PURCHASE PROCEDURE & IMPREST ACCOUNT

A. General In any power plants, purchases are involved in following cases (1) Purchase of capital assets (Replacement needs & New Procurements) (2) Purchase of Raw Materials (3) Purchase of spares, Tools & Plants and Consumables When we install any power plant, a well planned project is executed for erection, commissioning and for putting the plant in to commercial operation. Once the plant is put in commercial operation, we shall need raw material for day to day production and also some stock to ensure continuity of production due to scares raw material availability. We maintain the plant by ensuring regular maintenance which involves purchases of spares, Tools & Plants and Consumables. Sometimes we need to replace whole system or some machines in the plant as a replacement policy if these are incurring heavy cost on running & alternatives low cost options are feasible. Similarly we need purchases of office stationery, furniture, equipments, computers and other materials in respect of all support services like GAD, Accounts, Security, planning, Safety, health & environment, training etc to maintain day to day transactions related to these services. The company has stipulated the purchase powers (i.e. Supply / works) in the G.O.2 to the Executives at various level for effecting the purchases as per need of power plant & offices under such authority. Therefore the onus lies on the concerned Executive to utilize the powers delegated to him in the best manner in the overall interest of the organisation and to operate these powers in most judicious manner. B. Budget Process: The corporate of office of the company prepares the yearly plan for whole organisation after calling Capital & Revenue Budget expenditure projections from every power plants & offices for submission to State Government for approval. With the changes in Electricity Act & formation of New Company, Mahagenco; now budgets are approved by Board of Directors of Company. This includes purchase plans for individual power plants and offices in Mahagenco. As per the purchase policy of the company, some of high value purchases common to all power plants & offices in Mahagenco are initiated by calling open tenders from suppliers at all India level by Centralised Purchase Section at Head Office. For this, every power station sends Red Indents to Head office subject to Budget approval. Every power stations initiate purchases at local level also. Majority of purchases related to power station requirements are done at local level by sectional purchase teams. But requirements common to sections are done by centralized Purchase section. C. Decision Criteria in Purchase: There are several decisions involved in purchase activities. Before planning any purchase, the cost benefit analysis is essential. It involves consideration of answers to various what-if situations. Whether to procure or fabricate internally; whether to continue maintenance at present cost level or to replace with new machine/ component/ assembly; whether to replace whole system or only some assembly in machine or isolated sub assembly; decisions regarding time & volume of purchases considering market price fluctuations and decision regarding where to purchase from etc. are to be considered. Vendor analysis is the part of this decision making
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process. The decision process also involves consideration of Material Requirement Plan, Inventory Level, analysis of stock position, lead time analysis, cash flow and delivery plans. D. E. Importance of stock position

Purchase by Calling Quotations/ Tenders Once the sponsoring authority has taken the stock position with regard to the material to be procured, then the next steps involved to proceed ahead for following the right procedure based on the urgency of requirement, quantity etc. The purchases are effected in the light of the powers delegate as per G.O.2 Section-I to the extend of the powers delegated to the respective authorities. The mode of purchases can be divided in three types :1. Purchase on urgent basis (for minimum quantity) 2. Purchases under I - proprietary nature of items. 3. Purchases of bulk quantities. Single quotation basis Calling limited quotations. Through giving wide publicity/Tenders. Procedure to be followed :i) To verify the stock position for required material. ii) To obtain the requirement from the field offices. iii) To judge the quantity of requirement with specification so required with bare minimum quantity. iv) To float an enquiry through local publication or limited enquiries, the quantity of material, urgency of material will be a deciding factor normally wide publicity through local news papers or some reliable mode should be given. v) Enquiry Registers/quotation opening Registers must be maintained at the sponsoring section. vi) The list of regular supplier must also be maintained. vii) An enquiry should invariably be sent Under certificate of posting to the numbers of suppliers possible extent for seeking most competitive rates. viii) Estimates of the proposed purchases must be prepared and called for the Earnest Money Deposit i.e. 1% of the estimated cost or minimum Rs.250/- in cash/DD invariably. This is a must to avoid the back legging of the bidder. ix) Rates offered by the bidders against limited esquires, quotations must be compared with our already framed estimated rates vis--vis the current market trend and then arrive at the conclusion that the Rates are reasonable. x) Budget provision/urgency certificate must be recorded while finalization of the purchase order and furnishing the same to Audit section for auditing. xi) While preparing the comparative statement, the cognizance of the loading factor must be taken carefully. xii) Normally the enquiry must be floated for giving correct technical specifications, (having no deviation at latest stages) firm price basis, quantity, delivery period, F.O.R. destination and making aware the bidders that, Board is Registered under Sales Tax Acts, of the Maharashtra State and also under Central Sales Tax Act 1956. Declaration of E/C form

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xiii) xiv) xv)

xvi)

xvii) xviii) xix) xx) xxi) xxii)

will be issued wherever applicable. The bidders should not be unregistered supplier, otherwise purchase tax will have to be deducted as per prevailing rates. The bidders must quote the validity of rates. Break-up of the prices should be asked from the bidders irrespective of the facts that, they have quoted rates, inclusive of all taxes/exclusive of any taxes (as the case may be). Excise duty is generally in the form of reimbursement and therefore required to be reimbursed against the documentary proof invariably i.e. (Excise duty gate pass). (Now a days theyare incorporating on the invoices only). Purchase order register should be maintained. No time limit exension, since the purchases are effected on the pretext of urgency. Deliberate splitting of orders or giving separate enquires for different sizes of the same material needs to be stopped. If the order is placed other than lowest, the approval of the next higher authority is a must with giving full justification for rate difference etc. The standard clauses stipulated in the boards booklet should be incorporated while placing orders and always stick to avert ambiguity. Mode of payment should be checked invariably. (if has got a close bearing with the Bank balances, in case D.D. is drawn in the name of the Party despite the fact that the party is paying the D.D. charges. However the authority has to take the decision in the best interest of the organization depending upon circumstances. Preparation of Estimate

F.

Estimate is a key to open the minds of a maker It is one of the moral responsibilities of the sponsoring section (Purchase section) to prepare the estimate with regard to the items to be procured. While preparing the estimate, one must keep in view, the previous rates, recent developments, specifications, time lag quality/make of the items, current market trend, technical advancement and its suitability according to needs, once the estimation is done, an enquiry for quotation/tenders, must be floated. Further, after opening the quotations/Tenders, the rates offered by the bidders can reasonably be compared with our estimated rates, recent / present development in the market trend, fluctuations in the price etc. and arrive at the concrete decision whether the rates offered by the bidders are reasonable and commensurate to the market trend or otherwise and one can easily certify the reasonability of rates without fear and favor. No doubt, some times the items which are being procured has just been introduced in the market and therefore there is no other reliable source to ascertain the reasonability, technical suitability, (in view of peculiar circumstances) quality and durability, being a single offerer. Under such circumstances one must ask for the literature of the new product, company price list, if supplied to other organization, a performance report of the material (new product) in all respect and come to the conclusion. As a matter of fact, under the MRTP Act, purchaser have right to ask for break up of the prices and cost sheet for rate analysis, being a newly introduced item in thew market. Therefore one can stake a claim that an estimation is very vital aspect for deciding a rate reasonability, provided there is nothing repugnant in this regard.

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G.

Current Price List and Materials required Frequently Items which are required frequently on large scale/small scale, generally speaking an open order (normally for one year period) putting tentative value subject to actual whichever is less, may be placed on the standard companies directly, or on its authorized dealers only, with the stipulation that the prices applicable at the time of supply will be paid (as per prevailing rates or price list). As a matter of fact, such types of contract are rather risky and therefore time period should be very limited and timely review of such types or materials is required to be taken, with a view to avoid further complications vis--vis financial launching too. Therefore the current price list of the frequently required materials must be reviewed periodically, by the sponsoring section and take the stock of the situation in the market rates, new dimension in this particular item, and another alternative measures with a view to avert the financial losses. The current price list help us to draw the conclusion that whether the item rates is fluctuating on either side frequently or otherwise and review our policy or strategy accordingly. In view of growing global trading scenario the fluctuation in market has become inevitable and therefore the importance of the current market price list of material required is a must to judge the tenability of most fluctuating items rates. (e.g. Rates of T.C. fuse wires, rates of computers materials etc.). H. Comparison of previous purchase rates with present rates This factor has its own significance in view of comparison purpose. But normally we find that, if the purchases are operative (effective) after the declaration of State./Central Govt. budgets, then the rates carries impact on it and the possibility of having the impact on either side (mostly on higher side) can not be ruled out. One can easily understand its difference in rates and quote the reasons for variation in rates. Despite the above fact, there seems no hard and fast, that the comparison of the previous rates will be that deciding factor with the present market prices, in view of the following dominating commercial factors. Products demand, supply competitive product, Taxing policy, trading complicity consumers liking, fact developing changing scenario, urgency of material, availability of materials, etc. are very vital ingredients for deciding factors. Therefore the sponsoring section incharge/officer should be more vigilant with the view to arrive at the final decision only after applying his mind very judiciously. In a nutshell, the comparison of rates between provision and current rates has a closed bearing with the market fluctuations, time factor, Taxing system and trading activities together with other allied inherent characteristics too. Therefore it is the skill and accumanship of the purchase officer to arrive at the right decision depending upon circumstances. III) WORKS ACCOUNTS The population is increasing day by day and requirements of the people depended upon the electricity is mostly increased. Industries, agriculture, business and commercial are totally depended upon electricity. Hence the electricity power at present needs to increase. Thus the main business of MSEB is to generate the electricity to transmit it and distribute it to the various consumers, while dealing, MSEB has to generate more electricity to meet the requirement of various consumers of industries, agricultural, business, commercial. Therefore, MSEB has to construct more power stations, transmission/ distribution lines. Due to construction of power station, transmission/distribution, (HT/LT) lines and sub stations there are increasing more assets, which is called works and may also be called Capital Expenditure. However it
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needs to be maintained the control on expenditure on various activities through works accounts by MSEB. 1) Scheme (Points) Reports :For incurring the expenditure on any capital works, the scheme/estimate/Budget provision are to be decided by Govt./MSEB. After deciding the scheme the following are required to deal with the capital works. I) Administrative approval. II) Technical sanction estimates. III) Budget provision. IV) Comparison of the actual expenditure with technical sanctioned estimates. As soon as the administrative approval is received from the Head Office or Chief Engineers in fields, the Superintending Engineers will instruct to the all concerned Executive Engineers of the divisions for sanctioning the technical sub estimates under allotted budget provision for their respective jurisdictions. The similar action in the Civil/Project offices shall be continued. 2) a) b) c) d) e) f) 3) Preparation of Sub Estimates :While preparing the technical estimate the following points are to be ensured. The nature of the works involved. Quantity of the work. Probable rates of the works. Probable total cost of work. Accounts head. Budget provision.

Register of Estimates :After technical sanction, serial number should be allotted the estimates in the division. According to that entries should be serially recorded in register of estimates. Monthly report is to be sent in accounts branch of the division/circle by 10th of succeeding month. 4) Construction Ledger :This ledger is subsidiary ledger to be maintained separately scheme wise and estimate wise in the division of Civil/O&M and Project offices. In construction ledger in respect of the technical estimates for sub station/power house, the following Accounts heads will be operated :Account Head a) Land and right b) Building & Structure c) Sub Station Equipment d) Synchronous condensers e) Power and Control Cable f) Other Civil Work 10.5XX 10.5XX 10.6XX 10.4XX Account Coad 10.1 XX 10.2XX

NOTE :- Fixed Assets Records will be maintained in the above manner.

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A) I)

All transaction of Capital Expenditure while execution of works

Booking of Cash voucher/Imprest Voucher/adjustment entries (for store material and other) the scheme/estimates nos. should be recorded on vouchers. II) Total for the month and progressive total should be sent in construction ledger. III) Adjustment of expenditure towards cash spent by sub division through imprest/cost of material drawn from stores/cash spent by Divisional Officer/ Adjustment. IV) End of every month entry to absorb divisional supervision charges/Circle supervision charges should be passed on the basis of Capital Expenditure booked against each estimateduring the month. V) H.O. Supervision charges shall be capitalized on direct debit expenditure. B) it. I) II) From the columns under analysis of transaction and material issued / returned Cost of material, cost of labour, cost of transport and other adjustment carried out. Type of material and total quantity of material and its further analysis as per item wise and its material.

5)

Capitalization of GEC :In respect of O&M Unit/Construction Cum O&M Unit/Civil Construction cum Maintenance Unit shall be capitalized total 15% on capital expenditure on a month. This 15% including the H.O. Supervision at prescribed rate by H.O. shall be capitalized at 9:1 ratio against employee cost and Administration and General expenses. 6) Work completion report :On completion of work an action as detailed below should be taken without any delay from S.D.O. of the Sub Dn. I) To prepare a work completion report. II) To reconcile the cost as shown in the report with that shown in the construction ledger. III) To obtain approval of the Competent Authority in case cost exceeds the technical estimates. IV) To close the relevant accounts in the construction ledger debiting the concerned final heads of accounts. V) To make necessary entries in the Asset records. 7) Drawl of Material :The various lines or other construction works are carried out as pe estimate prepared/ sanctioned. The copy of the work orders should be sent to major stores/ Stores centers and then the material as per work order should be drawn on requisition from store. However the drawl of material shall be posted in the material register item wise by the field officers i.e. S.D.O. 8) Material Account :At the end of each quarter, material usage account is to be prepared in the prescribed Performa usage account cum work completion report. After the construction work is completed/ commissioned. The field engineers (i.e. S.D.O.s) are required to certify that work has been completed.
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Further after submitting material usage Accounts at the end of each quaarter to Division Office, with work completion report by S.D.O.s. The quantities of material actually used and booked against each work order/cost head should be checked by D.A. with the entries made in the construction ledger on the basis of valued requisition, difference if any should be reconciled and necessary adjustment entries should be passed. 9) I) II) Measurement and percentage checking :M.B. Recording :- To be recorded by Sub Engineer/Jr.Engr./Asstt.Engr. Percentage check :a) For the work above ground level = 50% check by A.E. b) For both under ground & above level = 10% check by E.E. c) For work under ground level = 100% check by A.E. d) Ex. Engr. Shall exercise test check on works during his visit. Final Measurement for work under contract :a) To be recorded by A.E. (C) b) 10% check by E.E.(C) in all cases above & up to Rs.50,000/c) 10% check by Dy.E.E.(C) in all case up to Rs. 20,000/-

III)

10)

Direct Debit to Work :- (DDW) The procedure for direct debit to work is only applicable to major scheme of Generation Transmission for selected items viz. 1) Tower material conductor power cable, Transformers insulators, switchgear and Boiler, T.G. etc. In order to ensure proper accounting of expenditure and making it more realistic comparable with budget estimates which are framed keeping in view of the cash commitments of the Board which are based on the expected delivery of the material. i) Advance payment against the purchased order relating to the above will therefore have NIL value S.R. Note. ii) Major Store will prepare Nil value S.R.Note a separate series of S.R.Note would be maintained for Direct Debit to work. iii) Supplier should send the original bill in S.B. Section of H.O. Mumbai for balance payment. iv) After payment of the original bill on the basis of S.R.Note NIL received from major store. S.B.Section will send. Inter Unit Adjustment to the concerned constn. Circle. v) Such material will not be borne on stock as understood in the account code procedure Major Store will have to keep such material duly segregated and labeled. Information of such material should be kept in the register of direct debit to work material from appended. vi) No diversion should be permitted without written instruction from Executive Engr. Or any higher authority. The materials should be issued by the Stores to the field officer on regular requisition but superscribed on top direct debit to work no valuation. vii) In case of any authorized diversion Executive Engineer should prepare transfer notes duly valued on the basis of A/Ts and accounting entries will be passed at the divisional level. So that the expenditure is booked to scheme to which the material is diverted and credit also given to the scheme from which diversion has been made. (In the construction ledger also).
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viii)

On completion of work, if there is excess material list of such (material) items should be prepared by the Executive Engineer and if it is useful for any of the schemes under construction, it may be so utilized by accounting for such diversion in the above manner. If it is not useful for any of the scheme then in progress, it may be returned to stores. Final Bills : While preparing the final bills the following statements shall be appended to : Final bill abstract M.B. / Page Certificate of payment. Bill form in triplicate (R.A. Bill) Work completion certificate Work completion report Excess / Saving statement Material consumption / Receipt/Issued statement (Cement) Material Consumption / Receipt/Issued statement (Steel) Cash Abstract (R.A. Bill wise with recovery/Net) Recovery statement Completion drawing Cement/Steel issue indent Nos. Cement/Steel return indents Nos.

11) i) ii) iii) iv) v) vi) vii) viii) ix) x) xi) xii) xiii)

However, the final bills shall be technically scrutinized before sending it in audit as well as necessary certificates required and percentage checking from bill recording officer to Executive Engineer / Supdt. Engineer are also required in M.B.

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