Financial Concurrence in Public Sector Undertakings (PSU)

Introduction

In Public Sector Undertakings, powers are delegated to the officers by the management as per departmental guidelines. Financial concurrence power is exercised by officers within an organisation as per Delegation of Power (DOP). In some public sectors undertakings, there exist separate financial concurrence department (FCD) to maintain financial integrity & transparency.

The finance department in public sector undertaking (PSU) plays a pivotal role, and in addition to its finance/accounting functions, ensures that the procedures, rules and regulations are followed in line with the processes and defined guidelines.

This process ensures that any financial decisions or expenditures align with the organization's policies, guidelines, and financial propriety. Essentially, it means that the finance department has reviewed and agreed to the financial aspects of a proposal, ensuring it is appropriate and justified.

Meaning of Financial Concurrence

Financial Concurrence means agreeing with some one or something i.e agreeing a proposal in its entirety including the facts & figures given under proposal, by the finance department within an organization. Finance concurrence means the proposal is agreed to by the finance department.

In public sector undertakings (PSUs), financial concurrence plays a crucial role in maintaining internal control and ensuring that all financial decisions are made prudently and in accordance with established rules and regulations.

When is Financial concurrence required?

Financial concurrence is typically required for every proposal of a PSU having financial implications to ensure financial prudence and compliance. However, some PSU set their own financial limit upto which financial concurrence not required for procurement of goods & services.

Here are some common instances where financial concurrence is generally required:

• Budget Approvals: When departments or projects need budget allocations & reappropriation, financial concurrence ensures that the proposed expenditures align with the overall budget and financial policies.
• Procurement: For purchasing goods or services, financial concurrence is needed to verify that the procurement process follows financial guidelines and that funds are available.
• Contracts and Agreements: Before entering into contracts or agreements, financial concurrence ensures that the financial terms are favorable and within the organization's capacity.
• Project Proposals: When new projects are proposed, financial concurrence is required to assess the financial viability and impact on the organization's finances.
• Post award variation in quantity/rates : Financial concurrence is required for quantity variations or change in rates of items during the post-award execution of works.
• Policy Changes: When there are changes to financial policies or procedures, financial concurrence ensures that these changes are financially sound and compliant with regulations.
• Deviation from Standard bidding documents: When there is a deviation from standard bidding documents for providing any relaxations to the bidders in the matter of eligibility criteria, EMD/ Tender fee waiver etc. financial concurrence is required prior to approval of tender document by competent authority.

What aspects are reviewed during the financial concurrence process?

• During the financial concurrence process, several key aspects are typically reviewed to ensure that proposals and expenditures are justified, compliant, and aligned with the organization's financial policies. Here are the main aspects checked:
• Budget Compliance: Ensuring that the proposed expenditure is within the allocated budget and does not exceed the financial limits set by the organization.
• Financial Propriety: Verifying that the expenditure is necessary, reasonable, and in line with the principles of financial propriety, which means it should be as prudent as if it were personal money being spent1.
• Cost-Benefit Analysis: Assessing whether the benefits of the proposed expenditure justify the costs involved. This includes evaluating the return on investment (ROI) and overall value for money.
• Regulatory Compliance: Ensuring that the proposal complies with all relevant laws, regulations, and internal policies. This includes adherence to procurement policies, tax regulations, and other statutory requirements.
• Documentation and Justification: Reviewing the completeness and accuracy of the documentation provided, including detailed justifications for the expenditure, supporting documents, and any necessary approvals from other departments.
• Risk Assessment: Identifying and evaluating potential financial risks associated with the proposal, including any contingencies or uncertainties that could impact the financial outcome.
• Delegation of Authority: Confirming that the proposal has been approved by the appropriate authority levels within the organization, as per the delegation of power (DOP) guidelines.
• Historical Data and Trends: Analyzing past expenditures and trends to ensure consistency and to identify any anomalies or patterns that need to be addressed.
• Vendor and Contract Review: For procurement-related proposals, reviewing the terms and conditions of contracts, vendor selection processes, and ensuring that competitive bidding processes have been followed.
• Impact on Financial Statements: Assessing the impact of the proposed expenditure on the organization's financial statements, including cash flow, balance sheet, and profit and loss statements.

By thoroughly checking these aspects, the finance department ensures that all financial decisions are sound, justified, and in the best interest of the organization

Role of Financial Concurrence

Financial concurrence plays a pivotal role in the financial management of an organization. Here are some key aspects of its role:

• Approval and Validation: It serves as a checkpoint where the finance department reviews and approves expenditures and financial proposals, ensuring they are necessary and justified.
• Budgetary Control: It helps in maintaining control over the budget by ensuring that all expenditures are within the allocated budget and aligned with financial plans.
• Risk Management: By scrutinizing financial proposals, it helps identify and mitigate potential financial risks, ensuring that the organization's resources are used prudently.
• Compliance and Governance: It ensures that all financial transactions comply with internal policies, regulatory requirements, and legal standards, promoting good governance.
• Resource Allocation: It aids in the optimal allocation of resources by prioritizing expenditures that align with the organization's strategic goals and objectives.
• Transparency and Accountability: It fosters a culture of transparency and accountability, as all financial decisions are documented and subject to review.
• Financial Reporting: It supports accurate financial reporting by ensuring that all expenditures are properly authorized and recorded, which is crucial for financial audits and assessments.

Importance of Financial Concurrence

Financial concurrence is crucial for several reasons:

• Ensures Financial Discipline: It helps maintain strict control over expenditures, ensuring that funds are used appropriately and within the budgetary constraints.
• Prevents Misuse of Funds: By requiring approval from the finance department, it reduces the risk of unauthorized or frivolous spending.
• Promotes Transparency: It fosters transparency and accountability within the organization, as all financial decisions are scrutinized and documented.
• Aligns with Organizational Goals: It ensures that all financial activities are in line with the organization's strategic objectives and policies.
• Enhances Financial Planning: It aids in better financial planning and forecasting by providing a clear picture of approved and pending expenditures.
• Compliance with Regulations: It ensures that all financial transactions comply with relevant laws, regulations, and internal policies.

Functions of the Financial Concurrence Department's (FCD)

• To ensure the compliance to systems, procedures envisaged in the contract/ procurement policy.
• To strictly adhere to delegation of power of the company
• To see financial correctness, and
• To see any impropriety in the proposal.

Measures to improve the function of Financial Concurrence Department

For improvement of finance concurrence department, the following are the suggestive key points for the management:

• To give full independence to FCD for reporting suggestions in the interest of the company.
• To appoint officers in FCD with an overall integrity.
• To give technical support to FCD wherever needed.
• To impart training to the officers from time to time (keeping in view the latest corporate guidelines including of CVC).
• The management to assure that FCD holds monthly interactive meetings to be consistent in all similar type of proposals.
• To make sure that FCD improve their negotiation skills from time to time.
• To see that FCD keeps updating with latest commercial laws and ICB procedures/guidelines issued from time to time.
• To ensure that audit committee have atleast quarterly meet with FCD for feedback and taking future remedial measures to avoid any scam

Challenges arise during the financial concurrence process

Several challenges can arise during the financial concurrence process, including:

• Delays in Approval: The process can be time-consuming, leading to delays in project implementation or procurement, especially if multiple levels of approval are required.
• Bureaucratic Hurdles: In large organizations, the process can become bureaucratic, with excessive paperwork and formalities that can slow down decision-making.
• Lack of Clarity: Ambiguities in financial policies or guidelines can lead to misunderstandings and misinterpretations, causing delays or rejections of proposals.
• Resource Constraints: Limited availability of finance personnel to review and approve proposals can create bottlenecks, especially during peak times or when multiple proposals are submitted simultaneously.
• Resistance to Change: Departments may resist the financial concurrence process, viewing it as an obstacle rather than a necessary control, leading to conflicts and non-compliance.
• Inadequate Communication: Poor communication between the finance department and other departments can result in incomplete or incorrect submissions, requiring multiple revisions and resubmissions.
• Technological Limitations: Lack of efficient financial management systems can make the process cumbersome, with manual processes prone to errors and inefficiencies.
• Compliance Issues: Ensuring that all proposals comply with regulatory requirements and internal policies can be challenging, especially in dynamic regulatory environments.

How can organizations streamline the financial concurrence process?

• Streamlining the financial concurrence process can significantly enhance efficiency and reduce delays. Here are some strategies organizations can adopt:
• Implement Clear Policies and Guidelines: Establish well-defined financial policies and guidelines to minimize ambiguities and ensure everyone understands the requirements for financial concurrence.
• Leverage Technology: Use financial management software/ERP and automated workflows to streamline the approval process, reduce paperwork, and minimize manual errors.
• Training and Awareness: Conduct regular training sessions for employees to ensure they are familiar with the financial concurrence process and understand its importance.
• Enhance Communication: Foster open and effective communication between the finance department and other departments to ensure proposals are complete and accurate before submission.
• Set Timelines: Establish clear timelines for each stage of the concurrence process to avoid unnecessary delays and ensure timely approvals.
• Simplify Procedures: Review and simplify the concurrence procedures to eliminate unnecessary steps and make the process more efficient.
• Resource Allocation: Ensure that the finance department is adequately staffed and resourced to handle the volume of proposals, especially during peak times.
• Feedback Mechanism: Implement a feedback mechanism to identify bottlenecks and areas for improvement in the concurrence process.
• Regular Audits: Conduct regular audits of the financial concurrence process to ensure compliance and identify opportunities for further streamlining.
• Use of Dashboards and Reporting Tools: Utilize dashboards and reporting tools to track the status of proposals and approvals, providing transparency and accountability.

Conclusion

In essence, financial concurrence serves as a protective measure, ensuring that financial resources are utilized efficiently and responsibly, thereby upholding financial integrity, probity, and propriety.

The author is a Fellow member of the Institute of Chartered Accountants of India and has over two decades of experience in a senior position within the finance division of a Navaratna PSU.