Rule 223 of The General Financial Rules 2017 Losses and Write Off
Original Rule Text
Visual Summary
Competent authority sanctions recording and adjustment of losses.
Analyzes losses from market fluctuations, wear, poor purchases, negligence.
Covers theft, fraud, neglect, obsolescence, damage, and ‘Force Majeure’.
Executive Summary
Rule 223 of The General Financial Rules, 2017, outlines the procedures for recording, adjusting, and writing off various types of profits and losses incurred by the government. It mandates formal sanction from a competent authority for all write-offs, even if no direct accounting adjustment is immediately apparent. The rule categorizes losses into those due to depreciation (e.g., market fluctuations, wear and tear, negligence) and those not due to depreciation (e.g., theft, fraud, damage, or ‘Force Majeure’ events), providing a structured approach to financial accountability and loss management within government operations.
In-Depth Analysis of the Rule
Rule 223 is a cornerstone of financial propriety, ensuring that all financial gains and losses within government operations are systematically managed. It emphasizes transparency and accountability in dealing with financial discrepancies.
Breakdown of the Rule:
- Rule 223 (1) Powers to write off: This sub-rule establishes the fundamental requirement for recording and adjusting all profits and losses, regardless of their cause (revaluation, stock-taking, etc.). Crucially, it mandates obtaining formal sanction from a competent authority for any write-off, even if the loss doesn’t necessitate an immediate formal correction in government accounts. It also clarifies that the powers for such write-offs are derived from the Delegation of Financial Powers Rules.
- Rule 223 (2) Losses due to depreciation: This section specifically addresses losses that arise from the diminishing value of assets over time or due to market dynamics. It identifies four key categories: normal market price fluctuations, standard wear and tear, poor judgment in procurement (lack of foresight in regulating purchases), and post-purchase negligence. This classification helps in understanding the root causes of such losses for better management.
- Rule 223 (3) Losses not due to depreciation: This sub-rule covers losses that are not a result of natural depreciation but rather external or operational factors. It lists five distinct categories: losses due to theft or fraud, losses resulting from neglect, anticipated losses from obsolete stores or over-purchasing, losses due to physical damage, and losses incurred during extraordinary ‘Force Majeure’ events like fire, flood, or enemy action. This distinction is vital for identifying whether losses are systemic or event-driven.
Practical Example:
Consider a government department that purchased specialized machinery. Over time, due to technological advancements, the market value of this machinery significantly drops (Rule 223(2)(i)). Additionally, a part of the machinery is damaged due to an unforeseen power surge (Rule 223(3)(iv)). The department must first record these losses. For the write-off of the depreciated value and the damaged part, formal sanction from the competent authority, as per the Delegation of Financial Powers Rules, is mandatory. The losses would be categorized and documented, ensuring proper financial reporting and accountability.
Related Provisions
Understanding Rule 223 is enhanced by reviewing other interconnected provisions:
- Rule 33 of The General Financial Rules 2017 Report of Losses: Details the procedure for reporting various types of losses, which complements the write-off process.
- Rule 23 of The General Financial Rules 2017 Delegation of Financial Powers: Specifies how financial powers, including those for sanctioning write-offs, are delegated to various authorities.
- Rule 217 of The General Financial Rules 2017 Disposal of Goods: Outlines the procedures for disposing of surplus, obsolete, or unserviceable goods, which often arise from losses or depreciation.
Learning Aids
Mnemonics:
- Record All Losses, Sanction Carefully. Depreciation Neglects Market Wear. Non-depreciation: Theft, Fraud, Obsolescence, Damage, Force Majeure.
Process Flowchart:
Multiple Choice Questions
1. According to Rule 223 (1) of The General Financial Rules, 2017, what is required for writing off losses due to revaluation or stock-taking?
- A) An internal memo from the department head
- B) Formal sanction of the competent authority
- C) A simple record in the ledger
- D) Approval from the Audit Officer
Show Answer
Correct Answer: B) Formal sanction of the competent authority
2. Which of the following is NOT considered a loss due to depreciation under Rule 223 (2) of The General Financial Rules, 2017?
- A) Normal fluctuation of market prices
- B) Normal wear and tear
- C) Losses due to theft or fraud
- D) Lack of foresight in regulating purchases
Show Answer
Correct Answer: C) Losses due to theft or fraud
3. Under Rule 223 (3) of The General Financial Rules, 2017, anticipated losses due to obsolescence of stores fall under which category?
- A) Losses due to depreciation
- B) Losses not due to depreciation
- C) Profits from revaluation
- D) Normal wear and tear
Show Answer
Correct Answer: B) Losses not due to depreciation
4. Rule 223 (1) of The General Financial Rules, 2017 states that powers to write off losses are available under which specific rules?
- A) Treasury Rules
- B) Government Accounting Rules
- C) Delegation of Financial Powers Rules
- D) Public Account Rules
Show Answer
Correct Answer: C) Delegation of Financial Powers Rules
5. Which of the following is an example of a loss not due to depreciation under Rule 223 (3) of The General Financial Rules, 2017?
- A) Gradual wear and tear of office furniture
- B) A sudden loss of stores due to a flood
- C) Decrease in value of assets due to market downturn
- D) Reduced efficiency of equipment over time
Show Answer
Correct Answer: B) A sudden loss of stores due to a flood
Frequently Asked Questions
What is the primary requirement for writing off any loss or profit under Rule 223 of The General Financial Rules, 2017?
The primary requirement is to obtain formal sanction from the competent authority, even if no immediate formal correction or adjustment in government accounts is involved.
How does Rule 223 distinguish between different types of losses?
Rule 223 categorizes losses into two main types: those due to depreciation (e.g., market fluctuations, wear and tear, poor purchasing decisions, negligence) and those not due to depreciation (e.g., theft, fraud, obsolescence, damage, or ‘Force Majeure’ events like fire or flood).
Where do the powers for writing off losses originate as per Rule 223 (1) of The General Financial Rules, 2017?
The powers to write off losses are available under the Delegation of Financial Powers Rules.
Key Takeaways
- All profits and losses must be recorded and adjusted.
- Formal sanction from a competent authority is mandatory for all write-offs.
- Losses are classified into ‘due to depreciation’ (market, wear, foresight, negligence) and ‘not due to depreciation’ (theft, fraud, obsolescence, damage, Force Majeure).
- The Delegation of Financial Powers Rules govern the authority for writing off losses.
Conclusion
Rule 223 of The General Financial Rules, 2017, provides a comprehensive framework for managing and accounting for various types of financial losses and profits within government entities. By mandating formal sanctions and clear categorization, it ensures robust financial governance, accountability, and informed decision-making in the face of financial discrepancies, thereby safeguarding public funds and promoting fiscal responsibility.