CHAPTER-IX
STATUTORY AUDIT
Comptroller and Auditor-General of India 901 - 908
Railway Accounts Separation from Audit 909
Director of Railway Audit 910 - 915
Communications, from Audit 916
Disposal of Audit Objections 917
Audit Notes and Inspection Reports 918
Replies to Inspection Reports 919
Disagreement between the Accounts Officer and the Chief Auditor 920
Audit Objections and Provisional Payments 921
Rectification of mistakes in Accounts disclosed by Audit 922
Audit Report-Railways 923 - 928
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CHAPTER IX
STATUTORY AUDIT
901 Comptroller and Auditor General of India.- Comptroller and Auditor General
of India is an authority sui generis created by the Constitution of India for conducting audit of
the accounts of the Union, the States and the Union Territories. His functions are derived in the
main from Articles 149 to 151of the Constitution and these have been further defined by the
Comptroller and Auditor General's (Duties, Powers and Conditions of Service) Act-1971 which
came into force from 15th December, 1971 and the amendment Act, 1976 which came into force
from 1st March, 1976, This enactment lays down in detail his duties, powers and conditions of
service. According to these Acts his duties are-
(a) to audit all expenditure from the Consolidated Fund of India and of each State and of
each Union Territory having a Legislative Assembly and to ascertain, whether the moneys shown
in the accounts as having been disbursed were legally available for, and applicable to, the service
or purpose to which they have been applied or charged and whether the expenditure conforms to
the authority which governs it;
(b) to audit all transactions of the union and of the States relating to Contingency Funds
and Public Accounts
(c) to audit all trading, manufacturing, profit and loss accounts and balance sheets and
other subsidiary accounts kept in any Department of the Union or of a State and in each case to
report on the expenditure, transactions or accounts so audited by him.
902 It is also the duty of the Comptroller and Auditor General to audit all receipts which
are payable into the Consolidated Fund of India and of each State and of each Union Territory
having a Legislative Assembly and to satisfy himself that the rules and procedures in that behalf
are designed to secure an effective check on the assessment, collection and proper allocation of
revenue and are being duly observed and to make for this purpose, such examination of the
accounts as he thinks fit and report thereon.
903 He also has authority to audit and report on the accounts of stores and stock kept in
any department of the Union or of a State.
904 He has, in connection with the performance of his duties, authority-
(a) to inspect any office of accounts under the control of the Union or of a State,
including treasuries and such offices responsible for keeping of Initial or subsidiary accounts,
as submit accounts to him
(b) to require that any accounts, books papers and other documents which deal with or
form the basis of or are otherwise relevant to the transactions to which his duties in respect of
audit extend, shall be sent to such place as he may appoint for his inspection ;
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(c) to put such questions or make such observations as he may consider necessary to the
person in charge of the office and to call for such information as he may require for preparation
of any account or report which it is his duty to prepare.
905 The Act of 1971 read with amendment Act, 1976 also contains provisions about
audit by Comptroller and Auditor General of authorities and bodies substantially financed from
the revenues of the Union or States or the Union Terriories. It also specifies his functions in the
case of grants or loans to outside authorities or bodies. It also provides for entrustment to him of
audit of accounts of authorities or bodies by the President, the 'Governor of a State or the
Administrator of a Union Territory subject to certain conditions. His duties and powers in
relation to audit of the accounts of Government companies are defined in the Companies Act
1956. He conducts audit of the accounts of Corporations established by or under law made by
Parliament in accordance with the provisions of the respective enactments.
906 Under Article 150 of the Constitution, the accounts of Union and State Governments
shall be kept in such forms as the Comptroller and Auditor General of India may, with the,
approval of the President, prescribe. Article 279 of the Constitution provides that the
Comptroller and Auditor General of India shall ascertain and certify the "net proceeds" of any
tax or duty collected by the Government of India but which are assigned partly or in full to the
States in terms of Part XII of the Constitution of India. (Taxes on Passenger fares collected by
the Railways, for instance).
907 His oath of office requires him to uphold the Constitution and the laws and to
discharge his duties without fear or favour, affection or ill-will. The Constitution safeguards the
independence and freedom of the Comptroller and Auditor General in a variety of ways. Article
148 of the Constitution provides that the Comptroller and Auditor General shall be appointed by
the President under his hand seal and shall only be removed from office in like manner and on
the like ground as a Judge of the Supreme Court. It also provides that he would not be eligible
for any other office either under the Government of India or the Government of any State and
that the administrative expenses of his office, including all salaries, allowances and pensions
payable to or in respect of persons serving in that office, shall be charged, upon the Consolidated
Fund of India.
908 The scope and extent of audit are determined by the Comptroller and Auditor
General at his discretion.
909 Railway Accounts- Separation from Audit.-- As stated in para 104, the process of
separation of accounting and auditing functions on the Railways was completed in 1929 as a
sequel to one of the recommendations of the Acworth Committee. Under this arrangement, the
Comptroller and Auditor-General has been relieved of the responsibility for compiling the
accounts of Railway department. His responsibility for statutory audit of the accounts of Indian
Railways is the same as that for the other departments of the Government of India.
910 Director of Railway Audit.-The responsibility of the Comptroller and Auditor
General for audit of Railway accounts is discharged through the Additional Deputy Comptroller
and Auditor-General of India (Railways) and ex-officio Director of Railway Audit, who
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conducts the audit on behalf of and under the direction of Comptroller and Auditor General. He
is assisted by Chief Auditors posted at head-quarters on each of the zonal Railways and a Chief
Auditor for the Railway Production Units.
911 One important object of statutory audit for the Railways is to ensure that the system
of accounts adopted and used in the Accounts Department of the Railways is suitable and that the
check by the internal check mechanism is sufficient, that the accounts are maintained and the
checks applied with accuracy and that arrangements exist in the Railways Accounts offices to
ensure attention to the financial interests of Railways. This object is secured by a test check
applied to the vouchers and connected accounts records of the Accounts Department and by
inspections on the spot of initial records and documents in the offices in which the transactions
originate. The Railway officers should afford all facilities to statutory Audit officers in the
discharge of their duties.
912 The Additional Deputy Comptroller and Auditor-General of India (Railways), and
ex-officio Director of Railway Audit, is responsible for scrutinising the adequacy and suitability
of all instructions governing compilation of the accounts of Railways and the internal check
procedures, whether those instructions be in the form of Codes or otherwise. He is to
satisfyhimself that such instructions are consistent with the relevant statutory rules and facilitate
conduct of an effective audit thereof. He is also responsible for scrutinising the Railway portion
of the Finance Accounts of the Union Government including Annual Review of Balances
Compiled by the Railway Board (Accounts). He also examines the Appropriation Accounts
prepared by the Railway Board for certifying their accuracy and prepares the Audit Report
(Union Government-Railways) of the Comptroller and Auditor – General of India.
913 The Additional Deputy Comptroller and Auditor-General (Railways), and ex-officio
Director of Railway Audit, is responsible for audit of-
(i) sanctions, having financial effect, accorded by Government of India other than
those pertaining solely to an individual railway or railway accounts office
(ii) sanctions regarding financial rules and general orders issued by the President
which are not of a general nature but are applicable exclusively to the Railway Department ;
(iii) tenders invited and accepted by the Railway Board for purchase of materials; and
(iv) accounts maintained in the office of the Railway Board (Accounts Branch).
914 The Chief Auditor of a Railway is responsible for detailed audit of the accounts of
that Railway and for conducting inspections of the records of the various offices of that
Railway. This responsibility extends to all expenditure and receipts of that Railway whether
under construction or open to traffic and to the account of stores, stock and manufacture. He
audits interalia (1) the financial sanctions, pertaining to his Railway and offices under his audit,
accorded by the various Railway authorities, (2) allocation of estimates sanctioned by those
authorities, (3) general orders issued by the General Manager, (4) all sanctions pertaining to local
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traffic, (5) sanctions issued by the Railway Administration relating to interchange traffic between
two railways.
915 The cost of Railway audit is borne by the Railway revenues and is debited to the
minor head 'Statutory Audit including Pensionary charges etc.' under the Major heads "345-
Indian Railways-Policy Formulation Direction Research and other Miscellaneous
Organisations". The cost of the Railway audit wing of the office of the Comptroller and Auditor-
General is treated as charged expenditure in accordance with Article 112 (3) of the Constitution.
Payments of all charges relating to Railway audit offices are made by the Railway Accounts
Officers (of the respective Railways) who function as treasury officers and accounting officers
for expenditure of the Railway Audit Department and exercise such checks as are prescribed
from time to time by the Ministry of Railways in consultation with the Additional Deputy
Comptroller and Auditor-General of India (Railways).
916 Communications from Audit.-Ordinarily, the results of statutory audit are
communicated through-
(1) Specific reports of the more important and serious irregularities discovered in the
course of audit of accounts and departmental offices and station records.
(2) Audit notes detailing minor irregularities discovered in the course of audit of
accounts office records.
(3) Inspection reports showing the results of audit of the initial records of executive
offices and stations.
Note. A record of petty objections not formally raised is also maintained by Chief Auditors and
sent periodically, as may be arranged, to the Financial Adviser and Chief Accounts Officers
for scrutiny and review.
917 Disposal of Audit Objections.-All audit objections and notes should be promptly
attended to by the Accounts Officer. Audit objections may either relate to matters which can be
disposed of by the Accounts Officer himself without reference to the executive or to matters
which can be elucidated only by the executive. In the former case, no reference should
ordinarily be made by the Accounts Officer to the executive except to advise disallowances, if
any, arising out of the audit objections. For the latter, the Accounts Officer should arrange to
elicit necessary information for disposal of the audit objection; and if in his opinion, the audit
objection should be upheld, he should arrange to see that suitable action is taken. The Accounts
Officer should generally take the same action on defects and irregularities brought to notice by
the Chief Auditor as he would take if they had been discovered in the course of internal check
exercised in his own organisation.
918 Audit Notes and Inspections Reports.-An inspection report consists of two
parts, Part I dealing with the more important matters and Part II dealing with the rest, containing
minor routine matters. Audit notes detailing the results of monthly test-audit similarly consists
of two parts and should be dealt with by the departments and accounts officers without delay.
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The final disposal of Part II of the audit notes and inspection reports, whether on the
accounts or executive offices, rests with the Accounts Officer, and no formal reply to the Chief
Auditor is necessary. The disposal of such audit notes and inspection reports should, however,
be made available to the Chief Auditor.
Replies to Part I of inspection reports and audit notes and specific reports on the
more important irregularities should be sent to the Chief Auditor as soon as possible showing
clearly the action taken thereon.
A record of the specific reports, audit notes Parts I and II and inspection reports, Parts I
and II received from audit and dealt with or outstanding should be kept and reviewed
periodically to ensure their prompt disposal. The connected records on which objections have
been raised should not be destroyed till the objections are settled.
919 Replies to Inspection Reports :- Replies to inspection reports of executive
offices should be send by those offices to the Accounts Officer. In scrutinizing them, the
Accounts Officer should call for further information, if necessary, and consult the head of the
division or department, where desirable, before giving a reply to the Chief Auditor. The
Accounts Officer should, in giving replies to the communications to the Chief Auditor, act in
close collaboration with the administrative authorities concerned, so that the information given to
audit may be an authoritative statement of facts on behalf of the Railway Administration, and
there may be no possibility of any dispute at a later stage.
920 Disagreement between the Accounts Officer and the Chief Auditor - If the
Accounts Officer is unable to accept the views of the Chief Auditor, he should, if requested by
the latter, make a reference to the General Manager. When making such a reference, the
Accounts Officer should send a verbatim copy of the Chief Auditor's objection and a statement
of his own views. The General Manager should be requested to obtain the orders of the Railway
Board if the matter is beyond his Competence to decide. However, when the question is one of
accounts procedure, the matter should be referred to the Railway Board.
921 Audit Objections and Provisional Payments.- If the Chief Auditor objects to any
payments of a recurring nature and it is considered necessary to continue them pending
settlement of the objection, they may, if the objection is not on ground of violation of a law or a
statutory rule, be made provisionally and subject to recovery, the payee being so informed.
Unless there are strong reasons to the contrary in the view of the Financial Adviser and Chief
Accounts Officer and the General Manager, if the audit view appears to be prima facie
acceptable to the Accounts Officer, he should act upon the audit objection provisionally pending
receipt of formal orders from higher authorities, if necessary. Under this procedure, where it is
considered necessary to continue the payments, these should be treated as provisional and action
taken to get the objection answered satisfactorily as early as possible.
922 Rectification of mistakes in Accounts disclosed by Audit.-If the audit scrutiny
discloses any inaccuracy in the accounts compiled by the Accounts Officer the following
procedure, which is equally applicable to mistakes detected in- internal check, should be adopted
:-
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(1) If the accounts of the year have not been finally closed the mistake should be
rectified through the accounts of the month in hand.
(2) Mistakes and misclassifications noticed after the March accounts have been
closed should be rectified before the Capital & Revenue Accounts and Finance Accounts are
prepared and intimated to the Railway Board by the first week of August either through a
revised account or through corrections to accounts already submitted.
(3) Mistakes and misclassifications noticed after the submission of the Capital &
Revenue and Finance Accounts should be dealt with in accordance with the following rules
:-
(a) No correction need be made, if the item properly belongs to one revenue
or service head but is wrongly classified under another, a suitable note against the original
entry being sufficient. If, however, the error affects the revenue or expenditure of another
railway, or a branch line company or another Government Department or a capital head
outside the Revenue Account or a debt or remittance head, it must be corrected.
(b) If the corrections, or transfers affect capital major heads, unless they affect
the accounts of different Governments or represent readjustment of less important
misclassifications of a previous year, they should usually be effected by altering the
progressive figure of capital outlay without financial adjustment i.e. , without passing the
debit and credit entries through the accounts of the year’s financial transactions. This would
prevent unnecessary inflation of the current year's accounts and the voting of grants which
the inclusion of the correcting entries in the current accounts would otherwise involve.
(c) If the error affects a debt or remittance head, the procedure should be as follows: -
(i) Item taken to one debt or remittance head instead of another:- The correction
should be made by transferring it from the one to the other. Such corrections
affecting the heads for which grants are obtained should be made as plus credit or
minus credit under the heads concerned, instead of as minus debit or plus debit.
(ii) Item credited to a debt or remittance head instead of a revenue head, or debited to
a debt or remittance head instead of to a service head.-The correction should be
made by transferring it to the head under which it should originally appear.
(iii) Item credited or debited to a revenue head instead of to a debt or remittance head-
The correction should be made by minus crediting or minus debiting the revenue
head and crediting or debiting the proper head.
(4) If the rectification of a mistake would lead to an excess over a grant or grants voted
by the Parliament or an appropriation sanctioned by the President or to a considerable change
in the dividend payable during the year to general revenues, the orders of the Financial
Commissioner, Railways must be first obtained.
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923 Audit Report-Railways.-The Additional Deputy Comptroller and Auditor-
General of India (Railways) and ex-officio Director of Railway Audit is responsible for
preparation of the Report of the Comptroller and Auditor-General of India, Union Government
(Railways) which also includes comments on the Appropriation Accounts of Railways compiled
by Ministry of Railways (Railway Board).
924 All important cases coming to notice of Audit during inspections or regular audit
which, in the opinion of the Chief Auditor, merit inclusion in the Report of the Comptroller and
Auditor-General are, ordinarily, brought to the notice of the Railway Administrations through
special letters, notes of objection or factual statements issued to the Heads of
Departments/Financial Adviser and Chief Accounts Officers by the Chief Auditors of the
Railways. The Railway Administrations should take up with promptitude the scrutiny of the
facts brought out therein and send their replies to the Chief Auditor within the time prescribed
for the purpose. Since these special letters, factual statements, etc., form the basis of the material
for the Report of the Comptroller and Auditor General, the Railway Administrations should deal
with them at a sufficiently high level and bring out their point of view in a convincing manner
so that the Chief Auditors may have the full presentation of the Railway's case before they
proceed to prepare a draft paragraph for incorporation in the Audit Report.
925 The Chief Auditors sends the draft paragraphs to the General Manager. He also
sends simultaneously advance copies of the draft paragraphs with connected correspondence, to
the Financial Adviser and Chief Accounts Officer, the Head of the Department concerned, the
Additional Deputy Comptroller and Auditor-General of India (Railways) and the Director
(Accounts), Railway Board to facilitate prompt action and detailed examination of the points
brought out in the draft paragraph. The General Manager should send the reply to the draft
paragraph to the Chief Auditor, duly approved by the Ministry of Railways,(Railway Board),
within eight weeks, simultaneously endorsing copies to the Additional Deputy Comptroller and
Auditor-General of India (Railways), and Director, Accounts (Railway Board). To enable the
Railway Board to approve the draft reply prepared by the Railway Administration, the General
Manager should furnish the following additional information to the Railway Board along with
the proposed reply to draft paragraph. :-
(i) A history of the case with copies of relevant correspondence not covered in the Chief
Auditor's letter.
(ii) Sentence-wise comments on the draft para specifically verifying /correcting the facts
and figures quoted therein.
(iii) A chronological summary of the case where there has been unusual delay in dealing
with the subject matter.
(iv) Remedial action called for or taken to avoid similar cases in future.
(v) Disciplinary aspects where individual lapses have been brought to light.
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Any aspects which the Railway Administration, may wish the Chief Auditor to consider
before sending the final reply should, as far as possible, be settled by personal discussions so that
the time limit may not be exceeded.
926 Draft paragraphs on matters arising from the scrutiny of Railway Board's
contracts, schemes and sanctions etc., are issued by the Additional Deputy Comptroller and
Auditor-General of India (Railways) addressed to the Railway Board. In such cases the material
which is required to be furnished by the Chief Auditors of Railways to the Additional Deputy
Comptroller and Auditor-General of India (Railways) should be vetted promptly by the Financial
Adviser and Chief Accounts Officers of Railways, when they are requested to do so. Enquiries,
if any, made by the Additional Deputy Comptroller and Auditor-General of India (Railways) for
further information should be given high priority and, as far as possible, such information should
be supplied promptly to the Chief Auditor by the Railway Administrations duly vetted by the
Financial Adviser and Chief Accounts Officer for onward transmission to the Additional Deputy
Comptroller and Auditor-General of India (Railways). The Additional Deputy Comptroller and
Auditor-General of India (Railways) will send the edited paragraphs to the Railway Board for
verification of facts and clarification on any point which the Railway Board may like to give
before the paragraph is finalised by the Additional Deputy Comptroller and Auditor General of
India (Railways) for inclusion in the Report. A time-limit is usually specified within which the
Railway Board are expected to complete the factual verification or offer their comments on these
revised/edited paragraphs. These revised paragraphs should, on receipt by the Railway
Board/Railway Administration, be scrutinized promptly with utmost care as it is not possible to
correct any factual inaccuracies in the draft paragraphs at a later stage.
927 The Report of the Comptroller and Auditor General of India is presented to the
Parliament, generally during the Budget session, where it is taken up for consideration by the
Public Accounts Committee consisting of members of Lok Sabha and Rajya Sabha. The
Committee obtains personal evidence of senior officers of the Railway Board in respect of the
various items in the comptroller and Auditor General’s Report. The results of the deliberations of
the Public Accounts Committee are published in the form of Reports which are laid on the table
of each House of Parliament and forwarded to the Ministry of Railways (Railway Board). These
Reports contain the recommendations of the Public Accounts Committee for implementation by
the Ministry of Railways.
928 The recommendations made by the Public Accounts Committee are considered by
the Ministry of Railways. (Railway Board), and other Ministries of Government of India where,
some of the observations and recommendations concern them also, and notes on action taken on
the Public Accounts Committee's recommendations are submitted to the Committee, along with
any comments which Audit department may have to make on these notes, within six months of
the date of presentation of the Reports.
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