Purchase Procedures

Purchase Procedures

Good Governance in Purchase Matters – Common Irregularities

Disclaimer - The limits and procedure is applicable as of today. Due care is taken in disseminating accurate information. However, it is a must to go to the revised guidelines before making the decisions every time.

èFirst of all, Need identification

èEstimation of amount

Approvals:

èThe approval should be sought from the competent authority. Administrative approval and financial approval, are required in each and every expenditure including purchase. The Competent authority before giving the approval checked the status of the Budget.

In case, the budget is provided with directions to spend, there is no need to seek approvals.

èIf it is not directed to purchase from the open market, seek the approved source for procurement.

Approved Sources

èThere are two cases – approved source is not available, second approved source is available. If the approved source is not there, then we can move to the market. If the approved source is there, then write a letter to the approved source for getting the estimated value of the work (goods/services/work).

In reply, the approved source may send the value of the items or may give NoC or it may give NAC.

èIf NoC/NAC is received or there is no approved source, then move to the market for making procurement.

Markets

Offline Market – Without Quotation (up to 10000), With Quotation (10001 to 100000), Tendering (above 100000)

Online Market – Only GeM – Without comparison (up to 25000), With comparison (25001 to 100000), Bidding & RA (above 100000)

The estimated value of the purchase will decide, which mode is better and which made should be used. We are supposed to compare them both.

Delivery of Goods

The goods will be delivered by the seller at your office and the cost of the shipment/courier/postage etc. will be of the seller.

Before using the goods and within 10 days from receiving the goods, it is must to inspect the same as per the specifications referred in the purchase order.

Payment of the goods

In case, it is accepted before the 10 calendar days or in case not accepted but 10 days completed; after that within 10 days, it is required to make the payment.

After making the payment either through EFT or e-Billing, it is must enter the payment details in GeM (login of payment authority).

After that, we start using the product and in case of any warranty, guarantee, we are supposed to communicate with the service centers, not the seller.

Managing Contractors

In the case of the service provider, if monthly payments are being done, then we use the project monitoring norms as per terms and conditions.

In the case of contracts, performance security is also taken from the contractor. After completion of the contract successfully, the security is required to be returned. 

All Intellectual Property rights including Copyright etc. are reserved and vested exclusively with the author or editor, Dr. Lalit Kumar. No part of the material contained in this webpage may be reproduced or transmitted in any form or by any means, electronic, technical, photocopying, recording or otherwise, or stored in any retrieval system of any nature without the written permission of the author or editor, Dr. Lalit Kumar. 

This content is written by Dr. Lalit Kumar Setia; a renowned author and trainer. He completed his Doctorate in Commerce from Kurukshetra University Kurukshetra and MBA in Information Technology from GJU, Hisar. He also wrote two books, 15 research papers, and organized more than 200 Training Courses during his working period since 2006 in Haryana Institute of Public Administration, Gurugram. The article was published on 23rd December 2021 and last updated on 23rd December 2021. The writer can be contacted on lalitkumarsetia@gmail.com 

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*Copyright © 2018 Dr. Lalit Kumar. All rights reserved. 

Untold Story of Infrastructure Leasing and Financial Services

Untold Story of Infrastructure Leasing and Financial Services

By Dr. Lalit Kumar Setia |  @drlalitsetia  |  drlalitsetia@gmail.com  |  Created October 09, 2018

Updated 30th May, 2019

Everybody tries to earn more and then utilize the earnings for maximum satisfaction. In order to stay happy, an amount is always kept in liquid form so that it can be utilized at the time of need, in emergencies or for common day to day functions. The keeping and maintaining such amount is most important and in case, it is not managed the common day to day functions may be affected and the emergency needs may become more stressful. The liquidity is also important for every company to deal the corporate affairs smoothly. Recent case of Infrastructure Leasing & Financial Services (IL&FS), is full of learning on liquidity management.

What does IL&FS do and why to safeguard it from failure?

Like all companies the IL&FS also required to manage working capital to maintain liquidity but it failed to maintain in second quarter of financial year 2018-19. In order to safeguard the company from failure, the Central Government of India come up with a rescue plan for bailing it out from the debt and replacing its management in September 2018. The point to consider here is, “Why Government tried to safeguard IL&FS?”

Basically, the IL&FS is a group company of 12 companies which is formed with equity capital invested by three companies i.e. Central Bank of India, Unit Trust of India and Housing Development Finance Company. The IL&FS funds the infrastructural projects of India and for getting financial resources, it raises debt. The debt also includes short term loan from Small Industries Development Bank of India (SIDBI). The debt becomes uncontrollable with the amount over Rs. 91 crores in September 2018. The Government worried because the failure of IL&FS can affect the infrastructural development of India and the debt if not paid by IL&FS then the banking sector may face crisis which further be a big problem for whole India.

In case, the government had not taken over the IL&FS, the 28 billion investments of IL&FS into mutual funds may be affected adversely. But the question is whether the government will be able to control the failure of management by using a new board of directors. The Indian economy is already under the threat of rising global crude prices and appreciation in the value of Dollar in terms of rupee.

How IL&FS Crisis is detected?

Since the IL&FS is a group company formed with its subsidiaries and the subsidiaries are not listed companies; the subsidiaries are not required to follow the audit norms. Due to non-compliance of strict audit norms; the weak financial position of the subsidiaries was not detected because no statutory audit is applicable in case of non-listed companies. But in September 2018, the IL&FS defaulted on its commercial paper obligations; and the IL&FS audit pointed out its uncertainty in recovering advances provided to its subsidiaries. Due to failure in recovery, the financial statements were showing an accumulated loss of Rs. 4.61 billion including net working capital deficit of Rs. 13.48 billion.

What caused IL&FS suffered with Crisis?

The analysis of business environment of IL&FS detected that the cause of concern behind the crisis was its legal environment; including the introduction of new land acquisition act by which it became very difficult to procure land in infrastructure projects. Due to delay in procuring land, the funds become mismanaged and company became in huge liquidity crunch. Since the failure of IL&FS can influence a lot of entities very negatively due to its huge investments in banks, mutual funds and infrastructure players; the central government took the decision to change its management. 

Why Indian Economy Shocked with IL&FS Crisis?

With detection of liquidity crisis in IL&FS, every expert became surprised on failue of a large company in India. The Government think-tank NITI Ayog and Indian Institute of Corporate Affairs (IICA) start detecting the causes of liquidity crunch in IL&FS. The Serious Fraud Investigation Office (SFIO) also investigated the company and found that the IL&FS was suffering with a debt of Rs. 91 crores and hold assets of Rs. 115 crores which may be liquidated to tackle the crisis. But sudden sale of its assets may lead to losses, and decision is taken to change the management and tackle the problems.

How Crisis is tackled with intelligence?

The default in making payments to short term loans, dented the creditability of the company and the lenders & stakeholders worried for their investments in the company. Nobody was ready to invest more in the company and to change the image, the management is replaced with appointment of experienced people including Sh. Uday Kotak, Sh. G.C. Chaturvedi, Sh. G.N. Bajpai having experience in finance and administration. It increased the confidence of lenders and investors in IL&FS.

The over-leverage of IL&FS is controlled to reduce the liquidity crisis in the company. The projects of the company were funded by long-term debt. The faith in the company returned and it started working well as earlier under strict control of new governance of the new management.

Does Finance require continuous attention of Management?

The case of IL&FS liquidity crisis, taught a lesson that the management should keep continuous attention on its finances. The only formula to get success in an organization is managing finances as per its strategy. It is fact that without proper management, an organization cannot sustain in this competitive world.

The mismanagement in the organizational activities of Infrastructure Leasing & Financial Services (IL&FS) made everyone realize the value of effective management. The credit rating of the companies seems very good with four star and five stars but even after such ratings, the companies start falling in meeting their financial needs if the finances are not controlled.

The Effective Financial Management is the key

Recent crises of IL&FS, DHFL and Zee Group etc. proved the importance of financial management in a company. Merely gaining higher credit rating by an agency cannot sort out the problems and cannot be trusted as a mark of credibility; but the decisions and management of the company can change the entire picture as happened in case of IL&FS liquidity crisis.

Now-a-days, the investors became annoyed when a higher ranked credit rating company failed to deliver the expected performance. It is must to understand the importance of financial decisions instead of trusting over the credit rating. The agencies which rate the companies should also consider the internal strengths apart from the financial position, while rating them.

What can further be done to improve performance of IL&FS?

This is in the hands of new board of directors, now to take effective financial decisions. One decision can be debt restructuring which has already been used in the year 2014 in IL&FS but that cannot be the permanent solution to the company. Another solution is selling assets which may be sold at loss, but that loss will ensure the safe future of the company in terms of liquidity. In case, the losses are not booked and avoided, it can further affect the performance of the company. The new strategic approach is required to have some new innovative ideas for performing better in the projects of infrastructure and earn more profits to settle long-term loans of the company.  

*Copyright © 2018 Dr. Lalit Kumar. All rights reserved. 

You might also be interested in reading the following:

1. Duties of a Clerk in Government Departments or Public Sector Entities  

2. Social Responsibilities of Business  

3. Effective Administration of Accounts - A solution to get rid of Economic Crimes  

4. Untold Story of Infrastructure Leasing and Financial Services 

5. Purchase Procedures including Government e-Marketplace and Combating Corruption 

6. Government Accounting and Audit Mechanisms