Chapter-III: Financial Reporting Practices

Issues related to completeness of accounts

3.1 Off budget borrowings through State owned PSUs/Authorities

Article 293(3) of the Constitution of India mandates consent of the GoI for a State Government's borrowing if it has any outstanding loans or guarantees from the GoI. Further, the XV Finance Commission recommended that the normal net borrowing ceiling (NBC) to the State Governments for 2023-24 to 2025-26 may be fixed at three per cent of GSDP.

Bypassing the above stipulated net borrowing ceiling by routing loans outside the budget through various State Government Public Sector Undertaking (SPSUs)/Corporations/ other Bodies despite the State being responsible for repayment of such loans, pose significant risk to fiscal health and to transparency in the Government finances. Borrowing ceilings for a financial year of the State Governments are being now reduced by GoI to the extent of Off-Budget Borrowings (OBBs).

The Fiscal Responsibility and Budget Management (FRBM) Act, 2003, outlined that the State Government shall take suitable measures to ensure greater transparency in its fiscal operations in public interest by disclosing the actual liabilities arising out of OBBs by PSUs, Special Purpose Vehicles and other equivalent instruments where liability for repayment is on the State Government.

Further, the TNFR Act, 2003, provided that a Medium-Term Fiscal Plan (MTFP) laid before the Legislature along with the Budget documents shall contain a five-year rolling target with respect to Revenue Deficit, Fiscal Deficit and total outstanding debt 1 of the State Government.

For the year 2024-25, the State targeted the debt stock to be within 28.90 per cent of GSDP and fiscal deficit at 3.26 per cent (as per the revised estimates reflected under MTFP) which includes additional borrowing of 0.5 per cent of GSDP over and above three per cent on fulfilment of Power Sector Reforms as recommended by the XV Finance Commission. During the year, the fiscal deficit stood at 3.25 per cent and ratio of debt to GSDP was 27.49 per cent. Thus, the debt stock as a percentage of GSDP as well as the fiscal deficit were within the targets fixed.

The State Government provided the details of OBBs as on 31 March 2024 in its publication "Appendices to the Budget Memorandum" released along with the Budget document 2025-26. In Appendix IV of Budget document, the details were reflected as "Guarantees given by the Government with zero risk", due to the fact that, there is no possibility of invocation of Guarantee as the amount required for repayments are provided in the State Budget. Further, based on the information furnished by the State Government to Audit, as on 31 March 2025, the outstanding of OBBs was ₹3,886.55 crore, which included fresh borrowings of ₹593.24 crore made by the Tamil Nadu Water Resource Conservation and River Restoration (TNWRCRR) during 2024-25 as detailed in Table 3.1 below. It was also noticed that the State Government reported net figure of ₹27.74 crore (fresh borrowings minus repayments) made during the year to GoI.

The total outstanding OBBs as a percentage of GSDP is depicted in Chart 3.1 below:

From Chart 3.1, it is evident that although outstanding OBBs as a percentage of GSDP showed a gradual increase up to 2023-24, a marginal decline was observed during 2024-25. This reduction was attributable to a significant decrease in fresh OBBs undertaken by the State Government during the year (₹593.24 crore) compared to the previous year (₹1,672.01 crore), coupled with a growth in GSDP of 15.98 per cent.

Apart from the OBBs as depicted in Table 3.1 above, audit scrutiny revealed that the Government had been servicing the loans (₹164.62 crore) taken by the Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB) since the year 2013 from the Tamil Nadu Urban Finance and Infrastructure Development Corporation (TUFIDCO) and the Tamil Nadu Urban Infrastructure Financial Services Limited (TNUIFSL) for providing water supply and underground facilities on behalf of local bodies. However, the Government had not disclosed the above borrowings as OBBs in their statements. In exit conference, the Government accepted the audit observation and stated that CMWSSB borrowings pertain to earlier years and that repayments are currently in progress.

The details of OBBs not disclosed by the State Government along with the total amount outstanding as on 31st March 2025 is detailed in Table 3.2 below.

The above borrowings were serviced from the budget of the State Government and during the year, CMWSSB repaid ₹3.57 crore (principal ₹2.64 crore and interest ₹0.93 crore) through financial assistance of the Government.

The details of assistance for payment of interest and repayment of principal during the year including the above are detailed in Table 3.3 below.

Since these OBBs do not form part of the outstanding liabilities shown in the Finance Accounts, there was a lack of transparency in the actual outstanding borrowings of the Government at the end of the year. This practice not only contravenes codal provisions but also erodes fiscal transparency, legislative oversight and the State's cash management capacity management.

3.2 Undischarged liabilities of the Government

Undischarged liabilities, such as Undischarged Interest liability, non-transfer of collected cess to designated bodies or short remittances to the National Pension System (NPS) can have significant long-term fiscal and governance implications. These unpaid obligations accumulate over time, creating hidden liabilities that distort the true financial position of the State. Similarly, short transfers to NPS not only violate statutory commitments but also compromise the financial security of employees. Over the years, such practices can erode trust, trigger legal liabilities and increase future expenditure obligations, thereby, constraining fiscal space and weakening fiscal sustainability. Cases of undischarged liabilities are discussed in the succeeding paragraphs.

3.3 Funds lying unspent in the Bank Accounts of DDOs

The Government of Tamil Nadu stipulated 3 that, no money shall be drawn from the treasury unless it is required for immediate disbursement. It is not permissible to draw money from the treasury in anticipation of demands or to prevent the lapse of the budget allotted. However, as per the information received from the State Government, as of 31 March 2025, an amount of ₹565.39 crore was lying unspent in the Bank accounts of DDOs.

Test check of records revealed that an amount of ₹3.58 crore lying with the Divisional Engineer, National Highways, Chennai and ₹18.60 crore lying with the Executive Engineer (PWD), Chennai were remitted into Government Account after the end of the Financial year 2024-25, i.e., in April 2025 and June 2025 respectively. It was further seen that ₹1.61 crore lying idle with the Divisional Engineer - Highways, Construction and Maintenance, Madurai and ₹0.53 crore lying with the Deputy Director, Geology and Mining Madurai were yet to be remitted into the Government account.

Retention of such unspent balances lying idle, not only carry an opportunity cost but also undermine fiscal responsibility and debt sustainability.

Issues related to transparency

3.4 Delay in submission of Utilisation Certificates

Article 210(A) of the Tamil Nadu Financial Code Volume I-1991 specifies that Utilization Certificate (UC) for the grants released by the Government of Tamil Nadu to the State Autonomous bodies should be submitted to the Accountant General (A&E) and due dates should be fixed based on the nature of expenditure for which the grant is made. The sanctioning authority should make it incumbent upon the grantee institution to submit the statements within the stipulated period by including a clause to this effect in the sanction order itself.

As per the instructions given in Chapter 16 of the Manual of Standing Orders (Accounts and Entitlements), UCs in respect of conditional Grants-in-Aid for creation of Capital Assets and/or as required by the sanction received by the grantee should be furnished by the grantee to the authority that sanctioned it within 12 months from the date of receipt of the grant or before applying for a further grant on the same purpose, whichever is earlier. To the extent of non-submission of UCs, there is a risk that the amount shown in the State Finance Accounts may not have reached the beneficiaries.

As of March 2025, 310 outstanding UCs amounting to ₹6,632.30 crore became due for submission. Out of these, 198 UCs amounting to ₹4,443.66 crore were cleared during the year. It was noticed that out of the remaining 112 UCs (₹2,188.65 crore) relating to 13 grants, 37 UCs (₹336.28 crore) pertains to Centrally Sponsored Schemes. The position of pending UCs and outstanding UCs in respect of the top four departments for grants as on 31st March 2025 are given in Table 3.6 and Chart 3.2 respectively.

Non-submission/delay in submission of UCs indicates the failure of the departmental officers to comply with the rules to ensure accountability. It is imperative that the State Government monitor this aspect of pendency as non-submission of UCs is fraught with the risk of misappropriation of funds. Further, the Government should evolve a mechanism and ensure timely submission/hold the persons concerned accountable for delay in submission.

3.5 Un adjusted Temporary Advances

When money is required in advance or it is difficult to calculate the exact amount required, the Drawing and Disbursing Officers (DDOs) are permitted to draw money without supporting documents, through Temporary Advance (TA) bills, by debiting the service heads. Such expenditure is then reflected as an expense under the respective service heads.

Unlike other States, the Government of Tamil Nadu does not follow the system of drawal of Abstract Contingent (AC) bills followed by submission of Detailed Contingent (DC) bills. Instead, the DDOs have been empowered to draw Temporary Advances (TAs) under Article 99 of Tamil Nadu Financial Code. Such advances are required to be adjusted by presenting detailed bills and vouchers within three months from the date of drawal of advances.

During the year, 2,184 TA bills amounting to ₹284.62 crore were drawn. The details of TA bills, pending adjustment, as on 31 March 2025 is given in Table 3.7 below.

Quarterly analysis of Temporary Advance (TA) bills drawn during the year revealed that 26 per cent of the total amount was drawn in the first quarter, eight per cent in the second quarter, four per cent in the third quarter, and 62 per cent in the fourth quarter. Further, 61 per cent of the amount drawn in the fourth quarter pertained to the month of February.

Test check of details of bills remaining unadjusted for more than 10 years as shown in Table 3.7 above revealed that one bill amounting to ₹0.14 crore was drawn on 31 March 2005 by the DDO, Directorate of Animal Husbandry towards expenditure on training and seminar and was adjusted only in July 2025. Another bill was drawn on 13 March 2002 for an amount of ₹0.53 crore by the Director General of Police (DGP) under the jurisdiction of Pay and Accounts Office (PAO) (East) towards purchase of traffic signals. Audit scrutiny revealed that though this bill continued to appear as pending to be adjusted in the records of PAO (East), the adjustment details were not traceable, as the DDO, the Chennai City Police under DGP who had initially drawn the bill was subsequently transferred to PAO (South) jurisdiction.

It was also observed that under the category more than one year and less than five years, one bill drawn by the DDO, Anna Centenary Library in October 2022 for ₹0.38 crore towards TN Talk function was adjusted only in July 2025. Similarly, fours bills under PAOs jurisdiction amounting to ₹12.58 crore drawn during the period (March 2019 to March 2020) were remitted back into the government account between July 2025 and October 2025.

The Chart 3.3 shown below depicts the top five Heads of the Departments (HOD) with whom TA bills remained unadjusted.

Further, audit scrutiny on pending TA bills remaining unadjusted relating to Grant 52 - Commissionerate for Welfare of Differently abled persons, which was taken up for budget review, revealed that 15 bills were drawn during March 2023 to March 2025. Of these, nine bills amounting to ₹14.54 crore were drawn in March 2023 and November 2023, another bill (₹0.05 crore) in December 2024 and the remaining five bills amounting to ₹0.23 crore in March 2025. Audit observed, from the reply of the department, that in respect of the TA bills drawn during 2023, adjustment bills were submitted in the months of May, August and October 2025. For the remaining bills, the Department stated (November 2025) that the submission of adjustment bills was still under process.

Failure to adjust advances over prolonged periods and delays in submitting adjustment bills weaken compliance with fiscal responsibility norms. Further, in the absence of such adjustment bills against the advances drawn, the expenditure reflected in the Finance Accounts cannot be considered accurate or final.

3.6 Personal Deposit Accounts

Personal Deposit (PD) account is intended for a specific purpose for which it is created. It is governed by Article 269 of the Tamil Nadu Financial code - Vol I. These PD accounts are created by transferring funds from the Consolidated Fund to the Public Account for discharging the liabilities of the Government arising out of special enactments. PD Accounts are operated during the financial year period 1st April to 31st March next year. No money may be accepted for deposit under PD account in a treasury, except under an order of the Government and authority from the Accountant General, (A&E). These PD accounts are of the nature of deposits not bearing interest and operated under the Head of Account "8443 - Civil Deposits - 106 - Personal Deposits" as per the List of Major and Minor Heads of Union and States (LMMH).

During the year 2024-25, an amount of ₹253.95 crore was transferred from the Consolidated Fund of the State to Personal Deposit (PD) Accounts. This includes ₹16.73 crore transferred to PD Accounts in March 2025. Details of PD accounts as of 31 March 2025 are given in Table 3.8 below.

The above 47 PD accounts were operated under the sub-head "AA" below HOA "8443-106" and were closed at the end of the year. There are also no PD accounts which are inoperative under the above HOA for more than 3 years.

Audit, however, observed that in addition to the above PD Accounts which were authorised by the Accountant General (A&E), another PD account with the nomenclature "Personal Deposits - Funds deposited from other sources - Other than Consolidated Fund -under sub-head "AC" below the same HOA, is still under operation having ₹74.31 crore as closing balance.

Operation of this kind of PD accounts not only results in lack of transparency but is also violative of the extant Financial Code.

3.7 Operation of Minor Head-800

Minor Head-800 relating to "Other Receipts" and "Other Expenditure" is intended to be operated only when the appropriate minor head has not been provided in the accounts. Regular operation of Minor Head-800 is to be discouraged, since it renders the accounts opaque. Classification of large amounts under the omnibus Minor Head 800 affects transparency in financial reporting and distorts proper analysis of allocative priorities and quality of expenditure.

During the year 2024-25, ₹33,806.60 crore under 70 Major Heads of account, constituting 8.99 per cent of the total expenditure (₹ 3,75,777.35 crore) was classified under the Minor Head - 800 - Other Expenditure in the accounts. Similarly, ₹24,017.90 crore under 46 Major Heads of account, constituting 8.49 per cent of total Revenue Receipts (₹2,82,829.28 crore) was classified under "800 - Other Receipts". In comparison, during 2023-24, 9.12 per cent of revenue expenditure and 6.47 per cent of receipt were booked under this Minor Head.

Audit observed that out of 469 instances of booking under Minor Head 800 - Other Expenditure/Receipts, alternative minor heads were identified by the Office of the PAG (A&E) and communicated to the State in 97 cases, of which 51 suggested alternative minor heads were accepted by the State. Similarly, in respect of "Other Receipts", alternative minor heads were adopted by the State in 11 instances. Further, during the Exit Conference, it was stated that an exercise is underway to reclassify receipts and expenditure booked under Minor Head 800 - Other Receipts/Expenditure, wherever feasible.

The fact that such substantial proportions of the expenditure/receipts is booked under the omnibus Minor head "800" is a cause of concern, since it adversely impacts transparency in financial reporting as a transparent public accounting system is not merely an administrative necessity but is a cornerstone of good governance.

Issues related to measurement

3.8 Outstanding balance under major Suspense and DDR Heads

The Finance Accounts reflect the net balances under Suspense and Remittance Heads. The outstanding balances under these heads are worked out by aggregating the outstanding debit and credit balances separately under various heads. Significant suspense items balances for the last three years have been shown in Table 3.9 below.

The Head "8658 - 101 - PAO Suspense" is intended for settlement of transactions between the Accountant General (A&E) and various other Pay and Accounts Offices (PAOs) of the Government of India. The transactions under this head mainly relate to the payments made by the State Government to Central Government Civil Pensioners. It could be seen from Table 3.9 above that an outstanding balance of ₹104.27 crore exists under this head. Out of this ₹104.27 crore, one payment relates to Central Freedom Fighters pensioners (₹89.16 crore) and another amounting to ₹11 crore relates to dues from the Ministry of Shipping and Transport.

Non-clearance of outstanding balances under these heads affects the accuracy of receipt/expenditure figure under different heads of accounts which are carried forward from year to year of the State Government.

3.9 Reconciliation of Departmental Figures

To exercise effective budgetary control over revenue/expenditure and to ensure accuracy in accounts, State Financial Rules stipulate that the Chief Controlling Officers (CCOs)/Controlling Officers (COs) are to reconcile every month, the receipts and expenditure recorded in their books with the figures of the Accountant General (A&E). As per Rules 124 and 127 of the Tamil Nadu Budget Manual, departmental accounts maintained by the CCOs and the progressive actuals, month by month are required to be reconciled with figures maintained by the Accountant General(A&E).

During 2024-25, out of 148 CCOs for Receipts and 213 CCOs for Expenditure, 19 CCOs relating to receipts and 21 CCOs with respect to expenditure did not reconcile the figures. Further, trend analysis for the past three years revealed that the number of CCOs not reconciling the figures has been on the increasing trend as shown in Table 3.10 below. Such instances call for necessary action to restore fiscal discipline and strengthen State's Public Finance architecture.

As non-reconciliation of figures can lead to discrepancies/inaccuracies in the books of accounts, necessary action for the reconciliation of all receipts and expenditure is required to be taken.

3.10 Reconciliation of cash balances

In terms of Section 20, 21 and 21 A of the Reserve Bank of India (RBI) Act, 1934, the RBI acts as a banker to the Central and State Governments. While the principal deposit accounts of the State Governments are maintained at the Central Accounts Section (CAS) of RBI at Nagpur, the regional offices of RBI account for the State Government transactions reported by the agency banks through link offices and report to CAS, Nagpur. The agency banks have to send the receipts/payment scrolls on a daily basis in the prescribed form to the sub-treasury/treasury concerned without delay. Further, the consolidated monthly statement of the agency banks prepared by the link banks are to be sent to RBI which in turn should forward the monthly consolidated statement to the Accountant General (A&E). The above system being in place, there should not be any difference between the cash balance position as per the books of the Accountant General (A&E) and CAS, Nagpur. Even if differences occur in the month wise balance, there should not be any difference between cash balance position at the closing of the Annual Accounts by April 25 of every year.

It was, however, seen that as per accounts of the Accountant General (A&E), the cash balance of the State Government as on 31 March 2025 was ₹33.95 crore (credit) while the same was reported as ₹35.62 crore (credit) by the Reserve Bank of India. As such, there was an unreconciled difference of ₹69.57 crore (credit), which was under reconciliation between the Accountant General (A&E), Tamil Nadu and the State Government. It was reported that the difference was mainly due to non-reporting of receipts by the banks to the Treasuries.

The trend of differences in cash balance in the last five years is given in Table 3.11 below.

3.11 Lapse of deposits to the Government

In connection with the transactions of public business, the Government receives moneys deposited with them for various purposes, by or on behalf of various public bodies and members of the public and afterwards account for them by repayments or otherwise. In this regard, as per Article 271 of the Tamil Nadu Financial Code Vol. I, in certain circumstances, the following types of Deposits viz., (i) Revenue Deposits and Public Works Deposits remaining unclaimed for more than four complete financial years and (ii) Security deposits according to intended completion date of each class of deposit are to be credited to the Government under appropriate revenue head of account.

From the details furnished by the Office of the Accountant General (A&E), it was seen that the total amount of ₹76.78 crore under various types of deposits, viz., Revenue deposits (₹45.67 crore), Public works deposits (₹19.88 crore) and Security deposits (₹11.23 crore) continue to remain unclaimed after the respective scheduled period under deposits heads of account and were not credited/taken to the appropriated revenue heads of account.

The absence of timely action to bring these amounts to the Government Accounts not only contravenes the codal provisions but also reflects the fact that, to that extent, cash remains outside the State's active cash management framework.

Issue related to disclosure

3.12 Compliance with Accounting Standards

As per Article 150 of the Constitution of India, the President of India may, on the advice of the Comptroller and Auditor General of India (CAG), prescribe the form of accounts of the Union and of the States. On the advice of the CAG, the President of India has so far notified four Indian Government Accounting Standards (IGAS). Compliance to these Accounting Standards by the State Government as well as deficiencies therein during 2024-25 are detailed in Table 3.12 below.

3.13 Submission of accounts of Autonomous Bodies

Section 14 and 15 of the Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act, 1971 (DPC Act) envisages audit of accounts of institutions receiving Government grants, subject to conditions stipulated based on the quantum of the grants received, etc. In order to identify the institutions which attract audit under the DPC Act, every year, the heads of department were required to furnish to Audit the information about the financial assistance given to various institutions, the purposes for which the assistance was granted and the total expenditure of such institutions/bodies.

Upto the year 2024-25, there are 86 Institutions/Bodies whose Accounts were pending for the period ranging from 1 year to 5 years. The details of pending accounts are given in Appendix 3.1 and their age-wise pendency is presented in Table 3.13 below.

The major defaulting institutions/bodies were those receiving grants towards salaries and maintenance, predominantly relating to educational institutions. In reply, the Government stated that the delays in submission were attributable to the non-finalisation of accounts by the Auditor.

Audit scrutiny of autonomous bodies further revealed that the accounts of the Voluntary Health Service, a unit under the Health and Family Welfare Department were pending for submission to Audit for the period from 2020-21 to 2022-23 and subsequently were submitted only on 13 January 2026. In response, the Department stated that the delay was due to temporary staff shortages arising from an increased workload and the lapse was inadvertent.

As the delay in finalisation of accounts hampers Audit in providing an assurance to the Legislature that the grants were utilized for the intended objective, the departments need to take action to submit the accounts in a timely manner.

Other issues

3.14 Performance of State DISCOMs in Tamil Nadu

3.15 Misappropriations, losses, thefts, etc

Article 294 of the Tamil Nadu Financial Code (Vol-I) stipulates that the Heads of Office should report all cases of defalcations or loss of public money, stores or other movable or immovable properties to the Accountant General (A&E). Further, the Financial Code prescribes the principles and procedures to be followed for enforcing responsibility for losses and disposal of cases.

As on 31 March 2025, 340 cases of misappropriation, losses and theft, involving ₹ 27.92 crore were pending disposal. The department-wise break-up of pending cases is given in Appendix 3.2. The age-wise profile along with reasons for pendency is given in Tables 3.15 and 3.16 respectively.

Analysis of a case of misappropriation involving ₹20.13 lakh in the Health and Family Welfare Department during 2005-06 revealed that the individual concerned was dismissed from service in July 2015. After a lapse of five years, in 2020, the individual sought a review of the dismissal, citing the pendency of a criminal case as the reason for the delay. Subsequently, in 2023, he filed a writ petition before the Madras High Court seeking to quash the dismissal order and for reinstatement with all consequential benefits. The Hon'ble Court dismissed the writ petition and granted 16 weeks' time to the Department to dispose of the matter. Accordingly, the Department disposed of the case in September 2025 and the individual was not reinstated. The misappropriated amount could not be recovered, as no dues were payable to the individual.

3.16 Follow up action on State Finances Audit Report

In every State, the Public Accounts Committee (PAC)/Finance Department require the line departments to provide a suo-motu Explanatory Note (EN) on the paragraphs featuring in the Audit Reports within one month of placing the Reports in the Legislature. The line departments are also required to provide Action Taken Notes (ATNs) to the Accountant General (Audit) (for vetting and onward transmission to the PAC) within three months of tabling the Reports.

3.17 Conclusion

This chapter highlights systemic issues affecting the completeness, transparency and reliability of the State's financial reporting. In addition to non-achievement of the targets relating to Fiscal indicators (Revenue and Fiscal Deficit) during the year, quality of account was affected due to weaknesses in accounting and financial management practices thereby diluting the accuracy of the State's reported financial position.

Audit observed that off-budget borrowings, undischarged liabilities and partial transfer of statutory levies resulted in understated liabilities and reduced transparency. Funds remained outside the Government's active cash management framework due to unspent balances in DDO bank accounts, lapsed deposits not brought to revenue, delays in submission of utilisation certificates, non-adjustment of temporary advances over extended periods and continued operation of unauthorised personal deposit accounts further weakened accountability and financial reporting.

The extensive use of the omnibus Minor Head "800 - Other Receipts/Expenditure" obscured the true nature of receipts and expenditure, limiting meaningful analysis of allocative priorities. In addition, arrears in submission of accounts by autonomous bodies and long-pending cases of misappropriation and losses point to gaps in internal controls and follow-up mechanisms.

Overall, while the accounting framework is in place, deficiencies in compliance, disclosure and timeliness continue to affect the quality of financial reporting and transparency.

3.18 Recommendations

1. The Audit recommends that the State Government strengthen financial reporting and accountability through focused corrective measures. All liabilities, including off-budget borrowings undertaken through public sector undertakings and statutory bodies, should be comprehensively disclosed to present a transparent picture of the State's debt position.
2. Timely discharge of statutory and contractual obligations such as interest payments, pension contributions, and transfers to designated funds should be ensured to avoid accumulation of hidden liabilities and misstatement of fiscal indicators. Mechanisms for strict monitoring of utilisation certificates and adjustment of temporary advances should be institutionalised.
3. Classification of transactions under appropriate heads of account should be strengthened by restricting the routine use of Minor Head "800" and completing reclassification exercises in a time-bound manner.
4. Expeditious investigation and closure of cases relating to misappropriation, losses and thefts are essential to safeguard public funds and reinforce fiscal discipline.