special responsibility in this regard which it must be clearly
understood relates not only to matters of accounting propriety but also to
important matters of financial prudence, whether within the financial powers
delegated to the General Managers or not."
This
stipulation is still valid.
108.
The main function of the Finance Branch under the control of the Financial
Adviser & Chief Accounts Officer is to assist the Railway Administration in
considering all proposals involving financial implications in accordance with
the generally accepted standards of financial prudence and propriety. In the
business of rail transportation, as in any other business, there is hardly any
activity or service which does not involve considerations of finance in some
form or the other. The Finance Branch is thus an important limb of the
Administration and its functions are broadly analogous to those of the
Management Accountant, viz., to assist management (a) in making rational plans
and decisions, (b) in controlling the operations of the Railway Administration
as a whole, and (c) in controlling the operations within the various
responsibility areas of the Administration. The role of the Finance Officer has
changed, over the years, from that of a mere 'friendly critic" to one of
complete 'management participation". This role is in no way abated by the
fact that in case of disagreement, when he has been overruled by the General
Manager, the Financial Adviser & Chief Accounts Officer may request the
General Manager to make a reference to the Railway Board for orders, and the
General Manager would be under an obligation to make such a reference
incorporating therein fairly and fully the comments and views of the Financial
Adviser & Chief Account Officer. The success of the Finance Branch would
depend on the spirit and the manner in which its services are utilised by the
Executive Departments. The relations between the latter and the Finance Branch
should, like all inter-departmental relations, be based on mutual confidence
and free and full consultation.
109.
One of the important functions of the Financial Adviser & Chief Accounts
Officer relates to compilation of budgets and setting up of a satisfactory
system of Budgetary Control. While the initial preparation of the budgets is
the responsibility of the Departmental Officers concerned, the scrutiny and
compilation of the Railway's Budget as a whole will be the responsibility of
the Financial Adviser & Chief Accounts Officer.
110.
The Financial Adviser & Chief Accounts Officer is assisted at the
Headquarters office by Deputy Financial Advisers who, in turn, have a number of
Accounts Officers reporting to him in connection with their respective duties
involving financial scrutiny of proposals emanating from various departments of
the Railway Administration. The Deputy Financial Adviser is also the Budget
Officer of the Railway and, as head of the Budget Branch of the General
Manager, he is expected to exercise control over the budgetary allocations of
the Railway Administrations. 7
111.
While at the Headquarters level the financial functions, as distinct from the
functions of internal check, are performed by a separate group of officers,
both these functions are combined at the Unit level in the Divisional Accounts
Office, or the Workshop/Stores Accounts Office as the case may be.
112.
The scope of financial scrutiny of proposals before obtaining the sanction of
the competent authority may broadly be considered under the following two
situations:— a) Where a proposal is within the powers delegated to the General
Manager and Officers subordinate to him; or b) Where the proposal requires
reference to the Railway Board, being either beyond the powers of the General
Manager or involving an important matter of principle/policy.
113.
In cases of proposals involving financial implications, which require reference
to the Railway Board, it is necessary to furnish not only the technical and
administrative aspects of the case but also a review of it from the financial angle,
such a review being based on all the information which may be locally
available. It is obligatory on the Railway Administration to furnish to the
Board a verbatim copy of the opinion expressed by the Financial Adviser &
Chief Accounts Officer with every such proposal, unless it has his unqualified
concurrence in which case the fact that he has concurred in the proposal should
be indicated in the letter addressed to the Railway Board. The Financial
Adviser & Chief Accounts Officer's appreciation of the proposal
accompanying the Administration's letter should be sufficiently comprehensive
and should not only contain his comments, if any, on the facts adduced in
justification of the proposal but should also mention its financial and
budgetary implications and his views as to its financial prudence.
114.
For the speedy disposal of business, the Central Government have delegated most
of their powers in financial matters to authorities subordinate to them. These
powers have to be exercised, inter alia, subject to observance of the rules and
accepted standards of financial propriety. Proposals which are within the
competence of sanction of the General Manager and authorities subordinate to
him, and which require prior consultation with the Financial Adviser &
Chief Accounts Officer, should be subjected to close scrutiny from the point of
view of need, scope and financial propriety of the proposal in the same manner
as in the case of proposals which are referred to the Railway Board for orders.
115.
There can be no hard and fast rules on how precisely the financial scrutiny of
proposals received from the Executive Departments should be carried out. The
objective is to secure maximum efficiency in railway operations at the minimum
cost, without unduly sacrificing one for the other. The functions of Railway
Finance Officers have now developed beyond the traditional bounds of those of
the financial Accountants. These are no longer restricted to tendering advice
to the Administration whenever required or necessary in all matters involving
railway finances. The Finance 8 Officer's job as a Management Accountant is to
furnish and interpret financial statements, compile cost data and prepare cost
reports, explore avenues of controlling staff and material costs, institute and
operate budgetary control procedures, and participate in all Capital
expenditure and rating/pricing decisions duly employing tools of analyzing
financial decision such as IRR, Sensitivity Analysis etc. This involves an
irrevocable commitment to Management, and calls for a high degree of
professional training and competence. At the same time the Finance Officer
should see that the standards of financial propriety (Para 116), expected of
all Public Servants in the operation of public funds, are strictly observed.
116.
Standards of financial propriety. —In the exercise of their financial powers,
the sanctioning authorities must pay due regard to the following principles: —
1)
The expenditure should not prima facie be more than the occasion demands, and that
every Government servant should exercise the same vigilance in respect of
expenditure incurred from public moneys as a person of ordinary prudence would
exercise in respect of the expenditure of his own money.
2)
No authority should exercise its powers of sanctioning expenditure to pass an
order which will be directly or indirectly to its own advantage.
3)
Public moneys should not be utilized for the benefit of a particular person or
section of the community unless—
i)
The amount of expenditure involved is insignificant; or
ii)
A claim for the amount could be enforced in a court of law; or
iii)
The expenditure is in pursuance of a recognised policy or custom.
4)
The amount of allowances, such as travelling allowances, granted to meet
expenditure of a particular type, should be so regulated that the allowances
are not, on the whole, sources of profit to the recipients.
Multiple choice questions:
Question
1
Who was the Special Commissioner for
Indian Railways appointed by the Secretary of State for India in Council in
October 1901?
A) Sir Thomas Robertson
B) Sir Arthur Lowes Dickinson
C) Sir Henry Fowler
D) Sir John Macdonald
Answer: A) Sir Thomas Robertson
Question
2
What was the primary recommendation
of the Acworth Committee (1921) concerning the financial administration of
Indian Railways?
A) Integration of Railway finances
with General Finances
B) Complete independence of Railway finances from the Finance Department
C) Creation of a unified budget for Railways and General Government
D) Appointment of a Financial Commissioner for Railways
Answer: B) Complete independence of
Railway finances from the Finance Department
Question
3
What significant administrative
change was made in the Indian Railways in 1905?
A) Establishment of the Railway
Branch in the Public Works Department
B) Creation of the Railway Board
C) Abolition of the Railway Board
D) Separation of Railway finances from general government finances
Answer: B) Creation of the Railway
Board
Question
4
The role of the Financial Adviser
& Chief Accounts Officer (FA&CAO) includes:
A) Overseeing railway construction
projects
B) Preparing and controlling the Railway Budget
C) Managing the technical operations of the Railway
D) Supervising the Railway's public relations
Answer: B) Preparing and controlling
the Railway Budget
Question
5
According to the Acworth Committee,
how should the Railway budget be presented to the Legislative Assembly?
A) By the Finance Member of the
Council
B) By the President of the Railway Board
C) By the Member in charge of Railways
D) By the General Manager of Railways
Answer: C) By the Member in charge
of Railways
Question
6
The term "Separation Convention
of 1924" refers to:
A) Separation of Railway finances
from General Government finances
B) The merger of Railway and Public Works Department accounts
C) The establishment of a separate Railway Ministry
D) The division of Railway lines into different administrative zones
Answer: A) Separation of Railway
finances from General Government finances
Question
7
Who is the professional head of the
Railway Financial Organization?
A) The General Manager
B) The Member Finance
C) The Chief Accounts Officer
D) The Director of Railway Audit
Answer: B) The Member Finance
Question
8
What was the purpose of creating a
separate post of Accountant General, Railways?
A) To merge Railway and Public Works
Department accounts
B) To separate Railway financial administration from the General Government's
Finance Department
C) To consolidate Railway and Civil Audit Establishments
D) To centralize all financial functions under one office
Answer: B) To separate Railway
financial administration from the General Government's Finance Department
Question
9
The Financial Adviser & Chief
Accounts Officer's responsibilities include:
A) Approving all technical projects
B) Conducting railway audits
C) Advising on financial propriety and prudence
D) Managing railway personnel
Answer: C) Advising on financial
propriety and prudence
Question
10
What was the key change recommended
by the Wedgwood Committee in 1937 for the Indian Railways?
A) Separation of Railway finances
from General Finances
B) The amalgamation of Accounts and Civil Audit
C) Placing the Railway Accounts Department under the General Manager
D) Introduction of a unified Railway budget
Answer: C) Placing the Railway
Accounts Department under the General Manager
Question
11
Which principle is NOT part of the
standards of financial propriety?
A) Expenditure should not exceed the
occasion's demands
B) Authorities can exercise financial powers for personal gain
C) Public moneys should not benefit specific individuals or groups
D) Allowances should not become sources of profit
Answer: B) Authorities can exercise
financial powers for personal gain
Question
12
The separation of accounting and
auditing functions on the Railways was completed in which year?
A) 1923
B) 1924
C) 1929
D) 1937
Answer: C) 1929
Question
13
Who assists the Financial Adviser
& Chief Accounts Officer at the Headquarters?
A) General Manager
B) Deputy Financial Advisers
C) Director of Railway Audit
D) Member Finance
Answer: B) Deputy Financial Advisers
Question
14
The Railway Finance Committee
recommended reorganizing the Railway Board in:
A) 1923
B) 1908
C) 1937
D) 1919
Answer: B) 1908
Question
15
The primary role of the Finance Branch
in the Railway Administration is to:
A) Oversee technical operations
B) Ensure financial prudence and propriety
C) Manage public relations
D) Conduct railway audits
Answer: B) Ensure financial prudence
and propriety
Question
16
According to the financial
organization history, what was established to ensure economy in the expenditure
of public money?
A) Financial Commissioner for
Railways
B) Controller of Railway Accounts
C) Director of Railway Audit
D) Railway Budget Office
Answer: A) Financial Commissioner
for Railways
Question
17
The Railway Budget was merged with
the Union Budget in which year?
A) 1924
B) 2017
C) 1905
D) 1938
Answer: B) 2017
Question
18
The Member Finance's role includes:
A) Technical oversight of railway
projects
B) Representing the Government of India, Finance Department on the Railway
Board
C) Managing railway construction
D) Supervising passenger services
Answer: B) Representing the
Government of India, Finance Department on the Railway Board
Question
19
The role of a Railway Finance
Officer has evolved to include:
A) Managing train schedules
B) Conducting technical inspections
C) Complete management participation
D) Overseeing ticket sales
Answer: C) Complete management
participation
Question
20
Which stage of the financial
organization history marked the beginning of the Indian Railway Accounts
Service as a distinct cadre?
A) Stage I
B) Stage II
C) Stage III
D) Stage IV
Answer: C) Stage III
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