Provincial Health Department: Year-End Utilisation Reporting on a Conditional Grant

Separate the two questions. The proposal mixes an accounting basis question with a reporting-to-donor question, and that is the source of the error.

Part (a) - treating Rs 180 million as next year's expenditure is correct for appropriation accounts. Government appropriation accounts are prepared on a cash basis: expenditure is recognised when the payment is made from the consolidated fund, not when the service is delivered. Unpaid invoices at 30 June are not expenditure of FY2025-26. The liability does, however, exist and must be recorded in the register of unpaid liabilities and disclosed as a commitment. The payment in July will be charged against the next year's grant, which the department must plan for - otherwise it creates an excess demand on next year's budget.

Part (b) - reporting 93.3% utilisation to the donor is not defensible. Two independent problems arise. First, the department cannot report utilisation to a grantor on an accrual-like basis while reporting cash expenditure to the Accountant General, unless the grant agreement defines utilisation as expenditure incurred and a reconciliation is prepared and disclosed. Using one number for the refund calculation and another for the appropriation accounts, with no reconciliation, is inconsistent reporting. Second, the Rs 180 million is not merely unapproved timing: no payment has been made, the grant condition is written on utilisation, and the donor's refund entitlement is being avoided by re-labelling. If the grant agreement defines utilisation by cash disbursement, actual utilisation is Rs 940 million (78.3%) and Rs 260 million is refundable.

Correct approach. Read the grant agreement's definition; report on that basis consistently; prepare a reconciliation between appropriation-account expenditure and grant utilisation; disclose the unpaid invoices and the committed purchase order separately as pending liabilities and commitments.

Recognition of the grant. Under IPSAS 23, a grant with conditions creates a liability until the conditions are satisfied; revenue is recognised only as the conditions are met. Even on a cash basis, the unspent Rs 260 million is not free revenue - it is cash held subject to a refund obligation and should be presented as a liability or, at minimum, as an unutilised grant balance, not as income of the department. The Rs 300 million received on 22 June is a receipt, not utilisation; treating a late release as evidence of performance inverts the purpose of the condition.

Refund provision. The department must quantify the likely refund at 30 June: Rs 1,200 - 940 = Rs 260 million, absent any agreement with the donor. A request to carry forward or re-phase should be made before the year-end, in writing, and its outcome disclosed. Obtaining a retrospective waiver after reporting a false utilisation figure is not a substitute.

Ethical dimension. The proposal is knowingly intended to prevent a refund being triggered by presenting a number the accountant knows is unsupported. That is misreporting to a funding body, potentially a misappropriation of public money, and an accountant complicit in it breaches the IESBA fundamental principles of integrity and professional behaviour and the duty to comply with laws and regulations (IESBA 360). The correct response: do not certify the 93.3% figure; document the objection in writing to the head of department; escalate to the Accountant General and internal audit; place the matter before the department's audit committee; and record a dissenting note. Because public money and a statutory audit are involved, escalation is not optional.

Is a commitment utilisation? No. A purchase order is an executory arrangement; no goods have been received, no service rendered, no liability crystallised and cash has not moved. Under cash accounting it fails on every count. Under accrual accounting it also fails: IAS 37 / IPSAS 19 requires recognition only where a present obligation from a past event exists and a reliable estimate can be made - a cancellable supply order does not meet that test.

The distinction that matters for the grant is that utilisation represents resources consumed on the approved activity. Counting commitments would let a department 'utilise' a grant without building anything. At most, commitments belong in a distinct note so that users can see how much of the unspent balance is already earmarked.

What the annual report should disclose:

1. Actual cash expenditure against the grant: Rs 940 million (78.3%).
2. Unspent balance of Rs 260 million and the resulting refund liability or a statement of the carry-forward request and its status.
3. Unpaid invoices of Rs 180 million relating to FY2025-26 services, with their expected charge to the next year's budget.
4. Commitments of Rs 25 million for vaccines, separate from expenditure.
5. A reconciliation between appropriation-account expenditure and the grant utilisation statement, plus the basis of preparation.
6. A statement of excesses and surrenders as required by the Accountant General, including the surrender of the Rs 260 million.

Judgement to be recorded. The head of department may have believed a commitment is utilisation, but the accountant must state the correct position in writing. If the department overrides it, the audit committee and the Accountant General must be informed, and the disagreement disclosed if the final statements remain misleading.