Gram Swaraj-Karnataka Panchayat Strengthening Project. Abbreviations and Acronyms

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2 Gram Swaraj-Karnataka Panchayat Strengthening Project Abbreviations and Acronyms AFS Annual Project Financial Statements KFC Karnataka Financial Code AG Auditor General KPRA Karnataka Panchayat Raj Act-1993 AIDS Acquired Immune Deficiency Syndrome KPSP Karnataka Panchayat strengthening Project ANM Auxiliary Nursing Midwife KPTCL Karnataka Power Transmission Corporation Limited Abdul Nazir Sab State Institute of Rural ANSSIRD KSAD Development Karnataka State Accounts Department AWW Auxiliary Women Worker KVIC Khadi Village Industries and Commerce BG Block Grants MFP Minimum Forest Produce CAG Comptroller and Auditor General MMR Monthly Multi Review CEO Chief Executive Officer NCB National Competitive Bidding CP Central Program National Government Accounts Standard NGASAB Board CSS Centrally Sponsored Scheme NGO Non-Governmental Organization DAC Decentralized Analysis Cell OBC Other Backward Communities DDO Drawing and Disbursing Officer PAD Project Appraisal Document DDP Desert Development Program PIA Project Implementing Agency DIC District Industries and Commerce PMU Project Monitoring unit DPAP Drought Prone Area Development Program PRI Panchayat Raj Institute DPR Detailed Project Report RBI Reserve Bank of India DWCRA Development of Women and Children in RDED Rural Area Rural Development Engineer Department EAS Employment Assurance Scheme RDPR Rural Development and Panchayat Raj EGS Employment Guarantee Scheme RTI Right to Information Act EO Executive Officer SATCOM Satellite Communication FC Facilitation Cell SC Schedule Caste FMR Financial Management Report SFAA State Public Financial Accountability Assessment GOI Government of India SGRY Samporna Grameena Rojgar Yojane GOK Government of Karnataka SIC Sector Investment Credit GP Gram Panchayat ST Schedule Tribe ICB International Competitive Bidding TOR Terms of Reference ICDS Integrated Child Development Scheme TOT Training for Trainers IDA International Development Association TP Taluk Panchayat IEC Information Education and Communication TRC Taluk Resource Center INR Indian Rupees USD United State Dollar IT Information Technology VWSC Village Water Supply and Sanitation Committee JGSY Jawahara Gram Samrudhi Yojana ZP Zilla Panchayat 2

3 INDEX 1 Gram Swaraj-Project Overview Project Description Project Objectives Key Outputs & Outcomes Key Outputs Key Outcomes: Strategy to Achieve Development Objectives: Block grants to Gram Panchayats Information Systems for Constituents Human Resource Development and Capacity Building of Panchayats Creation of GP resource cells at the Taluk level Service delivery monitoring system Training programs for Panchayats through ANSSIRD Training of Government staff Computerized financial management system for GPs Environmental framework for Panchayats Building the capacity of the state Decentralization Analysis Cell (DAC) Strengthening of the State Institute for Rural Development Restructuring of line agencies Institutional and Implementation arrangements Facilitation Cell (FC) in RDPR Department Department of Finance and RDPR State Institute for Rural Development District Panchayats Taluk Panchayats Gram Panchayats Gram and Ward Sabhas Social: Ensuring marginalized groups participation Monitoring and evaluation of outcomes/results Monitoring Evaluation Fiduciary Management Fund Flow Arrangement:...18 Procedure for release of Quarterly Grants to GPs is detailed as below: Release of Funds to other implementing agencies namely, TPs, ZPs, SIRD and DAC: Books of Accounts Returns to be submitted by the implementing agencies Audit Internal Controls External Audit Financial Management & Terms of reference for audit: Procurement Project period and Project Finance: Details of Project Cost Disbursements Fiscal Parameters

4 9.6 Institutional Governance parameters Social Indicators Eligibility for Grants under the project Project Formulation and Preparation of Action Plans Budgets and Financial Controls Grants from State Government: Grants from Government of India: Operation of funds in Zilla Panchayats/ Taluk Panchayats/ Grama Panchayats: Zilla Panchayats: Taluk Panchayats: Gram Panchayats: Annexure Annexure Annexure Annexure Annexure Annexure Annexure Annexure Annexure Annexure Annexure Annexure Annexure Annexure Annexure Annexure

5 1 Gram Swaraj-Project Overview Karnataka has been in the forefront of administrative decentralization and devolution of powers to the Panchayats as envisaged in the Constitution. It has been observed that the Panchayat Raj Institution structure in Karnataka has now been stabilized and strengthened with three elections. However, to make them truly institutions of local self- governments, there is a need to provide Gram Panchayats with additional resources and also encourage them to raise resources commensurate to their needs and increase their capacity to utilize the resources. Resources utilized towards services that are prioritized locally would lead to greater satisfaction among the local population. The project gives special emphasis to improve the service delivery by Gram Panchayats particularly with respect to the management of public resources and the delivery of services that the local people prioritize and decide. The strategy to achieve this development objective is through developing the capacity of the Institutions at all three tiers of district (Zilla), block (Taluka) and village (Grama) Panchayats, by imparting training to PRI members and functionaries. The project will be implemented in 1343 GPs in 39 Most Backward Taluks identified in the Nanjundappa Committee Report. The list of the 39 Most Backward Taluks is annexed as Annexure-1 2 Project Description Lending Instrument The instrument is a programmatic loan in the form of a Sector Investment Credit (SIC) through which IDA would provide additional funds to the poorest GPs. IDA would rely on GOK s own rules and procedures to implement the program including for financial management, reporting and auditing. 3 Project Objectives The major objective of the project in the 39 Most Backward Taluks is to provide them opportunities towards improving their present conditions particularly with respect to the management of public resources and the delivery of relevant services that the rural people prioritize. In order to achieve this objective, the project would: Build capacity in the Grama Panchayats (GPs), Taluka Panchayats (TPs) and Zilla Panchayats (ZPs) Improve framework and guidelines for own revenue collection. Provide formula-based Block grants to 1343 GPs in the Most Backward Talukas Revamp financial management and procurement system. 5

6 Improve the effectiveness of service delivery across a range of services that have devolved on them under the Karnataka Panchayat Raj Act, 1993 (KPR Act, 1993) 4. Key Outputs & Outcomes The development objective of the project is to improve the effectiveness of service delivery by the Gram Panchayats particularly with respect to the management of public resources and the delivery of relevant services that the rural people prioritize. The result framework of key output and outcome is annexed as Annexure-2 and Annexure Key Outputs The key outputs of the State program would be: Efficacy of larger Untied grants to be used in accordance with local priorities; Revamped financial management and procurement system for GPs; Higher transfers to Panchayats in Most Backward Talukas. Monitoring of service delivery performance at the GP level (e.g. rural drinking water, education, participatory planning, financial management, capacity building); Improved framework for own revenue collection; All GPs computerized; Environmental framework for GPs; Expanded capacity building programs; Improved planning guidelines with provisions for enhanced participation; Monitoring system on fiscal and service delivery aspects of Panchayats; Information on Panchayat performance available to constituents; A decentralization cell at state level to monitor and manage the process. 3.2 Key Outcomes: The key outcomes from the program would be: Predictable state disbursements (transfers) and as per commitments; Higher investments by GPs to improve social indicators; Greater local revenue mobilization; Improved monitoring and delivery of key services to rural population; More informed and higher expectations of rural households on rights and Panchayat performance; Improved participation of households including the poorest in local planning and improved targeting of poorer households; 6

7 5. Strategy to Achieve Development Objectives: In order to achieve these objectives the project has adopted the following strategy: 3.3 Block grants to Gram Panchayats The project would finance Block grants to 1343 GPs in 39 Most Backward Talukas identified in the Nanjundappa Committee Report. The block grants would finance activities and services listed in Grama Panchayat plans (Annexure 15 and Annexure-16) and budgets based on the obligatory functions( Section 58 of KPR Act 1993) and sector-wise activity mapping. To be eligible for the grants GPs would have to put in place the new Financial Management and Accounting System prepared by the State, implement the new planning guidelines, and hold regular Gram Sabha meetings with open participation. In the first year 1343 GPs would get about Rs.600,000 on an average as transfer on the basis of formula. This would be Rs.800,000 in second year, Rs.1,000,000 in third year, Rs.800,000 in fourth year and Rs.600,000 in fifth year. The disbursement of Block grants is explained in para Information Systems for Constituents In this component, the Grama Panchayat will evolve a system of reporting information to the public generally. This is aimed to increase the ability of rural people to voice their demands on local governments and elicit responses from them, in particular for the poorest and excluded people such as women, scheduled castes and scheduled tribes. Karnataka has a large number of community organizations such as women self help groups, watershed associations, drinking water committees, and others. The Project would be built on this strength by providing further support to such groups or by assisting new groups to be formed. Work-site related information system would also be planned as regards the persons employed, man days created and expenditure on the project. 3.5 Human Resource Development and Capacity Building of Panchayats The project departs from the traditional ways of government functioning. It is, therefore, necessary that all the people involved in the implementation of the project should have clear understanding of the project strategies along with active participation, involvement and motivation. In order to ensure this multi focused development of the Project, staff as well as related institutions HRD is a primary concern of the Project. The Project would increase the capacity of all three levels of Panchayats in managing resources, collecting revenues and delivering services. Specifically it would include: 7

8 3.5.1 Creation of GP resource cells at the Taluk level The resource cells would provide expertise in the form of resource personnel/institutions for planning, monitoring, information systems, community mobilization as well as accounting functions. The TORs will be prepared separately for each of these functions. It will organize assistance of Accounts personnel/professional institutions to assist in the preparation of Annual accounts; computer and information systems personnel/institutions to assist in computerization and computer-based communication systems, software development and NGOs for social organization and mobilization. These cells would also assist GPs in implementing GoI centrally sponsored antipoverty schemes, state anti-poverty and vulnerable group schemes, and with the management of the environmental framework for GPs. These cells will also play an important monitoring function Service delivery monitoring system This activity would support the Planning Unit of Zilla Panchayats in administering an annual survey of service delivery standards at the GP level. The survey would be done by the GP under guidance and supervision from the District and would monitor service delivery issues and outcomes including health profile of the population, student and teacher attendance, drinking water and sanitation coverage, and others. This survey would also be the instrument to collect baseline data and information for the final impact evaluation. It would include questions intended to measure the level of satisfaction of rural constituents with service delivery by the PRIs Training programs for Panchayats through ANSSIRD The training programs described below would be targeted at elected representatives and staff of Panchayats. Feedback and issues raised by participants in face-to-face training mode and through satellite will flow back to the Rural Development and Panchayat Raj Secretariat so that it becomes part of a process of change and improvement in the Panchayat system with the active participation of all the stakeholders involved. While the detailed training programme envisaged is annexed as Annexure-4, the following are its key aspects:- Training of the magnitude envisaged will require the development of a variety of material on all aspects of development, be it agriculture and irrigation, animal husbandry and fisheries, watershed, industry, energy, housing, transport, education, health, drinking water and sanitation, etc. Gender and caste equity will be a cross cutting theme across all the material developed. A variety of material has already been developed as part of the literacy and continuing education program by a number of agencies, including among others, the State Resource Centre for Adult Education, Kuvempu University, Bharat Gyan Vigyan Samiti, Mahila Samakhya and other NGOs. 8

9 ANSSIRD will set up a Committee of Experts for identification of material to be prepared. The Committee will comprise writers, Panchayat and NGO representatives, artists and designers. ANSSIRD will aim at providing a set of 50 titles to all Gram Panchayat in its effort towards promoting adult education and continuing education. ANSSIRD will also bring out a variety of charts, wall newspapers and posters in various aspects of poverty alleviation and development for dissemination to all gram panchayats. In addition, to the existing film material, a series of films will be created inter alia on the following issues: Panchayat raj, poverty alleviation & food security inter-linkages between income, work, food, nutrition, health, HIV. Feminization of poverty caste, gender and bonded labor Vulnerable groups in agriculture Poverty alleviation, credit and access to resources The new film material will be developed through workshops. They will be derived from the experience of elected gram Panchayat members, discussing and thinking about what they bring out, and considering lessons for one s own gram panchayats. The film will not be pre-scripted. There will be no expert lectures. The films will reflect the lived experience of elected gram Panchayat members. Gender and caste equality will be a cross cutting theme. The format will include workshop discussions, individual interviews and dramatized plays. Wherever possible, NGOs will be involved in developing the film material. To develop case study material for the training programs, ANSSIRD will take up an action research program. The case studies will develop best practices and guidelines for various aspects of Panchayat decision-making including: Panchayat functioning in all aspects; Effective community participation with reference to Gram Sabha, Ward Sabha, functioning of committees Partnering amongst functionaries, Gram Panchayats and people Planning and implementation Acts, policies, circulars, etc which are in existence but either not put into practice or not practiced effectively 9

10 Constraints faced in effective decentralization due to non-existent or conflicting Acts, policies, circulars, etc Attitudes, insecurities and related parameters in dual reporting by functionaries to the elected bodies and to the parent departments. Attitudes, practices, beliefs with reference to existing provisions of reservation, gender equity, community participation with reference to Gram Sabha / Ward Sabha, the politics / class / caste aspects involved at various stages Attitudes, practices, beliefs in partnering efforts between elected representatives, functionaries, community based organizations, NGOs and people the essential requirement in decentralization Constraints faced due to lack of clarity / interventions by multiple tiers of the legislature and the executive viz. at the Taluk Panchayat, Zilla Panchayat and state level. Assessing the needs with reference to capacity building of all stakeholders mentioned above Innovative approaches in sectoral functions Formation of committees at taluk / district / state level to address the various issues arising during the project period and to take effective measures to translate the findings for the benefit of the whole state Gram Panchayat functioning on various aspects viz. funds (block grants and tied) and management, community participation (Gram Sabha / Ward Sabha), committees, reservation, tax collection, etc Development indicators in health, education, childcare, primary sector, social justice, etc and their relation to the functioning of the respective sectors (including partnering with the Gram Panchayat and the community) Training of Government staff In this activity key personnel at State & PRIs and Training Institutions will be trained in such essential project components as computerization, environmental guidelines, monitoring & evaluation, Participatory Methods Computerized financial management system for GPs These activities would help implement many of the recommendations of the State Public Financial Accountability Assessment (SFAA), namely by putting in place a new financial management system (accounting, reporting, auditing) for GPs; this would also include computerization of all GPs/TPs/ZPs and development of relevant software and IT training. The objectives of the 10

11 computerization is to facilitate online communication of documents and data in the form of reports, web-based data entry or -enabled system of entry of standard reports, computerized accounting system, management of property-taxes and cesses at Grama Panchayat, interaction with citizens over and facilitating electronic submission of applications by citizens, providing information to citizens on the activities of the grama Panchayat, development of web-site for facilitating information dissemination. All GPs would be computerized and would also assist with development of appropriate software. The roll over of cash to accrual accounting as envisioned by the State in the new Accounting Guidelines proposed for the GPs would be supported under this activity. Circular instructions are issued to the GPs on the procedure to be adopted in the purchase of computers along with a suggestive configuration. The same is Annexed as Annexure-5. The necessary Software are being developed by the State National Informatics Center, Government of India. TRC will provide personnel for computerized financial management to GPs by procuring as per TORs framed for this purpose Environmental framework for Panchayats In this component, Grama Panchayats on their own or with the assistance of NGOs assess the environmental impact of all the projects and discuss the same in the grama sabhas. The projects taken up under the project and funded from the project will have to address environment impact and provide for mitigating its adverse impact. The process of assessing the environment impact is based on the Environment Guidelines formulated under the project and is actualized through a system of okay cards to assess the impact on environment parameters. Adequate training / capacity-building for the implementation of the Guidelines has also been included. The guidelines will be translated in Kannada and made available to the GPs. To ensure effective implementation of the Environmental Guidelines, the project will have a full-time, state-level environmental officer. 3.6 Building the capacity of the state The project implementation, deals with State level policy and coordination matters, assesses GP performance in targeting the poor and based on that, makes budget allocation decisions. This activity would put in place systems at the state level to enable it to oversee, facilitate and manage the Panchayat system. It would further, put in place key mechanisms at the State level to enhance the State s capacity to monitor, facilitate and guide the Panchayat system. It would include a Decentralization Cell in the Department of Finance, a Panchayat Monitoring System at the State level, special policy studies, strengthening ANSSIRD and Technical Assistance for the Restructuring of State Line Agencies. Specifically it would include: 11

12 3.6.1 Decentralization Analysis Cell (DAC) This cell will be established in the Finance department as the Research Cell for PRIs. It will monitor fiscal flows to the PRIs, assess the generation of own revenues and service delivery, carry out studies and policy analysis including design of formulas for transfers, efficacy of various tied and untied grants, advise the state on fiscal matters pertaining to Panchayats and support State Finance Commissions when these are operating. An Annual publication titled the Karnataka State of PRIs Report would be the output of the Cell. The first publication will be in Jul-Sep Duties and functions of the DAC is annexed as Annexure Strengthening of the State Institute for Rural Development The ANSSIRD will have overall responsibility over the capacity building activities. It would run the Satellite Facilities, the distance learning programs, the face-to-face training, contract out the installation and equipping of the Taluk Resource Centers and maintain and operate these centers or ensure that Taluk Panchayats assume their O&M through appropriate agreements. The SIRD would also carry out special studies to generate information for the training programs. This activity would finance equipment for the ANS-SIRD campus in Mysore and the creation of ANS-SIRD relay facility at Hubli, Gulbarga, Davanagere and Bangalore and training centers at the taluk level equipped with audio-visuals Restructuring of line agencies This component would provide technical assistance to state line agencies for the design of their institutional restructuring towards new roles in a decentralized service delivery framework. 6. Institutional and Implementation arrangements The Rural Development & Panchayat Raj Department (RDPR) and the Finance Department GoK would be the primary agencies responsible for Project Implementation. They would work in conjunction with other bodies such as State Institution of Rural Department, the Energy department, and the Environment department as appropriate. The day-to-day programme implementation responsibilities are at the Panchayat levels and in, particular with the GPs. RDPR would be responsible for providing technical support to Gram Panchayats by the following institutional and implementation arrangement: 6.1 Facilitation Cell (FC) in RDPR Department. The FC- Project Monitoring Unit in RDPR will assume overall responsibility for day-to-day project management and coordination. The FC will monitor project implementation, issue project reports, and prepare the Financial Management Reports for submission to IDA. The FC will ensure that 12

13 project audits are done on time and as per specifications. In addition, the FC will contract an Environmental Agency to assist with implementation of the transitory Environmental Framework and prepare an Environmental Framework for Panchayats. The FC will be staffed with a Project Coordinator, a Financial Management Specialist (with qualifications acceptable to IDA), and a Local Government Specialist. The FC will also monitor Panchayat conformity with Government Orders, in particular to those pertaining to the Financial Management and Accounting System 1 and Planning Guidelines. The FC will provide Technical Assistance to district, taluk and Gram Panchayats on any matters related to the project that might arise beyond the capacity of the Panchayats. The FC will also assist Taluk Panchayats in assessing their human resources to ensure that at the minimum, each taluk is staffed with an computer engineer, an accountant and a social specialist. Where necessary the FC would assist the Taluks recruit these resources through staff transfers and deputation, or by outsourcing. The details of FC s responsibilities in monitoring the project are set out in detail at Fiduciary Management. 6.2 Department of Finance and RDPR. The Department of Finance and RDPR would have overall responsibility over the Decentralization Analysis Cell (DAC). The Decentralization Cell will design and manage the Equalization Formula for transferring funds to Panchayats, will design and manage the Fiscal and Service Delivery Monitoring System for Panchayats, will carry policy analysis of specific aspects such as own revenues and others, and will provide assistance to the State Finance Commission when it would start to operate. The Project Coordinator in FC would also be a member of the DAC. 6.3 State Institute for Rural Development. The SIRD will have overall responsibility over the capacity building activities. It would run the Satellite Facilities, the distance learning programs, the face-to-face training, contract out the installation and equipping of the Taluk Resource Centers and maintain and operate these centers or ensure that Taluk Panchayats assume their O&M through appropriate agreements. The SIRD would also carry out special studies to generate information for the training programs. 6.4 District Panchayats. District Panchayats, through the District Planning Cell, would monitor the planning process of Panchayats to ensure that they follow the guidelines and, through Gram Panchayats, would carry 1 Karnataka Panchayat Raj (Gram Panchayat Accounts and budget) Rules-2006, Karnataka Panchayat Raj (Taluk Panchayat Finance and Accounts ) Rules-1996, Karnataka Zilla Panchayat (Finance and Accounts ) Rules-1996, Karnataka Financial Code-1958 And GOs issued from time to time. 13

14 out annual surveys of service delivery and disseminate findings for all the Panchayats within the district. It would also collate the fiscal information from Panchayat accounts, and transfer the information on service delivery and fiscal performance to the Decentralization Cell. 6.5 Taluk Panchayats. Taluk Panchayats, where agreed with the SIRD, would assume responsibility for O&M of the taluk resource centers. The taluk centers would be a space for training activities, for hosting the taluk experts, and for receiving Gram Panchayat members for consultations and business. Each taluk would be staffed with at least a computer specialist (to assist GPs in computerisation), an accountant (to review the extent to which Gram Panchayats are following the Financial Guidelines, to provide assistance on the matter where needed, and to collate Panchayat accounts at the block level for transfer to the district), and a social specialist (to assist Panchayats where the planning participatory process and mobilize the poorest and vulnerable groups to attend Gram Sabhas and Ward Sabhas). 6.6 Gram Panchayats. Gram Panchayats will make expenditure decisions as per the Activity Mapping and the annual plans to be implemented following the new Planning Guidelines and in a participatory and open manner. The plans would consist of activities related to service delivery and could include both capital expenditures and recurrent costs, but they would need to be consistent with the Activity Mapping. For capital expenditures they would also implement the subprojects (by contracting out or relying on community groups) and where necessary assume O&M responsibilities (if not assumed by communities). GPs would maintain accounts send reports to the taluk offices. They would also carry out annual service delivery surveys under the oversight of district Panchayats. GPs would undergo extensive training and sensitization to ensure that they have the capacity to carry out their responsibilities under the project. 6.7 Gram and Ward Sabhas. Gram and Ward Sabhas would be the instrument of accountability to the people. These would be carried regularly as per guidelines and would approve plans and budgets of GPs and review the GP performance. The social specialist at the taluk level would ensure ample and active participation of the poor and vulnerable in Gram and Ward Sabhas. 14

15 6.8 Social: Ensuring marginalized groups participation The Karnataka Panchayat system includes several aspects that are positive to marginalized groups such as women, scheduled tribes and scheduled castes. The following are the important factors that ensure benefits to the marginalized people. First and most important are the reserved seats in GPs. Evidences are available that reservation has resulted in higher benefits for marginalized groups and that women representatives are not mere puppets manipulated by men. Second, the Planning Guidelines for Panchayats recently adopted by the State bring excluded groups (women, dalits, tribal people) to the center stage of the planning process ensures their inclusion and the targeting of expenditures to them. Third, state expenditure guidelines for Panchayats require that 20% of the expenditures be used for the benefit of scheduled castes and tribes. Fourth, the 39 target taluks in the project have the higher concentration of poor dalits and tribal people. Fifth, the proposed formula for transfers would assign higher transfers to Panchayats with a higher percentage of vulnerable groups. This indicator would in fact be the proxy for poverty and, Finally, the program envisages information for vulnerable groups and increasing the capacity of their organizations. The project would ensure ample and active participation of the poor and vulnerable in Gram and Ward Sabhas as a reporting mechanism is devised in the fiscal transfer system making their implementation a condition for the financing of block grants for GPs. 7. Monitoring and evaluation of outcomes/results 7.1 Monitoring Monitoring would be the responsibility of several agencies. A state level steering committee under the chairmanship of the Additional Chief Secretary & Development Commissioner will be constituted to review and oversee the implementation of the project. The progress of the 15

16 implementation of the project will also be reviewed in monthly KDP and MMR meetings held at Taluk, District and State level apart from review in standing committee and General body meetings of GPs. The Decentralization Cell would monitor fiscal flows, own revenues and service delivery aggregating data collected at lower levels. The RDPR would outsource the monitoring of the quality of Gram Sabhas. District Panchayats would monitor service delivery at the Gram Panchayat level. Gram Panchayats would put together accounting data and data on service delivery at the GP level. Monitoring covers inputs, outputs and outcomes, performance of sub projects organizations, project processes and impacts. The project will make an effort to prepare a systematic account of project deficiencies/failures for learning purposes. For this, the project will critically examine its activities, appraise activities carried out by institutions, understand and evaluate the project thoroughly, identify the best practices and adopt them in the project. indicators are: Proposed key output Increase in discretionary funds at disposal of poorest Gram Panchayats disbursed according to formula; 90% of GPs implementing planning guidelines; Computerized financial management system in place in at least 5,000 GPs. Annual State of Gram Panchayat Fiscal and Service Delivery Reports published starting in Taluk training and resource centers operational in at least 50 taluks including the 39 poorest taluks. Fiscal cell in the Finance Department created and fully staffed including at least one representative from RDPR. Gram Panchayat revenues, expenditures, and procurement decisions, publicly disclosed in 90% of GPs. Panchayat budgets executed according to plans and procedures. Timely transfers to GPs equal to entitlements and budgets; 7.2 Evaluation Evaluation would be outsourced to an independent agency. A recently completed Rural Census will provide the preliminary information for the baseline. If additional data are required, additional questionnaires will be prepared and the data will be collected to complement the rural census. At least two more of this census will be done during the duration of the project to provide the 16

17 information to carry out the evaluation. In addition the independent evaluators would sample the quality of the surveys on service delivery being administered by village and District Panchayats. The key impact indicators are Formula based, equalizing, transfer system adopted by the state and legal instrument issued; Increased own revenue effort (200%) and potential (100%); Regular Gram Sabhas meeting participation and inclusion parameters in 90% of GPs; Number of state schemes channeled through Panchayats reduced to less than 200. Capital investment of 20% poorer Panchayats increases by 500%. Improved household perception of quality of services delivered by GP 8. Fiduciary Management As stated in the above paragraphs, the overall responsibility for financial management will vest with the Facilitation Cell (FC)/Project Monitoring Unit in the RDPR. The FC will be staffed with a Financial Management Specialist (FMS), who will be in place throughout the life of the project. The FMS will be responsible for: Ensuring that financial management arrangements including accounting, financial reporting, internal control, oversight and submission of accounts to audit are satisfactory, in accordance with relevant state government requirements and project Legal agreements. Compile Annual Project Financial Statements (AFS) based on accounts maintained by various project-implementing agencies. All implementing agencies will maintain accounts using mainstream government accounting systems and report expenditures monthly to provide a basis for compilation of the AFS. The majority of project expenditures will be made by GPs under project component. Block Grants (BGs) components, amounting to 85%, will be accounted for in the books of GPs in accordance with the new Budget and Accounts Rules to be issued by GoK. The AFS will report the total amount of BGs quarterly/annually and these will be tallied with the BG transfers reported as a single line item in GoK accounts 17

18 annually. The remaining 15% expenditures will be made by the other implementing agencies, namely, Project Monitoring Unit, Decentralization Cell (DAC), the Abdul Nazir State Institute for Rural Development (ANSSIRD), and Taluka Panchayats and these expenditures will be accounted for in their accounts. The main challenge to satisfactory financial management is the poor quality of accounting and financial reporting at the GP level. However, these weaknesses will be overcome by instituting a fiduciary framework for the BG component comprising of: Directives from RDPR that BG be used funds only on eligible activities. Approval procedures ensuring that the proposed uses of BGs are approved by the Gram Sabha and RDPR will confirm that proposed uses were properly approved by the Gram Sabha before release of BG funds; Directives from RDPR ensuring roll out of the FM reform which will in turn ensure the appropriate accounting of BG funds in the books of the GP and Assurance on end use of BG funds through audit and social accountability mechanisms. These measures would instill fiscal discipline in the GPs and in achieving crucial public financial management reforms at the GPs in line with the overall objective of the program of improving the capacity of rural governments to manage public resources responsibly and effectively. 7.3 Fund Flow Arrangement: Funds shall be released to all the implementing agencies (GPs, TPs, SIRD and DAC) from the State (FC) in 4 quarterly installments of 25% each on the basis of Approved Action Plan indicating activity wise budget for the project implementation. 8.2 Release of Funds to GPs: A major portion of project fund will flow to GPs (about 85%). State shall make direct release of funds through the banks to the project implementation bank accounts of the GPs. This is the same procedure as followed for the release of statutory grants to the GPs. 18

19 Procedure for release of Quarterly Grants to GPs is detailed as below: 1st installment of fund shall be released in advance on the basis of Approved Action Plan for project implementation. 2nd installment shall be released after utilizing 75% of 1 st installment amount and on furnishing utilization certificate duly signed by the Adhyaksha (President) and Secretary of the Gram Panchayats. 3rd installment shall be released after utilizing entire amount of 1st installment and 75% of 2nd installment as per utilization certificate furnished by the Adhyaksha and Secretary of the Gram Panchayats. 4 th installment shall be released after entire amounts of 1st and 2nd installment are utilized and 75 percent of the 3rd installment is utilized. The Adhyaksha and Secretary of the Gram Panchayats must certify this utilization in the utilization certificate. Another prerequisite for the release of 4 th and final installment of fund is obtaining certificate from the GP Engineer to the effect that physical progress achieved in the civil works is commensurate with the expenditure made. 3.3 Release of Funds to other implementing agencies namely, TPs, ZPs, SIRD and DAC: Grants for these implementing agencies also shall be released in 4 equal installment on the basis of the amount mentioned in the Approved Action Plan. State shall release the grants to these implementing agencies through the State Treasuries. However ANSSID would operate accounts through Bank. Procedure for the release of quarterly installment of grant to the above agencies is detailed as below: 1st installment of fund shall be released in advance on the basis of Approved Action Plan for project implementation. 2nd installment will be released after 75percent of 1 st installment is utilized and upon furnishing utilization certificate duly signed by the Executive Officer of TPs/CEOs of ZPs/ Director of SIRD/DDO of DAC, as the case may be. 3rd installment will be released after the entire amount of 1st installment is utilized and 75percent of 2nd installment is utilized. The release will be as per utilization certificate 19

20 furnished by the Executive Officer of TPs/CEOs of ZPs/Director of SIRD/DDO of DAC, as the case may be. 4th installment will be released after utilization of entire amounts of 1 st and 2 nd installment and 75percent of the 3rd installment. The Executive Officer of TPs/CEOs of ZPs/Director of SIRD/DDO of DAC must certify the utilization. Obtaining physical progress report of the Schemes/Programmes up to the end of previous quarter is another prerequisite for the release of 4th and final installment of fund. 7.4 Books of Accounts Following are the basic of books of accounts to be maintained by the Gram Panchayats in respect of project funds. These books of accounts shall be in the forms as prescribed in the revised Karnataka Panchayat Raj (Gram Panchayats Accounts and Budget) Rules 2006; a Cash book Form No.50 b Journal book Form No.52 c General ledger Form No.54 In connection with the project implementation some other books of Accounts/Registers/Formats shown below also required to be maintained. They also shall be in the formats as prescribed in the KPR (Gram Panchayats Accounts and Budget) Rules 2006, 1 Asset Register Form No.28 2 Stock Book Form No.29 3 Register of estimate Form No.32 4 Work order Form No.33 5 Measurement book Form No.34 6 Work Register Form No.36 7 Work completion report Form No.37 8 Receipt and payment account Form No.55 9 Trial Balance Form No Action on Audit Report Form No.60 In TPs, ZPs, SIRD and DAC the Books of Accounts and Register shall be maintained as prescribed under KPR(Taluk Panchayats Finance and Accounts) Rules 1996, KPR(ZP Finance and Accounts) Rules 1996 and KFC 1958 as the case may be. However separate Ledger Account shall be maintained in these institutions to facilitate preparation of Receipt and Payment Accounts, Annual Financial Statement and Reimbursement Claims. 20

21 7.5 Returns to be submitted by the implementing agencies Gram Panchayats shall render following returns to the EOs of TPs within the prescribed time as shown against them. Sl Nature of Return Due Date No 1 Copy of cash book containing bank reconciliation 5th of the following month statement 2 Bank Statement (extract of pass book for the month) 5th of the following month 3 Receipt and Payment account 5th of the following month 4 Trial Balance 5th of the following month 5 Annual Action Plan indicating the budget 30th April of that financial year requirement for different activities during the year The Taluk Panchayats shall compile the receipts and payments accounts of all the GP s project and its own and shall submit the same to the FC by 10th of the following month. They shall submit the Annual Action Plan indicating the budget requirement for different activates during the year by 30th April of that financial year. The ZP, DAC and SIRD also shall submit their monthly receipt and payment accounts by 10th of the following month. They shall submit the Annual Action Plan indicating the budget requirement for different activates during the year by 30th April of that financial year. The TPs, ZPs, SIRD and DAC shall send the reimbursement claim every month in the form prescribed by the FCs before 15th of the following month to facilitate submission of reimbursement application to Government of India. The reimbursement claims in respect of GPs shall be consolidated by the TPs and sent to FC. 9. Audit 9.1 Internal Controls Controls on the Investment component expenditures will be exercised by the FMS at the FC and through the prevalent state government controls on expenditures through TPs, GPs and ANSSIRD. The persons responsible for making project expenditures will be the TP-Accounts Superintendent S, GP-Secretary and ANSSIRD Accounts Superintendent, while the responsibility for oversight will be that of the TP-EO, GP-Adhyaksha and ANSSIRD-Director. Controls on the BG funds will be through the fiduciary framework that is put in place in this project. This framework will ensure that directives from the RDPR regarding the eligible 21

22 expenditures for use of BG funds, that regular Gram sabhas are held to document the proposed uses of BGs; that there are approval procedures in place which ensure that BGs are proposed to be used only for the extension and expansion of services as envisaged under the 29 items devolved to the GPs. Additional fiduciary reviews of a sample of GPs receiving Block Grants will be undertaken annually by a firm of private accountants periodically during the implementation phase. The purpose of these reviews will be to provide additional assurance of the controls at the GP level and recommend strengthening actions if required. RDPR will create a panel of CA firms in consultation with Karnataka State Accounts Department (KSAD) from which the reviewers will be selected. This panel may be either at the district level or at a regional level 2 to conduct these special reviews in which both financial management and procurement will be covered at the GP level. For the purposes of monitoring, capacity building and assurance on end use of BG funds, the RDPR will monitor the Consolidated audit report of GPs receiving Block Grants audited by KSAD. 9.2 External Audit For fiduciary purposes the following report will be received by the Bank and monitored in audit report compliance system: Audit of AFS / FMRs (all components). These will be audited by a firm of private Chartered Accountants annually. 9.3 Financial Management & Terms of reference for audit: The suggested terms of reference of the different audits is annexed as Annexure-7 to 11.The Financial managements and disbursement arrangements is annexed at Annexure Procurement All the aforesaid project components involve procurement of goods, works and services on a decentralized basis by the concerned PRIs/implementing units as per their delegated financial powers. The procurement of goods and services will follow the Karnataka Transparency in Public Procurement Act, 1999 and The Karnataka Transparency in Public Procurement (Rules) 2000 would guide with respect to the procurement of goods and services by PRIs. The guidelines issued by the Government 2 GoK will develop criteria for selection of the audit firms and TORs describing the scope of the audit to be conducted. 22

23 regarding ensuring procurement through calling for quotations from registered/authorized contractors/vendors only will be followed to ensure competition and transparency in all procurement. These are mostly on the lines of Public Works Department. A detailed procurement manual prepared and will be issued separately, This Procurement Manual will act as guidelines for the project implementing agencies. The procurement plan for first 18 months period is part of the manual is annexed as Annexure Project period and Project Finance: The total cost of the project is USD million spread over a 5-year period. Out of the total cost of the project, IDA credit would be USD120 million and Karnataka s share is USD million. USD million would go towards financing block grants for GPs. The balance of project fund would be utilized for capacity building, creation of resource centers, State Level Institutions to monitor the project., The project funds would flow to the GPs in the 39 Most Backward Taluks identified in Nanjundappa Committee. The funds would be allocated on the basis of a formula in order to equalize over fiscal disparities and needs. Thus poorest GPs get more funds. Simultaneously, Government of Karnataka would also ensure timely release of statutory grants of Rs 5 lakh to GPs in quarterly installments as appropriate. 23

24 9.4 Details of Project Cost The following table shows the various components of project and their costs; Project Cost Gram Swaraj -Karnaka Panchayat Strengthening Project Disbursement Accounts by Financiers (Rs. Crore) (US$ Million) Items IDA Government Total IDA Government Total Amount % Amount % Amount % Amount % Amount % Amount % I Block Grants Grants II Goods, Works and Services 1. Training and Capacity Building 2. Civil Works 3. Consultancies & Management - ANSSIRD 4. Consultancies_TRCs Goods and Equipment 6 Action Research & Development Sub Total III Incremental Operating Costs (FC &DAC) 1.Salaries, TA & DA, Contigencies Consultancies Hiring of Vehicles Internal and External Audit Others Sub Total Grand Total Disbursements The following indicators and weightages for devolution to PRIs will be adopted for allocating Grants to 1343 grama panchayats in 39 Most Backward taluks in the first year. Sl. No. Indicators Weightage (%) a) Populaton and Area (60%) 1. Population Area 30 b) Backwardness (40%) 1. Illiteracy SC & ST Population 20 Total

25 From the second year onwards, the allocation will be based on these indicators and and also performance indicators in the ratio 50:50. However these performance indicators could be modified later based on the experience of implementation by the DAC. The Performance parameters shall involve fiscal, governance and social parameters and broadly include the following: 9.5 Fiscal Parameters Sl No Parameter Weightage in eligibility for grants in Percentage variation permissible percentage 1 Collection of property tax and cesses to be at least 60% during the first year, 65% in the second year, 70% in the third year, 70% in the fourth year, 75% during the fifth year Property tax and cesses to be revised at least once in three Nil years. 5 3 Additional resource mobilization (other than taxes) i.e. from assets, fees for services to increase by at least 10% (after debt servicing, if any) eg. Income from license fees, renting of property, information kiosks, incentive from recovery of housing loans, promoting insurance for the poor, income from lease of usufructs of plantations, tanks, fish ponds, in common lands etc Sub-Total 25 25