The topic “Crisis of Fund Management” consists of three important words -Crisis,fund and management. Now, let me conceptualise the term “fund” first.
(1) Fund : The term “fund” is defined differently in different topics of financial Management.The term “Fund, used in working capital management can not be construed as an equivalent to the fund used in fund flow statement for financial statement analysis. The term fund has been used to indicate the quantum of liquid cash available at any point of time either in iron-chest or in bank account as the case may be. It is true that higher the liquidity, lower the risk and obviously lower the profit as profitability and risk are corelated. Some relaxation has been made by including the inventory or value of stock into the fund.
(2) Management : The fund management and cash management are not the same thing. The main focus of Cash management is to receive and utilise the cash in the befitting manner in Govt Undertakings- this aspect is well known even to be a layman. Usually, a budget is prepared and it is approved by the Govt. The Expenditure is incurred,bills received,it is passed for payment and the payment is made through Reserve Bank of India. The Govt accounts are not Constitutionally supposed to accrue interest. That is why it does not matter whether the idel cash is kept in current Account or in savings account or in short term fixed deposit. What is most important in this case is that the Govt should get the money as and when approached. This fund management technique is mostly imported by the PSUs and the autonomous body as most of the Heads of those organisations belong to the bureaucracuy of the Govt. On Analysis, it may be seen that the PSUs and autonomous bodies are loosing crores of rupees for this faulty cash management system or fund management system.
(3) Crisis : Slight touch is evident as to the crisis of fund management surfaces during the fund management in PSUs. The basic Crisis generates in the suystem itself. It is seen from the financial reports,balance sheet,statement of accounts or budget speech that considerably, a larger quantum of idle cash is lying in current Account or in iron chest of PSUs for years together without earning any interest thereof though the quantum of interest earned could have solve reasonably the problem of shortage of fund in the PSUs.
Another crisis is revealed in the management of retained earnings. It is interesting to note that some Central Govt Undertakings are not maintaining the Commercial Accounting procedures so far the treatment of Depreciation fund is concerned. In some cases,it is revealed that though Depreciation is charged in Profit & Loss Account, the same is not being invested or utilised in a well -stipulated way so that the accumulated sum can jolly well meet a bigger portion of demand for fund for replacement of plants and machineries of the PSU’s are going to be out of order,antidated and obsolete. In some cases the capacity is reduced to nil, operational and maintenance expenses are going high. The management is equivocal for modernisation but the fund created by charging against the Profit & Loss A/c can hardly be available at the nick of time. This simply speaks the crisis of fund management arising out of non-professional fund management.
The third point of crisis is noticed in lack of proper store management and the unwillingness to realise the receivables at or before the expiry of Credit period.As a matter of fact,most of the PSUs are to work against advance.In this case the net working capital is negative(-) as CL > CA but in practice, it is seen that the position is reverse. Most of the PSU are not suffering from order to supply or manufacture but they are suffering from inadequate production and lesser marketability. This has been aggravated by the high overhead expenditure, mostly because of overtime allowances and existances of large nos of high salaried persons in the top level. In this way, if i go on writing differnt facets of crisis, the work will be voluminous in nature. So to concentrate on the topic we have to find out the core of crisis.
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