Audit of Local Bodies - A Background.

What is a local Body?

Broadly speaking, local bodies are institutions of the local self governance, which look after the administration of an area or small community such as villages, towns, or cities. The Local bodies in India are broadly classified into two categories.

The local bodies constituted for local planning, development and administration in the rural areas are referred as Rural Local Bodies (Panchayats) and the local bodies, which are constituted for local planning, development and administration in the urban areas are referred as Urban Local Bodies (Municipalities).

In other words, local body is a body representing the local inhabitants, possessing fairly large autonomy, raising at least a part of its revenue through local taxation and spending its income on services which are regarded as local and, therefore, distinct from state and central services.

As regards audit of local bodies, let's continue the discussion starting with a small history of local bodies.

Local Bodies - A Background

Just after Independence in India, most of the urban and semi-urban areas had been constituted into municipalities of one kind or another. Among them were the premier corporations of Mumbai, Chennai and Kolkata each with a special kind of constitutional structure, better financial resources and subject to less state control than other municipal bodies.

The service which the local bodies had to render was restricted to education, public health, sanitation, medical relief, roads and a few public works. This was so because these bodies were considered to be inefficient and they lacked adequate financial resources.

These bodies derived their revenues from a number of sources – taxes on property, taxes on trade, taxes on persons; fees and licences, non-tax resources such as rent of land, houses, income from commercial undertakings; government grants, etc.

Municipal government in India covers five distinct types of urban local authorities, viz., the municipal corporations, the municipal councils, the notified area committees, the town area committees and the cantonment committees.

Functions of a local Body

The taxation powers of the corporations are confined to a few items and are of a generally compulsive nature; on the other hand the tax powers of the other types of urban local authorities cover a wider range, optional in nature and subject to a procedure for their imposition requiring the final sanction of the state governments. Municipal authorities are endowed with specific local functions covering

1. regulatory,
2. maintenance and
3. development activities.

Expenditures of Local Bodies

Expenditure incurred by the municipalities and corporations can be broadly classified under the following heads:

1. General administration and revenue collection,
2. public health,
3. public safety,
4. education,
5. public works, and
6. others such as interest payments, etc.

Sources of Revenue of a local body:

Property taxes and octroi are the major sources of revenue of the municipal authorities; other municipal taxes are profession tax, non-mechanised vehicles tax, taxes on advertisements, taxes on animals and boats, tolls, show-tax, etc. Local bodies may receive different types of grants from the state administration as well. Broadly, the revenue grants are of three categories:

(a) General purpose grants: These are primarily intended to substantially bridge the gap between the needs and resources of the local bodies.

(b) Specific purpose grants: These grants which are tied to the provision of certain services or performance of certain tasks.

(c) Statutory and compensatory grants: These grants, under various enactments, are given to local bodies as compensation on account of loss of any revenue on taking over a tax by state government from local government.

Well, this was a small insight into local bodies, if you have any concerns... feel free to ask a question.

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Next Stop: Financial Administration of Local Bodies.

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