The two-tier audit

Audit procedures are applied practically through two-tier system of Central Audit and the Local Audit

mohammadjalaluddin2012@gmail.com

While the word ‘accounts’ is very familiar, same is not the case with ‘audit’ & its department which is headquartered at New Delhi under the name & style of Comptroller & Auditor General (CAG) of India.

The CAG is equivalent to Chairperson Union Public Service Commission and Chief Election Commissioner of India placed at 9A position in the 26 positions of the Warrant of Precedence of Government of India below Judges of the Hon’ble Supreme Court.

Audit has become a must for its wide spectrum public utility. It is neither textual nor verbal criticism but complementary and supplementary reporting for better governance. It commences when and where the accounts stop or end. It has its broad objectives and aims succinctly mentioned as follows.

a. Audit Objectives. Its objectives are to provide an impartial, unbiased and objective assessment of, (i) the reliability and fair presentation of the financial position and financial activities of the government, and (ii) the achievement of economy, efficiency and effectiveness (three Es or the value for money) in the implementation of the mandated activities of the government.

b. Audit Aims. It aims at, (i) safeguard the financial interests of the tax payers,(ii) assist the government to exercise financial control over the executive, and (iii) see that authorities set up by or under constitution act in full regard to all financial matters in accordance with laws made, rules framed, orders passed & issued by constitution and appropriate legislatures, (iv) see that intended benefits of the expenditure have accrued to the targeted people and or the place.

c. Audit Procedures. To achieve audit objectives and aims there are three commonly used audit procedures which are applicable to all types of audit. They are, (i) Compliance Testing, (ii) Direct Substantive Testing, and (iii) Analytical Review.

c(i). Compliance testing evaluates internal controls of an auditee entity. It does not look for monetary omissions & errors but tries to locate deviations, if any, from control procedures for the purpose of tracing the effectiveness of internal control mechanism. It stresses on internal checks and balances.

c(ii).Direct substantive testing involves those tests of transactions and account balances that demand evidence for the completeness, accuracy and validity of information in the accounting or financial statement. It seeks to examine samples of transactions or account balances. It is a form of inductive reasoning where genuineness of the aggregate results is concluded from the evidence & degree of reliability of the individual transactions that have been tested.

c(iii). Analytical Review is concerned with analysis of significant ratios and trends including the fluctuations that are inconsistent with other relevant data. Auditor develops an expectation of an account balance or financial relationship. To simplify it means what position should be there vis-à-vis other accounts and information available. Here the differences between the expected accounts and the reported accounts are identified, investigated and the reasons thereof evaluated for such difference.

d. Two-tier system. These audit procedures are applied practically through two-tier system of Central Audit and the Local Audit.

d(i).Central Audit. It is done within the Audit Office that audits the accounts and vouchers submitted by state government offices to the office of the Accountant General (A&E)monthly. Its primary objectives are to check whether:-(i) sanctions have been accorded by the relevant competent authority, (ii)rules and order issued by government itself are intra-vires, (iii) monthly accounts and related schedules have been received from the public works and the forest divisions, (iv)vouchers are in the prescribed form and prepared according to extant rules,(v)the bills, vouchers and accounts are arithmetically correct and conform to rules and regulations, and(vi) contract agreements are definite, precise and based on standard practices.

Source documents. The documents to be checked in central audit are:- contingent vouchers, certificate of payments, list of payments, sanction to expenditure, proforma invoices, establishment bills, bills relating to entitlements of government servants, contract agreements, advances, schedules, schedule dockets etc. Central audit sections check a prescribed percentage of all categories of vouchers. They are responsible for maintenance of Objection Book registers head-wise /office wise and selection of potential material for inclusion in the Annual Audit Report of CAG. Audit notes on monthly accounts are issued by the central audit sections and the amounts held under objection thereto are pursued with the offices concerned for their settlement thereby clearing the OBs. The central audit of vouchers pertaining to a particular month is conducted as soon as the monthly accounts are closed and the posting of vouchers in the registers prescribed is completed in the office of AG (A&E). Any departure is permissible only in special circumstances and with the express sanction of the AG (Audit). Central audit may be supplemented by local audit to such an extent as may be prescribed by the CAG. In cases where accounting functions have been departmentalized, the audit is conducted only locally.

D(ii)Local Audit. It is conducted under an approved audit plan depending upon audit manpower resources and the number of offices which fall due for audit. The offices are classified as annual, bi-ennial, tri-ennial or quadr-ennial units in consideration of their volume of expenditure/revenue, nature, un-audited period, barring exceptions where audit may be preponed. Audit inspection reports are prepared on the basis of findings of audit on spot and issued to the auditee office. The compliance of observations and objections raised therein is watched for final settlement in the audit office. Both the audits serve their purpose at their own stations. Whereas local audit is after an interval of one year, central audit is on monthly basis keeping both the audit office and the auditee office abreast of the state of accounts and the financial position. The jurisdiction of audit was extended to Jammu & Kashmir in 1958 during the regime of Bakshi Ghulam Mohammad who ruled as Prime Minister of J & K from 1953 to 1964.

The CAG office has a long and remarkable history by way of its origin, evolution, various amendments, changes in nomenclature, relieving it of accounts functions in 1976 after the enactment of CAG’s (Duties, Powers and Conditions of Service) Act 1971 that came into force on 15.12.1971 and restructuring it into two separate Accounts and Audit Offices with effect from 1.3.1984. It was originally established as office of the Accountant General to Government of India in 1858 the year when the British took over the administrative control of India from the East India Company. Edward Drummond was appointed as first Auditor General in 1860. After some restructuring it was designated as Auditor and Accountant General. During 1866 it was renamed as Comptroller General of Accounts and in 1884 re-designated as Comptroller & Auditor General of India with V. Narahari Rao as first CAG of independent India in 1948. Under the Government of India Act 1919, it was given statutory recognition. Its outreach to examine records of country-wide offices and international fora like FAO, WHO, WTO, UNO etc., to report on their financial position/matters speaks of its scope, credibility and importance - in a nutshell.

Mohammad Jalal-ud-Din is a former Sr. Audit Officer and Consultant in the A.G’s Office Srinagar.

Disclaimer: The views and opinions expressed in this article are the personal opinions of the author. The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.

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