It was midday when Anish and I reached Karon, a block headquarter in Jharkhand, 45 km south of the district headquarter, Deoghar. We were part of a social audit team, scrutinising the implementation of the National Rural Employment Guarantee Act in five panchayats of the Karon block.

Far from the mad rush of Delhi, it seemed that time had stopped here -- a couple of mithaiwalas (sweetmeat sellers) displaying jalebi and balushai (Indian sweets), drowsy sellers in their grocery stores and a few urchins playing on the narrow street welcomed us to Karon.

However, it was business as usual in the Deoghar-Jamtara Central Cooperative Bank, our main destination. While we were talking to the bank manager, a young man accompanying an old lady interrupted us as he wanted to withdraw the widow's pension that his mother was supposed to receive that day. It appeared that they were chasing this dream for some time now, but it was denied once again, because the authorising letter from the block office was not written on a foolscap paper!

As we stepped out of the bank, a couple of villagers surrounded us. They were under the impression that a team from Delhi was investigating the bank's activities and had many stories to tell us.

The recent drive by the government to introduce the NREGA wage payments through banks and post offices has to be understood against this backdrop. This policy was put forward as a necessary step to tackle corruption because it separates payment agencies from the implementing agencies. This was prioritised to such an extent that a ministry of rural development circular (dated January 21, 2008) instructed: 'Opening of bank and post office accounts of all the NREGA beneficiaries must be done before April 1, 2008,' that is within a period of two months. The number of new bank accounts opened during this period became a yardstick for measuring the success of this initiative.

It was hailed as a commendable effort, a reflection of a dynamic new India. However, somewhat inconveniently, a recent social audit in Deoghar, and news from other states like Rajasthan, Uttar Pradesh and Orissa, revealed that this new policy was not faring as well as the ministry had expected. In fact, they indicated that instead of stamping out corruption, the policy was in danger of becoming a new breeding ground for corruption. This left us -- unsuspecting commoners -- to wonder what went wrong with the policy which was passed off as another success story by our policy makers?

Let's get back to Karon. During our audit, we identified two distinct patterns of irregularities involving bank payments.

In Karon, we met a number of labourers who claimed to have worked for various NREGA projects but were paid in cash while the official records showed that all wages had been paid through bank accounts. Bank ledgers also confirmed the official line, but revealed a curious pattern of transaction.

It is not difficult to believe that a labourer would withdraw the entire sum deposited in his account a day before, but why should one withdraw Rs 100 on the third and Rs 200 on the fourth, while exactly the same amounts were deposited on first and second respectively?

The reason became clear when we met the account holders -- it appeared that they had not worked in the projects for which their accounts were debited, they had never signed any withdrawal slips and never been to the bank after opening an account. Little wonder their passbooks were completely blank and the relevant information was not recorded on their job cards.

The jigsaw puzzle was now in place -- contractors pay the labourers Rs 50-70 per day in cash, well below the stipulated minimum wage rate (Rs 86.40 per day), but the cheques are drawn (often with inflated number of working days) in favour of those whose accounts are entirely operated by the contractors and bank officials. Sometimes, these 'phantom' labourers also become unsuspecting accomplices of the contractors, for a small sum of money they let the contractors operate their accounts.

There was clear evidence of other irregularities as well, contractors or bank officials hoarding labourers passbooks, banks charging an extra fee for opening NREGA accounts (it is supposed to be free in banks and to cost Rs 60 in post offices). It is evident that in Jharkhand, or at least in Karon, a cartel of contractors and bank officials (in Badiya Panchayat, we found that the contractor is none other than the son of the local postmaster) has defeated the very purpose of separation of responsibilities. Introduction of bank payment has only added a new claimant of kickbacks from the NREGA funds.

Even in places where banks are not directly involved, a new layer of bureaucratic/ administrative procedures has made the labourers increasingly dependent on the middlemen. Bank payments are regularly delayed: We found that, in Jharkhand, a two-month delay in clearing a cheque is quite normal, although the NREGA operational guidelines stipulate that payments have to be made within 15 days. In some cases, labourers and the cheque-issuing authority have accounts in different banks, leading to an obvious hold-up.

However all the bank officials we met were unanimous in pointing to the shortage of staff as the main culprit (just to give an idea, the average number of employees per office in the State Bank of India [Get Quote] has decreased by almost 25 per cent in the last five years). Ignoring these ground realities, the NREGA guidelines advised banks to undertake special awareness activities to familiarise workers with banking procedures -- this at a time when they were finding it difficult to cope up with even their regular work. In such a scenario, it should not come as a surprise that some middlemen took full advantage of this situation.

One wonders why bank payment was introduced in such a hurry, without proper planning, proper safeguards and proper guidelines. This is particularly perplexing because the system of bank payments was not introduced in a vacuum -- it was replacing the existing practice of cash payments. Moreover, even a quick look at the NREGA guidelines on bank payments will reveal a complete lack of safeguards, unlike those involving cash payments: In case of the latter, muster rolls to be read aloud, wages have to be paid in public, etc.

Why did our planners in the ministry of rural development start chanting the magic mantra of separation of responsibilities while completely ignoring the logic of checks and safeguards? For us casual observers it could be a mystery-drama but we should not forget that the victims here are rural labourers, for most of whom the NREGA is a vital lifeline. As for the planners, let's give them their due credit: This is the age of showbiz, why should policies be any different?

Postscript: The district commissioner, Deoghar, has filed an FIR against the manager and the chairman of Central Cooperative Bank, Karon.