What is Audit? What is Internal Audit? Its objectives Different types of Audit, Advantage of DAD Audit Agencies of Audit in DAD : IA cell, LAO/RAOs etc. Annual Audit Certificate MFAI/IAR Reports (sample cases) Reorientation Initiatives of DAD Super Review by IDAS Interface with Test -Audit
o Audit is screening of a transaction with certain norms as per the job
requirement. It is part of an analytical study of a given transaction.
The process of Audit affects every walk of life. The function of audit is
not merely to see that the authority for expenditure exists, but also on
legitimate occasions to investigate the necessity for it.
o Audit is done for both receipt and expenditure. Audit can be of many
types:
o Domestic expenditure - foreseen/unforeseen
o Pre-Audit (before the transaction) - or Post Audit (after the
transaction)
Internal Audit is an independent and objective organisational
function that adds value to and improves the overall
effectiveness and efficiency of an organization.
Internal Audit is essentially an aid to Management.
The objective of Internal Audit should be ‘How things could be
done better rather than finding faults.’
Internal Audit should be viewed as an activity with value
addition component.
An effective managerial tool for continuous appraisal of all
activities (financial and non-financial) to identify areas of
weakness in systems and control.
Internal Audit has been recognized because of its dual
capacity 1. Pre-auditing of transaction and accounting of
payments made by CDA Office as paying authority and 2.
Auditing of accounts maintained by units/formations by the
LAOs/RAOs.
The basic objective of Internal Audit is to give reasonable assurance
to the Management about adequacy of Internal control systems.
Flexibility to adjust to the environment to get best outcomes. The
focus has shifted from Transaction Audit to System Audit.
Focus is on high priority areas based on risk assessment.
Scarce Audit Resource should be deployed on High Risk areas based
on Materiality, Consequences, Complexity and Sensitiveness.
Collaborative and not critical approach
Internal Audit can be divided into: - Audit of Sanctions Audit of Receipts Audit of Expenditures
All sanctions issued by authorities lower than the Govt. of India
are susceptible to audit by Internal Audit i.e. Def. Accts. Deptt.
Internal Audit ensures that sanction accorded by the
Competent authority is in accordance with the delegated
financial powers laid down in the rule.
In case of Govt. orders, internal audit will play its role to ensure
that the order is followed up.
Ink signed copy of the sanction will be verified during audit.
Receipts are properly and correctly compiled under various heads
of Accounts and finally credited to Govt. through treasury
receipts.
Recoveries on account of various funds and advances are
supported with proper schedules etc. so that no difficulties are
experienced at the time of final settlement of funds dues to the
retiring employees or next of kin in case of deaths.
Correct recoveries and accounting are very important from the
view point of budgeting as they gives proper guidelines for each
requirements’ estimate.
Recoveries of fund account helps Union Govt. in providing
proper allotment for various projects.
In case of receipt of stores, it is the primary duty of Internal Audit
to see that the stores are correctly received for which the
payments have been made.
Store vouchers are received by LAOs/ RAOs from their
counterparts for linking (verification of credit in consignee’s
account).
Non-verification of credits is a very serious objection and these
items are reported through AAC to the Parliament.
The audit of all expenditure debitable to Defence Services
Estimates is conducted by the CsDA either centrally in their
own offices or locally through the agency of the LAOs.
The standards of Financial propriety enunciated in para 39
of Defence Audit Code are the basic rules on which all audit
is conducted as regards propriety of expenditure.
Canons of financial propriety :
Every officer is expected to exercise the same vigilance in respect of
expenditure incurred from public money as a person of ordinary
prudence would exercise in respect of expenditure of his own money.
The expenditure should not be prima facie more than the occasion
demands.
No authority should exercise its powers of sanctioning expenditure to
pass an order which will be directly or indirectly to its own advantage.
Expenditure from public moneys should not be incurred for the benefit of a particular person or a section of the people, unless – (a) a claim for the amount could be enforced in a
Court of Law, or (b) the expenditure is in pursuance of a recognised policy
or custom.
The amount of allowances granted to meet expenditure of a particular type should be so regulated that the allowances are not on the whole a source of profit to the recipients.
The responsibility and accountability of every authority delegated with
financial powers to procure any item or service on Government account
is total and indivisible. Government expects that the authority
concerned will have the public interest uppermost in its mind while
making a procurement decision. This responsibility is not discharged
merely by the selection of the cheapest offer but must conform to the
following yardsticks of financial propriety:
(1) Whether the offers have been invited in accordance with governing
rules and after following a fair and reasonable procedure in the
prevailing circumstances.
(2) Whether the authority is satisfied that the selected offer will
adequately meet the requirement for which it is being procured.
(3) Whether the price on offer is reasonable and consistent with
the quality required.
Above all, whether the offer being accepted is the most
appropriate one taking all relevant factors into account and in
keeping with the standards of financial propriety.
Wherever called for, the concerned authority must place on
record in precise terms, the considerations which weighed with it
while taking the procurement decision.
Audit of Store Accounts is a very important part of Audit
procedure. There are two important aspects of Store Audit: -
a) It is to be ensured that the stores have been correctly
procured as per the supply orders i.e. stores have been
received for the amounts paid for the procurement, and
b) More important part is to see that the stores are
consumed/incorporated in the works for which they have
been procured.
Adequacy of internal controls;
Quality of performance in carrying out assigned responsibilities;
Reliability and integrity of financial and operating information;
Compliance with policies, plans, procedures, laws and regulations;
Verification and safeguard of assets;
Economy and efficiency in use of resources and
Effectiveness of operations and programmes.
Interface with various audit agencies to ensure internal audit of
sanctions/expenditure and local audit of stores
accounts/inspection of cash accounts etc. are carried out
effectively and results thereof are reported and followed up
Receipt, examination and circulation of Govt. letters
Examination of important Internal Audit points emerging from
audit of sanctions/points received from LAOs/RAOs/M.O.
Tendering Financial Advice to the Local Administrative authorities
and rendition of Quarterly Report to HQ.
Disposal of special reports and o/s objections of units
and formations moving out of command or disbanded.
Monitoring of LTAR’s
To monitor follow-up action on Test Audit Objections.
Consolidation and editing of the quarterly report on the
Major Financial& Accounting Irregularities.
Consolidation and rendition of the Annual Audit
Certificate to the CGDA.
Audit/higher audit of Loss Statements and preparation of
statement of Losses for inclusion in the Appropriation
Accounts- Para 547 Audit Code.
Approval of Half Yearly Local Audit Programmes &
scrutiny of completion certificates.
Action on Consolidated annual accounts of Cantt. Boards.
Compilation and submission of half yearly Internal Audit
Reports to HQ Office.
Internal check by DAD
It is the duty and responsibility of the DAD to conduct locally
the internal check of the accounts i.e. ledgers, returns, stock
and due sheet and other records connected with the receipt &
issue of stores, required to be maintained by the various Army
supply and store depots including units/formations as
prescribed in the various books of regulations and other Govt.
Orders issued from time to time. This internal check is distinct
from the statutory audit conducted by Director of Audit, Defence
Services. (Para 1 ALAM Pt I Vol I).
Amongst other duties PCDA/CDA is also responsible for local audit
of the stores and MES Accounts of units and formations under
their audit jurisdiction. This responsibility is discharged locally
through LAOs/RAOs. As such a constant link is maintained with
LAOs/RAOs over his function through various sections of Main
office of PCDA/ CDA.
It is organized under two categories, viz:
Audit/Review by the Local Audit staff /Officers (Para 2 ALAM Pt I
Vol I)
Review of local audit by IDAS officers (Appendix II to OM Part I)
Scope of Audit:
Verification of ‘casting’, ‘closing book balance’ and ‘opening
book balance’
Linking on the receipt side of the transfers inward and of
purchases and on the issue side of transfers out words
Audit of final receipts and final issues
Extent of Audit:
The extent to which local audit of store account would be done
by the LAOs as laid down in ALAM Part I
List of accounts and registers to be audited:
To ensure that no accounts are omitted in audit, a list of
all accounts and registers required to be maintained by
each unit is maintained by LAO and sent to the
PCDA/CDA for approval. Any addition and alteration are
carried out under the orders of the PCDA/CDA (Para 11
ALAM Pt I Vol I)
Store Account audit
Carry out periodical cash inspection of Public Fund A/c, Imprest A/c,
maintained by army units and formations
Rendition of AAC, MFAI,IAR, Appropriation Accounts (DS) relating to
losses of stores and cash
Scale Audit :
LAO has to ensure that the quantity of stores/ equipment held by
the unit/ formations does not exceed the prescribed limit
Rendering financial advice to the units/formations and render a
report every quarter for inclusion in the financial advice report
rendered by Main Office. (Para 15 ALAM Pt I Vol I)
Audit of MES store accounts
Various rules/regulations/points observed during the audit of
store accounts in respect of any units/formations equally
apply to the MES store accounts also. In addition to them,
some more points are to be seen during the audit of the
stores held by MES units/formations which are prescribed in
the following books:
a) MES Local Audit Manual and
b) Unit Accountant's Manual
Functions of Regional Audit Officer (MES)
Advises GE(MES) on all matters of finance dealing with
MES works including revenue
Audit the accounts where CDA’s office cannot audit
completely
Ensures primary accounts/documents are maintained
in correct formats and accuracy is maintained.
Inspection of Public Fund accounts
Local audit of MES formations
Rendering of financial advice
Settlement of audit objection by using waiver
power as delegated/vested with him
Discuss with MES executives, the outstanding Test
Audit Objections/Draft paras for early settlement.
The Annual Audit Certificate is rendered to HQ Office
every financial year.
It consists of 4 Annexures & 13 statements with sub-
parts.
It is a consolidation of reports received from
LAOs/RAOs/AOs/Audit Sections in M.O.
Demands/cases O/s as on 31st March and its position as
on 30th June is furnished through this report to HQrs
office by 31st July.
Further progress of the AAC report is rendered in 3
quarterly follow up reports on 30th Sept,31st Dec and
31st March.
Only clearance can be reflected in the quarterly
reports (i.e present position of the items shown in the
original AAC only can be shown). New/Fresh
items/cases can be included only in the original AAC.
IA Sn deals with consolidation and editing of
quarterly MFAI report based on the reports rendered
by LAOs /RAOs as well as audit sections of MO.
MFAI report deals with matters relating to units and
formations in various arms and services which are
worth bringing to the notice of HQrs commands or
administrative authorities.
A: Types of Irregularities
Cases of irregular maintenance or non-maintenance of accounts
having serious implications.
Cases of monetary value of financial irregularity or loss involved is
Rs. 5 lac and above.
Serious irregularities which cannot be translated into financial
terms but in personal opinion of PCDA worth to bring to the notice
of Army Commanders/Higher executives
B: Special attention
Utilisation of plant and machinery, the purpose for which
purchased or installed.
Slow moving and non-moving stores items
Deterioration in condition due to long/ inadequate storage.
Defective planning and implementation of projects of
significant investments-highlighting major deviations from
original time and cost targets.
Report to be rendered for QE June, Sept, Dec & March by 20th of the
following month to our HQrs Office by PCDA for the Command as a whole.
Sub-offices to submit reports by 5th of the month following the QE
regarding progress of old items and new items as when deleted.
It is in two parts-
Part –I : fresh inclusion
Part – II: Old o/s items
Both parts consist Section A for cash irregularities & Section B – store
irregularities.
Narration of report should be concise, to the point,
highlighting specific irregularity, its seriousness and amount
involved, precise point at which it revealed and reference to
the exact rules and orders etc.
Care should be taken that narration normally does not exceed
two pages
It is to be mentioned:-
i) whether case detected during percentage audit or process
of selected items or is a case of erroneous certification by
executives.
ii) Precise point at which and the extent to which failure on
the part of executives is revealed .
Refer note under para 669 of OM Pt.II vol-I
Items included in MFAI reports which are subsequently
included in CGDAs certification to printed Appropriation
Accounts will be formally taken out of MFAI report but to be
pursued to finality. Other items should continue to be
exhibited till the cases are finally settled.
Interface between internal and statutory audit will help in
achieving best results as well as avoid duplication of efforts.
This can be achieved through periodic meetings between the two
agencies to discuss audit Programmes and areas of audit.
Training Programmes and exchange of man power on deputation
basis
To monitor follow-up action on Test Audit Objections.
The Internal Audit Section should also maintain a record of the
action taken on LTARs, Draft Paras and Audit paras and render
progress reports to the HQrs office on monthly/quarterly basis.
All facilities possible will be given to the Test Audit Staff
All Reports/Objections issued will be dealt with fully and
expeditiously
In the event of difference of opinion by the Test Audit authorities
and the PCDA in regard to objections raised by the former, the
PCDA should take action to give effect to the objections and
should report the matter for the orders of the CGDA , alongwith
forwarding copies of the Test Audit Objections and copies of all
subsequent correspondence connected therewith.
Where a difference of opinion exists in regard to a matter of audit or office procedure, it will rest with the DADS to report the case to the DGADS, if necessary.
TAOs should be analysed /divided into the following broad categories, with a view to dispose them off speedily at appropriate level:(i) Items are merely queries.(ii)Items relates to production of certain documents
(iii) Expressions of opinion on basic principles
(iv) Expressions of opinion on the propriety of administrative or
Accounting Authorities.
Replies to items (i) & (ii) should not normally take more than 7
days and should go over the signature of the Officer-in-charge of
the Section.
Items under (iii) and (iv) should be examined by the PCDA/JCDA
and the settlement of such objections progressed under their
direct supervision. These items should be reported to the
Command HQ also.
The DADS will indicate in LTARs the
serious/important objections which deserve to
be reported to Command HQ. In case, where
the PCDA does not agree with this, the issue
will be mutually discussed before a final
decision is taken whether to extract the LTAR
to the Command HQ or not.
PCDA should have periodical meetings with the
Command Officers of the Test Audit Dept with a
view to analyse the outstanding statutory audit
objections and ensure their early settlement.
A record of all cases reviewed /discussed with the
local Test Audit authorities should be kept to
review the cases at higher level, if necessary.
Where the office of the particular DDA/ADA/AO DS is not situated
at the same station as the HQ of the PCDA, a monthly list of such
objections will be forwarded by the Test Audit office to the
Command Offices situated at the HQ of the PCDA to enable him to
settle the same by personal discussion with the PCDA.
Only in rare cases, it will be necessary for LAOs to discuss cases
with the originating Command Officer of the Test Audit
Department.