WEL COME

TO
Training Session on
Audit by AG
& its
Compliance

Concept of Audit

The concept of public sector audit is embedded in the Lima Declaration of Guidelines on Auditing
Precepts as adopted by the delegates in October 1977 at the IX INCOSAI in Lima. This concept is also
adopted by CAG & Government of Odisha in their Audit Manuals/Guidelines.
Audit is not an end in itself, but an indispensable part of a regulatory system whose aim is to reveal
deviations from accepted standards and violations of the principles of legality, efficiency, effectiveness
and economy of financial management early enough to make it possible to take corrective action in
individual cases, to make those accountable accept responsibility, to obtain compensation, or to take
steps to prevent or at least render more difficult, such breaches’.
Mandate of CAG Audit

• As per Duties , Powers and conditions of Services (DPC) Act 1971 enacted under Article 148 and
149 of the Constitution of India, the C&AG of India is empowered to conduct audit of accounts
of and the transactions relating to Consolidated Fund, Contingency Fund and public
accounts of the Union, States and UTs including grants-in aid, Government Companies &
Corporations under different sections of the DPC Act.

• In pursuance to Sec 23 of DPC Act, CAG issued Regulations on Audit and Accounts 2007 which
explains the type, manner, scope, extent and procedures for conduct of audit by CAG of India.

Mandate of CAG Audit: Contd.

• Under Article 151 of the Constitution of India, the Reports of the CAG relating to the accounts of
the Union shall be submitted to the President of India and accounts relating State to the
Governor of the State, who shall cause them to be laid before Parliament or the respective
State Legislature as the case may be.

• Through conducting audit and preparation of Audit Reports as CAG is constitutionally

responsible, Audit secures the accountability of the Executive to Legislature and promotes
a sound financial system in our parliamentary democracy (Accountability).

Audit as an aid to Government

• Audit is one of the instruments of financial control. It is therefore the duty of Audit to provide
 government with all possible assistance with in the sphere of functions of financial matters.

• The function of audit is not mainly to point out mistakes only but more about
and suggest for improvement in system.
to rectify defects

• Ordinarily Audit is not a member of any management committee and suggestion is conveyed as
Audit advice or recommendation (Case studies: Audit advice note by CAG on XIX CWG at Delhi)

Types of Audit

• Audits were conducted under different nomenclatures like: Regularity audit, Thematic Audit, Chief
Controlling Officers (CCO) based Audit, Department Centric Audit, District Audit, Man- power
Audit, Value for Money Audit, System Audit, and Efficiency-cum- performance Audit, Performance
Audit etc. Some times it creates confusion with Audited entity.

• CAG broadly conducts only three types of Audit i.e. Financial Audit, Regularity (Compliance)
Audit and Performance Audit. Excepting Financial and Performance Audit, all audits are
conducted under Regularity Audit including Thematic Audit

Principles of Financial Audit

• Provide unbiased, impartial and objective assessment of financial activities and financial position
of the Government;

• Accounts & Statements are properly prepared, complete in all respects and presented with all
disclosures;

• Accuracy & Timeliness of the books of accounts;

• In respect of Appropriation Accounts, factual expenditure, its legal availability, re-appropriation,

surrender of funds, unusual & significant variations are examined.

General Principles in examinations of Regularity Audit(RA)

Legality: Audit is to examine that the provisions of the Constitution, Acts, Rules, Regulations, Orders and
Instructions are complied and all financial rules and orders issued by the Executive authorities
affecting expenditure are not inconsistent with the above. Case study: transfer of mortgage
rights by IDCO
Adequacy: Adequate and effective control exists over Government receipts, expenditure,, assets,
liabilities with sufficient safeguards against loss due to wastes, misuse, mismanagement, errors,
frauds and other irregularities

Principles of RA: Contd.

• Transparency: Application of ules, regulations, orders, instructions, decisions are clear and free
from ambiguity and promote observance of probity in decision making (Case study: Allotment
of land by GA Deptt.)

• Propriety and prudence: Decisions taken and expenditure made

study: Water supply to Rairangpur Municipality)
are judicious and wise (Case

• Effectiveness: Expenditure achieved the intended objectives and aims for which funds made
available. .(Case study: Construction of Check Dams under MNREGA)

Principles of Performance Audit (PA)

Provide an assessment of the achievement of an activity, programme, project, organization whether
operates economically, efficiently, and effectively. Audit is to examine:

• Whether the cost of resources used for an activity, have been

its appropriate quality (Economy).
minimised with out compromising

• Whether output is maximised for any given set of resource inputs (financial, human, physical
resources) ;or input is minimised for any given quantity and quality of output, and services
delivered timely (Efficiency);

• whether intended results as anticipated are actually achieved (Effectiveness)- (Exmp: PA on

NRHM/Agriculture/Animal Husbandry.)
Thematic Audit: Contd.
Themes/ Issues involved in provisioning health care facilities in the state

• Proper financial management of funds;

• Availability of infrastructure;

• Deployment of Doctors, specialists;

• Adequacy of support staff like Nurse, attendants, technicians etc;

• Availability of Equipment & instruments;

• Procurement of medicines &drugs.

 Principles of Thematic Audit (TA)

• Thematic Audit is a comprehensive or extensive audit of one ISSUE or THEME out of number
of issues or themes involved in execution of a scheme, project, programme or activities of one
organization;

• Like PA, it is also objective oriented audit and to assess whether intended benefit is accrued on a
particular issue or theme;

• In TA, audit is conducted as done in RA. but approach in TA involves methodologies

PA & RA
of both

Regularity Audit:
Thrust/Focus/Risk
areas under
Regularity Audit:

Audit of Planning

• Perspective Planning & Annual planning prepared. Whether in planning, deficiency in finance,
infrastructure, human resources & others properly identified and issues adequately addressed.

• Objectives clearly identified

• Quantitative & Qualitative targets fixed

• Performance indicators identified to evaluate achievements

• Data Management Information System (MIS) prepared, regularly updated and sources of data
found authentic & reliable

Deficiency in planning
Planned but not executed: Preparation of plan, a routine activity without concern to cause.
Case Study: Opening of Live Stock Aid Centres (LAC) in each PS during 2010-15. There are 6,234 GPs in
the State, out of which only 2,939 GPs have LACs prior to formulation of the PP. Target was fixed
(November 2009) to open new LACs in the rest of 3,295 GPs during 2010-15 . But by end of
March 2015, only 900 LACs were opened.
Even 900 LACs opened, only 300 Live Stock Inspectors posts sanctioned to manage LACs.

Audit of Budgetary Management

• Budget prepared realistic based on reliable information & need assessment: Aim in Budget
preparation should be to achieve as close as approximation to the actual as possible;
• Excess/ saving properly analysed;

• Savings intimated in advance;

• Requirement properly addressed in Supplementary Demand (Case study in next slide Pl.);

• Provisioning for long vacant posts not made in budget.

• Budgets are compared to actual results and deviations are followed up on a timely basis.

Budgetary Management: Contd.

Unnecessary suplementary provisions made though the expenditure was less than original provision.
In 31 Deptts during 14-15,

• Total Original Provision was 58810 crore.

• Though actual expenditure was 47493 Cr

• & led to savings of 11317 crore,

• Supplementary provisions made 2046 crore

For Exmp.H&UD Deptt-2169.30 Cr (O):1779.13 (Exp):110.63 cr (S); RD Deptt-1695.58 (O):1625.15
(E):685.63 cr (S)
Budgetary Management: Contd.
Adequate consideration is to be given to commitments. : Whether in budget or any policy decisions
announced are propogatory in nature

• Case study: New scheme Mukhya Mantri Sadak Yojana (MMSY) was introduced to provide
road connectivity to villages not covered under PMGSY. During 2014-15, fund of 150 cr was
provided but not utilised as Guidelines for the scheme was prepared by February 2015.

Audit of sanctions

• If the sanctioning authority is vested with full power, sanction accorded under the powers can
be challenged on the grounds of propriety Exmp: Sanction of cycle to Girl students in schools
out of CMRF now CM Treatment Fund)
• If the sanctioning authority is vested with powers with due regard to certain criteria, sanction
can be challenged by Audit if the disregard to criteria is regarded so serious to make the
sanction perverse;

• Sanctions for long period and permanent nature should be reviewed periodically even if necessary
by the Administrative Authority.

Audit of Fund Management: Receipts

• Adequate steps taken to get GoI funds in time;

• Reasons & responsibility for curtailment of Central fund identified

Case study: During 2007-12, the GoO was to receive 2258 cr under IAY. Due to excess carry
forward fund, unspent balance, and short release of State share, Central assistance of 2034 cr
was released after curtailment of 224 cr. Curtailment also persists on funds to DRDA, Irrigation
and many flagship programmes implemented in the state;
Fund Management: Receipts- contd

• Delay in release of State share in CSP projects & its impact on service delivery programmes;

• Long retention of public funds in Bank, PL A/c, Civil Deposit, Investment, Advance
consequentially, delivery of service delayed,
&

• Flow of funds from Govt. to District level & its drawal was regular, adequate & evenly through
out the year.
Case Study: During 2014-15, in 22 schemes like Nirmal Bharat Abhijan,Repair,renovation &
restoration etc., the entire provision (100%) of 884 crore was utilised in March 2015)

Receipts: contd

• Drawls from Treasury/on-line are made as per Bill register and taken into Cash book.

• Government Drafts and Bank Drafts are entered and en-cashed through Incoming Bank Draft
Register

• Deposit Challans, which are received from outside agencies/ persons are properly accounted and
reconciled with Bank/Treasury account ( Case study: misappropriation of fund in BDA)

• Receipts towards sale proceeds, other receipts & are properly accounted and credited into
treasury

Receipts: contd
• Recoupment of advances/ unspent balance in cash are properly accounted (Case study:
Mis-appropriation on refund of un-utilised Land Acquisition fund in Dhenkanal Collectorate)

• Printed official receipts books are serially numbered, stocked and issued for all receipts. Return of
the Used/Unused books are properly recorded;

• Collections are accounted regularly under appropriate head of accounts & Departmental receipts
are deposited promptly into Treasury as per OTC provision;

• Departmental receipts are not used for departmental expenditure

Audit of Fund Management: Expenditure

• Adequate, proper, sound system and procedures are in place to record financial transactions;

• Expenditure made under prescribing limits, under proper Head and in conformity with the
relevant provisions of Acts/rules etc.;

• Fictitious issue of Utilisation Certificates (UCs) without actual expenditure;

• Diversion of funds strictly prohibited & if necessary

sanction of the competent authority;
to other Heads, may be permitted under

Expenditure: contd.

• Paid vouchers retained properly accounted and promptly regularised with drawal from treasury;

• Unspent balance lying long may be analysed with reasons why not utilised, purpose of fund
received & possible impact for its non utilisation;

• Cash Book may be maintained as per SR.37 of OTC and other relevant Acts, Laws, instructions,
Programme Guidelines etc & all payments are made through Cash Book;

Expenditure: contd.

• Payments are made with an authorization, within the approved budget,

supporting documents & proper acknowledgement obtained;
based on the adequate

• Advance paid for bonafide purpose on proper sanction, acknowledgement & entry in Ledger and
also after adjustment of previous advance.
• Payments are made towards Salaries / Consultancy fee / Contract / Honorarium only in shape of
account payee cheque / demand draft/on-Line

• Income Tax, Professional Tax & other taxes, Cess, Duties etc are properly deducted;

Audit of Revenue Receipts

Audit of Receipts includes of the systems and procedures and their efficacy in respect of:

• identification of potential tax assesses, ensuring compliance with laws as well as detection and
prevention of tax evasion & targets achieved;(Case study: Sand source assessment in Odisha)

• prompt investigation of losses of revenue through fraud, default, mistake; including levy of
penalties and initiation of prosecutions;
Audit of Works

• Tenders have been duly invited and received;

• Time given for submission of tenders is adequate;

• Necessary earnest money has been deposited;

• comparative statement has been correctly prepared;

• Authority competent to accept the tender i.e the authority who accorded technical approval has
accepted the lowest tender or reasons for the non acceptance of the lowest tender have been
recorded.

Audit of Works Contd: Tender

• Agreements are executed in standard form incorporating Rates, conditions, limitations etc.

• time schedule & Penal provisions in case of failure to abide by the conditions in the agreement
are incorporated;

• fresh tenders are always called for where more than 6 months have elapsed between the date of
receipt of tender and its final acceptance in cases where the authority competent to accept a
tender certifies that it was not necessary to do so giving reason for the same;
 Audit of Procurement/Stores

Establishment of need procurement of store;

• proper assessment and requirement of stores, including determination of reserve stock limit;

• authorization of procurement of stores and its in a cost effective manner with the prescribed
systems and procedures; (Case study: Procurement of Bulk Milk Coolers )

• receipt, inspection, custody ,issue and accounting of stores including appropriate segregation of
duties of personnel and reconciliation of store accounts with books accounts;

• verification of physical balance periodically and reconciliation of difference without delay;

• identification of obsolete and surplus store and their disposal by way of sale or transfer to
 other units with proper accounts.

Audit of Gants-in-Aid

• Audit has to verify whether system and procedure are in place and are being complied with;

• Clear enunciation of the purpose for the sanction of Government fund;

• Proper and transparent identification and selection of persons, bodies and authorities for
Government assistance with reference to their antecedents, absorptive capacity, financial
position, and management practices;

• determination of amount of assistance and its timely releases.

• Prompt submission of UCs after expenditure incurredfor timely release of further grants (Exmp.
UCs for 20940 cr on 29170 GIA Vouchers pertaining to period 2003-04 to march 2015 is
pending for submission.)
Audit of Works Expenditure

• Audit is to see whether administrative approvals, technical sanctions and provision of funds made;

• the estimate is prepared, properly detailed and each separate item is clearly specified;

• Tenders have been called for and works awarded and contract made as per procedure the
expenditure is within the sanctioned estimate, based as recorded in Measurement Book and final
payment made after the works duly check measured

Audit of Projects/Programmes

• Targets fixed vis-à-vis achievement. If shortfall, reasons analysed &

identified;
responsibility centres

• Targeted works/programmes taken up & completed in time without time over-run & cost
over-run;

• Cases of works not completed within scheduled period, works abandoned after part execution,
works not taken up at all, were analysed, reasons identified & appropriate actions timely taken;

• Assets created taken over in time and are being maintained & used for intended purpose.
 Audit of Assets Management

• Equipment, supplies, inventory, and other assets are physically secured and periodically counted
and compared to the amounts shown by the Auditee in the verification records/registers.

• Assets records of Land and Buildings are not maintained

• Equipment, supplies, inventory and other assets are not protected.

• Verification records/registers do not exist or are not up to date.

Audit of HR Management

• Assessment of adequacy of present staff strength to meet the requirement;

• Long vacancies in different cadres affecting service delivery system; Exmp: Against requirement of
10594 Doctors as per IPHS norm, sanctioned strength is 5077 only and available is 3435

• Deployment of staff evenly made inconformity with work load & consideration of
remote & inaccessible areas;
needs in

• Capacity building exercises through training & other means to maintain quality in public sevice

• Maintenance of transparency in posting of contractual staff.

Audit of Internal Control System

• Identification of Officers & Committees entrusting responsibilities to monitor the projects/

programmes;

• Adequacy of periodical reviews, regular Report & Returns and compliance to above through timely
interventions;

• Preparation of Manuals, flow charts listing out steps in various activities for
goal attainment;
easy functioning &

• Risk areas identified & precautions taken to avoid theft, fraud, misappropriation etc;

• Lapses pointed out by Audits are promptly complied.

 COMPLIANCE ISSUES

• Compliance to audit memos during audit

• Compliance to paras in Inspection Reports (IR)/ Audit Reports (AR)

• Compliance to Draft Paras (DP)

• Compliance to PAC on CAG Audit Reports

• Compliance to PAC Action Taken Note (ATN)

• Role of Finance Department on compliance

• Constitution of Triangular Committee,

Committee, Apex Committee
Departmental Monitoring Committee, Review

Issue of Audit Memos: its compliance

• Issue of POM: Other than Requisition memos, Audit memos better known as Half- margin memos
or Preliminary objection memos (POMs) on the observation of accounts should be issued by the
Inspecting officer or under his approval

• Replies to audit memos: It is the duty of the officer in charge of office to ensure that the
particulars given in the replies to the Audit memos are correct with reference to records so
that the accuracy of facts and figures as to be included in Draft inspection/ Audi Report
(DIR/DAR) is not disputed.

• Immediate remedial action on audit observation: The officer in charge shall take immediate steps
for appropriate remedial action where ever possible so that many audit points as possible are
settled in course of audit.

Inspection Reports/Audit Reports

• The audit office shall issue results of audit through Audit notes/Inspection Reports to auditable
unit with in 6 weeks from the date of completion of audit.

• As soon as the Inspection Report is received from AG, the office should open a register in a
prescribed format and para wise observation should be serially numbered .

• The office should furnish compliance to above with in 4 weeks of its receipt.
• If final compliance is not possible, interim reply may be given indicating likely
final reply to be furnished.
date by which

Half yearly pending list of IRs & paras:

• Audit office also maintains Register of pending IRS/Paras and sends to concerned
Department and Finance Department Half- yearly pending list of objections outstanding over six
months to enable State Government an idea of pending objections against various
Departments and sub-ordinate offices there under.

• This helps Finance Department and concerned Administrative Department to review the position
in Audit Committees to furnish necessary compliance to pending paras
Issue of Draft Note & Draft Para

• Audit (AG) should communicate instances of major irregularities through a special management
letter to the Secretary of the Government concerned with a copy to Heads of the Department
for confirmation of facts and figures.

• The Department shall undertake prime facie

report to Audit confirming or denying the facts.
verification of facts and send a detailed

• On the basis of replies on Draft notes, a Draft para may be proposed and communicated to
Secretary of the department concerned and request to offer comments, observation and
explanation on it within 6 weeks from the date of letter or such other period as may be
specified.

Issue of Draft Note & Draft Para: contd.

• AG shall also offer to discuss the draft para with the Secretary at mutual convenience.

• The same procedure is also followed in respect of Performance Audit

considered as a Draft Para.
Report which is also

• After draft paras, are finalized for inclusion in Audit Report, AG shall send finalized copy of Draft
paras by name to the Secretary concerned Department and secretary Finance Department.
Follow of action on Audit Reports:

• On approval of the Audit after signature of CAG, the CAG Audit Report is submitted to FD for
making necessary arrangements for laying Report in Odisha Legislative Assembly (OLA)

• Once the Reports are placed in OLA, it becomes public and released to press for information of
 Public.

• Finance Department sends adequate number of copies to the administrative departments, Heads
of the Departments of their comments and reporting the factual position on the relevant paras
for discussion in Public Accounts Committee (PAC) or Committee on Public Undertakings (COPU)
as case may be.
Working of the PAC

• Consideration of paragraphs & selection of subjects: At the beginning of the year, PAC Secretariat
circulates among the members of the committee Appropriation Accounts, Annual Financial
Accounts and CAG Audit Reports.

• The members suggest important Audit paragraphs for discussion and AG official assist PAC in
selection of subjects/ paragraphs.

• There after, PAC asks the Government

paragraphs for discussion.
in advance to furnish the compliance to those selected

• Compliance to the paragraph as Self Explanatory Compliance Notes is forwarded

AG for vetting before discussion in PAC
by the Govt. to

Compliance by the Govt.

• Preparation of Action Taken Note(ATN): On receipt of vetting comments of Audit on Self

Explanatory Note by Govt. PAC discusses para wise & prepares PAC ATN. Till 1977, process of
examination of subject by the PAC came to an end with issue of ATN to Govt. But now, Govt. is to
intimate/ reply to PAC the actions taken on ATN including recommendation.

• Preparation of Final Report for laying in OLA: The replies so received are consolidated in the
form of Statement and after approval of Chairman, and laid in OLA with out further comments.

• This system enables Legislature as also the general public to know the Govt,’s final to the
Committee’s recommendations.
Follow up Action taken by Govt.on Audit paragraphs not selected by PAC:

• With view to ensuring enforcement of accountability of the executive in respect of all issues dealt
with in various Audit Reports, the PAC refers to the Departments concerned for furnishing
Memorandum of Self Explanatory Notes duly paragraphs contained therein with in a period of 4
months.

• The system has further been streamlined to review the remedial/corrective Action Taken Notes
vetted by Audit, on the non-selected audit paragraphs.
 Role of Finance Department in Monitoring & Compliance System:

Maintenance of a Control Register in Finance Department: A Control Register containing particulars of

Draft paras/Draft notes pertaining to each Department should be maintained to watch the progrsss
of action taken by the concerned Department.
Monitoring compliance: The Finance Department is principally responsible to monitor the compliance
to Inspection reports, Draft paras , Audit reports and the recommendation of the PAC/COPU.

Triangular Committee

• Finance department issued various instructions to constitute Triangular Committees (TC) in

the Departments with the representatives from Administrative Department, Head of the
Department and Accountant General to review the outstanding Paras/IRs for settlement.

• It may be ensured that FA/AFA from the Department is nominated to TC meeting.

• At the end of each year, administrative Department should give a report to Finance Department
stating number of IRs/Paras pending at the beginning of the year, additions and clearance during
the year and such position pending at the close of the year.
Departmental Monitoring Committee:

• Monitoring Committee has been constituted in each Department consisting Secretary of that
Department, Heads of the Department and the representative of The Finance Department to
review and monitor the progress of the follow up ,action for timely submission of
compliance to AG &PAC on IRs and CAG Audit Reports.

• A designated officer
committee.
has been nominated in each Department who is the convenor of the

Review Committee

Despite series of orders/instructions by the Finance Department, no significant improvement in

compliance to CAG Audit Reports and PAC’s ATNs and recommendations was seen.
AG proposed to constitute a committee to make periodic review of the progress of compliance and
accordingly, a Review Committee is formed by the Secretary Finance, AG or its representative and the
Secretary of the concerned Department.
This committee sits periodically to review the progress of compliance to audit reports.
Apex Committee:

• For Government as a whole, Apex Committee has been constituted under the Chairmanship of
the Chief Secretary with other members like. Secretaries of Finance Department as
Permanent member and other secretaries of water resources, Home, Panchayati Raj,
Agriculture, Revenue Departments as members with Spl. Secy/Addl Secy as Member Convenor.
• The members of the Committee will be changed by rotation and it would sit half yearly to
analyse the function of Departmental Monitoring committee and ensure compliance to AG & PAC.

Apex Committee: Contd.

• In 7th Apex committee meeting (April 2012) as reiterated in 8th Apex committee meeting (April
2013 ), a work plan for submission of replies to paras of Audit Reports & PAC’s recommendation
was prescribed.

• Secretaries of Departments were to take pro-active actions to address such issues.

• Finance department was to closely monitor the compliance.

• The chief Secretary issued instruction (April 2012) to take stringent action against non
submission of compliance to Audit/PAC. (Exmp: Present position of outstanding IRs/Paras)
Apex Committee: Contd.
Major decisions in 9th Apex Committee Meeting (5 June 2015):

• The Committee should take place once in a year;

• Compliance to CAG para as reported by AG should be submitted within 3 months;

• As reported by PAC in their 2nd meeting of 2015-16, to CAG Reports submitted in last Budget
Session should be submitted positively within 3 months;

• Departmental Monitoring Committee should be held once in two months, but where the
pendency is high, it should once in every month on a fixed date.
Apex Committee: Contd.

• FD will prepare a calendar of TC meetings to be held in different Departments having major

pendency and communicate to all concerned within a week;

• Holding of Departmental Monitoring and TC meeting by the Departments will be reviewed by FD

once in a month;

• The departments be advised to instruct all officers to take preparatory meetings to review the
compliance status before TC meetings to ensure compliance of maximum paragraphs in TC
meetings;

• In each Department, a Nodal Officer should be identified for convening TC meetings as per
 calender;

• Compliance to pending ATN on PAC reports are to be submitted with in a month.

Pending position of IRs & Paras

Position on review of 24 Departments by June 2014 (Ref: CAG Report Para 3.12 of AR No.4/2015)

• Reports awaiting settlement

(IRs:10395 & Paras:42736

• Reports awaiting settlement for more than 10 years

(IRs: 3685 & Paras :11271)

• Reports for which first reply not received:1655

THANK YOU