Department of Rural Development - Northern Province

Circular No: 03/2017

Reference: NP/19/06/P1/Circular/2017/03
Date: 19.07.2017

To: District Rural Development Officers, All Divisional Rural Development Officers / Development Officers, Department of Rural Development, Northern Province.

Subject: Maintenance of Bank Accounts by Village and Women's Rural Development Societies

Background

Currently, societies are operating their financial activities by opening various types of accounts in multiple banks. Due to this, many societies are functioning without adhering to Section 12(a) of the Society By-law.

Legal Provision

According to Section 12(a) of the Society By-law, a society must maintain a savings account in only one government bank located in close proximity to its division for:

(i) If participating in revolving fund activities, a separate savings account for that purpose; and
(ii) A separate savings account for the society's general activities (contract work, society welfare, society savings, etc.).

Therefore, it is confirmed that a registered society must maintain either one or two savings accounts in only one approved government bank within its division.

Required Compliance

Accordingly, all societies must review their current banking practices and ensure compliance with this requirement. Societies that have opened multiple accounts in different banks must take immediate steps to close unnecessary accounts and consolidate their funds into the permitted number of accounts (maximum two) in a single approved government bank.

Procedure for Changes

If valid reasons exist for making changes regarding the above matters, a written request must be submitted to the Director in advance, and decisions regarding banking operations shall be made only after obtaining proper approval.

Detailed Explanation

Why This Guideline is Necessary

The proliferation of multiple bank accounts across different banks has created several problems:

• Difficulty in monitoring society funds by Rural Development Officers
• Increased administrative burden on society office bearers
• Risk of funds being scattered and difficult to track
• Complications during audit processes
• Potential for mismanagement or misappropriation
• Non-compliance with the established by-law provisions

Permitted Account Structure

Under this circular, societies may maintain:

Key Requirements

1. Single Bank: Both accounts (if two are maintained) must be in the same approved government bank.
2. Proximity: The bank should be located in close proximity to the society's division.
3. Government Bank Only: Accounts must be maintained in approved government banks, not private banks.
4. Savings Accounts Only: Accounts must be savings accounts, not current accounts or other types.

Rationale

• Simplified Monitoring: Rural Development Officers can more easily monitor society finances.
• Reduced Administrative Burden: Society treasurers manage fewer accounts.
• Audit Compliance: Easier for auditors to track all transactions.
• Fund Consolidation: Prevents scattering of funds across multiple institutions.
• Better Financial Control: Concentrated funds are easier to manage and protect.

Action Required by Societies

1. Review all existing bank accounts currently maintained.
2. Identify any accounts not in compliance with this circular.
3. For societies with multiple accounts in different banks:
   • Select one approved government bank for all society banking.
   • Close all accounts in other banks.
   • Transfer all funds to the selected bank.
   • Ensure either one savings account or two (revolving + general) as applicable.
4. Update bank mandate forms with correct signatories as per by-law.
5. Inform the Rural Development Officer of the consolidated banking arrangements.

Process for Seeking Exceptions

If a society believes there are valid reasons to maintain a different banking arrangement, the following procedure must be followed:

1. Prepare a written request explaining the exceptional circumstances.
2. Submit the request through the Rural Development Officer.
3. Forward through the District Rural Development Officer.
4. Await written approval from the Director before making any changes.
5. Only after receiving approval may the society proceed with alternative arrangements.

Penalties for Non-Compliance

Societies that fail to comply with this circular may face:

• Difficulties during audit processes
• Qualified audit reports
• Suspension of fund releases
• Potential deregistration proceedings
• Action against office bearers for by-law violations

Benefits of Compliance

• Streamlined financial management
• Easier audit clearance
• Better oversight by Rural Development Officers
• Reduced risk of financial mismanagement
• Compliance with legal requirements
• Simplified reporting and monitoring

Implementation Timeline

All societies are expected to achieve compliance with this circular within a reasonable timeframe. Rural Development Officers should assist societies in their divisions to regularize their banking arrangements and report on compliance status.

S. Srijeyanthan
Director
Department of Rural Development
Northern Province

Distribution List

1. Deputy Secretary, Northern Province - for information.
2. Secretary, Ministry of Rural Development, Northern Province - for information.
3. Relevant Government Agents - for information.
4. Assistant Auditor General, Northern Province - for information.
5. Deputy Chief Auditor, Northern Province - for information.
6. All Divisional Secretaries - for information and necessary action.
7. All Divisional Federations and Societies - for information and implementation.

Summary for Society Office Bearers

What you need to do:

• Check how many bank accounts your society currently has.
• If you have accounts in different banks, choose ONE government bank to keep all accounts.
• Close extra accounts and transfer all money to your chosen bank.
• You may have either:
  • ONE savings account for everything (if no revolving fund), OR
  • TWO savings accounts in the SAME bank (one for revolving fund, one for general activities).
• If you think you need a different arrangement, write to the Director for permission first.

Remember: Following these rules helps protect your society's money, makes audits easier, and keeps your society in good standing with the Department.

This circular supersedes any previous inconsistent instructions and comes into effect immediately.