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.