Unbudgeted daily wages and a year-end purchase order
A District Health Office operates on an annual grant of Rs 480 million: salaries Rs 300 million, operating costs Rs 120 million, and repairs and maintenance Rs 60 million. At 30 June the actuals are salaries Rs 312 million, operating costs Rs 96 million, and repairs and maintenance Rs 40 million. The salaries overspend arose because 40 daily-wage dengue surveillance workers were engaged in August after an outbreak, with no budget provision. Provincial rules allow re-appropriation within a grant up to 10% of the grant with the administrative secretary's approval; no re-appropriation may be made to meet expenditure on a new object not provided in the budget; and unspent balances lapse at year end. On 28 June a purchase order for Rs 18 million of medicines was issued; the goods arrived on 5 July and were paid in August.
1. Assess whether the Rs 12 million salaries overspend can be regularised by re-appropriation, and identify the correct procedure.
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Savings available: operating costs 120 - 96 = Rs 24 million; repairs and maintenance 60 - 40 = Rs 20 million; total Rs 44 million. The overspend is Rs 12 million, which is 2.5% of the Rs 480 million grant and within the 10% re-appropriation ceiling of Rs 48 million.
But the ceiling is not the only test. The expenditure is on daily-wage surveillance workers, a new object not provided in the budget. The rules prohibit re-appropriation to meet a new object, so moving Rs 12 million from repairs to salaries is not the correct instrument even though savings exist and the direction (non-salary to salary) is generally permitted. Re-appropriation moves provision between existing objects; it does not create new provision.
The correct route is a supplementary grant or prior sanction of the new object by the competent authority. If the expenditure was incurred without sanction, it is unauthorised or irregular and must be regularised and reported. The remaining unspent balance must be calculated after the regularisation: if Rs 12 million is met from savings, Rs 32 million lapses and is surrendered; if a supplementary grant is used, the lapse is Rs 44 million. The office should not simply transfer the money and treat the matter as closed.
2. How should the Rs 18 million purchase order be treated at 30 June on a cash basis and on an accrual basis?
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Cash basis: the order is not expenditure at 30 June because no goods were received and no payment was made. No liability is recognised. It is a commitment and should be recorded in a commitment register and disclosed, because it will consume next year's budget while this year's funds lapse. The risk is that commitments were deliberately raised just before year end to preserve budget or to favour a supplier; that is an audit red flag and should be tested against the procurement file.
Accrual basis: no liability arises either, because the supplier has not delivered and there is no present obligation to pay for goods. The order is an executory contract, disclosed as a commitment. If the medicines had been received before 30 June, the office would accrue Rs 18 million and a payable irrespective of the payment date, and the expenditure would count against the current year's budget.
The practical consequence of the lapse is that the medicines must be funded from next year's grant. The office should confirm that next year's budget includes the item; otherwise the payment in August will itself become an unauthorised excess.
3. What control weaknesses and audit observations arise from these facts?
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The unbudgeted engagement of 40 workers shows no establishment control and no linkage between hiring and the budget. The year-end purchase order shows weak commitment accounting and a procurement process driven by the budget calendar rather than need. The absence of a commitment register means the office cannot know its outstanding obligations when preparing the surrender statement.
Report to the Principal Accounting Officer: regularise the Rs 12 million or report it as unauthorised expenditure; record and disclose the Rs 18 million commitment; and require future hiring to be sanctioned before it begins. Recommend a commitment register, a monthly budget-versus-actual report with variance explanations, and a cut-off review before 30 June.
In the audit report, frame the observation around financial discipline rather than the outbreak response itself. Emergency spending can be legitimate, but it still needs a sanctioning route. Distinguish the irregularity (no budget provision) from any fraud risk (for example, whether the 40 workers exist and were paid once each); if payroll testing shows duplicate bank accounts or absent workers, escalate the matter separately.