PART-B

URBAN LOCAL BODIES

CHAPTER-3
PROFILE OF URBAN LOCAL BODIES
3.1 Background
The 74th Constitution Amendment Act paved the way for decentralisation of power and
transfer of 18 functions (Appendix-1) listed in the Twelfth Schedule of the Constitution
alongwith funds and functionaries to the Urban Local Bodies (ULBs). In Himachal
Pradesh, although 17 functions stand transferred (August 1994) to ULBs (except fire
services); however, the corresponding funds and functionaries were yet to be made
available to the ULBs. The Government of Himachal Pradesh enacted the Himachal
Pradesh Municipal Corporation Act, 1994 and the Himachal Pradesh Municipal Act,
1994 for transferring powers and responsibilities to ULBs.
3.2 Audit mandate
In Himachal Pradesh, primary audit of ULBs is being conducted by the Director, Local
Audit Department. The State Government entrusted (March 2011) audit of ULBs to CAG
with the responsibility of providing Technical Guidance and Support (TGS) under
Section 20(1) of the CAG’s DPC Act, 1971. The results of audit are included in
Chapter-4.
3.3 Organisational structure of Urban Local Bodies
There are two Municipal Corporations, 30 Municipal Councils (MCs) and 22 Nagar
Panchayats (NPs) in the State.
The overall control of the ULBs rests with the Additional Chief Secretary (Department of
Urban Development) to the Government of Himachal Pradesh through Director, Urban
Development. The organisational set-up is as under:
Administrative set up of ULBs
Administrative Secretary

Director, Urban Development

Municipal Municipal Nagar Panchayats

Corporations (Two) Councils (30) (22)

Commissioner Executive Officer Secretary

Elected bodies
Municipal Municipal Councils Nagar Panchayats
Corporation

Elected body headed by Elected body headed Elected body headed

Mayor by President by President

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3.3.1 Standing committees

Various standing committees involved in financial matters and implementation of
schemes are detailed in Table-8.
Table-8: Roles and responsibilities of the Standing Committees
Name of the Standing committee Roles and responsibilities of the standing
standing headed by committee
committee
General Performs functions relating to
Standing establishment matters, communications,
Committee buildings, urban housing and provision of relief
Mayor in Municipal against natural calamities, water supply and all
Corporation and President residuary matters.
Finance, Audit in Municipal Council and Performs functions relating to the finances of
and Planning Nagar Panchayat municipality, framing of budget, scrutinising
Committee prospects of increase of revenue and
examination of receipts and expenditure
statements.
Social Justice Deputy Mayor in Performs functions relating to promotion of
Committee Municipal Corporation education and economic, social, cultural and
and President in other interests of SC, ST, other backward
Municipal Council and classes, women and other weaker sections of the
Nagar Panchayat society.
3.3.2 Institutional arrangements for implementation of the schemes
In the Directorate of Urban Development, one Project Officer and two Statistical
Assistants have been posted in the project section to oversee implementation of various
schemes by the ULBs. Against 3,729 sanctioned posts, 1,047 posts (28 per cent) were
lying vacant in various categories in the ULBs and 38 employees were in excess in three
ULBs14.
3.4 Financial profile
3.4.1 Fund flow to ULBs
For execution of various development works, ULBs receive funds mainly from GOI and
the State Government in the form of grants. GOI grants include grants assigned under the
recommendations of the Central Finance Commission (CFC) and grants for
implementation of various schemes. The State Government grants are received through
devolution of net proceeds of the total tax revenue on the recommendations of the State
Finance Commission (SFC) and grants for implementation of State sponsored schemes.
Besides, revenue is also mobilised by the ULBs in the form of taxes, rent, fees, etc. The
funds allotted to the ULBs through various sources are kept in banks.
While Central and State grants are utilised by the ULBs for execution of Central and
State sponsored schemes as per guidelines issued by GoI and the State Government, the
own receipts of ULBs are utilised for administrative expenses and execution of schemes/
works formulated by the ULBs. The fund flow arrangements in flagship schemes are
given in Table-9.

14
Municipal Corporation, Dharamshala: 27, Municipal Council Hamirpur: one and Municipal Council
Dalhousie: 10.

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Table-9: Fund flow arrangements in major centrally sponsored flagship schemes
Sl. Scheme Fund flow Arrangements
No.
1. Smart City Mission The Smart City Mission is a centrally sponsored scheme
(CSS) and the Central Government proposes to give
financial support to the Mission at an average of
` 100 crore per city per year. An equal amount, on a
matching basis, will have to be contributed by the State/
ULB.
2. Urban Infrastructure Grants-in-Aid is to be shared by Centre and State
Development Scheme for Government in the ratio of 80:10 and balance 10
Small and Medium Towns per cent is to be contributed by the ULBs.
(UIDSSMT)
3. Atal Mission for Funding pattern of the schemes in Himachal Pradesh is
Rejuvenation and Urban in the ratio of 90:10 between Centre and State
Transformation (AMRUT) Government.
4. Swacch Bharat Mission Himachal Pradesh being a Special Category State, the
funding is to be shared in the ratio of 90:10 by centre
and State Government.
3.4.2 Resources: Trends and Composition
The resources of ULBs for the period from 2012-13 to 2015-16 are detailed in
Table-10.
Table-10: Time series data on resources of ULBs
(` in crore)
2012-13 2013-14 2014-15 2015-16
Own Revenue 44.23 50.10 119.38 153.14
CFC transfers (Finance Commission 30.97 46.88 22.52 24.55
devolutions) including Central sponsored
schemes (CSS)
SFC transfers (State Finance Commission 57.07 68.08 72.40 85.51
devolutions)
GOI grants for CSS 3.90 149.16 91.64 159.62
State Government grants for State schemes 78.01 8.84 34.55 67.15
Total 214.18 323.06 340.49 489.97
It may be inferred from the above table that the State Government had released grants for
State Schemes after considering the amount of funds received from GoI for CSS so as to
maintain an increasing trend of total funds released for development schemes.
3.4.3 Application of Resources: Trends and Composition
The application of resources of ULBs for the period from 2012-13 to 2015-16 is detailed
in Table-11.
Table-11: Application of resources sector-wise
(` in crore)
2012-13 2013-14 2014-15 2015-16
Expenditure from own revenue 31.04 19.35 NA NA
Expenditure from CFC transfers (Central 30.97 35.39 22.52 24.55
Finance
Commission devolutions)
Expenditure from SFC transfers (State Finance 57.07 68.08 72.40 85.51
Commission devolutions)
Expenditure from grants from State Government 78.01 169.49 126.19 226.77
and Central Government.
Total 197.09 292.31 221.11 336.83

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Source: Director, Urban Development; NA: Not available.
Directorate of Urban Development had not maintained expenditure figures from own
revenue from the year 2014-15 onwards. In this regard, the Joint Director, Urban
Development stated (July 2018) that Urban Local bodies were being directed time and
again to submit annual income & expenditure regularly. The fact, however, remained that
the department had not been able to obtain figures for expenditure from own revenue by
ULBs since 2014-15.
3.5 Financial reporting and accounting framework of ULBs (Internal Control
System)
A sound internal control system significantly contributes to efficient and effective
governance. Compliance with financial rules, procedures and directives as well as the
timeliness and quality of reporting on the status of such compliance is one of the
attributes of good governance. The reports on compliance and controls, if effective and
operational, assist the ULBs and the State Government in meeting their basic stewardship
responsibilities including strategic planning, decision making and accountability towards
stakeholders. The weaknesses and gaps noticed in the internal control system are
mentioned in Chapter-4.
3.6 Primary audit and Internal audit of ULBs
Under Section 161(3) of Himachal Pradesh Municipal Corporation Act and Section
255(1) of Himachal Pradesh Municipility Act,1994, the accounts of the ULBs are to be
audited by a separate and independent agency. Primary audit of ULBs is being conducted
by the Director, Local Audit Department. During the year 2016-17, 20 ULBs were
audited by the LAD. The results of these audits are included in Annual Audit Report of
the ULBs which is laid before the State Legislature by the State Government as per
Section 255 (3) of Himachal Pradesh Municipal Act, 1994.
There is no provision for a separate and independent internal audit agency under the
control of the Director, Urban Development to conduct internal audit of ULBs with a
view to ensure internal control on income and expenditure.
3.7 Technical Guidance and Support
The audit of ULBs has been entrusted to the CAG under Section 20 (1) of the CAG's
(DPC) Act, 1971 with the responsibility of providing suitable Technical Guidance and
Support (TGS) to Primary Auditors as per sections 152-154 of Regulations on Audit and
Accounts, 2007 with regard to annual audit plans, audit methodology and procedures,
training and capacity building, reporting and submission of returns.
Audit Plan for the year 2016-17 was received from the Primary Auditor (Director, Local
Audit Department (LAD)) and noted for the process of audit planning in this office.
The Primary Auditor (Director, LAD) adhered to the audit methodology and procedures
for audit as prescribed in Section 164 of the HPMC Act, 1994.
During the year 2016-17, six Inspection Reports from the audit of ULBs conducted by
the primary auditors were reviewed by the office of the Principal Accountant General
(Audit), Himachal Pradesh. Inspection Reports were evaluated and recommendations

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were made for improvement and subsequent follow-up. The following recommendations
were made to the office of the Director, Local Audit Department:
(i) Reference to rules may be given in the paras while raising audit objections in
audit.
(ii) Audit memos may be issued to the auditee unit and Audit paras may incorporate
reply of the Secretary and Executive Officer of the ULBs concerned.
It may be pointed out that similar recommendations for improvement had been made
during previous years, but the shortcomings persisted indicating that LAD had not taken
adequate steps to address the same.
Every year, two days’ training is imparted to the audit staff of Local Audit Department
(LAD) as per their requirement and topics suggested by them. During 2016-17,
18 participants from LAD staff were imparted training on 8th - 9th December 2016 on the
topics: (i) Statutory provision regarding finance, taxation and recovery of claims (ii) PRIs
funds, their operation, application and investment (iii) Budget, expenditure and stores
(iv) Audit and inspection (v) Panchayati Raj Public Works Rules; and (vi) Introduction to
MGNREGA and its operational guidelines.
3.8 Audit Coverage
During 2016-17, 16 ULB units were test-checked by the office of the Principal
Accountant General (Audit), Himachal Pradesh and reports were issued to the respective
ULBs. Records of Municipal Corporation, Shimla, 11 Municipal Councils and four
Nagar Panchayats were examined during 2016-17 (Appendix-3) and important audit
findings have been incorporated in Chapter-4 of this report.
3.9 Audit observations pending compliance
The ULBs are required to rectify the defects/ omissions highlighted in the observations
contained in the Inspection Reports (IRs) issued by the Principal Accountant General
(Audit), Himachal Pradesh, and report their compliance to settle the observations. The
details of IRs and paragraphs issued, settled and outstanding as on 31st March 2017are
given in Table-12.
Table-12: Position of pending IRs/ Paras
Sl. Year of IRs/ Paras Addition Total No. of IRs/ No. of IRs/Paras
No. issue of Outstanding as during paras settled outstanding as on
Inspection on 2016-17 during 31 March 2017
Reports 31 March 2016 2016-17
IRs Paras IRs Paras IRs Paras IRs Paras IRs Paras
1. Upto 126 829 - - 126 829 0 42 126 787
2012-13
2. 2013-14 17 172 - - 17 172 0 7 17 165
3. 2014-15 14 139 - - 14 139 0 8 14 131
4. 2015-16 16 172 - - 16 172 0 8 16 164
5. 2016-17 - - 16 181 16 181 - - 16 181
Total 173 1,312 16 181 189 1,493 0 65 189 1,428
Correspondence was being undertaken to settle IRs/ Paras but despite this the number of
paras pending settlement has increased, which remains a matter of concern.

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