Finance and Accounts of the Organisations

• demand the production of books, accounts, connected vouchers, documents and papers; and
• inspect any of the offices of the Organisation.

Section 116(3), what happens to the report. The accounts as certified by the Comptroller and Auditor-General or his appointee, together with the audit report, are forwarded to the Organisation, which shall along with its comments on the audit report forward the same to the appropriate Government.

Audit by the Comptroller and Auditor-General is the strongest form of audit Indian law knows, and it is worth saying why in an essay: his independence is constitutional, under Article 148, so the auditor of a provident fund holding the savings of millions is not appointed by the body he audits.

Section 117: budget estimates

Section 117(1). Each Organisation shall in each year frame a budget showing the probable receipts and the expenditure it proposes to incur during the following year, and submit a copy for the approval of the appropriate Government before such date as that Government fixes.

Section 117(2). The budget shall contain provisions adequate in the opinion of the appropriate Government for:

• the discharge of the liabilities incurred by the Organisation; and
• the maintenance of a working balance.

Note that the test of adequacy is the Government's opinion, not the Organisation's.

Section 118: annual report

Section 118(1). Each Organisation shall submit to the appropriate Government an annual report of its work and activities and the budget finally adopted.

Section 118(2), the laying requirement. The appropriate Government shall cause a copy of:

• the annual report;
• the budget; and
• the audited accounts, together with the report of the Comptroller and Auditor-General and the Organisation's comments on it,

to be laid before each House of Parliament or the State legislature, as the case may be.

This is the sub-section to cite on accountability. The audited accounts of the provident fund and the insurance corporation are placed before the elected house, along with the auditor's criticisms and the body's answer to them.

Section 119: valuation of assets and liabilities

Each fund maintained by a Social Security Organisation or by an establishment under the Code shall have a valuation of its assets and liabilities made by a valuer or actuary, appointed with the prior approval of the appropriate Government, in this manner:

The proviso. The appropriate Government may, if it considers necessary, direct such valuation at other intervals.

The different intervals are not arbitrary and the reason makes a good sentence. The Central Board holds long term retirement liabilities whose value moves with interest rates and life expectancy, so it is valued every year. The Corporation pays short term insurance benefits which are far more predictable, so three years suffices.

Note also that section 119 reaches a fund maintained by an establishment, which catches the exempted employer maintaining his own provident fund under section 21 or an approved gratuity fund under section 57.

Section 120: holding of property

Section 120(1). A Social Security Organisation, except the Corporation, may, subject to prescribed conditions, acquire and hold property, movable and immovable, sell or otherwise transfer any such property vested in or acquired by it, and do all things necessary for those purposes and for the purposes for which it is established.

Section 120(2), investment. Subject to prescribed conditions, it may invest any moneys vested in it which are not immediately required for expenses properly defrayable, and re-invest or realise those investments.

The proviso. For the Provident Fund, Pension Fund or Insurance Fund, such investment, re-investment or realisation shall be as specified in the Provident Fund Scheme, Pension Scheme or Insurance Scheme.

Section 120(3). Each Organisation, except the Corporation, may, with the previous sanction of the appropriate Government and on prescribed terms, raise loans and take measures for discharging them.

Section 120(4). Each, except the Corporation, may, with the previous sanction of the appropriate Government, constitute a provident or other benefit fund for its own officers and staff.

"Except the Corporation" appears four times, and that is not an oversight. The Corporation has its own equivalent powers in section 27, which is drafted in the same terms. Section 120 supplies the same powers to the other four Organisations. A student who says the Corporation may not hold property has read section 120 without section 27.

Section 121: writing off losses

Subject to the conditions prescribed by the appropriate Government, where a Social Security Organisation is of the opinion that the amount of contribution, cess, interest and damages due to it under the Code is irrecoverable, it may sanction the writing off of that amount, in the manner prescribed by the appropriate Government.

The proviso. In the case of the Provident Fund, Pension Fund or Insurance Fund, such writing off shall be specified in the Provident Fund Scheme, the Pension Scheme or the Insurance Scheme respectively.

The list in section 121 is narrower than the one in section 129, and the difference is easy to miss because the two sections sit close together. Section 129 recovers "any contribution or cess payable, charges, interest, damages, or benefit or any other amount". Section 121 permits writing off only contribution, cess, interest and damages. A benefit wrongly paid out is recoverable but is not on the write off list.

Two further points. Writing off is an accounting act: it removes an uncollectable figure from the books so the accounts show the true position, and it does not extinguish the underlying liability. And it is conditional twice over, on the appropriate Government's prescribed conditions and, for the three schemes, on what those schemes specify, so a body cannot quietly forgive its own debtors.

A worked example

The Central Board's accounts for a year show large arrears from establishments which have closed, and the Comptroller and Auditor-General's report criticises its investment policy.

Who prescribes the form of the accounts? The appropriate Government, after consultation with the Comptroller and Auditor-General of India: section 115.

Who audits, and who pays? The Comptroller and Auditor-General, annually, and the Board pays his expenditure on the audit: section 116(1).

Can he demand the Board's investment files? Yes. He has the same rights, privileges and authority as in the audit of Government accounts, including the right to demand books, accounts, vouchers, documents and papers, and to inspect any office: section 116(2).

Does the Board get to answer the criticism? Yes, and it must. The certified accounts and the audit report go to the Board, which forwards them to the appropriate Government along with its comments on the audit report: section 116(3).

Who sees all this? Each House of Parliament, since the Central Board's appropriate Government is the Central Government: the annual report, the budget, the audited accounts, the auditor's report and the Board's comments, under section 118(2).

How often must somebody check the Board can pay its pensions? Annually. Section 119(a) requires a valuation of assets and liabilities of each fund maintained by the Central Board every year, by a valuer or actuary appointed with the prior approval of the appropriate Government.

And the Corporation? Once in every three years: section 119(b).

The arrears from closed establishments cannot be collected. What can the Board do? Under section 121, if it is of opinion that the amount is irrecoverable, it may sanction the writing off of it, subject to the conditions the appropriate Government prescribes.

The Board wants to buy an office building. Section 120(1) lets it acquire and hold immovable property, subject to prescribed conditions.

The Corporation wants to do the same. Is it barred by "except the Corporation"? No. Its equivalent power is section 27, which gives it the same powers of acquisition, investment, borrowing with previous sanction, and constituting a staff benefit fund.

An employer exempted under section 143 runs his own provident fund. Section 119 reaches each fund maintained by a Social Security Organisation or by an establishment, so his fund must be valued too, at the interval the appropriate Government specifies by order under clause (c).

What this does NOT mean

These are not the funds themselves. The Provident Fund, Pension Fund and Insurance Fund are constituted by section 16; the Employees' State Insurance Fund by section 25; the Building Workers' Welfare Fund by section 108; and the Social Security Fund by section 141. Chapter X is the accounting law about them.

"Except the Corporation" is not an exclusion from the powers. The Corporation has the same powers under section 27.

Writing off does not forgive the employer. It is an accounting sanction that the amount is irrecoverable, subject to prescribed conditions.

The budget is not the Organisation's own to fix. Section 117 requires the approval of the appropriate Government, whose opinion also decides whether the provision for liabilities and working balance is adequate.

Audit is not optional or internal. It is annual and by the Comptroller and Auditor-General of India.

Limits and criticism

Section 119's intervals are long for the Corporation. A three yearly valuation of a health insurance fund covering crores of people is infrequent by the standards of insurance regulation, though the proviso lets the Government direct otherwise.

Section 118(2) requires laying but no debate. The documents reach the legislature; nothing in the Code requires anything to happen to them.

Section 121 gives the Organisation the opinion on irrecoverability, and although conditions may be prescribed, the judgment that a debt cannot be collected is made by the creditor.

Nothing in Chapter X is addressed to the individual member. A worker cannot obtain a valuation, and his remedy if the fund is short is not stated here at all.

Quick revision

• Section 115: proper accounts in the form the appropriate Government specifies after consulting the Comptroller and Auditor-General.
• Section 116: annual audit by the Comptroller and Auditor-General, at the Organisation's cost, with Government audit powers to demand books and inspect offices; certified accounts and report go to the Organisation, which forwards them to the Government with its comments.
• Section 117: an annual budget of probable receipts and proposed expenditure, for the Government's approval, with provision adequate in the Government's opinion for liabilities and a working balance.
• Section 118: an annual report and the adopted budget; the report, budget, audited accounts, auditor's report and the Organisation's comments are laid before each House of Parliament or the State legislature.
• Section 119: valuation of assets and liabilities by a valuer or actuary approved by the Government: Central Board annually, Corporation every three years, others as ordered; other intervals may be directed. Applies to a fund maintained by an establishment as well.
• Section 120, for every Organisation except the Corporation, which has section 27: hold, sell and transfer property; invest money not immediately required, the three schemes governing their own funds; raise loans with previous sanction; constitute a staff benefit fund.
• Section 121: write off of contribution, cess, interest and damages the Organisation is of opinion are irrecoverable, in the prescribed manner and subject to prescribed conditions; for the Provident, Pension and Insurance Funds the writing off is specified in the respective Scheme. Narrower than the section 129 recovery list, which also reaches benefits and any other amount.

Test yourself

1. Who audits a Social Security Organisation, how often, and who bears the cost? The Comptroller and Auditor-General of India, annually, and the expenditure he incurs on the audit is payable by the Organisation to him: section 116(1).

2. What is laid before the legislature, and by whom? The appropriate Government causes a copy of the annual report, the budget, and the audited accounts together with the Comptroller and Auditor-General's report and the Organisation's comments on it, to be laid before each House of Parliament or the State legislature: section 118(2).

3. How often must the Central Board's funds be valued, and how often the Corporation's? Why the difference? The Central Board annually, the Corporation once in every three years: section 119(a) and (b). The Board carries long term retirement liabilities whose value is sensitive to interest rates and longevity; the Corporation's insurance benefits are shorter and more predictable.

4. Who appoints the valuer or actuary? The Social Security Organisation or the establishment, but with the prior approval of the appropriate Government: section 119.

5. Section 120 says "except the Corporation" four times. Does the Corporation lack these powers? No. Its equivalent powers to hold, sell and transfer property, to invest and re-invest, to raise loans with previous sanction, and to constitute a staff benefit fund are in section 27.

6. What may an Organisation write off, and how does that list differ from the one in section 129? Under section 121 it may sanction the writing off of contribution, cess, interest and damages which it is of opinion are irrecoverable, in the manner and subject to the conditions prescribed by the appropriate Government, and for the Provident Fund, Pension Fund and Insurance Fund as specified in the respective Scheme. Section 129, by contrast, allows recovery of any contribution or cess payable, charges, interest, damages, or benefit or any other amount, so a benefit wrongly paid may be recovered but is not on the write off list.