Cir 6565 Internghdfgal Audit

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INTERNAL

AUDITMANUAL

TEHRI HYDRO DEVELOPMENTCORPORATION LIMITED


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PREFACE

Tehri Hydro Development Corporation Ltd. after it was set up inJ uly, 1988, initiated number of accounting procedures and policies like

Works, Purchase. Delegation of Powers, Accounting Manual andprocedures etc. Internal Audit Manual is latest one in this series.

Internal Audit is not only a requirement under the CompaniesAct but also a necessity to run the organisation effectively andefficiently. Unless there are proper systems. procedures, manuals andoverall systems of checks & balances the implementation in the Projectcan go hay wire Internal Audit ensures that the policies, systems andprocedures are followed and the deviations pointed out. This becomesdifficult without a proper Internal Audit Manual.

This Manual is a step towards better control. The head of theInternal Audit will report to the Director (F) of the Corporation. He willalso be responsible for getting the Manual updated and inform theimprovements considered necessary so that the same can beincorporated.

This Manual is for use only by the Finance Department.

R.S.T. SAIDIRECTOR (FINANCE)


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CONTENTS

CHAPTERS PAGE NO.

1. Introduction 1

2. Set-up of the Internal Audit Department 43. Scope of Internal Audit 104. General Principles and Rules .of Auditing 135. Systems Audit & Management Audit 246. Finance & Accounts Departments 277. Personnel, Administration, Public Relations,

Company Sectt. Law and Vigilance Departments 348. Contracts and Procurement Departments 429. Rehabilitation Departments (Rural & Urban) 4810. Civil Works Departments 5211. Mechnical and Electrical Departments 6112. Compilation of Results of Internal Audit 6613. Loans, Advances and Deposits 6914. Disposal of Internal Audit Notes, Inspection Reports,

Draft Paras, Audit Reviews and Matters Brought out inthe C.A.G.'s Reports on Public Sector Undertakings 75

15. Review of Progress of the main Project Components-Financial and Physical Stock-taking 77

16. Data Processing for the Computerization of Accounts, etc. 78

Forms for the Department 79-88


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1

INTRODUCTION

1.1 Audit in the simplest sense means examination and 'Internal' means workcarried out by self deployment of persons i.e. by the management. TheInternal Auditor is. therefore, appointed by the Management and theresponsibility of the Internal Auditor is to the Management; he conducts auditat the behest of the Management and reports back to the Management.

1.2 The Internal Auditing has been defined by the Institute of Internal AuditorsIncorporated, (USA), as An independent appraisal activity within anorganisation for the review of operations as a service to Management. It ismanagerial control which functions by measuring and evaluating theeffectiveness of other controls". The Internal Audit is, therefore, one of the

items of internal controls, which reviews and checks the efficacy andsufficiency of other controls. It will not confine to accounting and financialactivities of an organisation but will coverall operational activities. The endresult or objective is service to the Management.

1.3 The internal Audit is the primary audit conducted on behalf of theManagement on which the Statutory Auditors and the Government Auditagencies also rely and base their observations. It is a supporting activity toboth the Statutory and external Audit agencies. Adequacy of the Internal Auditis essential to meet the provisions of the Companies Act to ensure aconsistent review of the operations and records, including internal checks;

and other forms of control. With the changed economic scenario of expansion,diversification, decentralization, mergers and take-over, the corporate entitieshave become more' complex and as a result, the intimate and personalmanagement concept practiced earlier, possible in a small firm, hasdisappeared. These developments have led to a greater awareness of themost effective use of corporate resources-physical, financial and human andthe organisations look for some objective system of appraisal of controls andoperations to attain maximum economy in the utilization of their resources.Internal Audit is appropriately poised to provide the answer. As the eyes andears of the management Internal Audit is concerned with ensuring promptcompliance with various instructions issued by the Management from time to

time and assist the different departments in their implementation. A propersystem of Internal Audit also helps in ie examination of the existing systemswith a view to seeking suitable improvements.

1.4 In the past, the Managements have been getting their accounts checkedinternally, by deputing a team from within their cadres as a measure of controlmechanism for quite some time so that the inherent weaknesses are broughtto their notice before they are detected by Statutory Auditors. However, thetypes, extent, periodicity and scope, and whether to have it or not, was totallydiscretionary earlier. The importance of having a regular Internal Audit systemwithin an organization came to be formally recognized by the Government


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of India in 1975 when it promulgated the Manufacturing and the OtherCompanies (Auditors' Report) Order 1975 (popularly called the (MAOCRO)and made a statutory requirement for Statutory Audit of all companies with apaid-up capital of Rs. 25 lakhs or more to report on the Internal Audit systemwithin the Company. The Statutory Auditors are required to report, under

section 227 (4A) of the Companies Act, on the adequacy, scope andsufficiency of Internal Audit system and whether the same is commensuratewith the size and nature of business of the company. The coverage of theInternal Audit was further enlarged, with the amendment of the MAOCARO in1988. The statement on MAOCARO issued by the Institute of CharteredAccountants of India indicates the scope of Internal Audit to cover a largenumber of areas including operational auditing, organization and methodsstudies, special investigations and the like. The statement gives a number ofparameters like the size of the Internal Audit department, the qualifications ofthe persons who undertake the Internal Audit work, areas covered by InternalAudit, the quality of reports, the action taken for follow-up, the existence of

other forms of internal control etc. to evaluate the adequacy of the InternalAudit system in the company.

1.5 The Comptroller and Auditor General of India (C&AG) has also stressed therole of Internal Audit system for effective functioning of PSUs by includingmatters related to Internal Audit in their directive to the Statutory Auditorsunder Section 619(3) (a) of the Companies Act. The directive requires theStatutory Auditors to specifically answer whether the managements haveconsidered important points thrown up by Internal Audit and, if not, what theimportant points are on which consideration/action is pending.

1.6 The Department of Public Enterprises (DPE) has also emphasized theimportance of Internal Audit in a PSU by circulating the recommendations ofParliamentary Committee on Public Undertakings (COPU) which stated thatthe Internal Audit organization of individual Undertakings shall be chargedwith the task of pointing out deviations in the normal course and the FinanceDirector should report the position to the Board and the Government. DPEhas further advised that the Chief Executives as well as the Governmentrepresentatives on the Boards of Public Undertakings, viz. those drawn fromthe Administrative Ministries and the Finance Ministry, should also bring suchcases to the notice of the competent authority whenever they consider it

necessary .

1.7 Tehri Hydro Development Corporation Ltd. was set up in 1988 for theconstruction of the Tehri Hydro Electric Project and other connected Projects,which had been started in the early seventies by UP Irrigation Department(UPID). The basic system of record keeping for the development andinfrastructural works handled by UPID was essentially based on Public WorksDepartment Accounts system. After the take over of the project by theCorporation in J une 89 the corporation has been the commercial system ofaccounting as required by the Companies Act, 1956.

1.8.1 In order to meet the statutory requirement of introducing the Internal Auditsystem, as required under the Companies Act, 1956, the Corporation had


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entrusted the Internal Audit to independent firms of Chartered Accountants inthe earlier years. However the Corporation has since set up the Internal AuditDepartment of its own.

1.9. The next step in this direction was the preparation of the Internal Audit

Manual. This has been tailor-made to suit the working requirement of thespecialized field of execution of a huge Hydro Electric Project. In thepreparation of this Manual, every effort has been made to cover the entiregambit of activities of the Corporation as a whole, to meet the statutoryrequirements of the Companies Act, 1956. Selection of suitable personal teambuilding under expert guidance and expose to training would go a long way inthe establishment of the internal Audit system in the right direction.

1.10 The present internal Audit set-up has been designed to work under thedirection and overall control of the Director (Finance) and under the directsupervision of the Chief internal Audit Officer of the level of Dy. General

Manager or Sr. Manager. The working strength and functional set-up ofinternal Audit would require review from time to time and strengthening it forcarrying out its functions all the year round.

1.11 The Audit teams are expected to make suggestions for improvement in theManual. They may be sent to the Chief Internal Audit Officer who has alsobeen assigned the responsibility for keeping Manual uptodate.

1.12 The Manual shall be treated as a confidential document. It is designedspecifically for exclusive used by Tehri Hydro Development Ltd.


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2

ORGANISATlONAL SET -UP OF THEINTERNAL AUDIT DEPARTMENT

2.1. Internal Audit Department has been set up to take up the duties andresponsibilities envisaged in the Companies Act, .1956. The functional set-up,the Man-power requirement and the duties and responsibilities of theDepartment, keeping in view the Departments functioning at differentlocations and the set-up of the Head Office, shall be as detailed below.

2.2. The Department shall function centrally and-Internal Audit Inspections of theHead Office and the Departments located at Tehri Project Complex and otheroffices located elsewhere shall be conducted by deputing inspection Parties.As more and more Departments start functioning with the increased

construction activity, the set up of the Internal Audit Department shall bereviewed and strengthened and setting branch Offices would be considered.For the present, the set-up shall be as under:

Deputy General Manager/Sr. Manager 1(as Chief Internal Audit Officer) (CIAO}Deputy Manager (H.Q.) 1Sr. Accounts Officer/Accounts Officer 1(as Inspecting Officer (IO) .of the Party)Engineer (Civil) H.Q. 1Asstt. Accounts Officers (H.Q.-1. Field-2} 3

Sr. Accountants/Assistants (H.Q.-2. Field-2) 4Stenographer (H.O.) 1Typist (H.Q.) 1Attendant .(H.Q.) 1

2.3. The functional set-up shall be as under:The Director (Finance}will be the Reporting Authority for .the Department.Under whose direction and control, the Internal Audit functions shall becarried out. All-important matters requiring consideration and action at thelevel of the Board and Heads of the Departments shall be issued with hisapproval. He will be the authority for taking action in these matters. The Chief

Internal Audit Officer will report to Director (Finance) for al' matters requiringattention of the top management.

2.4. The CIAO will submit to Director (Finance) a summary of the important pointsbrought out in the Internal Inspection Reports issued during the quarter inForm IA 2.4 or in such form and/or manner as may be prescribed by him. Thepoints as are considered important shall be brought to the notice of the Boardof Directors through the Chairman & Managing Director in the format desiredby the Board. Any follow-up action desired by the Board shall be taken by theI.A. Department.


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2.5. Selection of Internal Audit Personnel

Besides possessing a theoretical and practical knowledge of accounting andauditing the Internal Audit personnel should have adequate knowledge ofindustrial engineering, management, organization and personnel including a

working knowledge of commercial taxation, computers, statistics etc. Theymust also possess, in addition, the ability to get along with people. Thepersons included in the Internal Audit Team should have the personalqualities of following the principles of integrity, objectivity, independenceand confidentiality .They should be capable of giving innovating andconsidered service to the management for making judicious decisions.

2.6 Funtions of the Internal Audit (HQ) Office.

The Internal Audit (HQ) shall function under the direct control and supervisionof the Chief Internal Audit Officer, who shall assign duties, jobs and

responsibility to the Officers and staff working under him. The functions to beperformed and records to be maintained shall be such as to meet all thefunctional requirements of the Department as per the provisions of the Manualand generate data and information to satisfy the Statutory Audit with regard tothe provisions of the Companies Act.

.Among the important functions to be performed shall be as under:(a) Vetting of the draft Inspection Reports with regard to the format,

supporting documents, their being complete and free from allambiguities and deficiencies.

(b) Maintenance of Control Register of Inspection Reports in form IA2.6(b), recording the data before issue of the Inspection Reportapproved by the CIAO.

(c) Issuing the Inspection Report with the forwarding letter form IA 2.6(9}.watching receipt of replies within the prescribed period, reviewing thereplies, submission of further remarks on the replies and watching thefinal settlement of the points brought out in the Inspection Reports.

(d) Issuing of special Notes containing matters not forming part of theInspection Reports, watching their replies and final settlement. ARegister in suitable form shall be maintained to keep record of all thespecial Notes and matters for proper pursual .

(e) Maintenance of Control Register of Departments and Offices under theInternal Audit control of the CIAO in form IA 2.6(e). All particularsregarding Head of the Department/Office, its location, time allotment,periodicity of audit, actual dates of audit, special features andinstructions, if any, for future audit Inspections and periodical reviewshall be provided for therein.

(f) Maintenance of complete record of Audit observations from theStatutory Auditors on the Accounts of the Corporation incorporated inits Annual Report. their pursual for settlement and obtaining the Action

Taken Reports from the concerned Departments. Also, completerecord of Draft Audit Paras. E.C. P.A. Reviews and Special Audit

Reports from Government Audit shall be kept in form IA 2.6(f) and theirsettlement watched. The matters that appear in the C.A.G.'s Audit


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Reports on Commercial Undertakings shall also be handled for properpursual with the Departments concerned to help the concernedauthorities to get them settled. Matters on which Reports of theCommittee, on Public Under1akings (COPU) giving theirrecommendations are received, submission of the Action Taken

Repor1s within the stipulated time to the Lok Sabha Secretariat shallbe watched.

(g) Handling any other matter or assignment given by the superior officersof the Depar1ment from time to time.

2.7. Duties and Responsibili ties of the Chief Internal Audi t Officer

The Chief Internal Audit Officer will be the overall incharge of the InternalAudit , Department and shall be responsible for the planning and properfunctioning of the Department in accordance with the directions of the Boardof Directors/Chairman and Managing Director, provisions of the Companies

Act, 1956 and of the Internal Audit Manual. CIAO will have full and free(without any restriction) access to all the records, property and personnel ofthe Corporation so as to accomplish the task entrusted to him.

The duties and responsibilities to be discharged shall include the following:(i) To review the Departmental Manuals, Executive orders issued by the

top Management and Heads .of Depar1ments and the systems andprocedures being followed by different Departments. Their adequacy,as regards. the requirements and consistency with the overallfunctioning of the Corporation, shall be seen and deficiencies, if any,pointed out. In case, there are areas where the rules,' systems andprocedures have not been laid down, and if laid down, are not beingfollowed properly, It shall be impressed upon the concerned authoritiesand to follow them properly.

(ii) To bring out inaccuracies in the maintenance of accounts, impor1antrecords and non-observance of the prescribed procedures, rules andinstructions and repor1ing the important results promptly to theManagement.

(iii) To make constructive suggestions to the Management for improvementin different fields of activities of the Corporation, keeping in view theeconomy and efficiency and for the achievement of objectives of the

Corporation in speedy execution of the important components of theProject. During the course of Internal Inspections, certain importantmatters may come to notice which may require consideration bythe Board of Directors. Suitable Notes. based on the' Auditobservations. may be 'submitted to Director (Finance) for apprising theCMD/Board of Directors and follow-up action, if any, to be taken.

(iv) To constitute Inspection Par1ies to conduct Internal Inspections inaccordance with the approved programme and as per the particularmatters or months selected for detailed check.

(v) To approve the Inspection Repor1s prepared by the Inspection Par1iesunder the supervision of the Inspecting Officer, submitted to him by the

ay. Manager (HO) duly vetted and finalised for issue to the concerned


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Depar1mental Heads for necessary action and for submission ofreplies.

(vi) It is the responsibility of the CIAO to keep the Internal Audit Manualeffectively functional suggest additions and improvements forincorporation after approval by the competent authority and keep it

uptodate. All suggestions for improvement received from the membersof the Internal Audit Department and others shall be taken into accountand suitably incorporated in case they are found to be useful.

(vii) The CIAO shall exercise all the powers entrusted to him and devolvingupon him as per the provisions of this Manual and discharge all theduties and responsibilities entrusted to him in relation to the efficientfunctioning of the Department.

(viii) To conduct special audit at the behest of the Management.

2.8 Duties and Responsibili ties of the Deputy Manager (HQ)The duties and responsibilities of the Deputy Manager (HO) shall include the

following:(i) Deputy Manager (HQ) will be assisted by a Technical Officer of the

rank of Engineer (or from another technical discipline) and an AAOand two Sr. Accountants/Sr. Assistants. All draft Inspection Reportsshall be received and examined with reference to the provisions of theManual, vetted, and if found acceptable from the technical and otherangles, submit it to the CIAO for approval. The Report, after approvalshall be got typed and issued in the manner prescribedin the manual. Receipt of replies to the points brought out shall bewatched the authorities concerned reminded in case of delay. Onreceipt of the replies these shall be examined in his Office and furtherremarks. if any or the fact of settlement, shall be conveyed to theconcerned Departments by him after getting approval of CIAO.

(ii) Any important controversial matters or points to which attention ofhigher authorities is considered desirable, the same shall be brought byhim to the notice of the CIAO. Advice of the CIAO shall be freelysought on all important matters coming to his notice through thehandling of Inspection Reports or otherwise.

(iii) The programme for the conduct of Internal Audit Inspections shall bedrawn up according to the prescribed procedure with a view toensuring that all Departments and Offices having independent

functional entity are covered in a yearly cycle (be it in one ortwo,phases). The programme shall be drawn up quarterly andapproved by the CIAO. In case any change is considered desirable inthe periodicity. Extent of checks to be exercised or time allotment.suitable suggestions shall be submitted for the consideration of theCIAO and changes effected with his approval. The Departmental headsshall be informed (vide form No. IA 2.8) about the approximate date onwhich the Internal Audit Inspection is to be taken up.

(iv) Upkeep of the Internal Audit (HQ) Office and maintenance of allrelevant records in the prescribed form, generation of data forsubmission of Reports of Management Information System shall be the

responsibility of the Dy. Manager. He shall supervise all the functionsof his office, including clarification of technical matters.


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The Technical Officer attached to the IA (HO) or any other member ofthe staff may be deputed with the approval of the competent authorityto assist the Internal Audit Inspection Party or to undertake anyindependent work-assignment of review of record or vetting anyinformation, as may be considered desirable.

(v) It will be the responsibility of the Dy. Manager (HO) to ensure smoothfunctioning of the field Inspection Parties.

2.9 Duties' & Responsibi lities of Inspecting Officers

The Inspecting Officer (Sr, Accounts Officer or Accounts Officer) will be thehead of the Party comprising one or two AAOs, and one Sr. AccountantAssistant. The duties and responsibilities of the Inspecting officer shall includethe following .(I) The work of the Party shall be fully supervised and conducted is under

his directions. The duty list will be drawn up, keeping in view theseniority and expertise of each of the members of the party.

(ii) All policy matters and the most important items of work will be handledInspecting Officer directly. He will provide leadership, guidance andtechnical support to the members of the party. ,

(iii) All points detected during Audit Inspection and considered fit forinclusion in the Inspection Report shall be submitted to the InspectingOfficer along with the supporting records. These will be rearviewed byhim and considered for inclusion in the Inspection Report. As far aspossible the drafting shall be done personally. as per guidelinesbrought .out in the Manual, All points which are considered veryimportant or those affecting the systems, etc. and/or more than oneDeptt. shall be brought to the notice of the DM(IA) for furtherprocessing and action.

(iv) Other important functions of Inspecting Officer shall be:(a) Conduct of general review of the Cash Book and scrutiny of

transactions involving heavy expenditure and receipts ofpeculiar nature.

(b) Disposal of previous Inspection Reports and getting settlementof points raised by the Statutory Auditors.

(c) Examination of system of accountal of stores, purchases, and

general review of purchases made.(d) Review of tenders and Contract Agreements of major works asper the scope of Audit in Chapter 3.

(e) Cases of issue of major items of Machinery and Equipment andaccuracy of recovery of hire charges from the contractors.

(f) Test-check of records, of which detailed check has beenassigned to the members of the party, in the nature of"sampling" to ensure that the duties assigned to the membershave been duly performed as per provisions of the I.A. Manual.


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2.10 Duties and Responsibili ties of the Technical Officer.

The Technical Officer at the Internal Audit H.O, shall assist the Department inthe technical vetting of the draft Internal Inspection Reports before they aresubmitted to the Deputy Manager for his examination and submission to the

CIAO.At times, the departmental officers, in order to cover up the financialirregularity or non-acceptance of the lowest tender or quoted rates, may try to

justify their actions under the cover of technical considerations. Even thetechnical specification of a particular item may be modified in order to allowhigher rates of execution than those provided for in the Contract Agreement,necessitating fresh analysis of rates. These are sometimes resorted to ontechnical grounds, which may be justified to some extent. In cases of thistype, technical vetting is called for to verify the bonafides of such assertions.

There shall receive the expert attention of the Technical Officer Advice fromother Technical Department may also be obtained for proper appraisal of the

matter.The Inspecting Officer are expected to refer cases of this type encountedduring the course of internal Audit inspections to the Internal Audit (HQ) fortechnical advice before rejecting or accepting any assertions of the TechnicalOfficers of the Department . All technical matters, therefore arising out ofcheck of records shall receive the personal attention of the Technical Officer(IA) before any final views in the matter are conveyed to the departmentauthorities.


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of the Departments and the Corporate Office. if any inconsistencies orshortcomings are noticed, the same shall be brought to the notice ofManagement for such action as is considered necessary .

3.9 The adoption of the system$ and procedure by the Departmental functionariesand maintenance of records and books of accounts is to be seen duringInternal Audit Inspection on the following lines. Irregularities and lapses infollowing the rules and regulations and deviations in the approved procedureand systems are to be pointed out for rectification and for avoidance in theirrecurrence.(i) Reviewing and appraising the soundness, ~adequacy and application

of accounting , financial and other operating controls and promotingeffective control at reasonable cost.

(ii) Ascertaining the extent of compliance with established policies, plansand procedures. ,

(iii) Ascertaining the extent to which company's assets are accounted for,for being safeguarded from loss of all kinds.

(iv) Ascertaining the reliability of management data developed within theorganization.

(v) Appraising the quality of performance in carrying out assignedresponsibilities.

(vi) Recommending operating improvements.

3.10 Internal Audit shall also be responsible for identifying the areas of risk wheretheft or fraud are likely to occur. Emphasis should be more on prevention offraud or theft than on their detection. Fraud prevention is only one aspect ofthe work of Internal Auditor. The Internal Audit role in detection andprevention of fraud and dishonesty is to find the cases and the facts whichlead to the theft, etc. and to enunciate policies and procedures for the future.


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4

GENERAL PRINCIPLES AND RULES OF AUDITING

To achieve the aims and objectives of Internal Audit, the following generalprinciples and rules of auditing shall be followed while conducting the InternalAudit of he Corporation.

4.1 STATUS

Internal Audit is a statutory function and a tool of the Management to checkthe , regularity of actions of the executive. No official record or jnformationshall be denied to be shown and supplied to Internal Audit 011 the plea thatexecutive orders in this behalf had not been received. It is the duty of thehead of the Department. Office or Unit of the Corporation being audited. to

ensure that the Inspection Party is extended all cooperation to enable it todischarge its functions as best and as expeditiously as possible. If a certaindocument or information is considered to be secret, the head of the Officeshall arrange to produce the document to the Inspecting Officer and conferwith him as to the best ways to maintain its secrecy during the course of AuditInspection.

4.2 JURISDICTION

The Internal Audit Department is responsible to the Board of Directors of theCorporation through the Director (Finance) for the Audit. Without the sanction

of the Director (Finance). audit of accounts of any independent Unit or Fund(e.g. Welfare Funds, etc. created locally in the Projects) hot forming part ofaccounts of T.H.D.C shall not be taken up. The Agenda Papers and theMinutes of the Board of Directors meetings shall be studied intelligently with aview to seeing that the rules framed and orders issued and notified bydifferent functional Departments are fully in conformity with the decisions ofthe Board. This work shall be attended to at the Head Quarter of the InternalAudit or du1ing the course of Internal Audit Inspection of the CompanySecretariat. at the level of the Inspecting Officer. Observations. if any. in thisregard shall be issued under the signatures of the CIAO. The Director(Finance) shall invariably the kept fully informed about these matters before

they are taken up with the Departmental authorities. During the course ofaudit of the Corporate Office and of the Departments and Project Offices. it isto be seen that the decisions of the Board of Directors have been fully andfaithfully implemented and reports submitted t'! them to the Board are correctand based on the records of the Department.

4.3 AUDIT AGAINST REGULARITY:

(i) In the discharge of Audit duties, the clear distinction between auditoriaand administrative functions shall always be borne in mind. It is afunction of the Executive (duly authorized by the Management) to makefinancial rules. Issue orders. lay down systems and procedures for theproper functioning of the Corporation and its Departments and Offices


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for the execution of the Projects entrusted to it. It is for the officers ofthe organisation to apply these rules, systems and procedures. It is thefunction of Audit to verify, that these rules and procedures made coverall important functions and activities and they are applied properly.It is not the function of Audit to prescribe what such rules and

procedures shall be. or to interfere with their administrative application.(ii) Audit by the Internal Audit Department is to be conducted with

reference to the rules and procedures laid down in this Manual, andwith reference to the rules and procedures framed as per the policies ofthe Management and the Manuals made thereunder. The Managementhas approved the Works, Purchase and other policies. It is to be seenthat actions by the concerned departmental officers in the field ofaward of Works Contracts and placement of Purchase Orders arein consonance with these policies, both in letter and spirit, and withinthe powers delegated to them. Besides, standards of FinancialPropriety, as brought out in para 5 of this Chapter are-also1o be

applied during audit of expenditure.(iii) In the course of/scrutiny of accounts and transactions, Audit is entitled

to make such queries and observations and to call for such vouchers,statements, records, returns and explanations in relation to them, as itmay consider necessary, in the proper discharge of its duties andfunctions. Air queries and observations shall be couched in languagewhich is courteous and impersonal.

(iv) In the discharge of its functions, Audit shall not make independentenquiries from the personnel of the Corporation or from general public,as such action is tantamount to encroachment on the functions of theexecutive authority. Audit shall confine itself to calling upon theconcerned executive authority to furnish' any information and produceany document that may be required. In case of difficulty. it shall conferwith the higher administrative authority, as to the best means ofobtaining information or evidence which is required.

4.4 AUDIT AGAINST PROPRIETY.

(a) It is an essential function of Audit to bring to light, not only cases ofclear irregularity but every matter which, in its judgment. Appears toinvolve improper expenditure or waste of Corporation money, assets or

stores, even though the accounts themselves may be in order and noobvious irregularity has occured. It is thus not sufficient to see thatsundry rules or orders of competent authority have been observed. Itis of equal importance to see that the broad principles of orthodoxfinance are borne in mind, not only by disbursing officers, but, also bythe sanctioning authorities.

(b) No precise rules can be laid down for regulating the course of auditagainst propriety. Its objective is to support a reasonably high standardof public financial morality. of sound financial administration anddevotion to the financial interestsof the Corporation. Audit Officers. in the performance (If their duties

shall. In any case, apply the following general principles which have forlong been recognized as standards (or canons) of financial propriety:


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(i) The expenditure is. prima facie, not more than the occasion demands.Every officer is expected to exercise the same vigilance in respect ofexpenditure incurred from Corporation funds as a person of ordinaryprudence would normally exercise in respect of expenditure of his ownmoney

(ii) No authority shall exercise its powers of sanctioning expenditure or topass an order, which will be, directly or Indirectly to its own advantage.

(iii) Public money shall not be utilized for the benefit of a particular personor class of persons unless:1. The amount of expenditure involved is insignificant; or2. A claim for the amount could be enforced in a court of law; or3. The expenditure is in pursuance of a recognized policy of the

Corporation or of the Government of India.(iv) The amount of allowances, such as traveling allowances granted to

meet expenditure of a particular type of journey or the re-imbursementof Medical expenses, shall be so regulated that the allowances are not

on the whole a source of profit to the recipients.(c) The proper discharge of duties by an inspecting Officer in this field is a

very delicate matter and requires such discretion and tact. A challengeagainst expenditure shall not be expressed as based on Canons offinancial property but transgressing a universally accepted standard ofofficial conduct of financial administration.

(d) When the Inspecting Officer considers that any rule or order hasinfringed any one of the standards of financial property, he has shallreport his opinion to the administrative authority concord for suchaction as that authority may think fit to take and request it to intimate, indue course, the action taken by it. Thereafter if he considers itnecessary, he may report it to the next higher authority for appropriateaction.

4.5 AUDIT OF EXPENDITURE

(1) The main objectives of audit of expenditure are to ensure:(a) That there is provision of funds for the expenditure duly

Authority by competent authority.(b) That the expenditure is in accordance with a sanction properly

accorded and is incurred by the officer competent to incur it as per

provision of Delegation of powers.(c) That the claims are made in accordance with rules and are in properform.

(d) That all prescribed preliminaries to expenditure are observed, such asproper estimates are framed and approved by competent authority forworks expenditure there is a Budget provision for the item ofexpenditure, it is whining the overall provision of the detailed ProjectReport. There is proper requisition by competent authority beforeprocurement action is initiated and the prescribed procedure is followedto procure material at the most economical and competitive rates.

(e) That the expenditure sanctioned for a limited period is not admitted

beyond that period without further sanction.(f) That payment is made to the proper person.


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(g) That the charge is correctly classified. and that if a charge is debitableto the personal account of a Contractor employee or any otherindividual, or is recoverable from him under any rule or order. that isrecorded as such on the prescribed accounts record.

(h) In cases of purchase of stores. the stores have been accounted for in.

the prescribed stores accounts and that the rates are the same ascontracted for and are certified as correct by proper authority.

(i) In respect of bills of contractors the terms of the contract or agreementhave been adhered to.

(j) That rates entered in the bills for transport for the movement of stores,when such transport is not provided for by the Department. agree withthe contract or tariff rate and that the credit notes have been signed bythe Officer authorized to sign them and that they have been properlyissued under the rules, and

(k) That the expenditure does not involve a breach of any of the standardsof Financial Propriety.

(2) Recurring charges which are payable on the fulfillment of certain conditions orup-tiII the occurrence of a certain event. shall be admitted in audit on receiptof a certificate from the officer concerned to the effect that necessaryconditions have been duly fulfilled or the event has not yet occurred. as thecase may be.

Whilst it is desirable that auditors and others employed on audit dutiesshall not be at liberty to make any relaxations in audit on their ownvolition. it is of considerable importance that the prescribed checks areapplied and that the principles of Regularity and Propriety are observedin spirit and not in letter. as opposed to the spirit.

4.6 AUDIT OF EXPENDITURE (BILLS AND VOUCHERS)

Before commencing the Internal Audit Inspection of expenditure. the Budgetestimates and the actual expenditure incurred by the office under variousheads of accounts shall be examined to know the nature and extent ofexpenditure under each head of account. It shall be seen that the financialrules delegation of financial powers for regulation of expenditure arethemselves intra vires and that the audit is effectively conducted against them.In addition. it shall be seen that:

(i) For every payment made, there is a voucher. complete in all respectsor a certificate of payment. where it is not possible or expedient tosupport a payment by a voucher;

(ii) Every voucher bears a pay order signed or initialed by the disbursingofficer specifying the amount payable. both in words and figures. andthat all pay orders are signed by hand and in ink;

(iii) All vouchers bear. dated acknowledgments of the payment made:(iv) Where acknowledgements of payments are received in advance and

the actual payments are made subsequently. (e.g. pre-receipted bills),separate acknowledgment of payees are obtained at the time of

payment. Such subsequent acknowledgements had been stamped.


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(v) Receipts for all net payments exceeding Rs. 500/- are stamped unlessthey are exempted' from stamp duty:

(vi) Where a single stamped receipt is obtain-ed from a payee inacknowledgement of payments against more than one voucher at atime. a reference is given on all concerned vouchers and it is ensured

that the total amount of such vouchers agrees with the amount forwhich acquaintance is obtained.

(vii) The sub-vouchers and acquaintances are on record and are cancelledor so defaced that they cannot be used again. and are not destroyedbefore the expiry of the prescribed period of preservation; as per theCompanies Act. 1956.

(viii) Cash memoranda from tradesmen are not taken as sub-vouchersunless they contain an acknowledgement or receipt of money from theperson named therein. Incases where acknowledgements cannot beobtained the cash memoranda shall be stamped paid and initialed bydrawing and disbursing officer.

(ix) All vouchers for purchase of stores bear a certificate by the competentauthority regarding entry of stores in the stock accounts indicatingrelevant page number of the Ledger. Such vouchers also bearcertificate of the competent authority to the effect that the quantities ofstores received are correct. Their quality good, and they are accordingto the approved specifications, where prescribed

(x) There are no erasures, overwriting or alterations; in the total amount ofthe bill written in figures or in words. Corrections, if any, are propertyattested by the disbursing officer and the amount of bills tallies with theactual payees receipts.

(xi) Suitable notes regarding payments having been made on various sub-vouchers are also kept on the relevant original indents andinvoices/bills to prevent double payments;

(xii) The details given in the vouchers agree with the connected records, ifany, maintained by the departments.(Note : In the case of articles received by value payable post (VPP) thevalue payable cover together with the invoice or bill showing the detailsof the items paid for may be accepted as a voucher provided thedisbursing officer endorses a note on the cover to the effect that thepayment was made through the post office.

(xiii) Where Sales Tax has been paid, it shall be seen that it was actually

payable on the stores purchased under the provisions of the relevantSales Tax Act and the amount paid is correct. The rates paid agreewith those shown in the contract or agreement made or as perquotations approved for the supply of stores.

(xiv) The rates paid for work done or supplies made are in accordance withany scale or schedule prescribed by the competent authority.

(xv) The expenditure is so recorded that all information of vital importanceto the working of office/institution concerned is available.

(xvi) That payment have been correctly brought to account in the initial cashcounting records.

(xvii) Rule regulating the method of payment have been fully observed bythe disbursing officer.


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(xviii) The expenditure has not been incurred to prevent the lapse of budgetallotment or that the charges incurred during the year have been metfrom the budget allotment of the next year.

4.7 Percentage of checks to the exercised on different records and documentsmaintained or required to be maintained in various department & office shallbe as contained in the Annexure to this chapter.


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ANNEXURE TO CHAPTER 4Referred to in Para 4.7)

Statement showing items of work, nature of payments and particulars of Recordsindicating the percentage of checks to be exercised during Internal Audit Inspections.

A. Finance & Accounts Department1. Payments (Estt.)

Items of work/Nature of payments/ Quantum of checks to be exercised:Particulars of records.Bills: Pay bills-Exec./non-exec. One month's bills in each phase

ii) T.A./LTC bills-Exec/non-exec. 25% bills in each month and generalreview.

iii) L.T.C. Bills-Exec./non-exec. -do-iv) Encashment Bills, L TC/Leave -do-v) Miscellaneous Bills-gross -do-

amount Rs. 1000/- & abovevi) Other Establishment charges, One month's bills in detail in

Misc. charges. (Rent. Electric & each phase. Full check ofWater, Maintenance, Repairs of unusually heavy payments andVehicles, Purchase of POL, R&M special repairs and replacements. iof A.Cs.. Coolers, Office EqptP .Cs., Photostat Machines, Phones,Electronic Typewriters, etc.

vii) Recoupment of Permanent Imprest/ At least two recoupments/Adjustment of Temp. Imprest adjustments in each phase.

Temporary Advances.v) Medical attendance and treatment. 25% bills in a month in detail

otherwise general review.vi) Bills on account of overtime

allowance/conveyance charges: 25% bills in a month and generalreview

vii) Children's Education Allowance, 25% bills in a month andhostel subsidy, Tuition Fees general review

viii) Remittances on account of One month's check in detail inIncome Tax, Sales Tax, Returns each phase.

of T.D.S.ix) Remittance on account of LS/ -do-Pension Contribution GPF/CPFIHBA/Conveyance Advance recoveryto the parent departments ofDeputationists and PF to PF Trust.

x) Recoveries of long term/short One month's check in detail interm Advances to Staff, e.g. each phase and general review.HBA/Conveyance Adv. Festival/Medical Advance, T.A. Advance.


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II. Payments to Contractors and. Suppliersi) Check of payments to foreign Cent percent check of all payments.

collaborators. .ii) Check of Contractor's bills 25% of the Running Account Bills

against measurement books and paid during the selected month to beagainst standard measurement checked in detail with ref. to M.Bs.books, as the case may be and other connected record.

iii) Release of EMD/Security Deposit -do-to Contractors/Suppliers.

iv) Muster Rolls:a) Check and audit of M. Rolls One month's bills in each phase.(excluding checking of arithmeticalcalculations}b) Checking of arithmetical. One month's bills in each phase.

calculations.v) Payments for Extra/Deviated/ Cent percent check for payments

Substituted items and Gen. review during the selected month and ofsystem adopted for fixation of general review with of reference toitem rates in such cases. month. payments made during selected

vi) Payments to Suppliersa) Check of Bills with ref. to 25% of the Purchase Orders againstPurchase Order. Which payments are released during

the selected month to be checked indetail.

b) Review of the Register of POs. General review and random check ofP .Os. of heavy amounts.

III Banking Transactionsa) Letters of Credit Cent percent check of all

transactions.b) Register of Bank Guarantees/ General review of all transactions

Performance Bondsc) Interest credited by Bank on. Cent percent check.

Deposits.d) Bank Cash Book/Reconciliation One month's detailed check in each

Statement phase, general review of other

months.IV Store Accounts:Priced Stores Ledger i

a) Check of entries in the PSL with Test check in first phase. Oneref. to S.R. Vs.. S.I. Vs. & S.T.Vs month's detailed . .check of selected

month in second phase.b) Reconciliation of the balances as Check in respect of items selected on

per bin cards/stock registers of random basis.Stores Deptt. with P .S.L. balances

c) (i) Action taken to reconcile the General review.balance as per Store Accounts

with the balance as per P.S.L.


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(ii) Reconciliation of value as per One month's check in detail and

P .S.L. with the value of stocks review of other months.as per Central Accounts.

d) Claims recoverable from Verification of actual receipts during

Suppliers/Transpor1ers/Railways/ selected month, general review ofInsurance Companies progress and time period of

outstanding items.e) Insurance claims against open General review of progress and cent

Transit Policy percent check of claims rejected orpartially admitted.

f) Cases of Demurrage/wharfage Cent percent check.Charges

g) Fixation of Stores Issue Rate Cent percent check at each fixation.h) Valuation of SRVs/SIVs/STVs 25% check of all transaction.I) Register of Assets of less than General review and 25% check of

Rs. 5000/- value with ref. to Transactions in selected monthsRelevant payment vouchers.

V Cash records and Compilation of Accounta) Cash Book and day Book. One months detailed vouching for

each phase and general review ofother months.

b) Schedule forming part of the General review and detailed check ofAnnual Accounts. 50% of the Schedules.

c) J ournal Vouchers One months J Vs in each phaseMarch J vs to be generally reviewed.

d) Debits/Credit advices issued/ General review in second phase-received and the records outstanding item, if any to bemaintained to watch Inter-unit pursued till settlementreconciliation

e) Register of Valuables One months transactions in eachphase.

f) Check of J ournal/ Trial Balance General review in second phase.Annual Accounts Balance sheetSchedule connected withOutstanding bills & Depreciation

g) Confirmation of balances fromDebtors/Creditorsh) General Review of Subsidiary General review in the second phase,

Ledgers (all like of those detailed Items outstanding for more than onebelow) and their reconciliation with year to be reviewed cent percent.

The balances brought out in theGeneral Ledger.(Illustrative list of Subsidiary Ledgers)Sundry CreditorsAdvances to Employees like T.A.Medical, Festival L.T.C. etc.

Advances to the employees, likeHouse Building, Departmental


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Permanent & Temporary Imprest.Contractors' Ledger,Advances to Government Agenciesfor Deposit Works, Claims recoverablefrom Suppliers, Contractors, Railways

and Transporters etc.Security Deposits and Earnest MoneyDeposits.

B. Contracts and Procurement Departments :

a) Major/Minor Contracts & Work Orders:Selection of items for general review:Upto Rs. 2.5 lakhs 10% )Above 2.5 lakhs & upto 20 lakhs 25% ) Of the contracts awarded

during the

Above 20 lakhs & upto 50 lakhs 50% ) period of Audit.Above 50 lakhs 100% )

b) Purchase Orders:Less than Rs. 2 lakhs 10% )Above 2 lakhs & upto 10 lakhs 20% ) Of the Purchase Orders

placedAbove 10 lakhs & upto 25 lakhs 50% ) during the period of Audit.Above 25 lakhs 100%)

C. Mechanical Department:

a) Fixation of Hire Charges of General review of the procedure,Machinery & Equipment. cent per cent check of rates for all

major items, 25% check of minoritems on each fixation.

b) R&M Estimates of Equipment. Complete check every year.c) Record relating to raising claims for General Review, 25% check of the

hire charges, their recoveries total items 100% check ofand Arears. outstanding items.

D. Materials Management Department :a) Posting of S.R. Vs., S.I. Vs and Cent Percent check for the selected

S.T,Vs. month and general review of othermonths.b) Adjustment of Debits/Credits Cent Percent check for the selected

against Contractors/Suppliers. Month and general review of othermonths.

c) Follow-up action of the Physical Check of adjustment of items foundVerification. short/surplus costing Rs. 1,000/- or

more in full, test-check of itemcosting less than Rs. 1,000/- 25%

d) Discrepancy Register of non/short General review for the current year,receipt of stores. cent per cent check for the previous

years.e) Transit Losses-pursual of claims General review of all the outstanding


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with Railways. Transporters. items. Suppliers and Contractors.f) Settled claims of lasses/shortages. General review of all items handled

during the period of audit Inspection.g) Fixation of Issue Rate of Stores. Random check of at least 25% of the

items at the time of each fixation or

revision.h) Review of Stores Ledgers. Test-check of arithmetical accuracy

and action taken on non-moving orslow-moving items.


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5

SYSTEMS AUDIT & MANAGEMENT AUDIT

I. SYSTEMS AUDIT

5.1 The role of Internal Audit shall not, be confined merely to routine checks ofvarious accounts and financial statements. Its role shall extend over vastfields which include recommending new systems and conducting review ofexisting systems and check up their adequacy & suitability. Hence theimportance of Systems Audit in the T.H.D.C. cannot be over-emphasised.

5.2 The following are the checks to be exercised broadly while reviewing thesystems and procedures:

(i) The sequence of staff who examine the documents, the reasons whythey examine them and the extent of responsibility which devolvesupon them.

(ii) The authority who should authorize the transactions; how thetransactions will appear in the records of the Company and whosecontrol they will be under .

(iii) It should be satisfied that adequate control mechanism, Administrativeand Ac-counting, exist and that they are being applied properly. Itshould be remembered that the provision .in the systems laid down intheory represent the ideal. Often, due to reasons like shor1age of staffor the type of streamlined accounting system (slip method) the practice

falls short of the ideal standards.

For a sample check of the system in vouge in a branch, a questionnaire maybe drawn up to see how far the system or procedure laid down is adequate indetecting frauds or irregularities and to what extent the system is beingfollowed. It is always better to have a sound system of Organization for theprevention of frauds or serious lapses rather than subsequent dramaticdiscovery of serious acts of omission and commission and then going abouttaking drastic action. If a fraud is discovered, what is equally impor1ant is theexamination as to how it became possible. It has .to be made sure that it didnot occur through an undisclosed or an inherent weakness in the system of

internal checks (i.e. whether it was due to the calculated risk that failed),because, if such is the case, it reflects upon the ability of the authority to laydown and procedures making provisions for internal checks and controls.

5.4 following are the broader aspects of checks in this regard :

(a) Observation and investigation of the actual working of the systemduring the course of detailed audit.

(b) Comparing the schedules of operation which come under its scrutinywhen finally prepared. i.e. not only checking accuracy of. thestatements but also making a critical comparative appraisal of thebudgeted figures and results obtained in comparing matters whichinfluence various procedures but do not form part of budgetedestimates.


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(c) Probing from time to time the system of internal checks to see not onlywhether it is still working effectively but whether is still the best systemavailable.

(d) Examination of the Corporation's contracts including all those of acontinuing nature, having at the same time a look at the legal &

Arbitration cases brought about against the Corporation, analyzingcauses therefor .

(e) By the instigation of special enquiries at the request of theManagement. Such work will range over the organisations whole fieldof operations and may extend beyond the more obvious factors to suchmatters as the checking of accuracy of financial statments, checking ofprimary functions, e.g. the examination of procedures involved inpurchasing and ordering of material, examining stores procedures andensuring the maintenance of standards laid down in various Manuals.

5.5 It is the duty of Internal Audit to review compliance of norms and report major

and pertinent deviations to the concerned authorities. Such cases shold bebrought, to the notice of Director (Finance) for reporting the important cases ofshortcomings and irregularities in the working of the Corporation to the Boardof Directors, through Agenda notes. (Authority : Ministry of Finance. Bureau ofPublic Enterprises O.M. No. BPE / GL-014/MAN/3 (ii) 79-GM-1, date the 12th

J une, 1979.)

II. MANAGEMENT AUDIT

5.6 It is now well recognized allover the world that in this era of rapidtechnological advancement Management is confronted with a great challengein making sound, logical and timely decisions. Not only does Managementneed help in making proper decisions but it also requires assistance indetermining that such decisions are being acted upon promptly and properlywith the desired impact.

Definition

5.7 Management audit has been defined in many ways. Essentially thedescription of the purposes and processes of Management audit form thecore of the definitions. Management audit is basically concerned with

identifying improvement opportunities and deficiencies in Management inputsarising from the appraisal of the quality of Management of an organisation oran organisation unit and the evaluation of the performance of a system orprocedure within the organisation.

The focus is on :

a) Systematic identification of deficiencies and improvementopportunities In the Management process for continuous correction.

b) objective, Independent and forward looking analysis; and .c) manager -auditor collaboration effort, manager having responsibility

and authority for performance results and the auditor being an adviser.educator and service support.


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Scope and Purpose

5.8 Management audit can be audit of Management or audit for Management.Whether audit is of Management or for Management, the nature of auditremains the same, but the scope and purpose may differ.

The essential features of these audits are as under:

Audi t of Management Audi t for Management '(1) It is carried out usually by an It is internal and may be carried out

external agency. an independent by the Finance department. Accountsauditor. department, Internal Audit or by line

management of the Organizationitself. Some times an outside expertmay be engaged but then hefunctions on behalf of the

management .(2) The result of audit is addressed It is meant for self-correction.

to a body or authority external to theManagement and meant for controlby an external authority .

(3) The Management to be on the, There is no need to hide anythingdefensive and there is everything to gain by

exposure.(4) Audit by the Controller and Auditor Audit for the Management whether

General of India (C&A.G.) of the by the internal team or by an externalP .S.Us. and of the Govt. Departments expert is meant for the Managementlike the E.C.P .A. is a type and no outside agency is involved orof Management audit. Its reports concerned.are submitted to the Parliament.

(5) It is scheme or programme oriented It is office oriented and all aspects ofrather than office oriented. If a its handling by the office shall bescheme or programme is being looked into and result brought out.implemented by more than oneoffice and from more than one site,the scheme as a whole is auditedand the result, cumulative or of each

unit, is brought out with its overall impact.

5.9 The basic pre-requisite for any kind of audit is that it should be independent.The auditor should have an open receptive mind and do his work without fearor favour malice or illwill. He would have broad perspective and his attitudeshould be positive and constructive, not merely critical and carving; otherwisehe may be more of a hindrance than anything else.

5.10 Effectiveness of audit, par1icularly Management audit, depends arso to alarge extent on the receptivity of Management. Indeed Management auditshould be responsive to Management.


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6

FINANCE & ACCOUNTS DEPARTMENTS

6.1 GENERAL

(i) As far as feasible, the Internal Audit of the Finance and AccountsDepartments at the Project as well as at the Corporate Office shall becarried out in two phases. The Internal. Inspections shall be soarranged that they d0 not interfere with the schedule of Statutory Auditor Government Audit. The first phase shall be carried out sometimeafter September and the second sometime in may or J une taking duecare that the programme of finalization of Annual Accounts is notdisturbed. It should be a source of help and assistance to theExecutives of

the F & A Department in proper discharge of their duties andresponsibilities. After all, the aim of Internal Audit is to ensure smoothfunctioning of the Corporation, as a whole, including the Finance andAccounts Department. It shall render all help towards this end.

(ii) The Internal Audit is to see, apart from exercising routine checks overthe day to day activity of cash handing, classification of expenditure,maintenance of cash and accounts records in proper form, theircompleteness. Bank reconciliation and follow up action, etc., thehandling of Corporate funds. their investment in accordance withpolicies and .9uideliness issued by the Government of India,

keep watch over the Inter-Unit transfers, check compilation of finalaccounts before they are audited by the Statutory Auditors ~nd theC.A.G. of India and help in the settlement of Audit Observations. Helpin the effective enforcement of the rules, orders and decisions of the-Board of Directors in the matter of efficient financial management bydifferent Departments of the Corporation. Shall be rendered whereverrequired.

(iii) Broadly the Internal Inspection of Finance and Accounts Departmentsshall be carried out on the following lines. to see that :

(a) There is adequate manpower (qualitatively and quantitatively)to handle all the important functions of Financial concurrence.representation of appropriate level on the Tender Committees,Purchase Committees, fixation Of rates for hire charges ofmachinery, fixation of issue rates of stores, maintenanceof cash and banking records on proper lines, handling claims.both of contractors and of the staff and Officers and for timelypayments. to perform their duties on proper lines, andgeneration of data for the timely submission of MIRs. .

(b) The systems and procedure laid down are followed in allactivities. Proper control is exercised over the functionsentrusted to the F & A Department.


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handling all claims, guarding against irregularities and doubleClaims. maintenance of Cash and Bank transactions records,classification of expenditure, enforcement of regular procedurein all the activities and exercise of Delegation of Powers properlyby all concerned.

It shall also review the working of the Management Information ReportingSystem. verify its effectiveness in the day to day functions of the Finance &Accounts Department.

(iv) There exists adequate and systematic check over exercise of all InternalControl envisaged for different activities of the Finance & AccountsDepartment and of other Departments. In case there is lack of provision forInternal Controls in any activity or in any Department, the matter is duly takenup at the appropriate level.

(v) Investment of Corporation Funds are regulated as per the guidelines andpolicies framed by the Government of India for Public Sector Undertakings.Records required to be maintained for efficient handling of the resources of

the Corporation and timely recovery of interest due and renewal or re-investment if funds in the best interest of the Corporation, are maintained andreviewed periodically.

(vi) All statutory obligations for deduction, remittance and submission of returns inrespect of Income Tax, Sales Tax, etc. are duly complied with.

(vii) There is proper system of Inventory Control and reconciliation of quantityaccounts between the Stores records and those of the F & A Daptt. and of thevalue accounts between the Priced Stores Ledges and the General Ledgerand the Annual Accounts.

(viii) Fixed Assets Registers are being maintained indicating the location of ea,chitem and charging .Depreciation as per the rules, in .respect of all-itemsprocured or transferred from the UP Irrigation Department, in proper workingcondition.

(ix) There is adequate control mechanism in operation to regulate the release,recovery and adjustment of Advances, Deposits and Loans, maintenance ofrecords and confirmation of balance at the end of the year. The detailedchecks to be exercised over the sanctioning, payment, regulation, recoveryand accountal of Loans and Advances are brought out In Chapter 12.

(x} Adequate checks are exercised over generation of data for EOP, ensuring itscorrectness, completeness and confidentiality .

(xi} All the required precautions are taken to handle the record relating to receipt,

issue and return of important documents like Measurement Books, ReceiptBooks, Cheque Book., Stores Receipt Voucher Books, Stores Issue Vouchersand Stores Transfer Voucher Books (SRVs, SIVs and STVs).

6.2 SCRUTINY OF THE RECORDS:The maintenance of records of the Finance & Accounts Department shall bechecked with reference to the Departmental Manuals, eg. Accounts Manual.Stores Accounts manual and other manuals which are in operation and use inthe Department. In case any of these Manuals have not yet been formulatedor are in the process of being formulated the records to be maintained shalldepend on the Rules, Systems, Procedure and Executive Orders or on

accepted Mercantile principles. The important items of record to be checkedare:


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(a) Cash Records (Cash and Bank Books)

(i) Apart from the detailed check to be exercised as per the provisions ofthe Manual, these books shall be generally reviewed to ensure thatthey are maintained properly, completely and regularly and all receipts

and payments are brought to account on the Cash Section and theyare duly closed for the day

(ii) There are no erasures or over writings, but incorrect entries are scoredand fresh correct entries made under proper attestation, totals are gotchecked from an official other than the official writing the Book, thesame is closed at the end of the month and cash in hand is verifiedphysically and certificate thereof recorded under proper attestation. .

(iii) All precautions against miss-handling of cash, mixing up private cashwith official cash, keeping large cash in hand, keeping unaccountedcash in the cash chest and for safe custody of cash are always taken.

(iv) All withdrawals from the Bank and all remittances into the Bank

Account are promptly accounted for and verified with reference to theentries in the Register of Valuables, Register of Remittances-andcounterfoils of cheques issued.

(v) Monthly Trial Balance is drawn up and reconciled with the balancebrought out in the Bank statement, the variation being tallied with theoutstanding items in the Bank Cash Book.

(vi) The vouchers for payment are in proper form, payment duly authorizedby the competent authority , details of the Head of Account to which thepayment relates are correctly recorded, all supporting documents andacknowledgement of the recipient are available and the sub-vouchersare duly cancelled under proper attestation.

(vii) Receipt vouchers are made on proper form, the person from whom theamount has been received and the head of Account to which thereceipt relates and acceptance of payment by the competent authorityshall be checked generally and any receipt appearing to be of doubtfulnature shall be checked with reference to the basic record to which thereceipt entry relates.

(viii) AII cheques it.sued are from the cheque books duly issued to theBanking Section and shall be checked, with reference to the passedvoucher and other supporting documents.

(ix) The monthly Trial Balance may indicate non-encashment of cheques

within their validity period. Apart from reviewing the reasons for non-encashment, the total amount of all stale cheques should be credited tothe head of account meant for such tansitory transactions.

(x) In case of remittances to the Bank, it shall be verified with reference toBank's acknowledgement whether the money stated to have beenremitted had actually been credited to the account of the Corporation. ,In fact, a careful scrutiny of the Cash Books and close scrutiny of someof the entries made therein may lead to detection of seriousirregularities which may appear to be of a very trivial nature on the faceof it, but when delved deep, may reveal major lapses, leading to fraudsand embezzlements. Attesting entries in the Cash Books without the

supporting documents, delegating powers for the issuance of cash


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receipts to junior members of staff, leaving large variations in thebalances between the CashBook and Bank Statement are but a few such examples. A very carefuland intelligent scrutiny of ,the Cash Book is, therefore, essential.

(b) Day Book

It records all the transactions relating to the Works and Procurement billspassed during the .day and all the columns are to be completed correctly and alltransactions are attested. Some of the figures brought out shall be checked withthose recorded in the Contractors' Ledger. The entries shall be checked withreference to Memorandum of Payment of each Bill for the month selected fordetailed check.

(c) Register of Permanent Imprest:

Officers entrusted with the execution of Works require Permanent orTemporary Imprest to meet unforeseen emergent expenditure. Imprests sanctionedare entered in the Imprest Register. Normally the Imprest is sanctioned in the nameof the Officer Incharge of a Works Division and the accounts are rendered forrecoupment once or twice a month. It is to be seen that all Imprests are dulfsanctioned by competent authority, they are not multiplied, but Imprest sanctioned toofficer is sufficient to meet the expenditure required to be recouped at least once amonth. No expenditure is met out of Imprest for which sarlction of higher authority isrequired, for purchase of the material that is normally available in the Project Storesand requirement of major items of material are met by issue from the Stores. Theaccounts for the Imprests held are rendered and closed at least once every year inMarch, and fresh sanctions are issued in the beginning of the financial year,depending upon the requirement for the next year.

(d) Register of Temporary Imprest Advances:

Temporary Advance is sanctioned by competent authority in favour of anExecutive entrusted with the execution of works, for making emergent purchase ofmaterial or to meet temporary emergent requirement in the course of execution ofworks or for payments to daily rated workers. It is to be seen that advances aresanctioned only to meet genuine emergent requirements, the adjustment accounts

are rendered soon after the payments have been made, the amount sanctioned isnot in excess of the requirement and unutilized cash, if any, is refunded forthwith.andthe adjustment accounts are received without delay. If there is a tendency tosanction Temporary Advances too often to different Executives of a Department, thenecessity, urgency and actual requirement may be reviewed and the sanctioningauthority approved of the Irregularities observed. If there are a number of cases of

Temporary Advances drawn during a year, some of the items may be checked indetail with regard to the amount, period of retention of the advance and the unspentbalance, expenditure incurred, justification for the drawal and time taken to renderaccounts, may be subjected to check for ensuring the regularity and adequacy ofchecks exercised by the sanctioning authority and observation of codal norms by the

Executives entrusted with the utilization of Corporation funds.


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It may be seen in the cases of long delays in completion, in rendition ofadjustment accounts or in refund of unspent balances. that penalprovisions of the contract are invoked and pursued to final settlement.

(m) Register of Bank GuaranteesThe Register of Bank Guarantees/Performance Bonds is required to be

maintained by the Finance & Accounts Department at the Corporate officeand each of the Project offices, in the prescribed form in accordance with theprovisions of the Banking Manual.

It shall be seen that the Register is duly and properly maintained, the BankGuarantees/Performance Bonds are kept in safe custody by the officerentrusted with the responsibility and the same is duly reviewed at prescribedintervals, action is initiated for their extension, where necessary invoking theirprovisions in cases of default in execution of Works or Supply orders or inextending the same. It shall also be seen that physical verification of alldocuments held is carried out at periodical intervals and result there of kept

on record.


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7

PERSONNEL, ADMINISTRATION,PUBLIC RELATIONS, COMPANY SECTT.,

LAW AND VIGILANCE DEPARTMENTS

7.1 Personnel Department

The Internal Audit Inspection of the Personnel and Administration Departmentonce in a year at the head office level and at the project shall be conducted.

The test-checks to be exercised shall be with reference to schemes andfunctions carried out with regard to Recruitment, service conditions, formationof selection panels, sources of recruitment, Manpower planning, Statisticaldata generated, placement review and Management Information ReportingSystem. Checks by the Internal Audit are to be carried out with reference to

the general principles and guidelines issued by the Govt. of India and therules and orders issued by the Corporation from time to time. Most of the rulesand orders approved by the Board of Directors are reported to have beenincorporated in the Personnel Manual issued by the P & A Department in1992. The executive instructions and orders issued by the competentauthority, and as amended from time to time, in respect of subjects notcovered by the Manual also form the guidelines for this purpose. Thefollowing checks are to be exercised over the records of PersonnelDepartment:

(i) It shall be seen generally, that all important working requirements of theDepartment have been incorporated in the Manual. Deficiencies if any noted

during test-check of records shall be pointed out for necessary action.(ii) The implementation of the Government of India's policy of reservation for

different castes and classes shall be seen particularly as also the provision ofemployment to the members of ousteest families as per the approvedpackage of Rehabilitation within the overall approved Manpower Budget.

.(iii) The test-check of different records is shall be carried out with reference to therules and procedures and the provisions of the Personnel Manual with regardto the personal records of the employees and Officers. It shall be seen thatrules and orders are generally applied uniformly in all cases. Relaxations aremade with the sanction of the competent authorities in a way that they aremade only in exceptional cases and not generally.

(iv) It shall be seen that the provision of various Acts like Industrial Disputes Act,Minimum Wages Act. Workmen's Compensation Act, Employees ProvidentFund and Misc Provisions Act, Factories Act, etc as applicable have not beenviolated by the Corporation.

(v) The particular areas 10 be covered in personal records shall be as under:(a) Pay fixation cases shall be checked cent percent, on first appointment

on revision of pay-scales and any general enhancement granted as aresult of Gov. of India's Policy or on account of wage-settlementbetween the Management and the Staff. It is to be checked withreference to general guidelines and rules and orders issued from time

to time. It is to be ensured that Finance and Accounts Department isinvariably associated not only in framing guidelines but in fixation of


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pay also. Special attention is required to be paid to cases of fixation ofpay of Officers and staff coming from Central Dearness Allowancepattern to Industrial D.A. pattern, as the P&A Manual is silent about theformula to be adopted in this behalf. All cases of irregular and incorrectfixation of pay. with the extent of excess payment involved upto the

date of Internal Audit, shall be brought out.(b) The P & A Manual is silent about the duties and responsibilities of the

Controlling Officers with regard to regulation of Traveling Allowance,and Daily Allowance, Conveyance payment, Medical Reimbursement,and grant of different kinds of leave, Advances for House Building,Conveyance, Medical Treatment etc. It shall seen, in the absence oforders and instructions issued how far the Controlling Officers areregulating these allowances and payments on a uniform basis and asper rules and orders. All cases of laxity of rules and resulting inirregular payments shall be pointed out with emphasis on thecompetent authority for framing rules and procedure and issuing

instructions in this behalf for uniform regulation of the claims &Advances by all the Departments and Units of the Corporation.

(c) Release of pay and Allowance to the Officers and members of staffbased on actual attendance availing of leave of different kinds, andentitlement of Subsistence Allowance during period of suspension etc.shall be checked to see that there area adequate safe guards toregulate the pay and allowances based on receipt of AbsenteeStatement or change Statement (containing events on account ofleave, suspension dismissal, resignation etc.) regulating leave salaryon full, half or without pay in the month in which it is granted or themonth following the month of event in case it takes place late in themonth.

(d) For the grant of Motor Car/Motor Cycle or other Conveyance Advancesand House Bldg. Advance proper procedure is followed and all termsand conditions are satisfied before the payment of the advance isreleased. Recoveries of Advances are to be regulated properly. In caseof Officers and members of staff resigning their jobs, or leaving serviceon retirement or otherwise, it shall be ensured that full recovery of theoutstanding Advances together with Interest due upto date was madeeither from the Officers or employee concerned, or from the sureties,without any delay or relaxation.

(e) General checks shall also be applied on cases of grant of Encashmentof leave, LTC and its encashment, re-imbursement of ConveyanceExpenditure and similar other benefits with reference to the rules andorders on the subject and the delegation of powers exercised bydifferent authorities.

(f) The Corporation has framed its Recruitment Policy. It shall be seen byInternal Audit that recruitment of employees is being done according tosuch Policy. Manpower budget approved by the Competent AuthorityEligibility criteria for each post has to be followed. Source ofrecruitment would be checked to be as defined in the RecruitmentPolicy. Any relaxation should be approved by the Competent Authority.

Any deviation noticed would be pointed out by the Internal Audit in itsReport.


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(g) Implementation of promotion policy cases of employees who wereoverlooked shall be reviewed to see that proper appraisal procedure isin operation and that it is duly followed; proper procedure was followedand order of the competent authority were obtained before the penalaction was made operative.

(h) TA payments to candidates called for interview would be test checkedfor reporting violation if any.

(I) Other cases relating to services of employees like probation,regularization, training, medical examination, etc. would be testchecked and discrepancies reported. Cases of extension of probationwould be checked to have been made with the approval of theCompetent Authority.

7.2 ADMINISTRATION DEPARTMENT

(a) General

The control of Administration Department extends over a vast field of commonservices like running and maintenance of general services and upkeep ofOffices, Guest Houses, Hostels, allotment of residential accommodation,conveyance and transport, maintenance of Office Equipment etc. It appearsthat so far Administration Manual of Office Procedure governing theseservices has not been issued. The Internal Audit Inspection of theAdministration Department shall, therefore, be carried out on the basis ofrules and orders issued, if any. If no such rules or orders exist for anyparticular service or class of services, only generally accepted guidelines willbe applied to check that the services are generally run efficiently andeconomically and that there have been no cases of serious irregularitiesresulting in avoidable expenditure or loss. The checks to be exercised on therecords would include the following:(i) For purchase of items of Assets, non-consumable and consumable

stores, stationery articles, etc. handled. by the AdministrationDepartment directly all checks to be applied to the procurement ofmaterial by the Materials Management Department shall be applied tothe purchases by the Administration Department. It shall be seen thatproper .stock ledgers are being kept for receipts and issues ofstationery and other Assets and that the issues are being made as per

norms.(ii) It shall be seen that approved scales for the supply of. items in theOffice chambers and at Residences (where applicable} for the topmanagement,. middle level and other Officers are adhered to. Thecontracts for running and maintenance of items like PersonalComputers, Photostat machines, Air-conditioners and other office andgeneral equipment and furniture and fixtures shall be generallyreviewed from economy and efficiency points of view and deficienciesand irregularities, if any noticed pointed out.

It shall also be seen that scale of entitlement for the items of stationery,

computer peripherals and items of common use have been laid down


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and that they are adhered to in all cases except in cases. of specialrelaxation.

(iii) Lease agreements of the rented office premises and residentialaccommodation for different categories of top and other officers shallbe generally reviewed to see that they are executed on approved

formats signed by competent authority and the payments are releasedstrictly as per terms and conditions. Renewals and extensions of loasedeeds are made within the terms and conditions approved by thecompetent authority. Payments for running and maintenance ofcommon services, if any, are to be regulated with reference to theterms of Lease Agreements.

(iv) It shall be seen that hiring of accommodation is at economical andcompetitive rates, proper procedure of inviting bids, etc. was followedand the scale of rent is generally within the annual ratable value ofsuch premises. by the Municipal or Local Bodies of the area. For therenting of accommodation for guest houses, their location, convenience

of approach from the office, facilities for parking vehicles etc shall alsobe kept in view. The terms and conditions are properly scrutinized andapproved by competent authority and the rent and other charges(Municipal Taxes. Electric, Water and general Maintenance Charges)are as applicable in other buildings in the area and commensurate withthe provision of services. The additions and alterations are carried outat economical and approved rates.

(v) Provision of Office Equipment, Personal Computers, Air conditioners,Telephones, fittings, furnishings and newspapers and periodicals areas per approved norms, both in the office premises and at residences.

The upkeep and maintenance of these Equipment and services iseconomical and as per terms and conditions of maintenance contractsentered into. It shall also be seen that proper records/ registers arekept.

(vi) Proper and uptodate record is being maintained in respect ofresidential accommodation. Guest Houses, Field Hostels and TransitCamps owned by the Corporation under the charge of AdministrationDepartment for allotment, upkeep and maintenance. Proper Inventoryis maintained for the fittings and fixtures, Equipment (Office andKitchen) and crockery and cutlery, furniture and linen, etc. Proper rulesare framed for allotment of residences for different levels of Officers

and employees the Standard Rent (license Fees) or Room rent forHostels, Guest Houses recoverable are fixed as per rules, (includingrevision at periodical intervals) and relevant records are maintained forrecovery of rent from officials & parties. That rules have been framedfor entertainment of official guests, recovery of Room rent from officialsand non-officials, handling cash and remittance of the. same to the

Cash and Banking Section of the F & A. Department and they areproperly applied. Any lapse irregularity noticed during Inspection, be itin the framing and laying down of rules and procedure, maintenance ofrecords or handling of these services and official property and cash, or

in their application, the same shall be brought out in the InspectionNotes for immediate action at appropriate level.


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(vii) Dispatch arrangement would be checked for its speed and efficiency.

Franking .machine readings would be test checked to see that there isno scope for use of the same for private purposes. Imprest. cash,stamps and franking-machine balance would be checked on the day of

audit.(b) Running of Transportation Services:

.The provision of staff cars, jeeps and other modes of transport handled bythe Administration Department shall be governed by the rules and procedureapproved by the competent authority and regulated accordingly. Whenever the useof vehicles is allowed to officials not normally Entitled to, orders of competentauthority shall invariably be obtained, logging of the journeys recorded and gotauthenticated by the authorized Officers taking full responsibility for the journeysundertaken.

In all cases Log Books in the approved form shall be maintained and allcolumns filled in properly, avoiding the general pattern of showing all journeys as

"official" without mentioning the purpose in brief. As far as possible, details of theplaces visited shall be mentioned. The Log Books are to be signed by the authorizedOfficers, closed regularly, average running per liter worked out, wide variations in therunning per litre investigated and data regarding conservation of energy (POLconsumption) properly worked out. All cases of miss-use, non-maintenance of LogBooks on proper lines. defective and non-working of Milo-meters and cases of heavyrepairs and maintenance and continued running of vehicles declared BeyondEconomical Running shall be pointed out for suitable action. Private use of thevehicle would be seen to have been made with the approval of the CompetentAuthority and recoveries thereof would be checked. It shall be seen that road taxesare being paid in time and the insurance of the vehicles kept valid all the time.

In respect of hiring of Taxis, it shall be seen that the hiring is done under properorders. at economical rates and proper administrative control is exercised over theiruse, payment of hire charges, and recoveries, if any to be made.

(c) Da

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Cir 6565 Internghdfgal Audit

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