Policy Reform Initiatives

Drawing lessons from the success stories of pilot initiative ‘Sirajganj Local Government Development Fund Project (SLGDFP), Local Governance Support Project (LGSP-1) emerged with a bigger canvas for institutionalizing the UPs throughout the country within its project cycle of five years . Starting with nearly 1100 UPs in the first year of LGSP-1 , the project covered gradually the then all existing UPs through which efforts were made to strengthen Union Parishads in terms of enhancing their capacities to deliver better services to the people engaging the people themselves in the process. In line with government’s decentralization process, LGSP-1 introduced a number of systems as an inbuilt design of the project which were viewed as milestone reforms in the process of empowering UPs as local government bodies by giving them greater authority in the decision-making process. It also entrusted the UPs with better control over their resources. A brief highlights on reform agenda under LGSP is as follows:

(i) Direct Fund Transfer to Union Parishad through Bank Account. LGSP-3 has reinforced the idea of direct fund transfer from the Project Account to that of the Union Parishad Account. This is a unique example in the history of local government bodies and in doing so, it has also established the idea that Union Parishad is capable of implementing demand driven schemes using the fund.

(ii) Formula based UP Grant Introducing formula- based grant for UPs was also an important innovation of LGSP. The formula followed under LGSP-3 was based on single criterion which is population of UP. Formula-based BBG has helped in reducing the possibility of BBG being questionable under any subjective consideration.

(iii) Disbursement of Fund in two tranches Transferring Basic Block Grant to UPs in two tranches instead of earlier system of four installments is also another system which has already been established as a system under LGSP.

(iv) Regular Audits of Union Parishad by Commercial Audit Firm Mandatory annual audit of all UPs by commercial audit firms was introduced under LGSP with a view to ensure a transparent financial transaction in compliance to financial rules.. This has also contributed in strengthening UPs as local government institutions. UPs have gradually adapted well with the audit culture on regular basis in terms of preparing them well by keeping all necessary records. The good practices or reform initiatives under LGSP-I has not only continued under the ongoing Second Local Governance Support Project (LGSP-2 ) rather these are getting further strengthened as a part of a system through various initiatives taken for doing so . In fact when LGSP-I can claim of having some system in place, LGSP-3 can definitely claim of institutionalizing those system by reinforcing them further. From the implementation experience of LGSP-I and LGSP-2, a number of good initiatives have been taken under LGSP-3 for addressing the areas which appeared to be necessary for making the system work better. A brief account of good initiatives under LGSP- 3 are as follows:

(i) Announcing three years’ Indicative Ceiling of BBG in advance: This was a felt need for UPs throughout the implementation of LGSP-I . Experience shows that timely fund release as planned under the project has not been possible for varied reasons. This delay in the fiscal transfer has imposed a kind of constraint for UPs in timely scheme preparation in the absence of a clear idea about the money to be received. On various forums , UP functionaries expressed their concerns in this regard. With a view to address this concern, announcement of three years indicative ceils for UPs have been followed from the very start of LGSP-2 following the guidelines of Medium Term Budgetary Framework (MTBF). Under the formula- based BBG allocation system , it was possible to calculate the indicative ceiling for UPs in advance which could only be subject to change in case of some non-compliance issues or some other practical reasons . Even before the negotiation of LGSP-2, three years indicative ceiling for UPs was announced which kept on to be updated with the expiry of one year. This has helped UPs to plan in advance and also identifying the schemes to be implemented as they knew the tentative size of BBG to be received.

(ii) Restructuring the formula-based fiscal transfer The only criterion of population based fiscal transfer under LGSP-1 and LGSP-2 have further been restructured under LGSP-3 which can claim to be a proper formula based fiscal transfer. As BBG allocation has been tagged with the audit compliance of the UPs, provision has been kept so that no UPs are absolutely deprived in case they fail in audit compliance. 25% of flat amount of BBG allocation goes to all UPs irrespective of audit opinion. The remaining amount of 75% is being divided only to those UPs which have clean audit reports following the ratio of 90% for population and 10% for area. This has widened the scope of responding more to need-based allocation though scope remains to restructure it even further. (iii) 30% of allocation earmarked for schemes selected by women With a view to enhance women’s participation in the decision making process, 30 % of BBG and PBG allocation is earmarked for women. It ensures that 30 % of the schemes to be implemented using the BBG and PBG should be prioritized by women.

(iv) Giving a discretionary power of using 10% of BBG and PBG to UP functionaries Based on the implementation experience of LGSP-1, a discretionary power of using 10 % of BBG and PBG is given to UP functionaries under LGSP-3 for facilitating the scheme preparation as well as scheme implementation. A number of areas outside the scheme itself have been outlined in the Operational Manual where this 10% can be used depending on the need of the respective UPs . This discretionary power has been very instrumental for UPs especially for getting some technical things to be done where they feel some capacity constraint like procurement, accounts, data entry, preparing estimates, etc.

(v) Ensuring Disclosure of Information at UP Level In order to ensure transparency and accountability in the activities of Union Parishad, Local Government Division has formulated a guideline titled Guidelines for Information Disclosure by Union Parisahad”. This guideline contains citizen charter, compliance with the provisions contained in the “Right to Information Act” in respect of disclosing information to the citizens, use of website, budget session, Ward Sabha, list of beneficiaries etc. Local Government Division has also issued a circular to all the relevant stakeholders including Union Parishads to comply with the provisions of the guidelines regarding disclosure of information by Union Parishads. In addition, LGSP-3 has specified a clear guidance in this regard through its Union Parishad Operational Manual (UPOPM). In the UPOM it has spelled out the mechanism of public disclosure of UP performance through UP notice board of specified size at UP office and scheme sites and other locations.

(vi) Instructions to All branches of Sonali Bank Ltd In order to ensure the proper utilization of all funds under LGSP-3 transferred to Union Parishad and improvement of Union Parishad financial management system, Project Management Unit has, through the Head Office of Sonali Bank Ltd, issued clear instructions to all its concerned branches. The instructions focus on the following areas: No money shall be drawn against any cheque other than cross cheque/account payee cheque. Any cheque must be signed by the Chairman of the concerned Union Parishad, one Woman Member and Union Parishad Secretary. There must have Work Order in the case of Request for Quotation (RFQ) and Open Tender Method (OTM) and in the case of Direct Procurement and Earth Work, there must have a copy of the contract signed between Union Parishad Chairman and Chairman of the concerned Ward Committee. There must have a certificate/report from the concerned Scheme Supervision Committee stating that the scheme has been implemented properly; and No money shall be withdrawn/debited from the Bank Account against any cheque which has been issued to withdraw money at a time. The cheque must be issued against specific implemented scheme with proper documents as mentioned above. These have already been functional and effective in ensuring the proper utilization of fund and bringing a major breakthrough in the improvement of UP financial management.

(vii) Approval of rollover of unspent amount of BBG/PBG to next fiscal year This exceptional arrangement is made for UPs in connection with using the unspent amount at the end of financial year. As per General Financial Rule (GFR) all the unspent government money lapses at the end of the financial year. BBG and PBG both are grants to Union Parishads from the government. In accordance with the Union Parishad Act 2009 all the grants of the government provided to Union Parishads will be a part of Union Parishad Fund. Any unspent balance of that fund will be spent as per instruction from the government. In case of grants provided to UPs by the government there is no question of lapses as per UP Act 2009. Based on this provision of the UP Act 2009 the Ministry of Finance, Finance Division has issued a circular that the unspent balance of LGSP grants both BBG and PBG will be rolled over to the next Fiscal Year and that unspent balance will be spent as per the Guidelines of the UPOM and existing Financial Rules and Regulations of the government.

(viii) Establishment of an Audit cell Establishment of an Audit Cell within LGD was agreed upon with GOB and World Bank under the financing agreement of LGSP-3. This was envisaged to have streamlining the audit objections and thereby better management of audit related issues irrespective of any project. A government circular has been issued by LGD in this regard which has been shared with the Bank mission in time.

(ix) Establishment of a dedicated inter-governmental fiscal transfer unit within LGD Establishment of a dedicated inter-governmental fiscal transfer unit for handling all kinds of fund transfer irrespective of source and tier of local government was also agreed upon with the Bank management under the Financing Agreement of LGSP-3 . With a view to establish this unit, a government circular has been issued forming a Intergovernmental Fiscal Transfer Unit comprising representatives of other tiers of local government. In spirit , this reform initiative is beyond the remit of the project LGSP-3 which makes it difficult to comply with because of ground realities.

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