FINANCE CONTROL

MECHANISMS
Unit IV: Parliamentary Financial Committees
a. Financial Control Mechanisms
b. Public Accounts Committee and Estimates Committee
c. Committee on Public Undertakings
Unit- V: Materials Management
a. Meaning and Concept of Materials Management
b. Procurement, Storage and Distribution
c. Inventory Control and Management
Financial controls are the procedures, policies, and means by which an
organization monitors and controls its direction, allocation, and usage .

Financial control serves as a preventative measure against fraudulent

activities in an organization. It can help prevent any undesirable activities
such as employee fraud, online theft, and many others by monitoring the
inflow and outflow of financial resources.
Finance is the application of economic principles and concepts to business decision-
making and problem-solving.
The field of finance broadly consists of three categories:
i) Financial Management: This area is concerned with financial decision-making
within a business entity. (Financial management decisions, include maintaining optimum cash balance, extending credit,
mergers and acquisitions, raising of funds and the instruments to be used for raising funds and the instruments to be used for raising funds
etc.)

ii) Investments: This area of finance focuses on the behavior of financial markets and
the pricing of financial instruments.
iii) Financial Institutions: This area of finance deals with banks and other financial
institutions that specialize in bringing suppliers of funds together with the users of
funds.
Financial management is broadly concerned with the acquisition and use of funds by
a business firm.
The scope of financial management is concerned with the following:
• How large should a firm be and how fast should it grow?
• What should be the composition of the firm’s assets?
• What should be the mix of the firm’s financing?
• How should the firm analyse, plan and control its financial affairs?
The financial functions in Government are performed by the following agencies:
1) The Legislature
2) The Executive
3) The Treasury or the Finance Department
4) The Audit Department
NEED OF COMMITTEES
Effective legislative control over the expenditure .
To undertake a detailed examination of the annual budget estimates of the government .
 The legislature as such has neither the energy nor the time to perform these functions.
It; therefore, constituted three committees, composed of members belonging to it. to
devote themselves to these functions. These three committees are:
a) Public Accounts Committee
b) Estimates Committee
c) Committee on Public Undertakings.
d) State legislatures also have similar committees though all of them do not have
separate committees on public undertakings.
PUBLIC ACCOUNTS
COMMITTEE: EVOLUTION
Historically, the Webly commission of 1896 indicated the need for an accounts
committee to highlight financial irregularities.
The Montague Chelmsford reforms suggested the creation of such committees out
of the provincial legislatures.
The first such committee on Public Accounts was created at the Centre to deal with
the appropriation of accounts of the Governor General in Council and the report of
the Auditor General thereon.
The power to ascertain how the money had been spent was conferred only in 1861,
when the House of Commons created the Committee on Public Accounts.
PAC IN INDIA
 In India, the Public Accounts Committee was first created at the Centre in 1923
with the coming into force of the Montford reforms in 1921.
It became a major force in the legislative control of Public expenditure. Despite the
limitations of its constitution and the restrictions on its authority, it exercised
enormous influence in bringing to bear upon the government the need to enforce
economy in the expenditure of public money.
Parliamentary control over the finance of the government is assured through a
special committee of Parliament viz PAC
COMPOSITION OF PAC:
Under the provisions of the Constitution, the Public Accounts Committee at the Centre is
constituted of members from both the Houses of Parliament;
It is composed of 22 members, 15 from the Lok Sabha and 7 from the Rajya Sabha.
The members are elected through a system of proportional representation by single transferable
vote.
Almost every sizeable party or group is represented on the Committee.
Although the committee is elected annually, there is a convention that there should be a two-
year tenure of the membership to ensure continuity.
The Chairman of the Committee is nominated by the Speaker from amongst the members of the
Committee.
Till 1966-67, the chairman belonged to the ruling party. Since then, a member of the opposition
has been named the chairman.
FUNCTIONS OF THE
COMMITTEE
The functions of the Committee are to satisfy itself that :
a) the money’s shown in the accounts as having been disbursed was legally available
for and applicable to the service or purpose to which they have been applied or
charged;
b) the expenditure conforms to the authority which governs it; and
c) every re-appropriation has been made in accordance with provisions made on this
behalf under the rules framed by the competent authority
IT SHALL ALSO BE THE DUTY
OF THE PUBLIC ACCOUNTS
COMMITTEE:
a) to examine, in the light of the report of the Comptroller and Auditor General, the
Statement of accounts showing the income and expenditure of state corporations, trading
and manufacturing schemes and projects, together with the balance sheets and statements of
Profit and Loss accounts which the President may have required to be prepared, or are
prepared, under the provisions of the statutory rules regulating the financing of a particular
corporation, trading concern, or project;
b) to examine the statements of accounts showing the income and expenditure of
Autonomous and Semi-autonomous bodies, the audit of which may be conducted by the
Comptroller and Auditor General of India either under the direction of President or by a
statute of Parliament; and to consider the report of the Comptroller and Auditor General in
cases where the President may have required him to conduct an audit.
WORKING OF THE
COMMITTEE
 The Public Accounts Committee can organize itself into sub-committees and
working groups.
When approved by the committee, the reports of the subcommittees are deemed to
be the reports of the Public Accounts Committee.
The conclusions of the Committee are submitted to Parliament in the form of a
report.
To make the work of the committee more effective, the Comptroller and Auditor
General now submit interim reports to it.
The committee is thus able to reach conclusions and finalize its recommendations.
It has at its disposal the services of the Comptroller and Auditor General who is the
guide philosopher and friend of the committee.
A convention has evolved that the recommendations of the Committee are accepted
by the Government. But sometimes these are sent back for reconsideration.
The Public Accounts Committee probes into the transactions carried out It conducts
a post-mortem examination of the Public Accounts.
RELATIONSHIP BETWEEN CAG
AND PAC
The CAG (Comptroller and Auditor General of India) is a constitutional body
created under Article 148 of the Constitution
while the Public Accounts Committee (PAC) is a standing committee of Parliament
created under Government of India Act, 1919 coming into existence in 1921.
The primary function of PAC is to examine the annual audit reports of CAG and
submit its findings to the Parliament.
 The CAG submits three audit reports –
i. Audit report on appropriation accounts,
ii. Audit report on financial accounts, and
iii. Audit report on public sector undertakings – to the President who causes them to be laid
in the Lok Sabha.
The PAC then examines these reports, that is to say, it examines the financial transactions of
government ministries, departments and public sector enterprises on the basis of these
reports.
 It does so not only from the legal point of view to discover technical irregularities but also
from the point of view of economy, propriety, and prudence to discover instances of
corruption, waste, loss, and inefficiency.
The CAG assists the PAC in the examination of these reports.
Thus, there is a close working relationship between CAG and PAC to secure the
accountability of executive in the field of financial administration.
ESTIMATES COMMITTEE
The Estimates Committee was first created in April 1950 and its functions were
enlarged in 1953.
There had been a predecessor of the Estimates Committee called the Standing
Finance Committee, which was first constituted in 1921 and attached to the Finance
Department of the Government of India.
COMPOSITION . .
The Estimates Committee, constituted in 1950 had 25 members;
In 1956 the membership was revised to 30. It is a select committee elected by the members
of the Lok Sabha from amongst themselves according to the principle of proportionate
representation based on a single transferable vote.
The term of office of the members is one year. But according to conventions, two-thirds of
the members are re-elected for another year.
The Chairman of the Committee is nominated by the Speaker.
If, however, the Deputy Speaker is a member of the Committee he automatically becomes
the Chairman. Ministers cannot be a system of Financial Committees appointed on the
Estimates Committee.
Its functions, methods’of appointments, and other relevant matters are laid down in the
Rules of Procedure and conducting of Business in the Lok Sabha
FUNCTIONS
The committee examines such of the estimates as it may deem fit or are specifically
referred to it by the Lok Sabha or the Speaker to:
i) report what economies, improvements in organization, efficiency and
administrative reforms, consistent with the policy underlying the estimates, may be
affected;
ii) suggest alternative policies in order to bring out efficiency and economy in
administration;
iii) examine whether the money is well laid out within the limits of policy implied in
the estimates; and
iv) suggest the form in which the estimates shall be presented to the Parliament
COMMITTEE ON PUBLIC
UNDERTAKINGS
In 1964, on the recommendation of the Krishna Menon Committee, a separate
committee on Public Undertakings was constituted.
Composition:
Earlier there used to be 15 members in the Committee, with 10 members from the Lok
Sabha and 5 members from the Rajya Sabha.
With effect from April 1974, the number of members has been increased to 22 .... 15
members of COPU are drawn from the Lok Sabha and 7 members are drawn from the
Rajya Sabha.
The members of COPU are elected every year in accordance with the principles of .
proportional representation by means of single transferable vote.
 Term – 1 year
 Chairmen-Speaker appoints him/her from amongst the members.
FUNCTIONS OF COPU
The Principal functions of COPU are:
a) to examine the reports and accounts of Public Undertakings as specified in the fourth
schedule of the Rules of procedure and conduct of Business in Lok Sabha;
b) to examine the reports, if any, of the Comptroller and Auditor General of India on the
Public Undertakings;
c) to examine, in the context of autonomy and efficiency of the public undertakings,
whether the affairs of the Public Undertakings are being managed in accordance with
sound business principles and prudent commercial practice;
d) to exercise such other functions vested in the Public Accounts Committee and the
Estimates Committee in relation to the Public Undertakings as are not covered by
clauses (a), (b), and (c) above and as may be allotted to the committee from time to time.
There are a few functions that the committee on public undertakings is not to perform:
•The committee cannot examine government reports related to policies not concerned with
PSUs.
•It has no role in matters of day-to-day administration.
•The committee also cannot take up reports of any such public sector undertakings which are
established by a special statute and for which another machinery is responsible to report.
LIMITATIONS OF THE COMMITTEE ON PUBLIC
UNDERTAKINGS

1.There is a cap on the number of PSUs it can examine reports of. The committee cannot take
upon reports of more than 10-12 PSUs in a year.
2.It only examines the reports. It has no role in deciding the functioning of PSUs. Hence, its
work is only like a post-mortem.
3.The committee is not concerned with any technical matters of PSUs as there are no
technical experts as members of the committee.
4.All the recommendations put forward by the committee are advisory and ministers are not
bounded by any of those.