Rule 120 of The General Financial Rules 2017 Agency Service Expenditure Recovery
Original Rule Text
Visual Summary
Government acts as an agent for a private body.
Entire service cost must be recovered from the private body.
Government incurs no net cost for agency services.
Executive Summary
Rule 120 of The General Financial Rules, 2017, mandates that when the Government acts purely as an agent for a private body, the full cost of the services rendered must be recovered from that body. This ensures that the Government incurs no net expenditure for such agency functions. The rule clarifies that ‘recovery’ refers to payments from non-Government parties or other Governments for charges initially incurred and classified as final expenditure, including examples like establishment charges and procurement fees.
In-Depth Analysis of Rule 120
Rule 120 is a foundational principle for financial propriety when government entities engage in activities on behalf of external, non-governmental bodies. It establishes a clear framework to prevent the diversion of public funds for private benefit, ensuring fiscal neutrality in agency arrangements.
Breakdown of the Rule:
- Government as Agent: The rule applies specifically when the Government undertakes a service merely as an agent for a private body. This implies a clear distinction from services rendered as part of the Government’s primary functions.
- Full Cost Recovery: It is mandatory to recover the entire cost of the service from the private body. This is a strict requirement to ensure no public funds are utilized.
- Net Cost to Government is Nil: The ultimate objective is that the Government should bear nil net cost for performing such agency services. This reinforces the principle of fiscal responsibility.
- Definition of ‘Recovery’: The rule provides an explanation for ‘recovery’, defining it as repayment or payment by non-Government parties or other Governments for charges initially incurred and classified as final expenditure (debit to Revenue or Capital Head).
- Examples of Recoverable Charges: Illustrative examples include establishment charges, tools and plants, and fees for procurement or inspection of stores, whether calculated at percentage rates or otherwise. This broadens the scope of what constitutes recoverable costs.
Practical Example:
Imagine a Central Government department is asked by a private research institution to procure highly specialized scientific equipment on its behalf, leveraging the government’s procurement channels. Under Rule 120, the government department must recover the full cost of this procurement from the private institution. This includes not only the price of the equipment but also any associated administrative costs, inspection fees, and even a pro-rata share of establishment charges incurred by the department for facilitating this service. The department would classify the initial expenditure as a debit to a relevant head and then record the recovery as a reduction of that expenditure, ensuring the net cost to the government is zero.
Related Provisions
Understanding Rule 120 is enhanced by considering other related provisions in the General Financial Rules, 2017:
- Rule 9 of The General Financial Rules 2017 Government Receipts and Dues: Emphasizes the duty of departments to ensure correct and prompt assessment, collection, and crediting of government receipts and dues.
- Rule 21 of The General Financial Rules 2017 Standards of Financial Propriety: Lays down the high standards of financial propriety expected from officers incurring or authorizing expenditure from public moneys.
- Rule 119 of The General Financial Rules 2017 Recoveries for Non-Government Services: Specifies that recoveries for services rendered or supplies made to non-Government parties shall be classified as receipts of the Government rendering such services.
Learning Aids
Mnemonics:
- Agent Cost Recovery Nil: Agency services require Cost Recovery to ensure Nil net cost to government.
Process Flowchart:
Multiple Choice Questions (MCQs)
1. According to Rule 120 of The General Financial Rules, 2017, when the Government acts as an agent for a private body, what is the primary financial principle to be followed?
- A) The Government may bear up to 10% of the cost.
- B) The entire cost of the service shall be recovered from the private body.
- C) The private body pays a fixed fee, regardless of actual cost.
- D) The Government covers costs if the private body is non-profit.
Show Answer
Correct Answer: B) The entire cost of the service shall be recovered from the private body.
2. Rule 120 of The General Financial Rules, 2017, states that the net cost to the Government for services rendered as an agent should be:
- A) Minimal.
- B) Covered by a separate budget allocation.
- C) Nil.
- D) Shared equally with the private body.
Show Answer
Correct Answer: C) Nil.
3. In the context of Rule 120 of The General Financial Rules, 2017, what does the term ‘recovery’ denote?
- A) Reimbursement for unforeseen expenses.
- B) Payment by non-Government parties towards charges initially incurred by the Government.
- C) Funds transferred from one Government department to another.
- D) Penalties for delayed service delivery.
Show Answer
Correct Answer: B) Payment by non-Government parties towards charges initially incurred by the Government.
4. Which of the following is an example of a recoverable charge under Rule 120 of The General Financial Rules, 2017?
- A) Government employee salaries for core duties.
- B) Standard office supplies for internal use.
- C) Fees for procurement or inspection of stores.
- D) Infrastructure development costs for public benefit.
Show Answer
Correct Answer: C) Fees for procurement or inspection of stores.
5. Rule 120 of The General Financial Rules, 2017, applies when the Government undertakes a service:
- A) As a primary governmental function.
- B) Merely as an agent of a private body.
- C) For public-private partnership projects.
- D) To provide social welfare benefits.
Show Answer
Correct Answer: B) Merely as an agent of a private body.
Frequently Asked Questions (FAQs)
Q1: What is the core purpose of Rule 120 of The General Financial Rules, 2017?
A1: The core purpose of Rule 120 is to ensure that when the Government acts purely as an agent for a private body, it recovers the entire cost of the service, resulting in no net financial burden on public funds.
Q2: Does Rule 120 apply if the Government provides a service as part of its regular duties?
A2: No, Rule 120 specifically applies when the Government undertakes a service “merely as an agent” of a private body. Services that are part of the Government’s primary functions are not covered by this rule’s cost recovery mandate.
Q3: What types of costs are considered ‘recoveries’ under Rule 120?
A3: ‘Recoveries’ include repayment or payment by non-Government parties or other Governments for charges initially incurred by a Central Government Department as final expenditure. Examples include establishment charges, tools and plants, and fees for procurement or inspection of stores.
Key Takeaways
- Government acting as an agent for a private body must recover the full cost of services.
- The objective is to ensure zero net cost to the Government for such agency functions.
- ‘Recovery’ includes various charges like establishment costs and procurement fees.
- This rule upholds financial propriety and prevents misuse of public funds for private benefit.
Conclusion
Rule 120 of The General Financial Rules, 2017, serves as a vital safeguard for public finances, ensuring that any services undertaken by the Government purely in an agency capacity for private entities are fully compensated. This principle of full cost recovery is fundamental to maintaining fiscal discipline and preventing the unintended subsidization of private activities with public money. Adherence to this rule is crucial for transparent and accountable financial management within the Central Government.